Volume IV, Issue 3/ March 2010
Welcome Letter
Back to Africa
This month we are writing from West Africa. Ghana to be precise. Let’s start off by getting our bias on the table. I really want to like Africa. Each time I go back, I board the plane, normally in Europe, with enhanced expectations. After all, Africa was the land of the great merchant adventurers. I want to feel we are the inheritors of the spirit of Burton and Stirling. I want the vast undeveloped expanses and political chaos to present opportunities for the intrepid. But alas, almost every time I am disappointed. The continent is mostly dominated by corrupt governments and their evil co conspirators the NGOs. It’s hard to tell which of the two is a greater blight on society. Both stifle entrepreneurship, risk taking, private ownership and self reliance. As a result, for the most part, Africa is a basket case and there are few signs it will improve soon. Rather there are many signs it is going to get worse.
However, to our relief, there are exceptions. I last wrote about Liberia and we have been working continuously on our entry into Zimbabwe. Tanzania has promise. Mozambique presents some opportunity. But for our time and money, if you look at West Africa, the place to be is Ghana. In this month´s Dispatch we will cover some of the opportunities in Ghana that extend well beyond the resource sector. Not that the resource sector should be overlooked. In fact this month our Actionable Intelligence is a Ghana gold miner listed on the stock exchange in Canada. The company is well managed and well positioned for the next leg in the gold bull market. This pick was brought to our attention by our friend Carlos Andres who is an exceptional analyst specializing in the Frontier Markets of Africa and Latin America. He has uncovered some spectacular finds in the past and we seldom find another market participant willing to travel to such remote and inhospitable areas in order to get a real understanding of the value and prospects of a given company. He is our kind of analyst and our kind of guy – the kind of guy that can handle himself in a pointed discussion with company management in a Vancouver boardroom and in a barroom brawl in Kinshasa. A spreadsheet jockey that can also sweet talk his way through a rebel checkpoint. Hard to find. We thank him for his insight and we think you will too.
When I was at Oxford I joined the Oxford Union mostly because they served the cheapest booze in town. The Oxford Union is the official debating society at Oxford. It has a fantastic library complete with old leather chairs and bookshelves that climb two stories. The members bar did indeed serve up the best value for money libations, yet the real value was in the access to the debates. Now many of you North Americans may harbor the same bias I did when I first thought of a debating society. Debating is the refuge for the nerdy kids that otherwise would have spent their afternoons stuffed into gym lockers by the football players or playing the tuba in the marching band. Debating is for nerds and losers. Right? Wrong. At least wrong in England. Debating is combat with wit and wisdom. Verbal fisticuffs laced with double entendre and innuendo. Debating is a manly art. The rugby playing president of the Oxford Union is certain to pull the best looking birds and if he can avoid a sex scandal it is a short walk into a safe seat in parliament.
This is why in the Pulse section we alert you to a free service provided by our friends at Intelligence Squared. Since we are in the business of publishing paid content, it may seem odd that we are actively pointing you in the direction of a free information service. However, Intelligence Squared is such a natural fit for our growing battalion of Intellectual Adventurers. While they may not provide interviews with frazzled government ministers and mafia chieftains the way we do, you should make their podcasts or video presentations a part of your tool kit for the modern Renaissance Man.
In the Over the Horizon section we relay a recent conversation we had with a highly placed observer of Russian politics. His take on the Ukraine, Georgia and Germany highlights the potential for conflict on the fringes of the EU. He also discusses the domestic terrorist situation in a way we found fascinating. With the passing of Al Haig we think it is timely to share our view of NATO in the midst of a fiscal crisis.
On the Markets
Frankly I am running out of clever pithy phrases to describe the state of the equities, debt and currency markets. I know you don´t pay to hear me say, ¨Same as last month but just four weeks more frustrating.¨ Since this monthly missive is little more than a running dialogue between the Without Borders team and the Without Borders community – a personal letter to friends sent across the vast geographic expanse through technological advances – I must believe that you are sophisticated enough to understand that we will not change our analysis to attract more subscribers or send ¨hot tips¨ for the sake of sexy copy. We don´t do that. Hell we don´t even have a regular proofreader or a marketing professional.
So while it is sometimes frustrating, we really don´t have anything new or exciting to offer. Our hypothesis remains the same. We have been through a private sector financial crisis brought on by excessive debt spanning the spectrum from overpriced and over-leveraged private equity mega deals to maxed out consumers buying one too many SUV’s or flat screen TV’s. And of course there were those pesky collateralized debt obligations, off balance sheet special purpose vehicles, and assorted other derivative products that led to systemic counter party risks that remain to this day largely unknown.
But as bad as those things were, the worst is yet to come. What we saw in 2008 was a classic market crisis where supply eventually outstripped demand. It was the business cycle in action only this time it was exacerbated by cheap money. There was an almost insatiable demand for goods because money was so easy to come by. Nobody calculated the value of real property based on replacement value or marginal utility or certainly not an expected return calculation based on future rents. They calculated value based on monthly payments or expected increases in future sales prices. And consumers did not ask if they could afford a new car or a new home theater they only calculated if they could afford the credit card payments for another year until they next refinanced their second mortgage. It was destined to end badly and it did. It should have ended in a deflationary bust. Those that were prudent and prepared should have been able to swoop in and pick up the pieces at bargain prices. The pain would have been acute but short lived.
Alas, governments around the world would not allow the system to purge itself. Instead they stepped into the breach to ¨save us¨. What they really did was put their already fragile credit rating on the line to save a system that should never have been saved. This will result in a sovereign debt crisis that will make the financial crisis of ‘08 feel like a speed bump before the concrete barrier. By trying to save the system, governments around the world have exacerbated the underlying problems and created an entire new catastrophe on the horizon. More on this next month.
Suffice it to say the recovery is a work of Social Science Fiction spun by the economists in the employ of the politiconomy complex. Big Governments. Big Financial Institutions. The plot line of this Social Science Fiction Magnum Opus is thus: As long as enough sheeple buy into the myth that the worst is over, then it doesn´t matter what happens in the real economy. The government is there to protect them. The crisis was unforeseeable and the solution is more debt, money creation, bailouts, regulation and taxes. The system is still rotten. Governments have simply transferred the rot from the private sector to the public sector in the belief that the printing press and global intergovernmental cooperation can buy enough time for the situation to turn around. But it will not turn around. It can´t turn around. The demographics and the debt burden will cause more and more crisis. And with this crisis comes opportunity. And these opportunities are what we aim to bring to your attention. Until then we remain convinced that we are in the midst of a suckers rally for the record books.
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