Invest where there has been blood in the streets...

Invest where there has been blood in the streets... A city you've never considered visiting... A huge economic boom is coming... Decoration Day...

Editor's note: In recognition of the Memorial Day holiday, the Stansberry Research offices will be closed Monday and we will not publish the Digest. We will resume our regular publishing schedule on Tuesday, May 26.

In today's Friday Digest, I (Porter) want to do something I haven't done in a very long time... tell you about an opportunity outside the United States. You have some good reasons to consider spending part of your capital (and part of your life) in a second country. But first, let me begin by warning...

Most of you reading this Digest will find what follows to be "out there"... far outside your comfort zone. That's OK. You don't ever need to invest a penny outside the U.S. to become a successful investor. But... as I always do in these Friday Digests... I feel an obligation to tell you what I would want to know if our roles were reversed.

Something important is happening right now in one of the world's major economies... an economy that has not correlated to the U.S. or Europe... a place that has been left for dead for nearly 50 years. So try to keep an open mind and think about what I'm saying below. I'm certain it's worth your time. There's a huge amount of money to be made over the next 10 years...

To make a "Colombian necktie" – a corte de corbata – an assassin would use a very sharp knife to cut a large hole under the victim's chin, just under his jaw line. Then the victim's tongue would be pulled through the hole, leaving it hanging in front of his torso, like a necktie. And that wasn't the worst thing done to people during Colombia's long, vicious civil war.

The corte de florero – "the flower vase cut" – was far more gruesome. Here, the victim was beheaded and dismembered, with his appendages then stuck down his neck, turning the victim's headless torso into a bloody vase of body parts.

Ask almost any American about Colombia and the first answer you'll get is Pablo Escobar, the drug lord who was assassinated in Medellín by U.S. Drug Enforcement Administration agents in 1993. Most Americans have no idea that the drug wars fought around Medellín between 1980 and 2002 were merely an outgrowth of a violent civil war that began in 1948.

The war started when progressive presidential candidate Jorge Gaitán was murdered. Gaitán was far more "left" than the established liberal politicians in Colombia. He was murdered on his way to a meeting with Fidel Castro. A violent mob immediately killed his assassin, so it's not clear even now whether Colombia's conservatives had him murdered – like populist Louisiana Gov. Huey Long was murdered in the U.S. – or whether liberals had him murdered because he threatened their power, too.

Imagine if President Obama had been murdered during his first presidential campaign. Imagine if most Americans believed the Bush family was secretly responsible. That's what happened in Colombia. The results were horrific...

In the months that followed, hundreds of people were murdered all across the country – including inside the country's House of Representatives. A conservative representative shot and killed a liberal member on the floor of the chamber! In response to the violence, the liberals boycotted the next presidential election, leading to a completely divided country. The U.S. first got involved in 1952 when Colombia's president requested help to quell the violence.

To give you an idea of how politically unstable Colombia has been for decades, just consider that Medellín (the second-largest city in Colombia, and its economic center) had 48 different mayors in 40 years between 1948 and 1988. Drug trafficking gave enormous economic power to the violent extremists on both sides of this civil war, causing the scope of the violence to completely explode.

Pablo Escobar became the most notorious warlord and was probably the most violent. He murdered anyone in Colombia who opposed him, including senior members of the government. The country disintegrated. In 1991, at the peak of the civil war, the country finally adopted a new constitution designed to provide more power for the central government and more stability for the country. Even so, it took a long time for the violence to subside. In the 15 years before 1991, 45,000 people were killed in Medellín alone – making it the most dangerous city in the world. But in the 15 years after 1991, another 45,000 people would be killed, too.

While some guerilla groups were disarmed in 1990, the war didn't really come to an end until the mid-2000s. A new president, Álvaro Uribe, was elected in 2002 with a popular mandate to bring peace to Colombia. He passed a one-time wealth tax, raised $600 million, and doubled defense spending. By August 2004, murders, terrorist attacks, and kidnappings dropped by 50%, to their lowest levels in more than 20 years.

By 2008, Uribe was able to pass the Justice and Peace Law, which represented a final end to the civil war by offering reduced prison sentences to paramilitary leaders who agreed to lay down their arms. The annual murder rate in Medellín has fallen from 380 per 100,000 residents (6,349) in 1991 down to 30 per 100,000 in 2014. (For comparison, poor Detroit suffered 43.4 murders per 100,000 last year, No. 1 in the U.S.)

A final point about the real cause of the violence that plagued Colombia for decades... Almost all of the fighting stopped about 10 years ago. Meanwhile, officials estimate that cocaine production in Colombia has increased by 60% over the last decade. Cocaine didn't cause the violence. Cocaine funded the civil war – a war that ended with President Uribe's effort to regain effective police control of Colombia.

There clearly has been substantial cooperation between government leaders and the major drug producers – cooperation that focuses on reducing violence. Two weeks ago, Colombia's president even announced that he wouldn't oppose large-scale marijuana production and the country would stop spraying herbicide over coca farms. These agreements are undoubtedly part of the ongoing efforts to prevent drug-related gang violence.

As a result of the peace, Medellín was named "City of the Year" by the Urban Land Institute, a Washington, D.C.-based nonprofit that researches real estate development around the world.

These were a few of the major factors that led me to visit Medellín last week. I'd heard from a growing number of friends that the city has become something of a hub for Internet entrepreneurs and ex-pat real estate developers from around the world.

Having spent only a few days there, I haven't worked out all of the details about what I plan to buy... but I have decided to make a few real investments. If my research pans out like I think it will, these will be very large investments.

Colombia is a major global economy. Its exports include oil and coal. It has tremendous mineral deposits. And it has a long history of representative government. And unlike virtually any other country in Latin America, Colombia has never been ruled by a dictator. It is also the only country in Latin America to never default on its sovereign debt. Meanwhile, the country was hamstrung for more than 50 years by a never-ending civil war largely financed by the global drug trade.

I'm bullish on Colombia as a country for a few good, long-term reasons. First, the war is over and there's a tremendous amount of pent-up demand for consumer goods and real estate. Instead of buying guns, Colombians are now focusing on better cars and apartments. This trend will last for decades, as the country becomes much, much wealthier thanks to peace and a free-trade agreement with the U.S.

Second, I believe the war on drugs has completely failed. Legalization of marijuana in the U.S. and Uruguay is only the first step to a new (and much smarter) approach for dealing with drugs. Arresting people for selling what other people want (and will pay for) never works. Just like price controls and cartels... the market will always route around obstacles to people's wants. All prohibition does is inspire violence and criminality. Sooner or later, Western governments will wise up. And Colombia will be a tremendous beneficiary of this trend.

Third, Medellín is simply one of the greatest cities in the world thanks to its outstanding climate and its beautiful and intelligent people. It's a must-see for global travelers. But it's currently about 75% cheaper than other, similarly high-quality global cities.

And one more thing... I've seen a few places boom over the last 20 years – Vancouver, for example. They start out cheap. But they end up very expensive. I know the same thing is about to happen in Medellín. Part of how I know is the people I ran into completely by accident...

One of them was an early employee of Microsoft. I'm certain he will return with his friends... who will bring a ton of capital with them. And I know Medellín will boom because of the things I didn't see – a Four Seasons Hotel, for example. All of those things will come, of course. But I believe you'll make a lot of money if you buy here before they do. If you want to learn more about direct investments, I'd recommend learning from the experts in ex-pat investing and "second lives" at International Living. They've been writing about Colombia recently, too.

If you don't like to travel or have the means for a direct investment in Colombia... but you do want to "play from home"... I'd recommend following the shares of Grupo Aval Acciones y Valores (AVAL). This is a large financial-services holding company with operations across the entire Colombian economy. In my opinion, it's the best-managed Colombian financial institution. It has very good operating metrics (operating margin 29%, return on equity 15%) and pays a substantial dividend (4.7%).

Thanks to the recent decline in energy prices, it's also a reasonably priced stock, trading for just two times book value and 12 times earnings. I'm sure you can earn higher returns by investing directly in the country (via real estate or an operating business), but Grupo Aval is worth watching if you're interested in a completely passive investment. As Colombia grows, it will do well.

A very old friend of mine, Aaron Brabham (whom some of you may remember as my radio show co-host) has been living in Medellín. I asked him to jot down a few notes about what living there is really like... you'll find his thoughts below.

Have a wonderful Memorial Day weekend. As a Southerner by blood and inclination, I prefer to call this weekend "Decoration Day." Whatever you call it, I hope you will spend time with and enjoy your families. I'll be at my family's mountain retreat (Twin Valley Lodge) with my wife and our two sons (Traveler, 7, and Seaton, 4). Joining us will be my wife's twin sister, her husband, and their two kids, along with our friends, the Millers, and their two children. So... it's going to be a whole lot of kids and dogs... and hopefully not too many rattlesnakes. Enjoy!

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As always, we'd love to know your thoughts about our work. Would you ever visit Medellín? Would you invest there? Let us know: feedback@stansberryreseach.com

"Buffett says someone should have shot Wilbur and Orville? I can't believe that. Airplane advancement is probably the most important economic advance of the 20th century. How else would he get his Hershey bars to Europe? That had to be a misprint." – Paid-up subscriber Mike M

Porter comment: Nope, it's not a misprint. It's a comment Buffett has made in several places. Here's a representative quote, taken from a newspaper interview:

If a capitalist had been present at Kitty Hawk back in the early 1900s, he should have shot Orville Wright. He would have saved his progeny money. But seriously, the airline business has been extraordinary. It has eaten up capital over the past century like almost no other business because people seem to keep coming back to it and putting fresh money in. You've got huge fixed costs, you've got strong labor unions and you've got commodity pricing. That is not a great recipe for success. I have an 800 (free call) number now that I call if I get the urge to buy an airline stock. I call at two in the morning and I say: 'My name is Warren and I'm an aeroholic.' And then they talk me down. – Warren Buffett, 2002, London Telegraph

"Porter, I thought your comments on Baltimore lacked consistency. On the one hand, you thought it not a good thing that the guy whose neck was broken by the police had earlier only received a slap on the wrist for dealing heroin. But then you point out how the Prohibition era showed us prohibition doesn't work. Later you note concern about excessive leniency from our courts for crime committed.

"Are you aware however, that the U.S. ranks very high among countries of the world for percentage of the population in prison per capita? That does not suggest excessive leniency. That also is not a stat we should be proud of, and the war on drugs failed a long time ago and new approaches are needed." – Paid-up subscriber Robert P

Porter comment: Yes, I got several letters like yours, especially from my libertarian friends who castigated me harshly for "supporting" drug laws. I don't support drug laws. I don't think they work. They certainly haven't prevented millions of people from becoming addicted to cocaine or heroin, nor have they reduced supplies of the drugs enough to cause prices to rise. All the laws do, in my view, is cause profit margins to be artificially wide, which will always encourage more supply just as sure as the sun rises in the East.

I simply commented on the relevant facts. According to existing drug laws, Freddie Gray should have been in jail. He'd been arrested more than a dozen times on drug charges, including felony distribution (for heroin). It's a painfully sad irony for anyone (like me) who'd like to see the citizens of our inner cities lead dramatically better lives. Right now, these poor kids are safer in prison than they are in their own neighborhoods. That's just pathetic.

Regards,

Porter Stansberry
Baltimore, Maryland
May 22, 2015

Notes from Medellín...

By Aaron Brabham

It's 7:30 a.m. on Friday, and my alarm just went off. The sun is shining in my room, and I hear what sounds like hundreds of exotic birds chirping outside my window. The weather is the same every day – warm and mild. One of the slogans here is, "The City of the Eternal Spring."

My phone chimes with a message from one of my new friends, Dane. He's a 32-year-old former investment banker from Australia. But he has left that life to become a "Digital Nomad." He can live and work anywhere in the world now... and he has chosen Medellín. His message: "It's another day in paradise." I can attest, he's exactly right.

I grab my computer and sunglasses, ready to walk to my favorite coffee shop, Pergamino, to finish the workweek. On the way, I pause to admire the waterfall in my living room.

The house where I'm staying is named Casa del Reloj. I found it with the online house-sharing service Airbnb. It is incredibly cheap... about one-third the cost of what you would pay for a comparable place in the U.S. And it has fast Internet and daily maid service. Our local chef, Laura, is willing to prepare me three fresh, healthy meals a day... each for as little as $5.

My friends have been admiring the Facebook and Instagram photos I've been posting. When I announced to them I was moving out of the U.S. to live internationally, many were shocked (and still are)... not because I'm making the move, but where I've decided to plant my flag. Many worry about my safety. But they don't understand what life is like in this city today.

During the 1980s-1990s, Medellín was one of the most dangerous cities in the world. But that is a thing of the past. Today, ex-patriots joke to each other, "The only danger you'll experience here is that you may never leave."

I've traveled all over the world and nothing compares to this beautiful city. You can take a direct flight from Miami or Fort Lauderdale and be here in three hours. If you're American, you'll find the exchange rate to be favorable.

You won't believe how far your dollar will take you. For example, one of my favorite restaurants is Carmen in El Poblado, a neighborhood that is booming within Medellín. It's considered one of the more expensive white-tablecloth restaurants. Last night, three friends and I shared two bottles of Malbec, several flavor-intense appetizers, and entrees like filet mignon and blackened sea bass. I was daring and had half a pig head, slow roasted and basted with a blackberry wine reduction sauce... Each person ponied up a measly $25, including tip.

I can't remember a city with more friendly people. Everyone is willing to help you out no matter what you need.

I have every creature comfort my friends have back home in the U.S., but at drastically reduced prices. I'm currently looking for an apartment. The inventory is thin, but what I can afford is almost shocking compared with what I would pay in America. This seems to be a dream for a retiree or anyone with the ability to work remotely.

I'm certain my new friends won't appreciate this being published in The Stansberry Digest. They want to keep this place a secret, but it's too good not to share with Stansberry subscribers. And the word is getting out quickly, like these articles published in the New York Times here and here. It was also recently named city of the year in 2012 by the Wall Street Journal.

So if you make your way down, come to Pergamino and let's talk over a world-class cup of coffee surrounded by lush landscape and friendly people in paradise.