"Sir, you need to go through an extra level of customs before leaving." The Dulles Airport customs agent sent me to a side room where three more armed agents were waiting. I declared my currency holdings when returning from Germany, and I now had to jump through bureaucratic hoops. I went through five pages of documents... signing here, initialing there, entering addresses and my Social Security number. Then, the agent asked me to count my cash in front of everyone. I asked to go to a side room, counted my euros, and gave him the total number.
When he told me the U.S. dollar amount, even I was surprised – more than $10,000. I didn't spend much time in front of a computer in Germany, but I knew the euro had a good week. Sure enough, the U.S. dollar/euro conversion was approaching $1.35.
Last January, Steve Sjuggerud shorted the euro in True Wealth. He noted the high debt levels and ongoing problems in the European Union (predominantly Greece). Steve said the EU had two options: 1) extreme weakness from financing bailouts, or 2) extreme uncertainty where you don't know which countries will remain part of the EU or who's in charge. In addition to the negative outcomes, Steve noted the euro was overvalued relative to the dollar based on the "Big Mac Index." Steve wrote:
Whenever a Big Mac in Europe is 50% more expensive than a Big Mac in the States, the euro crashes.
We're not at the 50% overvalued point any more (which is a real extreme). But the euro is still very expensive... A Big Mac in euros is around 35% more expensive than a U.S. Big Mac. – Steve Sjuggerud, January 2010, True Wealth
True Wealth readers made more than 30% on Steve's euro short. At the time, the euro stood at more than $1.40. We're nearing $1.36 today. And nothing is fundamentally better in the EU. It's just printing more money to prop up the economy, which will lead to a bigger crash in the future. I asked Steve to update his Big Mac Indicator chart for today's Digest. We're not there yet, but keep an eye on the euro...
I e-mailed Dan yesterday asking for his comments on Wal-Mart's proposed takeover of South African retailer Massmart. It turns out, Dan is in Newfoundland exploring the grounds of what could be one of the best-performing resource companies in the world. As you've seen from Matt Badiali's research on InterOil (he actually flew to Papua New Guinea), you can't be certain of a company's resources until you're actually walking their property and seeing everything first hand. Extreme Value readers will get the full details of Dan's findings upon his return.
Anyhow, Dan's note is below...
I just saw this for the first time when I got to my room in St. John's, Newfoundland. I woke up in Toronto today, flew to western Labrador, did a helicopter tour of the iron ore district up here, then flew the milk run (which makes two stops) down to St. John's.
Wal-Mart's entry into South Africa is nothing surprising, different, or unusual. It's how the company grows in foreign markets. In fact, its international business started in the early 1990s with a controlling stake in Cifra, now known better as Wal-Mart de Mexico. This makes perfect sense to me. It's pure, classic Wal-Mart.
Its prior success notwithstanding, Wal-Mart is already encountering opposition to its Massmart bid. The Western Cape provincial arm of the Congress of South African Trade Unions, or Cosatu, said it was surprised Massmart would consider a bid from Wal-Mart... "We will oppose the setting up of any Wal-Mart stores in the Western Cape," Cosatu added. "These companies are notoriously antiunion and anti-workers' rights."
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New highs: Atlantic Power (AT), Imperial Metals (III.TO), Sprott Resource Lending (SILU), HMS Holdings (HMSY), Vanguard Natural Resources (VNR), Altria (MO).
Lots of car talk in the mailbag... Send your e-mail to feedback@stansberryresearch.com.
"I didn't know whether to laugh or cry at LT's concern over buying 'American made cars.' There aren't any... Or perhaps they all are: Completed cars are lousy freight; they hold too much air. Also the productivity at final assembly is fantastic; so high labor rates are NOT a killer. (Modern assembly lines see all the components fall together in under 10 man-hours.) So final assembly, even for many of the "foreigners", usually takes place within several hundred miles of the point of sale. Even low volume producers BMW and Mercedes Benz assemble some models in the U.S. (depends on regional marketing variations).
"On the other hand, auto components are great, high density freight; and they are far more labor-intensive to produce. So it makes sense (and dollars) to transport them from low-wage regions of the world to high wage regions for final integration into the product.
"Delphi, the spin-off conglomerate of all of GM's parts divisions, now has approx four production facilities left in the U.S. and approx 130 facilities in other countries.
"GM now produces and sells more cars in China than in the U.S. The cars they sell here include a lot of Chinese components and some of the 'more expensive' Mexican components.
"Wake up, and smell the roses, L.T.; pull the flag from in front of your eyes, and read the window stickers for content: Your buddies have left town. GM is a predominantly Chinese, global entity. (It is truly remarkable the way our government helped facilitate the completion of the move.)
"The really tragic part of this story is that long after Wall Street experiences a recovery, Main Street will still be limping along. Those good-paying automotive jobs that made up a very large part of our economy won't be returning to our shores for several generations. THAT is what makes this rec(depr)ession far more serious than all the prior ones. There are a lot of folks who will NEVER see a personal recovery. At best, they will live with 50% pay cuts for the rest of their lives. They will barely be able to meet prior obligations; and they WON'T be contributing to growth. (Note to idiot Joe B.: THIS is the 'BFD'!!!)" – Paid-up subscriber Carl Williams
"Two years ago I bought and now drive a 335i convertible. Man, what a car. I love it and since I had it 'chipped' it is unbelievable. I can routinely take any car on the road short of a 911 turbo or Ferrari. Excellent!" – Paid-up subscriber JPW
"Hello, like most 58 year olds, I have owned many (21) vehicles for myself, my business, and my children... I will never buy an American car again, after the history of mine. I cannot support planned obsolesence." – Paid-up subscriber Brian Fieldsend
"Hey Sean, you meant 180 kph not mph, right? You wish... Watched Sjug's driving experience on You Tube and heard at the end their talking 'speeds' and heard a clipped 'k' at the end of the video... no doubt referencing kilometers per hour ... as would no doubt be the speed reference there in Germany ... got me to thinking about your Digest headline ... I don't think they'd be a lettin' you boys 'wrangle' 180-plus MPH hardware just for the fun of it ... you know, the fun of it ... I'm just sayin'..." – Paid-up subscriber Mark
Goldsmith comment: Yes, I meant 180 mph. I was running the car around 275 kph. It was fast... and fun.
Regards,
Sean Goldsmith
Baltimore, Maryland
September 28, 2010