Volume III, Issue 10 / October 2009
Welcome Letter
By the time this monthly missive hits your inbox, we will be attending the grand opening of La Estancia de Cafayate www.laestanciadecafayate.com in the northern Argentine province of Salta. Because of several short notice trips and because we wanted to provide you with the best information on Northern Argentina we pushed back part three of our Argentina series until next month. This month we will talk about Argentina´s neighbor and the place we often hang our hats, Uruguay.
Recently our inbox has been bombarded with questions along the lines of ¨How does Argentina compare to Uruguay?¨ and ¨If Argentina is so great, why do you choose to live in Uruguay? So this will be a good chance to update our original assessment of Uruguay do a little comparing and contrasting between the two countries as both a place to invest and a place to live. We love Uruguay and over the last couple of years we have evolved from expatriates to immigrants. However, a neck and neck presidential race, between a centrist and an outright communist has us more than a little bit nervous. We would be heartbroken while packing if Uruguay turns hard to the left.
In the Actionable Intelligence section Tim weighs in with his first official stock recommendation. He has found a cash rich, Asia based engineering services company that is poised to grow as the emerging markets resume steady growth. Best of all it has not had the ¨Disneyland bounce¨ that most shares have had since the March lows and it trades on the NYSE. It is a solid business with growth prospects, selling at a discount to net asset value and trading on an exchange that is both easy to access and not tied to the casino mentality in China. We love it when a plan comes together.
This month we will also bring to your attention a Texas banker, Andy Beal. Andy is an individual we recently stumbled upon whose story ties into several of our favorite themes; the folly of government, the purity of individual contrarian action and our belief that there is a rare opportunity developing to pool capital and purchase distressed assets at a bargain price.
Finally, we will close this addition with a few words about Brazil and Germany. Each country is a good proxy for the paths of emerging and developed markets respectively. Both are undergoing major changes in their Politiconomy and both are in the progress of making decisions that will have lasting effects on their spheres of influence for many years to come. We live in interesting times.
Catalyst Watch
As long time readers know we are of the opinion that we sit in the eye of the inflection point storm. The crisis of 2008 was merely the leading edge of the economic and social storm which will usher in a significant reversal of fortunes for individuals and nations alike. The ¨recovery¨ is nothing more than a false sense of calm and order. All we really know is that we don´t know what will trigger the next leg down but we are willing to wager that the catalyst will not be corporate earnings, economic data or oil prices. Why not? Because the big money will look for something ¨exogenous¨ and ¨unforeseen¨ to point to, when reversing course. They don´t want to say ¨shares are overvalued¨ they want to be able to say, ¨non market related events have caused us to…¨ So look for swine flu, trouble in the middle east, severe weather or a perceived threat to national security to be the ¨reason¨ the pendulum starts to swing the other way. It does not really matter what excuse Wall Street points to. It only matters that most of the day to day data that the pinstripe brigade obsess about does not really matter one bit. If they can shrug off 10%+ unemployment, ignore mark to mystery accounting and tut tut away concerns about trillions in debt and unfunded government liability why should they care about another gloomy piece of data?
Several months ago we coined the term Politiconomy because there is no longer any need to talk about political economy as if it were a small subset of the overall political and economic situation. They are one and the same. If you drop the new ¨F bomb¨ – Fascist, you are immediately branded a radical loon or racist because of the images of jackbooted thugs and close mental associations with concentration camps. But Fascism is merely the political system which advocates private ownership of businesses interests within a government controlled economy. If that does not closely resemble most of the world today we don´t know a better term for it.
A result of this merging of political and economic life is the ¨spin doctor¨ has migrated from K Street to Wall Street in record time. The politicoramuses and econoramuses like Timothy Giethner and Paul Krugman are only different from James Carvell in that they lack Carvel´s personal likability and professional flair. They are both spinning away to increase their own influence and advance their agenda. We now have a ¨Wag the Dog¨ economy with a full contingent of celebrity cheerleaders energetically distracting the public from the two elephants brawling in the corner. It can´t last forever but it will likely last longer than we expect.
Our friend Tom Dyson of Stansburry & Associates has a four word investment plan. ¨Cash Now. Gold Later¨. Tom is a very astute investor and we think he has it right. The big question is how much time between now and later. For the time being we are happy with our model portfolio and think that wise investors and speculators alike should be looking to purchase more gold if or likely when it drops back below $1000. We also like having a significant portion of our funds in cash…and you may want to sit down for this….in the near term we like the US dollar more than most other currencies. Despite all its problems, the greenback has been so beaten up recently against almost all other currencies that it is due for a rebound when the market encounters the next big scare. Flight to safety or flight of fancy, we would not be converting dollars to other major currencies at today´s rates. Our advice remains the same. Stay the course and wait for the next big buying opportunity. We reckon it will come in shares of resource companies and emerging markets.
Housekeeping
We are no longer accepting expressions of interest in our private deals. The lawyers are reviewing the questionnaires and drafting the subscription documents based on the data you provided. In the next week or two everyone who expressed interest should receive an executive summary and offering documents. We are still on track to close at the end of the year.
We are also changing the Without Borders format. Starting in November you will be receiving an email on or about the 15th of the month with a portfolio update and the Q&A that was formerly in the monthly edition. We are trying this format in an attempt to spread the communication throughout the month and thereby keep the monthly editions to a manageable length. We recognize we have an ungentlemanly backlog of correspondence and we aim to rectify it.
Until next month, thank you for your patronage and we look forward to meeting more of you on our travels or yours.
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