This note was originally published at 8am on January 20, 2011. INVESTOR and RISK MANAGER SUBSCRIBERS have access to the EARLY LOOK (published by 8am every trading day) and PORTFOLIO IDEAS in real-time.
“The darkest thing about Africa has been our ignorance of it.”
Tunisia is the northernmost nation in Africa. This African outpost of some 64,000 square miles and 10.3 million people is bordered by Algeria to the west, Libya to the southeast, and the Mediterranean Sea to the north and east. While religious freedom is widely practiced in Algeria, the Tunisian Constitution declares Islam as the official state religion.
By global economic standards, Tunisia’s economy is not meaningful. The nation’s GDP is ~$43.8BN (official exchange rate), which is about 1/8th of the market cap of Apple (currently there are no Apple stores in Tunisia). The Tunisian labor force is split by occupation as follows: 18% agriculture, 32% industry, 50% services. Currently that labor force is unemployed to a tune of 14%. Coincident with this unemployment is rising inflation (CPI from 2009 to 2010 accelerated from 3.5% to 4.5%) and slowing growth (GDP from 2008 to 2010 slowed from 4.6% to 3.4%). At Hedgeye, we call this Jobless Stagflation.
In the West, endemic Jobless Stagflation is fought by the populous at the polls, as we saw in our most recent midterms in the United States. In nations like Tunisia, the populous often uses other methods: most recently it was massive rioting and protests, which began on December 17th with the self-immolation of Mohammed Bouazizi (after police confiscated his unlicensed food stand) and ended on January 14th with current President Ben Ali fleeing the country for Saudi Arabia.
It seems that the people have spoken in Tunisia. Now this could just be a Tale from Tunisia, or it could be an emerging Tail Risk from Tunisia. Only time will tell whether the so-called Jasmine Revolution becomes a key export of Tunisia, but there are many nations in the Middle East and Africa with similar characteristics - primarily Muslim, governed by a dictatorial family, slowing growth, rising inflation, high unemployment, and a young population.
The last point on age is likely a key one. In Tunisia, over half of the population is younger than 25 years of age. Across the Middle East and North Africa, we see similar demographic patterns. In demographic circles, this is called the “youth bulge”. As healthcare broadly improved in these regions in the late 1960s, birth rates went up dramatically. Currently, it is estimated that around 65% of the regional population is under the age of 30. This is not a cohort that likes to be unemployed, appreciates costs of living rising exponentially, and, as evidenced by The Jasmine Revolution, is willing to stand idle while their leaders do them harm.
Ultimately, this revolution could start and end in Tunisia, and be of no greater impact, but there is certainly potential for much more, and as risk managers “the darkest” thing we could do is show “ignorance” of these facts.
In the United States last night, we saw evidence of our most recent Democratic revolution. In winning more than 60 seats in the recent midterms, the Republicans have certainly been acting like they have a mandate (even though we view that election as a repudiation of incumbency as much as anything). Last night, as Keith noted in an email, “it began” with a vote on healthcare. The House voted 245 – 189 to pass a bill to repeal President Obama’s health care plan. Not surprisingly, the vote was unanimously supported by Republicans and the backlash from Democratic lawmakers was instant and aggressive. The most noteworthy comment was from Representative Steve Cohen (D-Tenn), who said:
“They say it’s a government takeover of health care, a big lie just like Goebbels.”
It is likely no surprise that the US dollar is trading down on this news, with comments like Cohen’s, but also more broadly, as my colleague Tom Tobin noted this morning, “talking doesn’t get the job done.” The new Republican majority in the House has aggressively gone after the Obama agenda, but in order for the dollar to respond favorably our elected representatives will have to do more than talk on the key economic issues facing the nation (namely the debt and deficit).
On a more positive note, today at 1pm EST our Energy Sector Head Lou Gagliardi will be hosting a conference call on one of our most favorite long term investment regions, the Canadian Oil Sands. His discussion is titled, “Digging Deep and Powering through the Canadian Oil Sands.” Lou and his team have put together a 60+ page presentation that highlights the key attributes of the incredibly long term asset in Canada, with a focus on some of his best ideas in the region. If you are looking for cheap ways to play energy and are a qualified institutional prospect, please email us at email@example.com to join the call today.
Yours in risk management,
Daryl G. Jones