One of the world's most dangerous airlines...
One of the world's most dangerous airlines... An energy executive who takes the bus... Two things I consider before investing in a contrarian market...
Editor's note: As we mentioned yesterday, much of the S&A Digest team is in the Bahamas for our annual Spring Editors Conference. Every year, our analysts and closest business contacts get together to discuss our top ideas and investment opportunities.
We're continuing this week's Digest series of excerpted material from the March issue of Kim Iskyan's S&A Global Contrarian newsletter. Yesterday, Kim explained why he was afraid to go on his most recent trip to Iran – a country closed to doing business with the U.S. – and why it may be the ultimate contrarian play today.
Today, Kim explains why sanctions are hurting Iran's businesses... and two factors he looks for in every contrarian market.
Doing business in Iran is difficult... In fact, the country's sanctions hamper the country in many ways...
For example, Iran Air – the country's national airline – is one of the world's most dangerous airlines. The company faces huge problems in importing spare parts.
Because Iran can't import cars, there are a lot of old cars on the road. I'd estimate that at least three-quarters of the cars on Tehran's clogged streets are more than seven years old.
This has created a huge pollution problem. A recent World Health Organization survey showed that three of the world's 10 most-polluted cities are in Iran. I met several people there with serious respiratory problems from pollution.
If you only read Farsi, Iran's official language, good luck using a Windows computer... There are no Microsoft products in Farsi. Basic services suffer because the government is cash strapped... The open drainage canals that stream down Tehran's main avenues are choked with garbage and refuse. Physical and transportation infrastructure is run down and in need of a serious overhaul.
One of my main contacts in Tehran was a former energy industry executive whom I'll call Ali. For three decades, Ali was a senior executive at a company at the crossroads of Iran's oil and gas industry. Even though he retired several years ago, he's exceptionally well-connected to the heart of Iran's economy. Despite this, Ali drives a rundown beige Dodge from the early '70s... And even after a long day of meetings, he would insist on taking the bus everywhere to save taxi money.
If an honest, smart, and hard-working guy like Ali – who, in any other country, would be heading up a Fortune 100 energy company – has a difficult time getting by... well, you can imagine how normal people in Iran struggle.
And more than just sanctions are ailing Iran's economy. For example, filling up your tank in Tehran costs only around $1 a gallon thanks to a big – and fiscally unsustainable – gasoline subsidy. The government is trying to end cash subsidies to the wealthiest 30% of the population.
In February, the International Monetary Fund (IMF), which lends money to economies in trouble, issued a stark report on Iran's economy, warning of stagflation (low economic growth and high inflation). It said Iran would need to implement politically difficult reforms and other measures to fix its economy. The good news, though, is that the IMF sees economic growth rising to 2%, and inflation falling to a more manageable 15%-20% this year.
And while sanctions have damaged Iran's economy, some people think that bad governance and mismanagement – in particular, by Mahmoud Ahmadinejad, Iran's president from 2005 until last summer – was at least as detrimental.
"Ahmadinejad was worse for us than the Iran-Iraq war, in terms of economic destruction," one analyst in Tehran told me, referring to the brutal conflict from 1980-1988 that resulted in the deaths of upwards of 500,000 Iranians at massive economic cost. Iran's current president, Hassan Rouhani, has been busy trying to reverse this... but it's a slow process.
As you can see, Iran has problems. But most of these difficulties have been caused by crippling sanctions. And once these sanctions are lifted, things could improve dramatically.
So there's opportunity in Iran. But how do we know if we want to invest in the country?
I want to explain how I evaluate markets around the world... And how I view Iran from this perspective... Based on my metrics, I think Iran could be the most contrarian market... ever.
When I look at a market, I use a set of criteria to see if it fits the bill for potentially enormous contrarian returns. (My subscribers can see more details in my S&A Global Contrarian How-To Guide.)
One factor I look at is sentiment. The sanctions in Iran have created a misunderstood – and loathed – market.
Because Iran has been closed off to the Western world for so long, most Americans don't know much about the country (besides that they loathe it).
Ask the average American what he or she knows about Iran... and they'll probably talk about riots involving burning American flags, American hostages, and war.
What you hear in the international media about Iran often relates to its nuclear-development program.
One recent survey of 39 countries found that just 20% of respondents had a favorable view of Iran (only 16% in the U.S.).
This is just what we're looking for in the S&A Global Contrarian. Because investors hate Iran so much, they're overlooking what's good about the country.
For example, even with sanctions – and the country's problems – it is still the world's 21st-largest economy. It has a gross domestic product (GDP) of $549 billion.
Here's how Iran compares to a few other countries:
Iran's 76 million people generate an economic output of $7,200 per person – in the same league as Bulgaria and South Africa. That's also about 20% richer than the average person in China.
And thanks to a baby boom after the country's Islamic revolution in 1979, Iran is in a demographic "sweet spot," with around two-thirds of the population under 30 and around 25% under 15. This means that the vast bulk of Iran's population is just entering its most productive years... unlike more demographically mature countries, where a larger older population segment weighs heavily on the economy.
We also look at valuation. The problem with valuing Iran's stock market is that in a closed system – like Iran's – valuations don't really help.
Amir Yousefian, the head of the Tehran Stock Exchange's international department, told me almost no foreigners trade Iranian shares. (As far as the Tehran Stock Exchange is concerned, foreigners are allowed to buy shares... but sanctions prohibit Westerners from buying any financial assets in Iran.)
The stock exchange trades at a price-to-earnings (P/E) ratio of around eight, roughly the same level as its all-time high. But I'm guessing the ratio will go a lot higher when Westerners can trade, too.
But since there are virtually no foreign investors in Iranian shares, this figure doesn't mean much.
It would be easy to say assets in Iran should be cheap because it's such a risky place... At this point, most potential foreign investors would probably view Iran as riskier than frontier markets like Nigeria, Bangladesh, and Argentina. But in terms of market infrastructure and regulation, Iran has more in common with a lot of highly developed markets. Iran's markets have been around for a long time... they've just been disconnected from the global economy.
So when looking into Iran's potential as a contrarian market, valuation isn't a factor for us.
There's one more thing I look for when evaluating a contrarian market... I'll tell you about that in tomorrow's Digest.
Editor's note: Tomorrow, Kim will share his final metric... He'll also explain why sanctions are hurting large Iranian businesses... and why Iran's president is stuck in the middle of it all. To learn more about a subscription to the S&A Global Contrarian, and to read more of Kim's travels and investing opportunities in Russia, Zimbabwe, South Africa, Kazakhstan, and more, click here.
New 52-week highs (as of 4/22/14): Berkshire Hathaway (BRK), Anheuser-Busch InBev (BUD), Eni (E), Enterprise Products Partners (EPD), Flinders Resources (FDR.V), SPDR Euro Stoxx 50 Fund (FEZ), Johnson & Johnson (JNJ), Altria Group (MO), Targa Resources (TRGP), and Union Pacific (UNP).
It appears that publishing the first installation of Kim's travels in Iran has angered some of our subscribers. Are we crossing the line? We welcome your comments – good or bad – at feedback@stansberryresearch.com.
"No thanks, Kim. I don't think I'll be investing in Iran for any amount of money. The U.S. does not hate Iran, even though their leadership has a strong hatred for both the U.S. and Israel. And this is not about to change any time soon. Their hatred runs deep and yet at the same time, makes absolutely no sense to most logical people. If you are correct and someday make a lot of money investing in Iran, I think you have to ask the question... at what cost?" – Paid-up subscriber Bob W.
"It appears from today's Digest that you will soon be recommending investing in Iran. My question then is simple. Where is your morality? At what point do you stop chasing the almighty dollar and take a moral stand? Iran is a country developing a rogue nuclear weapon with the sole purpose of dropping it on Israel. And you want to profit from that country being a 'contrarian' investment.
"I see that Porter Stansberry did not write this, even though it is in his Digest. Porter Stansberry has seemed to be a patriotic guy, even if he doesn't agree with some or even any of this country's economic policies. It would surprise me to hear that he would consider investing in Iran. This may seem a severe statement, but after seeing today's article, it seems you guys would have invested with Hitler if it would have made you a buck. The Iranian government may not have killed as many people as Hitler, but they are one of the biggest and deadliest sponsors of terrorism in the world. And you guys want to invest there.
"I am sure you will be receiving a lot of feedback from today's article and a lot of subscription cancellations. I am not a liberal that says if I wouldn't do it, then nobody should do it, but I will review the subscriptions I have with you and make sure that I never subscribe to any written by Kim Iskyan. As Porter Stansberry has said many times, he doesn't really care when people cancel their subscriptions, he is going to write whatever he wants. I think today, his people crossed a line." – Paid-up subscriber Dan Moore
"I believe you were naïve in suggesting that sanctions on Iran will be lifted soon and that it is a great investment opportunity. Any day sanctions are lifted Israel will most likely make a military strike on Iran's nuclear facilities, which will create great turmoil in the region and possibly the whole world. Apart from the great risk of investing in Iran, we as Americans must also have a moral duty to refrain from investing in that country." – Paid-up subscriber Ram
Regards,
Kim Iskyan and Sean Goldsmith
Nassau, Bahamas
April 23, 2014
'One of the most irresponsible statements I've ever seen from our government'...
One government official recently made an outrageous statement. But there's a good chance you missed it.
In today's Digest Premium, fund manager Meb Faber explains why this could signal a market bottom...
To subscribe to Digest Premium and receive a free hardback copy of Jim Rogers' latest book, click here.
'One of the most irresponsible statements I've ever seen from our government'...
Editor's note: This week in Digest Premium, we're featuring insight from fund manager Meb Faber. So far, Meb has discussed the upside in investing "when there's blood in the streets"... and the one factor that will keep him away from investing in a certain country.
Today, Meb explains why a recent comment from the White House press secretary could signal a market bottom...
As I (Meb Faber) discussed in yesterday's Digest Premium, people always find reasons not to invest in a country when the headlines are bad. And that's what's happening with Russia right now. A lot of institutions have been panicking.
White House Press Secretary Jay Carney recently made one of the most irresponsible statements I've ever seen from our government... Somebody asked him a question about investing in Russia. And he said, "I wouldn't, if I were you, invest in Russian equities right now... unless you're going short."
It's wrong to advise a broad television audience about shorting anything. And it's even worse to recommend shorting a massively volatile country that goes up or down 5% a day. On top of that, Russia has one of the cheapest valuations of any country in the world. People could follow his advice and lose their entire investment account.
Carney's comment was one of the worst pieces of investing advice I've ever heard. And since he made that proclamation a month ago, Russian stocks are up.
You hear these types of things at market bottoms. People make outrageous statements. That's part of the reason it's so difficult to invest in these markets. It's painful because the headlines are negative... And sometimes it can feel unpatriotic to invest in countries that are doing "silly" things.
But think back to Greece a couple years ago. Everyone thought the country was going to fall into the Mediterranean... that it was going to drop out of the euro... that its unemployment rate would spiral out of control and that it wouldn't be able to pay off its debts. But look what has happened since then. The market has soared.
As my friend Steve Sjuggerud often says, the best possible investment scenarios are when things go from "bad to less bad." When things start to recover, you can see strong returns.
– Meb Faber
Editor's note: In tomorrow's Digest Premium, Meb reveals which countries are the cheapest in the world today.
'One of the most irresponsible statements I've ever seen from our government'...
One government official recently made an outrageous statement. But there's a good chance you missed it.
In today's Digest Premium, fund manager Meb Faber explains why this could signal a market bottom...
To continue reading, scroll down or click here.
Stansberry & Associates Top 10 Open Recommendations
(Top 10 highest-returning open positions across all S&A portfolios)
As of 04/22/2014
| Stock | Symbol | Buy Date | Return | Publication | Editor |
| Prestige Brands | PBH | 05/13/09 | 347.7% | Extreme Value | Ferris |
| Enterprise | EPD | 10/15/08 | 296.3% | The 12% Letter | Dyson |
| Constellation Brands | STZ | 06/02/11 | 280.8% | Extreme Value | Ferris |
| Ultra Health Care | RXL | 03/17/11 | 232.4% | True Wealth | Sjuggerud |
| Ultra Health Care | RXL | 01/04/12 | 190.9% | True Wealth Sys | Sjuggerud |
| Altria | MO | 11/19/08 | 186.9% | The 12% Letter | Dyson |
| McDonald's | MCD | 11/28/06 | 180.4% | The 12% Letter | Dyson |
| Hershey | HSY | 12/06/07 | 168.0% | SIA | Stansberry |
| Fluidigm | FLDM | 08/04/11 | 166.3% | Phase 1 | Curzio |
| Penn Virginia | PVA | 10/01/13 | 159.9% | Resource Report | Badiali |
Please note: Securities appearing in the Top 10 are not necessarily recommended buys at current prices. The list reflects the best-performing positions currently in the model portfolio of any S&A publication. The buy date reflects when the editor recommended the investment in the listed publication, and the return shows its performance since that date. To learn if a security is still a recommended buy today, you must be a subscriber to that publication and refer to the most recent portfolio.
| Top 10 Totals |
| 2 | Extreme Value | Ferris |
| 3 | The 12% Letter | Dyson |
| 1 | True Wealth | Sjuggerud |
| 1 | True Wealth Sys | Sjuggerud |
| 1 | SIA | Stansberry |
| 1 | Phase 1 | Curzio |
| 1 | Resource Report | Badiali |
Stansberry & Associates Hall of Fame
(Top 10 all-time, highest-returning closed positions across all S&A portfolios)
| Investment | Sym | Holding Period | Gain | Publication | Editor |
| Seabridge Gold | SA | 4 years, 73 days | 995% | Sjug Conf. | Sjuggerud |
| Rite Aid 8.5% bond | 4 years, 356 days | 773% | True Income | Williams | |
| ATAC Resources | ATC | 313 days | 597% | Phase 1 | Badiali |
| JDS Uniphase | JDSU | 1 year, 266 days | 592% | SIA | Stansberry |
| Silver Wheaton | SLW | 1 year, 185 days | 345% | Resource Rpt | Badiali |
| Jinshan Gold Mines | JIN | 290 days | 339% | Resource Rpt | Badiali |
| Medis Tech | MDTL | 4 years, 110 days | 333% | Diligence | Ferris |
| ID Biomedical | IDBE | 5 years, 38 days | 331% | Diligence | Lashmet |
| Northern Dynasty | NAK | 1 year, 343 days | 322% | Resource Rpt | Badiali |
| Texas Instr. | TXN | 270 days | 301% | SIA | Stansberry |