S & A Digest
Editor's note: When it comes to putting money to work in the emerging markets of Asia, Africa, and Latin America, there's just no substitute for "boots on the ground" research... trips that allow you to buddy up to government officials, talk to folks in the black market, build industry contacts, and get a real feel for what's going on in a country.
In just the past few years, we've sent our analysts to Malaysia, Hong Kong, Brazil, Argentina, Uruguay, Botswana, Nicaragua, Canada, Dubai, Australia, and the U.K. For some of our best "on the ground" dispatches, read on...
In fall 2007, our editor in chief, Brian Hunt, spent four days touring Botswana, a landlocked country just north of South Africa. Below, he describes his first encounter with Botswana's biggest industry...
At first, I thought an ambulance was headed our way. After I saw the motorcycles' flashing blue lights, I thought it was the police... But it's just another day in Botswana...
"They're transporting diamonds," Ray said, as we watched the motorcade enter the roundabout with sirens blaring. Drivers stopped in their tracks to yield. A large armored vehicle followed the motorcycles in the lead. An open-top jeep with a machine gun nest followed. "That's excellent theft insurance," I said.
"They're probably coming from the Orapa mine. You see one every couple of days or so." Ray was referring to Orapa, the world's largest diamond mine by volume. Later, we passed several white cars with the "De Beers: A Diamond is Forever" mantra stenciled on the side. The headquarters of Debswana, the joint venture between De Beers and the government, has a prominent spot in Gaborone's business center.
Ray explained how the government finances homes and university education with diamond revenues. He mentioned how Blood Diamond, the 2006 movie about the diamond-financed bloodbath in Sierra Leone, caused a panic in Botswana. It can't afford to have the world sour on diamonds, which represent 75% of exports. It doesn't take long to realize that as diamonds go, so goes Botswana...
(From the September 21, 2007, S&A Digest)
Brazil is blessed with vast amounts of arable land, fresh water, and timber. It's the world's largest exporter of soybeans, raw sugar, ethanol, and coffee. In February 2008, with grains and fertilizer stocks near all-time highs, Tom Dyson went to find a local perspective...
I'm at a serious handicap here in Brazil. I can't speak Portuguese. So I'm not picking up the usual information nuggets I get from taxi drivers, shopping assistants, waiters, and bus passengers in other countries. However, I've still met some interesting people.
I sat next to a girl on the bus yesterday. She spoke excellent English, even though she'd never met another English speaker in her life. I told her Brazil felt expensive to me. Prices here are similar to prices in the U.S., it seems. Her family owns a large soybean farm, or "fazenda." She told me her father takes her to Paraguay to go shopping. She buys clothes, shoes, and music. He buys farm equipment, guns, and pesticides.
"We use one toxin," she said. "This toxin costs $100 per gallon. In Paraguay, it costs half price. The problem, you have to smuggle it back to Brazil. They cost you if they find it."
(From the February 27, 2008, S&A Digest)
In April, our favorite commodity recommendation was to get long heroin. According to sources in Afghanistan, wheat had become a more lucrative cash crop than poppies.
In response to our "long heroin" trade, a member of the U.S. Army tasked with eradicating the poppies sent us his expert, eyewitness appraisal of the coming Afghanistan poppy crop. (He asked that he remain anonymous.)
Almost all [poppy] eradication efforts have halted in the Helmand because it's too dangerous to go in now though now is the time to hit them. Once the crops are mature the local defense of the fields literally turns into full-scale combat operations. And since the majority of the Taliban in the country operate in this area, things could get ugly real quick.
This information is first hand since I'm currently tasked to work in the antinarcotics arena here and could go on ad nauseam about the dirty politics that take place here in support of a dismal attempt to eradicate the drug...
Ironically in 2000, there was negligible poppy grown while the Taliban were in charge, since the Koran says it is considered "against Allah." Now, however, it appears Allah is all for it since this is a Jihad. Ultimately, heroin is the number one contributor to Afghan GDP and funds a tremendous amount of terror. Thus, the GWOT is also the Global War On Drugs. I'd actually be a buyer of poppy futures... bumper crop, increased prices!
The aerial picture is a small portion of the northern tip of the Helmand Province shot from our helicopter. The canals, which nourish the fields, were all built by the USA prior to the Soviet invasion. The Helmand is so vast you can actually distinguish it on a panoramic view of the Earth shot from space. Amazingly it's a green belt surrounded by desert.
So honestly, tell me, how does anyone expect 30 tractors plowing, along with some plus or minus 200 Afghan National Troops/Police (this is the Afghan government's solution) patrolling the fields to even make a dent? My guess for this season's efforts is about .0001% of the poppy has been eradicated.
(From the April 16, 2008, S&A Digest)
Why would you want to live in Nicaragua? Well, it's the safest country in Central America. It has a very conservative, family-oriented culture. The country's natural beauty is extraordinary – especially its beaches. But... the best thing about living in Nicaragua is the lifestyle.
In May, Porter and a handful of other editors made the trip down to Rancho Santana, an exclusive resort on Nicaragua's west coast...
I've been coming to Nicaragua for more than 10 years. Each time I visit, the roads are a little better, the people are a little richer, and it's a little more crowded with tourists. Keep in mind, "crowded" is a relative term. We ate lunch yesterday at one of the 10 best restaurants in the country. The ceviche was the best I've ever had. The churasco was melt-in-your mouth tender. And the view, a 3,000-foot perch overlooking the pacific coast, framed by wild-growing hydrangeas, was second to none. We were the only people in the entire restaurant. The gourmet three-course lunch, for six, including drinks, was less than $100.
Food and labor costs are unbelievably cheap. A good cook costs $20 per week. You can afford to have a driver, a gardener, a cook... all for only a few dollars per day. In Nicaragua, it's still possible to lead a life of luxury on the budget of the average middle-class American. Property is cheap, too. Here in Rancho Santana, many ocean view lots are still available for less than $200,000 – lots that would cost at least 10 times as much in the U.S. And here, there's a very good chance that property will continue to appreciate. I know it's easy to scoff at the idea of living in Nicaragua – until you see it for yourself.
Regarding Danny and the Sandinistas... The average American's opinion of life outside of the U.S. is based on what he sees on TV and is laughably naive. The Sandinistas are no more communists than the Chinese. They're a political party. They were legally elected. And if they screw up the economy, they will be legally replaced. Nicaragua has had successful free elections since 1990. The fastest-growing tourist destination in the country, San Juan del Sur, which is about 20 miles south of Rancho Santana, has had a Sandinista mayor since 2004. From direct experience I can tell you America's politicians are the most corrupt in the world. No, the politicians here aren't much better. But living in Nicaragua, I have far more personal liberty than I have residing in the "land of the free."
(From the May 28, 2008, S&A Digest)
Late this summer, Steve took a quick trip "across the pond." He found the euro at historic highs against the dollar and poised for a fall.
I just got back from Europe yesterday morning...
And I have to tell you... right now, Europe is one of the best and worst places to visit. I've been fortunate enough to visit dozens of countries around the world. And I still count London and Paris at the top of the list of "must-see" cities. If you haven't been, you must go... just not now!
You see, prices in Europe are insane for Americans...
A taxi from London's Gatwick Airport to the city will now cost you US$200, compared to US$50 for the same trip in New York. And plan to pay at least US$500 a night for a Marriott-like hotel room in London. (For that you get a small bed, period. Anything else will cost you more.)
Since the room will cost you so much, and since you'll want to do some sightseeing, you figure you'll save on food, right? Not so fast...
Even a basic McDonald's Big Mac will cost you a lot. The recent edition of the Economist magazine says a Big Mac costs a "whopping" US$4.57 in England. It's nearly 30% pricier than in the U.S.
The problem now is the exchange rate. Just like stocks and real estate, currencies can get outrageously expensive. Right now, European currencies are as expensive as they've ever been.
It's time for them to come back down. And it's time for investors to bet against them.
(From the August 8, 2008, DailyWealth)
This fall, Tom took an eight-country tour of Asia. He started in Malaysia and met three months later with Steve in India. Below are a few highlights....
Taipei, Taiwan: A man was yelling in Chinese...
We were relaxing in our cramped Taipei hotel room last week when we heard one of those cars with loudspeakers attached to its roof. I've seen these cars and trucks in every foreign country I've ever been to. I just assumed this guy was promoting a furniture liquidation sale or a nightclub opening in Taipei.
A few minutes later, I looked out the window and noticed thousands of people streaming past our hotel. They were demonstrating against Taiwan's new president. We ran downstairs...
Turns out, this protest was a big deal. I found news reports on it from all the major international press agencies the next morning. They say 100,000 people took part in the march. Demonstrators came from all over Taiwan on free buses organized by one of the groups leading the protest. Crowds were streaming past our hotel for over two hours... waving flags... banging drums... and chanting.
The protesters don't think the country's new president, Ma Ying-jeou, is living up to his election promises... even though he's only been in office for 100 days. They think he's screwing up the economy and letting China have its way with Taiwan. We saw banners that said things like: "Stop inflation," "We want more jobs," "Democratic Taiwan is not part of communist China," "Show me the money," "Taiwan yes! China no!"
But if the protesters want Taiwan to be more prosperous, they need to get closer to China, not farther away...
(From the September 10, 2008, DailyWealth)
Hami, China: The railroad through Urumqi is the busiest freight railroad I've ever seen. In the States, you might see a couple of freight trains and the odd Amtrak each day. In Urumqi, 10 or 12 freight trains rumble through every hour... on top of six or seven passenger trains. The trains run every day, all day and all night.
I spent two nights at the freight yard in Urumqi and couldn't get on a train. There were too many workers and security guards around. Plus, the entire yard was circled by private businesses with their own guard dogs and fences. Jumping on a moving train was the only way to do it... But that's dangerous.
So I went to the small town of Hami instead. Hami is a village a few hundred miles east of Urumqi on the mainline. It has a small freight yard.
At 3 a.m., I crawled under the fence and hid behind the railroad ties. I watched the trains coming and going for an hour. There were still too many workers and security guards. To get on one of these trains, I would have to catch it "on the fly."
(From the September 15, 2008, DailyWealth)
Chennai, India: Last week, I was in Shanghai, China. Shanghai is a glorious city of glass skyscrapers, modern roads, and expensive train stations. The government planned it. So a lot of this infrastructure will turn out to be wasted money. Take the Maglev train in Shanghai...
The Maglev train travels at 270 miles per hour. It takes you from the city center to Shanghai Pudong Airport in seven minutes. The Maglev cost $50 billion. But no one uses it. It's cheaper to take a bus... and more convenient to take a taxi. There were only 20 passengers on my train.
India is the opposite of Shanghai. It's in shambles... It's dirty and noisy. People sleep in the streets. We're in the country's fourth-largest city, and there are no skyscrapers. It takes an hour to drive 15 miles to the airport. You share the road with cows pulling carts. People dump their trash in the street gutters.
This is what a true free market looks like. It's chaos.
(From the September 19, 2008, DailyWealth)