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Volume IV, Issue 8 / August 2010

Welcome Letter

Many years and many kilos ago I was a 20-year-old cadet at West Point.  The summer between my second and third year I went to Airborne School.  Airborne school should be called Parachute School but that would be far too self-explanatory.  Airborne school, at Fort Benning Georgia, is where the Army teaches young men and women how to fall out of airplanes in an orderly manner.  The school spends very little time explaining anything about parachuting because basic static line jumping requires very little of the jumper.  The chute deploys automatically and you land mostly where the winds take you.  In fact the majority of the three-week course is spent learning how to enter and exit the aircraft the Army way and how to land.  I remember very little about Airborne school other than early morning runs and hours spent jumping off a six foot platform into a sawdust pit in the hot July sun.  After three weeks ¨training¨ I fell out of the aircraft five times thereby proving that gravity works.  It wasn’t a test of skill but rather courage.  I can still remember my first jump.  I didn´t sleep the night before.  When the door opened and we all stood up, my heart was in my throat the entire time.  And when the Jumpmaster pointed at me and commanded,  ¨Stand in the door!¨, my first thought was that my mother would still love me if I sat back down.  The rest was a blur.  Airborne school was a rite of passage.  Like every other newly minted paratrooper, I adopted the vernacular and swagger. Invariably whenever a group of us were ready to go somewhere; to a bar, to the library or to the gym, someone would yell out, ¨Stand in the Door!¨.  Normal well-adjusted college kids would say, ¨Ok ready guys.  Let´s go.¨  Not us.  We were paratroopers.  Man we thought we were so cool.

A couple of years later, as a young lieutenant, I went to ¨Jumpmaster School ¨ and started to understand a bit more about parachuting, selecting drop zones and rigging equipment.  Mostly I spent my time learning how to check if a soldier had put on his parachute and other equipment correctly and to spot any potential safety hazards.  By this time I had about 50 jumps and the outright fear of the first jump had been replaced by more of a stress-induced focus.  The most important part of jumpmaster school was passing a test on the Jumpmaster Personnel Inspection or as it was called JMPI.  It was a bit disturbing to think that my ability to catch a potentially fatal flaw could mean the difference between life and death for some mother’s son.  After all I was not yet 25 years old.  It seemed an awesome responsibility, which I took very seriously.  With graduation from Jumpmaster School came even greater vernacular and swagger and the ability to point at someone else and scream, ¨Stand in the Door!¨

A few years later, I attended Military Freefall School also known as HALO (High Altitude Low Opening) school.  This created an entire new level of complexity. Unlike static line parachuting, this required me to plan and think because I actually had control of the parachute and my actions or failure to act controlled my immediate destiny.  Here is a video from my era which seems so low tech by today´s standards.

By the time I arrived in Yuma Arizona for the course I had over a hundred jumps and I had been the primary Jumpmaster many times.  I was starting to get accustomed to the pressure and the process.  By the second week, I was in the groove and while I learned quite a bit, the mystique was wearing off.  We made jokes like, ¨Don´t worry if your chute doesn’t open, you have the rest of your life to deploy the reserve¨.  There was a studied nonchalance that the instructors and students alike affected yet under the surface we were serious and truth be told still focused by fear.  We no longer swaggered or told people to ¨Stand in the Door!,¨ because that was not cool.  We were ¨special¨ and we shunned those who still talked in the vernacular of regular static line parachuting.

By the time I went to the free fall jumpmaster course, I had over 300 jumps.  I looked at the course as a “check the box” exercise because by this time I thought I had ¨been there and done that¨.  I still got butterflies before every jump but the process had become almost routine.  My complacency lasted until after lunch the first day.  The senior instructor took us into the classroom and proceeded to show us accident scene videos and photographs.  Gruesome.  Then he pointed out that of all the fatal free fall accidents since the military started keeping track of the data, over 85% involved jumpers with over two hundred jumps.
Was this just the odds catching up with the most active daredevils?  No. The problem was jumpers became complacent about the danger.  What was once extraordinary became routine.  The focus gained through fear subsided.  The dangers had not changed in any way but ¨old hands¨ no longer felt compelled to focus on them.  Subconsciously, they ignored the dangers.  They would cut corners.  They would skip an important safety check.  They ignore their altimeter and just estimate the altitude from experience.  They daydream through the pre mission brief.  Subconsciously we adopt the mentality that a lack of negative outcome in the past, in some way negates the increased risk.  Kind of like a turkey the day before Thanksgiving.  They ignore the perils and get away with it, which in turn reinforces their belief that the dangers are less than they are.  Until one day…..

And this leads me to the point of this walk down memory lane.  I am convinced the majority of market participants now feel they are ¨old hands¨.  Many fund managers and individual investors have ¨Been there. Done that¨.  Central bankers have defied death and lived to talk about it.  They have been ignoring the obvious danger signals and getting away with it.

It seems as if every day there is more catastrophic market moving bad news that… well… doesn´t move the market.  Housing starts at the lowest level ever… don´t sweat it.  Unemployment still hovering around 10% officially… no big deal.  Budget deficit increased by… who cares.

As I read about the goings on in Jackson Hole this past weekend I could not help but be reminded of the videos of fatal freefall accidents.  Each and every one of the bureaucrats seemed to have adopted the idea that a lack of negative outcome somehow obviates the risk.  But don´t worry when their main policy fails they will have the rest of their lives to deploy their reserves.  ¨Stand in the Door!¨ It is a long way down and it is going to hurt.

This Month

This month we bring you part two of our coverage of Peru.  Last month we talked about the public markets. This month we focus on the entrepreneurial and lifestyle opportunities in Peru with an emphasis on the Cusco area.  Cusco is transitioning from solely a tourist destination to a resources boomtown.  For the intrepid amongst us, Cusco could be a good place to set up camp.

We will then focus the remainder of the edition on why after a year of observation we think it is time to get busy with our vulture activities in the southern cone region of South America.  We first brought up the idea a year ago but for a variety of reasons the timing has not been right until now.  We will explain to you how we intend to go about investing in land and other real assets.  We provide a way you can join us in this endeavor.  We also offer up some ideas on how, if you have the time and resources, to give it a go on your own.

Upcoming Events

I´ll be in Cafayate for the upcoming event at Dough Casey´s La Estancia de Cafayate from the 20th to the 24th of October.

I´ll be speaking at the Freedom Fest cruise and conference in Buenos Aries on the 13th of November.  Mark Skousen and the rest of the crew at Freedom Fest have put together a cruise that promises to be both interesting and enlightening.  The details are still being firmed up but a trip around Cape Horn in a luxury cruise ship filled with like minded freedom seekers cannot be a bad experience.

If you have been contemplating a trip to this part of the world it would make sense to try to come down for one or both of these events.  If there is enough interest we would be willing to put together a Without Borders get together between the two events.  We could even combine it with a tour of some of our vulture opportunities.  If you are interested please email admin@withoutborders.com

Yours in Exploration,

Fitzroy McLean
Chief Bon Vivant and Speculator

Dispatch: Peru Part II

Last month we covered the recent history of Peru as well as the mining sector and the Lima stock exchange.  We also discussed the political situation and the tension between the loose oligarchy in Lima and the more isolated regions of the Andes and the Amazon.  This article should definitely be viewed against that backdrop so if you have not read the last edition it is important you do so to keep the suggestions and analysis below in context.

Cusco: Where Birkenstocks and Hard Hats Mix

Cusco was the capital of the Incan Empire from the thirteenth century until Pizarro and his conquistadors raised the city in the 1530s.  The Spanish tore down most of the Incan structures and replaced them with Colonial style architecture.  Today Cusco is best known as the starting place for the Inca trail.  Since the 1950s it has been a favorite of hippie, spiritual and scholarly tourism.  The majority of visitors were academics, young counter culture backpackers or new age health pioneers.  We merely point this out because this is not the demographic that spurs a significant amount of investment or economic innovation.

However, in the last decade Cusco has diversified beyond its traditional base.  Tour buses still arrive in the city square crammed with camera wielding budget tourists en route to Machu Picchu.  Backpackers with funny cigarettes are still easy to find.  Geeky professors and graduate students still ponder the plight of Pachacuti.  This will never change.

What has changed in recent years is the shift from budget tourism to luxury tourism and the rapid growth of the mining and hydrocarbon industries in the surrounding areas.

Expansion in luxury tourism

In the last 10 years the arrival of tourists to Cusco has seen exponential growth, especially in more affluent travelers.  You can still find the grungy hostel for under ten dollars a night.  You can also find eco resorts that will set you back over five hundred bucks a night if you can get a room. They are full of well-healed travelers in search of something more enlightening and sophisticated.  High-end tourism in Cusco is booming.  In 2008, tourist arrivals increased by 15.5% over the previous year.  In 2009, at the height of the global economic crisis, tourism increased by 5.7%.

In the last five years, the proliferation of boutique, luxury and niche hotels has been impressive.  Hundreds of millions of US dollars have been spent on hospitality projects since 2005 and new projects are breaking ground.

With this change in lodging comes increased activity in other leisure time activity.  I was surprised by the vibrant and sophisticated nature of the restaurant and bar scene.  Perhaps I was expecting dusty run down hole in the walls, which are my mainstay in this part of the world.  What I found were trendy watering holes with an Inca flair and eateries best categorized as bistros.  Speaking of bistros, it was at a place called Bistro 370 where I tasted the local dish Cuy also known as guinea pig.  It was a bit incongruous to have a roasted rodent served up on a white tablecloth in a chi chi wannabe trendy bistro.  Cuy is served flayed open, yet intact.  The head, eyes and claws remain.  Road kill by candlelight.  The taste?  A little like rattlesnake but less chewy.

Nightlife is varied.  I´m not much for the club scene except as a study in local anthropology, but my brief excursion into a couple of salsa clubs before seeking refuge in a quieter pub like watering hole was insightful.  Expats were everywhere and the variety was rather surprising.  Businessmen could be found in large numbers, tourists in larger numbers and the ubiquitous granola-crunching tree hugging druids of the NGOs in even greater numbers.  Yet none of the groups seemed to mix.  They all congregated separately (more on this below).

Mining, Oil and Gas

In addition to being a major tourist city, Cusco is one of Peru’s departamentos with the largest mining potential.  It has 74 mineral projects in exploration and 15 mines in operation.  Mining accounts for 13% of the regional GDP.  In 2000 it accounted for less than 3%.

There has been some recent turmoil mostly due to political posturing and the regional versus national government tug of war we discussed last month. Regional governor Hugo Gonzalez, recently announced an ordinance which prohibited any new license for future mineral exploration in Cusco.  However, after extracting some concessions from the Ministry of Energy and Mines and some back room horse trading between Gonzalez and the mining companies, the ordinance was revoked and replaced by a new regulation that requires miners to have prior “social permission” to launch their projects.  We talked to two mining companies; one international and one local and they both dismissed the threat as internal politics and business as usual.  There is a lot of money to be invested in Cusco and the politicians want their tribute but don´t want to derail the development.

Swiss mining giant Xstrata´s US$1.3 billion copper mine, Antapaccay, will begin production next year.  The Quechua Mining Company’s project, a JV between Pan Pacific Copper Corporation and Nippon Mining, is expected to begin operation in 2013 after an investment of US $490 million.  It is estimated (by the government of Peru) that over twenty billion US dollars will be spent in Cusco developing mineral deposits over the next decade.  That number seems a bit high to us but there is no doubt that mining companies are pouring into the region.

On the hydrocarbon front, oil and gas companies are presently developing over thirty projects in the Camisea basin in Cusco.  There is talk of a multi-billion dollar investment in pipelines and other distribution infrastructure.  Our sense is this may be a bit over hyped and there has not yet been any real exciting discoveries but there certainly is a lot of activity on the energy front.

The Opportunity: Climbing the Value Chain

Where there is rapid change there is opportunity.  In Cusco there was definitely a boomtown feel.  While industry has developed rapidly the service sector has not.  The new boutique hotels and spas may offer luxury for the jet setting eco tourist but the service is still at the backpacker hostel level.  When we spoke to foreign hotel operators and hospitality entrepreneurs they lamented a shortage of skilled staff.

We came away with the distinct feeling that a sharp entrepreneurial young man or woman could put together a highly profitable recruitment agency that trained and placed hospitality staff.  There is a school in Lima that trains people for hospitality jobs and it has a waiting list of two years for prospective students.  All of their graduates have employment contracts before they leave school.  We asked around to see why there was no such thing in Cusco.  The answer we heard from owners and managers at hotels and restaurants was universal; ¨That’s a great idea.  We need that.  Everything in Peru is in Lima.  It has always been that way.¨  We asked them what they were doing to meet their staffing needs.  The answers varied from taking in random tourists just passing through to on the job training for local workers.

This trend and opportunity extends well beyond the hospitality industry.  We talked to mining executives and several engineers working for the local government.  Both lamented the lack of qualified professionals ranging from accountants to surveyors.  They unanimously concurred that the concentration of education and services in Lima was a problem and that any entrepreneur who set up shop in Cusco would do very well.

So here is our short list of entrepreneurial opportunities that are both immediate and don’t require a lot of capital:

1. Set up a training academy for hospitality staff.  Implement high standards and make it comprehensive and very soon you will have employers insisting on only hiring graduates of your academy.  Overhead would be low and you could collect tuition from students as well as placement fees from employers.  You would need to have a working knowledge of Spanish to pull this off.
2. Start a logistics firm.  All of the mining and energy execs we spoke to complained that the local trucking, warehousing, and freight-forwarding operators were a mess.  ¨Worse than Africa¨ was often repeated.  Most of the small and mid-sized resource companies do not have a staff logistics manager and would be glad to outsource the function to you.  And it is not just the miners and the energy guys, the developers as well as the local government is desperate for these services.  You could start off as an arranger of services and grow into being a full-fledged logistics provider with a couple of warehouses and a fleet of trucks.
3. Start an engineering services firm.  If you are a civil engineer you will find Cusco awash in opportunities.  There is an enormous amount of specialized civil engineering and environmental engineering to be done and few professionals to do it.  Over the next decade the Departmento de Cusco is expected to receive over five billion US dollars in revenue from resource companies in the form of taxes, concession payments and royalties.
4. Some if not most of that money will go into public works projects ranging from roads, to schools to hospitals.  This is on top of the work already backed up for private initiatives.  Throw into the mix the environmental and cultural concerns associated with Incan ruins and native history and you can start to understand the opportunity.  At present this work is given to either firms in Lima or more often than not international firms.  We met with three German engineers that were working on a road and bridge construction project.  They did not speak Spanish so they needed a translator everywhere they went.  They lived in a not cheap hotel and they drove around in four-wheel drive trucks they rented in Lima.  They may have been competent engineers but there is no way they could be cost competitive with a local engineering firm.  They admitted this and mentioned their company based in Dusseldorf had never done work outside of Europe before this project but were now considering opening an office in Cusco.
5. 

   Cusco from the hills

   Start a networking group for expats.  You could charge the localbar and restaurant owners for hosting events in their establishment.  This would put you at the center of the expat community and would put your finger on the pulse of the market.  Within months you would become Mr or Ms dealflow or market maker.  You would also bridge the gap between the NGO, academic, and backpacker crowd and the resource business crowd.  Our night on the town taught us they presently don’t mix.  In no time people would come to you and say, ¨Do you know where I can get a refrigeration unit?¨ and ¨I´m looking for a house to rent for my employees.¨  You would be a fixer by default and could charge commissions.  You may not make your fortune this way but sooner rather than later a brilliant opportunity would fall right into your lap.

And these are just the top four ideas that require very little start up capital.  If you have a grubstake your opportunities would be much greater.  Refer to our previous article on Ghana for our explanation of how to set up a housing compound or mining camp company as every opportunity we mentioned in that article would also hold true for Cusco.

Where to Start?

So what if you don’t speak any Spanish, you are not an engineer and are inhospitable, yet want to give it a go nonetheless?  You can always sign up to teach English as a foreign language.  A quick web search will reveal at least ten language schools that would hire you on to teach English.  Some pay a decent little stipend or room and board.  Others throw in Spanish lessons.  Regardless it would be a good way for you to subsidize your exploration.  Perhaps you will see an opportunity that we would never notice.  The worst that could happen is you learn a bit of Spanish, see a town in transition and take in a little culture.  To us it sure beats a cubicle.  If you are presently trying to ride out the economic downturn in a job you don’t like then why not give it a shot?  We suspect your ride through the economic pain and suffering is going to be longer than you think and we would bet that a year in Peru would be a greater boost to your resume than the average cubicle dwelling job.  It will certainly be better for your soul and your mind.

Conclusion

Cusco or Cuzco or even Qusqu as it is sometimes spelled is a multicultural boom town.  Not multicultural in the ethnic sense although you will find people from Asia, North America, Europe and the rest of Latin America in growing numbers.  Cusco is multicultural in the sense that it is a place where ecotourism and extractive industries are both growing rapidly.  It is a place where industrial development is clashing with indigenous tradition.  It is a place where soon enough the watering holes will be filled with the pocket protector engineers and the dope-smoking hippies.  A place where you can observe the hot NGO chick from Copenhagen pretend she is not attracted to the weather beaten geologist telling tales of Angola during the war while her metrosexual Belgian boyfriend from the anti-carbon foundation relives the debate over Kyoto.

It´s worth a trip for all and if you are keen to start life anew there are few places that provide as much opportunity with little start up costs.

Actionable Intelligence: Southern Cone Vultures

A year ago this month we floated the idea of an entity that would invest in special situations and distressed property in the Southern Cone of South America.  We had an overwhelmingly positive response.  Since then we probably receive two emails a month asking when are we going to launch our vulture operations.  The answer is now.  We have been holding off because the timing just wasn’t right.  The effects of the global crisis combined with bad economic policy postponed the arrival of juicy opportunities.  But now these opportunities are starting to surface with enough regularity that we are convinced the time is rapidly approaching when we will be able to swoop in and get some great deals.

In Context

We believe the global economic situation is such that every investor should have some real assets outside of their home country in the event turmoil strikes. If you have to leave home in a hurry or should your assets at home no longer be available to you then you will be glad you have assets elsewhere.  These assets provide both financial and physical security.  Property investments should be in a place where you would feel comfortable living for an extended period of time and also in a place where you have a high degree of confidence you can get your money out when you want it.  Ideally the property will generate a healthy yield during the time you are not occupying it.  For us, the Southern Cone is the ideal place because it welcomes foreign investors and residents.  Property rights are rock solid and to put it bluntly, if you are Caucasian or Latino you can quietly assimilate into the country without too much effort.

Additionally, we believe that the current government policies are eventually going to destroy the currencies of Europe and North America.  After a period of deflation and stagnation, inflation will run away from even the most determined policy efforts.  The best defense will be precious metals and productive real estate in safe jurisdictions.

Every investor who has the means should try to have an investment ¨bolt hole¨ outside of their home country.  It makes financial sense and at the risk of sounding melodramatic, it could be the difference between escaping a dangerous environment or having to cope with whatever comes your way.  Personally, we are not the ¨hide the ammunition and canned food¨ types.  We would rather just have a packed suitcase and a place to go.  In our view, it is better to watch the riots on BBC World Service than be well armed and hiding in the basement.
Background

The Southern Cone of South America for purposes of this discussion includes Argentina, Uruguay, Chile, Paraguay and Southern Brazil.  There are different sectors of the real estate market that range from urban residential to large-scale agricultural operations.  We have speculated in these property markets successfully in the past and believe now is the time to do so again.  We have been out of the market for about seven years.  For the last fourteen months we were expecting the market to break and great deals to start popping up.  They didn’t.  Now they have.

In the past two months we have seen some very good deals come across our bow.  Some are residential; others commercial; some are development opportunities while others are profitable agricultural operations.

The deals are getting better but you have to search for them.  It is not an efficient market.  There are no services that monitor sales or listings.  No multiple listing service, no historical price data, no loan origination information.  Therefore being on the ground and in the market is key.  We have built up a network of brokers and deep pocketed locals that keep an ear to the ground for us.  Sometimes one of them may keep a deal to themselves but invariably within our circle of vultures we get a look at the better deals.

The Opportunity

With rare exceptions this is a cash market.  Mortgages are very hard to come by and when they are available the interest rates and duration make them unattractive.  It is not uncommon to have a buyer literally bring a bag of cash to the closing table.  Naturally, this makes for a less liquid and less efficient market.   These markets are a ten year cycle with an eight year memory and nobody ever admits it is year nine.  It is a market where once each decade a good speculator can make a fortune if he is patient and has ready cash.  By our reckoning we are in year nine.

The ability to have ready cash to make low ball offers is an essential feature of successful speculating.  The best deals go quickly and many times a fifty percent  offer closing in ten days will be accepted but an 80% offer closing in two months will not be.  You have to be nimble and creative.  You need to seek out the distressed buyer in need of a ready solution.  It may not be just a matter of cash.  It may be a matter of how the title is transferred and where the buyer and seller reside.

For example we know of a certain well-known intellectual who was just nominated to a high profile ambassadorial post in Europe.  His wife is aggressively looking for a buyer for a certain property they own in a neighboring country.  He will sell at a very attractive price if he can get rid of it before he has to declare his worldwide assets as part of his confirmation process.  He will take an even bigger haircut if we pay him for the property in Europe.  The catch: The deal needs to be complete by the beginning of October.  Did we mention he would accept a trade?  He is open to accepting property elsewhere or even shares in a publicly listed company outside of South America.  We estimate we could buy this property for about sixty cents on the dollar if we solved his problems.

Here is another example.  There is a farmer who wants to sell 1400 hectares of land in three blocks; 800 hectares of very productive cropland and another 400 hectares planted with pine trees.  The balance is scrubland good only for sheep.  He inherited these properties and they are located two hundred kilometers from his main operations.

He wants to sell these two properties because the property adjacent to his main farm is going to a judicial auction in seven weeks and there is no time to negotiate a purchase.  He covets the neighboring property because it has two state of the art grain silos and is on the river they use to take the crops to port.  Controlling it would make his land much more valuable and reduce his operating costs significantly.

The properties he is selling are held in a private company.  If he sells the properties outright then the tax burden is significant but if he sells the company the tax consequences are minor.  He needs to find a buyer willing to buy the company.  He is willing to sell the properties at a thirty percent discount to the going price.  He is assigning no value to the pine trees, which are between four and eight years away from harvest.  We estimate the property would generate an unlevered cash on cash return of about 12%.  This is based on renting the land to other farmers to operate and taking no crop risk, which is a common practice.  The value of the trees is in addition to the 12%.  He needs someone who can act quickly and creatively.  We suspect if we offered to loan him the money to buy the adjacent land immediately and then converted that loan into the shares of the company that holds the two properties we want, we could get an even better deal.

These are just two examples.  The deals are likely to get more frequent and attractive in the next year or two.  We suspect now is the time to get back into the game.  Therefore we are investing in a vehicle designed to take advantage of these types of market opportunities in the Southern Cone and perhaps later on in other parts of the world.  There is a very attractive way for qualified subscribers to participate as well.  The structure of the vehicle is attractive for many reasons and it has a clear exit strategy that will allow for greater liquidity than they would normally have in such investments.  For a variety of reasons we cannot get into all the details in this type of publication but if you email dealflow@withoutborders.com and put VULTURE in the subject line we will make sure you receive all the relevant information.  If you are looking for a way to internationalize yourself in a meaningful way then this is probably your best opportunity short of having the time and resources to do it yourself.

No Stock This Month?

Sadly, we have no stock pick for you this month.  A year ago we recommended Embotelladora Andina´s ADR (NYSE: AKO-A) at $12 and recommended you back up the truck at $9.  It never hit $9 but a few subscribers did get in at or around $12.  We thought they were pricey at $18.25 only a few months later so we sold them.  The shares are now at $23 and we think they are way overpriced.  The reason we mention this is because this situation is emblematic of our take on the market in general.  Almost everything we look at seems overpriced.  Perhaps we are too cautious.  Certainly you would have made more money if you had ignored our sell recommendation.

The reality is we are rather cowardly with out capital.  Here is what we wrote back in the October of 2007:

We will not last long in the newsletter business at this rate because we simply cannot find anything we would want to buy at today’s valuations.  It doesn’t seem to matter how bad the economic headlines read. Stocks keep going up and bonds are priced as if there is no risk anywhere.  We recognize you don’t subscribe to this publication to hear this type of report.  We are supposed to get you excited about buying super stocks that are going to the moon! Sadly we can’t find any moon shots these days so if you want your money back we understand.  Sooner rather than later, ¨getting your money back¨ will be a global obsession.

We spent days on the ground with Hochschild Mining (LSE:HOC) over the past couple of months.  We spent many more hours sifting through the filings and geological data.  We planned on recommending it to you in this edition.  It is a very good company.  It is a silver producer with an exceptional exploration portfolio in Peru, Argentina, Mexico, and Chile.  We are very bullish on silver and HOC has a lot of silver in the ground.  Management is excellent.  We really like the company.  But….

In May the company was trading at 235 pence and we thought it a bit rich then.  Now it is 350 pence and we won’t touch it.  As you know we eat our own cooking around here and we think we will soon be suffering a bad case of indigestion if we took a bite anywhere near today’s share price.  Perhaps we are mired in cowardice around here?  Frozen by fear?  It could be the case.  But we doubt it.

We would rather put our capital in real property half way around the world than jump onboard a high flying stock.  We hope you understand our reticence and will thank us for it down the road.  If not you can ask for your money back.  We only wish Mr. Market offered the same guarantee.

End Quote:

I am reading American Vertigo by Bernard Henri Levy.  In the book he retraces Alexis de Tocqueville´s trip through early America.  Levy made the journey just after George W. Bush won a second term in the Oval Office.  It is too early to render an informed opinion of the book but I have always been impressed by de Tocqueville´s clarity of thought and sadly his prescience.  So this month let us end the missive with:

The American Republic will endure, until politicians realize they can bribe the people with their own money.”
– Alexis de Tocqueville
[Alexis Charles Henri Maurice Clerel, le Comte de Tocqueville] (1805-1859)