Emerging-markets guru Mark Mobius thinks India will do better than the other countries known as "BRICs," Brazil, Russia, and China. Mobius manages $34 billion of emerging-markets assets for Templeton Asset Management. His largest commitments are in Brazil, India, and China.
In comments posted on Templeton's website, Mobius points out, "Most Indian companies have healthy balance sheets and strong cash flows. The Indian stock market was a good performer in 2009 and we expect it to continue to outpace other emerging markets next year."
The view on the ground in India tells me Mobius could be right. The culture here is as entrepreneurial as any on Earth, and much more than most. The country has a history of trading and commerce that goes back thousands of years. It has a tradition of land ownership – with zero debt – that goes back millennia, too. Can you imagine what the last few years would have been like if the United States had a culture based on the notion of owning land with 100% equity?
I realize unleveraged land ownership isn't a magic bullet, but when I asked around about India's banks, the answer was simple: "They're just fine." Of course they're fine. They don't lend money to people to buy land.
There's as much hustle and bustle here as any place in the world. Today, I left Chennai and flew 40 minutes to Coimbatore, then drove two hours over newly paved roads to Erode to visit a pulp and paper plant. The streets of Chennai were mobbed. The streets of Coimbatore – a "small town" of 2 million – were mobbed. The streets of Erode were mobbed. The streets of the gold district were mobbed on Sunday morning when we went there. There ain't no recession here.
The flight to Coimbatore cost $40. The flight back to Chennai cost $70 and featured a full, fresh, hot South Indian meal with soup, a main course, and dessert, which was delicious. Everywhere you go in this country, the service is prompt and friendly, and the airlines we flew today – SpiceJet and Paramount – were no different. The cell phone reception is better than anywhere in the States, and you can make international calls for a few cents a minute (Sprint, on the other hand, wants $2.49 a minute).
Another thing I've noticed here in India... the rules for certain notoriously unprofitable businesses seem to be different. Both the airlines we flew today are profitable. There are six business newspapers in this country. All of them are profitable. Businesses like sugar refining and paper making are generating 25%-30% or higher returns on capital. That tends only to happen in a rapidly growing economy. India's GDP has been growing 7%-9% a year the last four years. I think it can probably do that for several years to come.
Jim Rogers knocks India, saying it's too bureaucratic... But I've asked my hosts how long it would take to set up a vehicle to purchase land for, say, a hotel or apartment development. The answer shocked me: 30 days. So the fact that foreigners can't open an Indian brokerage account doesn't mean they can't put money to work here.
In his latest investment outlook, Pimco's Bill Gross presented an interesting thesis regarding the deterioration of sovereign debt...
Government bailouts and guarantees such as those evidenced and envisioned in Dubai and Greece, as well as those for the last 18 months with banks and large industrial corporations across the globe, suggest a more homogeneous "unicredit" type of bond market.
If core sovereigns such as the U.S., Germany, U.K., and Japan "absorb" more and more credit risk, then the credit spreads and yields of these sovereigns should look more and more like the markets that they guarantee.
In other words, Gross wonders if a country can solve a debt crisis by creating more debt. Eventually, as countries absorb more and more of the private markets' problems, their debt trades in lockstep with corporate debt. Gross says there's discussion within Pimco as to whether the debt of a highly-rated corporation (say a Johnson & Johnson) could ever trade at lower yields than its home country's debt. We're getting close. There's only a 100-basis-point (1%) spread between comparable Treasury and JNJ paper.
Another interesting point... Sovereign debt pricing is no longer contingent upon interest-rate movement. Instead, investors are starting to value this debt more as a corporation – as in, can the issuing country afford to repay this debt? You can read Gross' entire outlook here.
Housing remains a mess. Housing starts, at less than 600,000 per year, sit at 30-year lows – a full 10% lower than ever before.
Foreclosures are expected to rise from 2.3 million to 3 million this year. Unemployment hovers at 10%. Mortgage rates are rising. Last week alone, they jumped from 4.94% to 5.03%.
But some of the biggest gains are made when things finally quit getting worse and go from bad to less bad...
Last week, Inside Strategist editor Braden Copeland found a super-experienced insider making a huge contrarian bet on the whole situation. For the first time since becoming a company board member in 1996, he's buying over $1 million worth of stock.
It's a major "conviction buy" coming from a guy who knows what he's doing. He was chairman of oil giant ConocoPhillips when he retired in 2004. Recognizing cyclical rebounds is how he made a living. He is also a board member at behemoth railroad Union Pacific. He knows what products are starting to move around the country again.
Housing is still facing a bit of a headwind, but this insider must see things getting less bad. As this stock dips, Inside Strategist subscribers following this insider are getting set to make heaps of money. Find out more about Inside Strategist here.
New highs: Berkshire Hathaway (BRK-A), PowerShares Dynamic Biotech Fund (PBE), Enterprise Partners (EPD), TimberWest (TWF-UN.TO), Sequoia Fund (SEQUX), Prestige Brands (PBH), A. Schulman (SHLM), Northern Dynasty (NAK), Encore Acquisition (EAC), Rowan Drilling (RDC).
In the mailbag… subscribers who actually like The Digest chime in. Tell us more: feedback@stansberryresearch.com.
"Porter, I have been an Alliance member for less than a year, but I have already made back my Alliance subscription several times over. I have also learned a tremendous amount about investing including trailing stops and selling puts, if not about politics. I am amazed to hear you say that Extreme Value and True Income don't make money. I was also extremely unhappy that you had to discontinue the FDA Report because it did not make money. I am curious about what does make money in your stable of newsletters.
"I think they are all great and I learn a lot from all of them. I can't act on every recommendation, sometimes I wish I had and sometimes I am glad that I didn't, but overall I have gained tremendously by being an Alliance member. Keep up the good work." – Paid-up subscriber Bill
Porter comment: To make money selling newsletters, you have to generate more money in subscription revenue each year than you lose to refunds and overhead. It's just like any other business...
"I have been with your service since April, 2007. I started with True Wealth & have kept adding to my arsenal. I am a Private Wealth Alliance member plus some. I am unbelievably impressed with the caliber of editors. I have worked for financial planners and brokerage houses on a limited basis and taken other newsletters over the years.
"Yours are by far the best. It is not just what your editors recommend, but why they recommend what they do that makes the difference. They are the best teachers I have ever had. Even your free newsletters are informative. For instance, the Friday S&A Digest explained selling puts. That was the clearest explanation I have ever seen. I subscribe to the Put Strategy newsletter, but have been sitting back to see, doing one or two trades, but not jumping in with both feet. I have read the explanation on Options trading, but still did not have the courage to try many Puts. Now, I think you finally got through to me. I am tacking up your explanation of selling puts on the cabinet above my computer. I can refer to it, if I get nervous.
"Pretty much everything else you asked on Friday, I have done. I have gold coins, gold stocks, I do covered call options on the stocks I own, and I even bought property in La Estancia de la Cafayate in Argentina in October. I would like to make a suggestion. Would you please have someone, maybe Jeff Clark, explain about shorting a stock like you did today with selling a put? I just started with his Short Report, but don't have the confidence yet to do a trade. Thanks for all of your hard work." – Paid-up subscriber Judy.
"I subscribe to True Wealth, but I've actually gotten the most out of The Digest and the free emails. Thanks to Porter's and Jeff Clark's writings I've been selling puts and covered calls exclusively for the last 14 months. The attached account summaries (without the full acct. # or broker) show the results. I've sold puts with USO and GDX as the underlying, and only took assignment twice (because I wanted to, not because I had to). Both times the stock price was just under my strike at opex, so by immediately selling a call at break-even and then getting a rise above that strike both times I got paid twice to hold the stock for less than thirty days.
"In all the other months the options expired worthless. 'Expired worthless'... music to a put seller's ears. Porter is exactly right to urge his subscribers to at least give it a try. It does require a method and some patience (as you can see I had no open position at the end of Feb, and still don't), so an absolute beginner would probably do well to get Porter's letter for guidance. Everything I've ever read from Stansberry has been clear and informative and has made a big difference to my bottom line. Keep up the good work." – Paid-up subscriber MG
Goldsmith comment: We can't include MG's account summaries, but he made $97,000 in profit last year and is up nearly $22,000 year to date. If you'd like to learn how to make returns like this for yourself, read Porter's Digest, where he explains the art of selling puts.
Regards,
Dan Ferris and Sean Goldsmith
Chennai, India and Baltimore, Maryland
March 2, 2010