On the ground in Mongolia...

 In the past six months, we've brought you "boots on the ground" reports from Iran, Ukraine, Kazakhstan, Russia, and South Africa, to name a few...

 

Now, Kim Iskyan – who travels the world in search of dirt-cheap investment opportunities in his S&A Global Contrarian newsletter – is in Mongolia. He sent us this note on his way to Ulan Bator, the country's capital...

 

Why Mongolia? Just two years ago, Mongolia was the darling of the frontier market crowd. The country was just beginning to develop a massive mineral wealth asset base. And Mongolia, which had a GDP of just $7 billion in 2011, had massive growth potential. It was exploiting copper, coal, and gold, among other resources, said to be worth $2 trillion.

 

Of course, that $2 trillion comes with a lot of caveats... You have to invest to get the stuff out of the ground, transport it, and then sell it. But even if you apply a huge discount to that $2 trillion, you're still left with a large number relative to the small base from which Mongolia is growing.

 

In all the excitement, Mongolia's small stock market went through the roof and its currency appreciated sharply... That is, until a Chinese company moved to purchase the coal assets of a large Mongolian firm. That reawakened fears in Mongolia. Just a century ago, Mongolia was a Chinese province. The country's 2.8 million people aren't keen on returning to the Chinese fold.

 

 Kim believes that Mongolians fear the Chinese will use up its natural resources to feed China's growing demand...

 

Years ago, I traveled through the Russian Far East – the part of Russia to the north of China. One of the things that stuck out to me was Russians' fear of the Chinese colossus across the border. It was a few million Russians in the geographically massive and mineral-rich part of Russia versus 150 million Chinese people, who needed all sorts of natural resources to power their booming economy. And they were separated by 60 miles or so. I'm guessing that this factors heavily into the mindset of Mongolians, too.   The Mongolian government passed a law that slammed the brakes on the country's investment boom. The new regulation called for government approval of any foreign investment greater than $75 million or in many strategic sectors (including mining). So the hot money that had flowed into Mongolia flowed out just as quickly. The stock market collapsed and the currency started to slide. Mongolia didn't just shoot itself in the foot... it completely chopped off both legs.

 

 

 But things are starting to turn the corner, Kim says. And Mongolia is still growing rapidly...

 

As the dust settled, Mongolia voted in a new capitalist government, defeating the communist party. The new regime has largely reversed the offending regulations. And most of the big projects that were underway during the boom time are still active, even if they were stalled for a while.   Plus, economic growth remains strong. The country's GDP grew 17.5% in 2011 and 12% in 2012 and 2013. It looks like GDP will grow 15% this year. For comparison, China's annual GDP growth in 2013 was just 8%. Mongolia is set to be one of the fastest-growing economies in the world.   Mongolia's aggressively pro-investment and pro-business government is looking to make amends for the mistakes of its predecessor. But investor perception remains bad... People remember the boom and the bust, but for the most part don't understand that the story has changed for the better.

 

 Now, Kim thinks he has found a fantastic contrarian setup. Mongolia boasts lousy sentiment (mostly through the rearview mirror). He's hoping to spot some companies with low valuations, and he hopes to confirm that the country has some positive catalysts behind it, including its government. We'll update you on Kim's findings when he returns from Mongolia.

 

 On the topic of investing abroad, in today's DailyWealth, Steve Sjuggerud said it's time to buy one emerging market...

 

"This is absolutely the time to allocate to India, there's no question about it," Porter Stansberry said this week on his excellent radio show.   I agree with Porter... The upside potential in stocks in India is dramatic – right now. The last time we saw these setup conditions, in 2008, Indian stocks soared by over 350% in two years. And today's setup conditions are even better than they were in 2008.

 

 Steve and Porter chatted with hedge-fund manager Rahul Saraogi, who is based in Chennai, India. Today, Rahul says the opportunity is better than it was in 2008... "Valuations are at 15-year lows," he said. Plus, there's a major catalyst that could send Indian stocks soaring.

 

 Steve has also been urging his subscribers to buy European stocks... His investment thesis is similar to the reason he started buying U.S. stocks in 2010... The European Central Bank (ECB) is printing lots of money. And we have already seen how that scenario plays out.

 

In the January issue of True Wealth, Steve discussed the "Draghi Asset Bubble." He called it the sequel to the "Bernanke Asset Bubble" – price inflation resulting from quantitative easing – and noted that it was also beginning in Europe. ECB head Mario Draghi said he was committed to keeping interest rates low "for an extended period of time" and that he would "remain accommodative as long as necessary."

 

 The market knows how this plays out. Bond yields plummet and stocks rise. So let's fast-forward to today...

 

The yields on Italian and Spanish bonds now hover around record lows of 3.1%. U.S. 10-year Treasurys, by comparison, yield 2.7%. And German 10-year bonds, the eurozone's benchmark, yield 1.5%. Last week, Italy and Spain sold enough new debt to meet close to 40% of their funding targets for 2014.

 

 

As recently as 2012, during the sovereign debt crisis, yields on Italian and Spanish bonds reached 7%. Since that time, yields have come down... but debt levels in terms of total debt and debt to GDP are currently at record highs. Italy's total debt went from 1.9 trillion euros (93% of GDP) in 2011 to more than 2 trillion euros (132% of GDP) today. Spain's total debt went from 739 billion euros (61% of GDP) in 2011 to 1.1 trillion euros (119% of GDP) today.

 

 One reason why yields are so low is speculation. There's a chance the ECB will ease further and will step in to begin a large-scale program of purchasing sovereign debt in an effort to fight low levels of inflation. ECB officials believe higher rates of inflation are necessary to stimulate economic activity and to prevent the ongoing eurozone debt crisis from deepening. On April 3, Draghi said the ECB was considering unconventional (i.e. more extreme) measures to stimulate growth and prevent deflation. He said the bank's Governing Council was "unanimous" on exploring tools including purchases of debt, Europe's version of quantitative easing.

 

 As we noted in yesterday's piece on Apple, the market is hungry for yield.

 

In the April issue of Income Intelligence, Dr. David "Doc" Eifrig, shared one reason bond yields are so low...

 

Compiling comprehensive global figures isn't easy, but according to the financial-services giant Credit Suisse's Global Wealth Databook, total wealth in all the world has risen from $183 trillion in 2008 to $240 trillion in 2013, a 31% increase.   Over the same six years, total world debt only rose 22% to $90 trillion, according to the Bank for International Settlements, a Swiss organization that keeps watch over global banking conditions.   In the U.S., companies and governments issue new debt every year to raise funds. Investors use this debt to earn a return on their money. This year, the total amount of investment-grade debt issued is expected to dip from $1.54 trillion last year to $1.42 trillion. That's a $120 billion drop.   Clearly, there's a lot of money in the world invested in debt. With supply falling and wealth rising, there's more money available for institutions to buy debt with.

 

 This rush for yield is pushing bond prices up (and therefore, bond yields down) to absurd levels. In the case of European sovereign debt, where the fundamental solvency problems still remain, do record-low yields mean the risk of default and inflation are at all-time lows? Or does it mean that bond buyers aren't being adequately compensated for risk? We side with the latter.

 

 Another note on the world's thirst for yield...

 

French telecom company Numericable just had the largest junk-bond sale in history. Junk bonds are issued by companies with lower credit ratings. They offer a higher yield to compensate for the extra default risk.

 

Numericable – which provides cable and Internet in France and other European markets – sold $7.8 billion and 2.3 billion euros in bonds yielding more than 5%. At the time same, Altice, which owns Numericable, issued $2.9 billion and 2.1 billion euros in bonds yielding more than 7%. The deal bested the $6.5 billion Sprint sold last September.

 

Numericable initially planned to only sell 6 billion euros in bonds at higher yields... But clearly the appetite for high yield is still strong.

 

 One last note... Tonight is your last night to purchase discounted tickets to our natural-resource event in Dallas on May 31. Legendary oilman T. Boone Pickens is our keynote speaker. Our friend and Texas wildcatter Cactus Schroeder is also presenting. The "chairman of GM" may even make an appearance. You can learn more about the conference and get your discounted tickets by clicking here.

 

 

 New 52-week highs (as of 4/29/14): Berkshire Hathaway (BRK), Anheuser-Busch InBev (BUD), Calpine (CPN), Flinders Resources (FDR.V), SPDR Euro Stoxx 50 Fund (FEZ), Cambria Foreign Shareholder Yield Fund (FYLD), Lorillard (LO), Altria (MO), and U.S. Commodity Index Fund (USCI).

 

 At least one reader made money on Apple... Did you profit from the tech giant? Let us know... feedback@stansberryresearch.com.

 

 "I don't remember exactly who wrote so glowingly about Apple as a good investment; probably Dan, maybe Doc and Sjugg, but whoever: I bought it at just over $500 a couple of months ago now, and have been so thankful... again... for S&A's guidance." – Paid-up subscriber Jim Geiger

 

Goldsmith comment: Dan Ferris recommended Apple last June under $440 a share... Extreme Value subscribers are sitting on a 37% gain today.

 

Regards,

 

Sean Goldsmith

New York, New York

April 30, 2014

 

The least capital-efficient business in the world...

 

In today's Digest Premium, Stansberry's Investment Advisory lead analyst Bryan Beach discusses the antithesis of capital efficiency.

 

This industry is so bad, only one of the major companies in the sector has avoided bankruptcy over the last two decades... 

 

To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.

Largest Airlines in 1990
Rank	Airline	Passengers	Bankruptcy Date
1	American	65 million	2011
2	Delta	61 million	2007
3	USAir*	58 million	2002
4	United	51 million	2002
5	Northwest	34 million	2005
6	Continental^	30 million	1990
7	Southwest	22 million	-
8	Eastern#	20 million	1991
9	TWA	20 million	1992, 1995, 2001
10	American West*	15 million	2002
11	Pan American	8 million	1991
* Went bankrupt after a merger
^ This was Continental's second bankruptcy
# Technically Eastern didn't go bankrupt; it simply ceased operations

The least capital-efficient business in the world...

 

In today's Digest Premium, Stansberry's Investment Advisory lead analyst Bryan Beach discusses the antithesis of capital efficiency.

 

This industry is so bad, only one of the major companies in the sector has avoided bankruptcy over the last two decades... 

 

To continue reading, scroll down or click here.