Volume IV, Issue 10 / October 2010

Welcome Letter

Happy Holidays. Lots of holidays; Halloween, Thanksgiving, Eid, Hanukkah and a few others to be sure.  Despite what your calendar may indicate this is the very late and we hope much anticipated October edition of Without Borders.  I could tell you that the reason it is late is that I was trying to rally my team in the finals of the Hurlingham Open polo tournament or that I delayed publication to determine the effects the mid term elections and recent FED meeting on our portfolio.  However, that would be pure and unadulterated BS. The truth is I was overwhelmed trying to juggle several investment opportunities AND I organized my affairs very poorly. Then once I was already severely behind and on the road once again I was presented with a professional conundrum which put the very future of Without Borders in question.  I wrote about this in Global Speculations so I will not belabor the point again.  As you can see there were several reasons behind this delayed delivery but there are no excuses.  I merely ask for your forgiveness and presumptuously thank you for your patience.

Volume IV, Issue 9 / September 2010

Welcome Letter

I was leaning over the kitchen island in Jim Rogers´ townhome trying to find Banja Luka on the map when he said it.

¨The obvious, inevitable and momentous events take longer than you think and then even longer.  You know they will happen but it is hard to understand why it takes so long.  And when the obvious doesn’t happen right away or in the timeframe we expect the tendency is to think, ´Well, if it was going to happen, it would have happened already.´  Then when it happens people call it unexpected or unforeseen.¨

Jim had invited me to his home to talk about the break up of Yugoslavia not markets.  Yet he was emphatic that the same principles apply to big market moves as they do to big geopolitical moves.  He launched into a friendly lecture about how Wall Street analysts and fund managers will miss the big obvious moves because they are busy dissecting the day-to-day minutia.

It was the first time we had met in person although we had spoken and corresponded for several years.  I first wrote him after I returned from a multi month deployment. I had read his book Investment Biker in what is called a ¨hide position¨, which is nothing more than a hole in the ground from which we conducted static surveillance.  It’s not fun.  It could be dangerous but it was almost always boring.   Our team spent all day and night taking turns manning laser range finders and binoculars on the off chance we might need to call in an air strike.  Unlikely.  All we had seen for days were herdsmen, livestock and dust.

The only thing that kept me sane was Jim’s book detailing his trip around the world on a motorcycle with his girlfriend who just happened to be the daughter of one of his university girlfriends.  ¨If this is what international finance is all about then sign me up.  I like exotic travel¨ I thought as I peered out over the war torn landscape.  It sure seemed like his way of seeing the world had more to offer than Uncle Sam’s version.  He invested globally and traveled with an attractive blond twenty plus years his junior.  I remember thinking, ¨What am I doing in a hole in Bum____ Egypt with a team of guys who have not bathed in a fortnight?  Maybe. Just maybe, this finance stuff is not just for sissies. ¨

Jim Rogers' Home

Mind you, everything I knew about finance in those days could have been neatly written in a matchbook with a crayon.  My very limited knowledge came from two mandatory economics classes at West Point and what I picked up from reading the Wall Street Journal, The Financial Times and The Economist.  I got a C in the Economics courses (too many charts and graphs) and mostly I skipped to the World and Politics sections of the WSJ and FT.  I invested most of the money that hit my checking account while I was on deployment in mutual funds but would have been hard pressed to explain why I picked those funds.  I just knew that if I didn’t stick the money somewhere out of the grasp of my ATM card, I would clean myself out on one of those skiing trips to Cortina.  But I digress.

What matters is I wound up in the kitchen of one of the worlds most well known global investors to talk about what was unfolding in the Balkans.  The visit morphed into an important discussion that would have a lasting and profitable effect on my future.  We spent several hours talking about everything from technology to travel to market timing.  Jim told me he was the ¨world’s worst trader¨ and that weakness was his greatest strength because it forced him to rely on his analysis and not be tempted to trade out of positions if the price moved against him.  Sure he would sell if the basis of his analysis changed but otherwise he would stay put or even add to his position until the ¨inevitable finally arrived.¨   I walked away from those hours spent on Riverside Drive with a different perspective on investing and it planted a seed that would germinate over the years ahead as I left professional skullduggery behind and entered the financial world myself.

Last month I wrote about the temptation to ignore obvious danger if you are not immediately confronted with negative results.  People want to believe that just because they ran the red light a couple of times and didn’t get sideswiped, the risks of getting sideswiped have diminished.  It is not true.   This month we are talking about a second fallacy that is all too prevalent today.  This is what Jim was talking about in his kitchen those many years ago.  When something momentous and negative seems imminent and then fails to materialize, humans are quick to conclude, consciously or subconsciously, that the likelihood of it happening has been reduced.  In the markets this is complicated by the many cheerleaders and shills in the media who have a vested interest in claiming the ¨threat¨ was never real or has now passed.   The powers that be would like you to believe that the dangers have passed and the recent problems were much to do about nothing.

This is an increasingly easier sell in today’s world of instant information and limited attention span.  The CNBC viewers want dramatic charts and ¨Fast Money¨.   But for the patient and prudent amongst us let’s take a look at a couple of looming issues many have assumed are no longer as dangerous or likely.  Write this down.  The Euro crisis is just getting started.  The commercial real estate crisis is still coming.  The private equity leveraged loan losses are coming very soon.  Civil order in Euro land is starting to unravel.  Unemployment in the US will remain high.  And the interest rate slingshot is still progressing towards max elasticity.   Are we surprised events are unrolling so slowly?  Yes.  Should we be?  No.   The sheer amount of interference by governments in their economies and the economies of others will naturally slow the inevitable calamity.  They are borrowing borrowed time from each other.  It will end badly and it will end ¨suddenly¨.  As we wrote about at length in July economic and political events unfold very slowly and then happen all at once.  Please do not get sucked in by the argument , ¨If it was going to happen, it would have happened already.¨

Are We Prepared?

How do you prepare?  We hope you are already prepared or preparing.  If you are a long time reader your physical metals are up dramatically.  Gold was under $700 when we loaded up and it just peeked its head over $1300.  Since we have a third of our portfolio in physical precious metals we feel the core protection is in place.  With another round of quantitative easing in the US and a Euro crisis looming, gold should continue to do well.  It might pull back if there is forced selling of the GLD, which we think is more likely than most.  There is a lot of momentum money in the gold ETFs right now.  Much of this money could flow out quickly if banks and funds are forced to raise cash quickly.  We would not be surprised to see a dramatic pull back in gold and if we do see one we will be adding to our position.  Our view is gold may fall back but it will be over $2000 before this cycle is over and perhaps much higher.  If gold should drop below $1000 we would buy all we could afford.

We still have a third of our investment portfolio in cash.  We moved it into US Dollars at a good time but we are now getting ready to reduce our cash holdings to buy unlevered productive real estate. Cash will remain an important part of our portfolio and will provide you with the opportunity to pounce on great buying opportunities when markets correct.  Remember we are talking about cash in your investment portfolio and not the cash reserve you maintain to finance your day to day living expenses.  Everyone should have a cash reserve set aside before they allocate their investment or speculating funds.

Our stock portfolio continues to do well.  We have a portfolio review edition coming up but in the interim we are comfortable with all of our holdings.  Endeavour Financial is now renamed Endeavour Mining but the story and the stock symbol remain the same.  We are up dramatically on this position and have no intention of selling.  However, with the vast majority of Endeavour’s resources now dedicated to gold mining we wanted to find another merchant banker for the portfolio.  We have found just such an opportunity.  Our Actionable Intelligence is a Canadian resource focused merchant bank with a portfolio of assets around the globe.  We like the management and their portfolio and it is selling at a steep discount to net asset value.

But first we bring you a Dispatch from the editors of the Asia Pacific Dispatch. Their new monthly letter will highlight Asian investment opportunities.  Without Borders subscribers will receive a three-month free trial subscription.  We hope you enjoy what they have to say.  This does not mean Without Borders will no longer cover Asian companies.  Far from it – we will always go where we see the best opportunities.  The launch of the Asia Pacific Dispatch only means that you will have access to a letter that has a more focused mandate.

Finally, it is with a very heavy heart that I put together this addition.  As I sat down to write this month I learned of the tragic death of my friend Polaco.   Since we moved to Uruguay he had become a fixture in our family’s daily life.   Polaco was a noncommissioned officer in the Polish army when the Berlin wall fell.  Soon after the paychecks stopped coming so he went west in search of opportunity.  His search ended in the French Foreign Legion.  After his time in the Legion he wound up in Uruguay where he was a bodyguard for several wealthy Europeans in the high season and a boxing coach and personal trainer in the off-season.  I had been fighting off some reoccurring health problems when we met and Polaco got me back in the gym and back in the ring.

Palaco: A Fighter's Heart

His infectious enthusiasm mixed with that Legionnaire’s menacing stare brought me back faster than I could have imagined.  The mental and physical benefits were immediate and I learned to respect and admire his attitude towards life.  We worked out three days a week when I was in town and every Saturday morning he would take me through my workout while his son taught my two boys how to box.  Eventually he became my wife´s personal trainer.  His sudden passing had us scrambling to do what we could for his two sons who lived with him and left us with a void in our lives.   Polaco lived a life without borders.  He was a true adventurer with a fighter’s heart.  He will be missed.  He was our friend.

Until next time, thank you once again for subscribing.  We appreciate your patronage, patience and persistence.  We believe it will pay off handsomely.

Yours in Exploration,

Fitzroy McLean
Chief Bon Vivant and Speculator

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.

Trichet to Bernanke: “Did you pack your reserve?”

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

Volume IV, Issue 7/ July 2010

Welcome Letter

Welcome Back. It has been another busy month for Without Borders. I have been spending a lot of time in Peru where there is opportunity a plenty these days. From a pure lifestyle perspective, it is not an attractive option for me personally, despite its rich cultural and historic offerings. It is, however, a great place for aspiring entrepreneurs with more hustle than money. It is also an exciting place to invest and speculate. The country is simply awash in opportunities. Therefore, this month will be part one of a two part series on Peru. This month I will cover the politics and economics as well as its capital markets. Next month we will focus on the entrepreneurial opportunities in Lima and the city of Cusco.

But first, we take a detour. Before we get into our Peruvian discussion, lets talk about the state of the political economy, or Politiconomy as we like to call it, since there is no longer any real distinction between Politics and Economics.

As I have mentioned before, my wife was born and raised behind the iron curtain. Whereas, I may from time to time rant about the trend towards socialism as unprecedented or shocking, she merely views it as a return to the ¨normal¨ behavior of governments. When we first met I was a flag waving US Army Airborne Ranger celebrating our victory over communism. My conviction that a new era of freedom and democracy was upon us was so absolute that when my wife’s suspicion of all government rose to the surface, I would assume a pedantic tone and explain how she just had the misfortune of growing up under an oppressive regime that did not respect individual liberty or democracy.

My wife, being far wiser than I, would merely shake her head and say, “You can never really trust a government because governments attract the worst elements in society. Governments exist to protect those inside government”. I remember the distain and pity I felt for such thinking as I arrogantly explained that in America the system was created to limit government. Government in America is designed to be weak. I would extol the virtues of the US Constitution as I pointed out how it empowered the individual and not the collective. I would sanctimoniously point out that freedom of the press and freedom of speech would never allow the politicians and bureaucrats to lie to the people. I would invariably remind her how in the Eastern Bloc the State owned media would run stories about how people were starving in the streets in America and Western Europe and how they would broadcast lies about external threats to scare people into supporting government.

I would explain that information technology would set people free and that with information came the power that would never let governments fool their people again. I explained to her how in Western democracies opposing views keep the government in check and academia and the press would never tolerate the blatant distortion of facts to protect or further the agenda of those in power.

Imagine how silly I feel now.

As a general rule I don’t watch television. We don’t have television on our farm. Most television shows are just bubble gum for the brain. But just the other day I was in the conference room of a major bank in Lima. I was early so they ushered me into the wood and flat paneled room where our meeting would take place. As the receptionist poured coffee I noticed one TV was tuned to CNBC and the other to Bloomberg. On screen number one an advisor to President Obama was spinning like a whirling Dervish dancer as he tried to explain away the most recent housing data. On the other screen the CEO of a bailed out bank was extolling the strength of the recovery despite the record number of unemployed. CNBC then had a terrorism “expert” on to discuss the latest threats and Bloomberg switched to the implications of state run healthcare. I was struck by how little pretense existed and that the segments were little more than propaganda. One shill after another spouted the script designed to affect public sentiment and the financial markets. I felt like the guy who lived along the border between East and West Berlin who watched the newscast about the poverty and violence in the West while just outside the window and across the DMZ relative peace and prosperity was there for the viewing. It was almost surreal.

As more coffee arrived I thought about those early conversations with my wife. I long ago came around to her way of thinking on government. A life spent in small wars and in and around politics will do that. As will a better understanding of economics. Yet I am still shocked by the way the American government has been able to co-opt the masses with such ease. Just think about it for a minute. Economic Central Planning. Media Subjugation. Free Healthcare. Government owned corporations run by the workers. A constant external threat. Blatant and Brilliant. It sounds very Socialist but it is not.

In America the difference is that the powerful elite are not political party members but rather the banking and industrial elite who have managed to usher in a regulatory system which made them the majority partner with government in the running of the State.

This is not Socialism. Socialism is a system where the State owns and controls the means of economic production. The system today is a variant of Fascism. Fascism is the system whereby the State directs the economic activity of privately owned industry. Today’s system in the west is not true Fascism because in true Fascism the balance of power lies with the State yet in today’s system the balance lies with the largest corporations. Besides, you can’t use the word Fascism without evoking images of jackbooted racists.

Ron Paul and others have started calling today’s system Corporatism. They define Corporatism as a system where businesses are nominally in private hands, but are in fact controlled by the government. In a corporatist state, officialdom acts in collusion with their favored business interests to design polices that give those interests a monopoly position, to the detriment of both competitors and consumers. But this is only one part of the entitlement driven system that eventually destroys all democracies.

I don’t like the term Corporatism because it implies that somehow corporations in general are a negative force. And corporations and Capitalism are so closely linked that the name will only confuse the already ignorant and malleable masses. It is not corporations that are bad. It is an environment, which allows for political influence to manifest itself through regulation that has caused many of today’s problems. We need to rally against the regulatory bodies that distort markets by creating barriers to entry and stifle innovation and competition.

Regulatory bodies are mostly faceless and unaccountable. The heads of regulatory agencies don’t have to stand for election. Bureaucrats who are mostly clock punching functionaries, incapable of understanding their cog or the overall machine, staff these agencies. These agencies are expensive and wasteful. They are a literally a tax on society. Without exception, these agencies could be reduced by more than three quarters or eliminated entirely. Most of the functions these agencies perform could and would be provided by the private sector in a way that would not use force to ensure compliance. Yet, although my Libertarian philosophy detests the waste and inefficiency of these agencies it is their contribution to the abdication of personal responsibility that is more bothersome.

The global politiconomic system is on the verge of collapse in no small part because of these agencies. They are the main distributors of unwarranted largess in the form of handouts and subsidies. It was foolish to believe that government could legislate and regulate the business cycle, just ask China and Russia, who are now trying to roll with it, instead of subdue it. It is more foolish to think that government, through regulatory bodies staffed by people who wear short sleeved shirts with a tie, could assume the responsibly of hundreds of millions of people. Yet this is the mentality of the masses;

• I don’t have to think about what I eat. I pay my taxes. The Department of Health and the Food and Drug Administration are there so I can assume that if it is legal it must also be safe to ingest.
• I don’t have to think about educating my kids. I pay taxes. The Department of Education will ensure the education is extemporary.
• I don’t have to think about my retirement. I pay taxes. I have Social Security and a 401K in an SEC regulated mutual fund.
• I don’t have to worry about the strength of the currency. I pay taxes. The Department of the Treasury and the FED do that.
• I don’t have to worry about what happens to the poor in the community. I pay taxes. The Department of Housing and Urban Development and the Department of Labor will deal with that.

The list goes on and the argument is fundamentally flawed for no other reason than the majority of voters do not pay taxes. The mere idea that the government replaces the need to be responsible for one’s own life and community is disturbing on many levels beyond the financial costs of these agencies.

And when it comes to corporate responsibility the abdication is much worse. Banks and big businesses would have you believe that it was the “system” that broke down. It was not their decisions that were flawed. After all, the SEC, the Federal Reserve, the Department of the Treasury, the FDIC, numerous congressional committees and countless other local and state regulatory agencies were aware of what was going on and they did not see the crisis coming. Greenspan and Bernanke told everyone there was nothing to worry about so they were not really required to ensure their balance sheet was in good shape.

But beyond the cost of these agencies and their contribution to the abdication of personal responsibility, what bothers me most about these agencies is the barriers to progress they present.

The cost of regulatory compliance is the single largest barrier to entry for small innovative companies in any regulated industry. According to the Office of Management and Budget, a never to be trusted lackey of the executive branch, federal regulatory compliance costs American manufacturers $380 Billion per year and the regulatory compliance costs are “disproportionately burdensome for businesses with less than 500 million in annual revenue”. Large companies lobby Washington for more regulation not less. It is a misnomer that Drug companies want less involvement from the FDA. The FDA is what keeps small innovative companies from entering the market. Airlines routinely lobby for more regulation, as do the largest Banks. They just lobby for the type of regulation that reduces competition and favors institutions with economies of scale. That is why the recent financial bill was fought tooth and nail; because it would have reduced barriers for smaller more nimble firms.

It’s no wonder that the area where the economy has grown and entrepreneurship has flourished is in unregulated industries. The cause of the crisis was not too little regulation, it was the assumption that existing regulation allowed for the abdication of personal or corporate responsibility. Regulation is a crutch and a barrier to entry. The solution is less government regulation.

The Tea Party folks, though mostly well intentioned, are doing all of us a disservice by calling Obama a Socialist. He is not. The debate should promote the understanding that for many years there has not been a free-market in the US. Don’t let the financial crisis be in any way tied to the free market. Since government controls the private sector through taxes, regulations, and subsidies, and has done so for decades it is folly to say that Free Market Capitalism was at the heart of the crisis. If you must enter the debate then focus on the nexus of big corporations and big government regulatory agencies. Don´t allow the disastrous results of decades of government growth and regulated industry influence to be ascribed incorrectly to free market capitalism or used as a justification for more government expansion. If you choose not to enter the debate there is always room for new freedom fighters in Fitzroy McLeanistan.

There endeth the rage against the machine. Now we proceed to the Peruvian frontier where greener entrepreneurial pastures await.

In This Edition

While in Peru we looked at all types of investments, but certainly the extractive industries dominate the landscape. A couple months ago Carlos Andres of the Frontier Research Report brought to your attention a junior gold company operating in Peru that is now trading 30% higher than when he first recommended it. This month we bring you a large producing mining company with a bright future. As we will explain in the Actionable Intelligence portion of the letter there are several market events converging that will create a once in a decade buying opportunity. We will also talk a bit about Brazil and what we learned from a recent trip about the Politiconomy and how it affects your portfolio.

And as I look at the clock and the calendar I now admit to myself and you, dear subscriber, that my horrid work habits have once again made a looming deadline all but fanciful. To that end let me close this Welcome Letter with a ditty that just hit my inbox. A cigar smoking and scotch swilling friend, subscriber, plastic surgeon, and intellectual adventurer extraordinaire we call Doc penned it;

Tonga Awaits

Waiting here in Tonga,
We’re running out of light.
Without Borders has a deadline
That’s getting mighty tight.
Fitz is banging at the keyboard.
His Mac’s a smokin’, too.
All he wants now
Is to get this damn thing through.
The natives are getting restless and
The cauldron is stoked to boil.
The Editor doubles his efforts
As the drums begin to beat.
He hits the send key at the last second
And avoids being the tribe’s cooked meat.

- Doc

That my friends is the work of a true Renisance Man. Doc is a bon vivant welcome at my humidor or liquor cabinet any time and anywhere.

Yours in Exploration,

Fitzroy McLean
Chief Bon Vivant and Speculator

Volume IV, Issue 6/ June 2010

Welcome Letter

Welcome back. I could have sworn there were 31 days this month. Did they change that recently? This month has flown by. Literally and figuratively. As loyal readers know, I subscribe to the ethos ¨If you wait until the last minute, it only takes a minute¨, hence it is now nearing noon on the 30^th of June as I sit to pen the June edition of Without Borders. I am hopeful, trending towards confident, that it will still be June 2010 somewhere east of Tonga when this hits your inbox. Many of you have written me or told me in person that they try to imagine where I am when I finally end the procrastination and start writing. It varies month to month. Sometimes I may be fortunate enough to be at a sidewalk cafe (so I can smoke cigars) in a really interesting port of call with high speed internet, attractive waitresses, strong coffee, a biblical tome sized wine list and just the right selection of single malt Scotch. Ok that has never happened but I will keep searching. More often, I am perched on an uncomfortable chair in the business class lounge, surrounded by copier salesmen chattering on about the various frequent flyer programs, trying to balance the laptop on my lap while I stuff down sandwiches comprised of mayonnaise and something I hope will accomplish what the Imodium pills I ran out of three days before I left Africa did not.

The most memorable time I ever had writing one of these letters was in a really seedy dockside bar in Algeciras Spain. The crumbling former warehouse was popular with stevedores and those waiting for the shelter next door to open. I had gotten the grand idea to hop a tramp vessel and work my way down the coast of North Africa. I had heard the Entopan was in port and was known to take on unofficial passengers . So I popped open my Mac on a corner table, lit up a cigar and thought I would write and wait until someone wandered in who might know how I could smuggle myself to Africa. The nice thing about no longer being a professional in the world of espionage is that you can relax and just muck about without worrying if you will get fired or if you will cause an incident. You can just ask questions, make people as suspicious as you please and play the wandering fool. For me that comes naturally. You do, however, have to stay alert to your surroundings and be able to sense a scam or a potentially dangerous arrangement. In short order I learned of several ways I could get out of Spain and into North Africa without going through the ¨traditional¨ process. The real market for such services was for transporting Africans to Spain and the idea that a middle aged white guy with a valid passport and nobody looking for him wanted to go the other way was a novelty. It would be more expensive than the regular ferry to Tangiers but still not what you would call expensive. The only catch was that you could only bring one small bag and the captain would personally search it and you before boarding the ship to ensure you were not smuggling anything but yourself. No problem. So having secured passage for the next day or at least made arrangements I returned to penning Without Borders with what I thought was a rapid succession of witty and insightful turns of phrase. I would continuously peek over the screen to watch a scuffle or a drug deal or order more of the house brew of something red and fermented. I smoked cigar after cigar as my computer keys rattled on. About an hour into the process a new acquaintance, a Croatian first officer on a container ship, came over to my ¨mobile command center for economic insight¨. We had chatted a bit earlier and since he had been kind enough to explain the operations of tramp vessels I bought him a couple of drinks. We chatted about the Balkans and China for an amiable hour before he left to speak with some others. Now he was back so I figured he was tired of the same ol´ shop talk and he wanted his burgeoning intellect stimulated so he came seeking cultural refuge.

He said he came over because my ¨computer was smoking¨. I was quite proud that even he could tell the voracity with which my fingertips were pumping out the wisdom!¨ ¨Well sometimes I get in the groove and I have to get it down before my Scotch soaked brain starts leaking and I forget it.¨ I said in what I thought was a self deprecating yet clever manner. His response was more sobering, ¨No. No. Your screen is on fire because it is touching the candle.¨ Indeed it was. I had not noticed the waitress had lit the candle on the table and at some point I must have moved the computer or tilted the screen back so that the candle was slowly burning a hole in my computer. The Croatian, far from seeking cultural or intellectual salvation, shook his head. He looked at me with a wry grin and said something I can only surmise translates into ¨dumb arrogant ass¨ in one of the myriad of languages he spoke but I do not. Ah…the lessons of the grape and hubris. Once you get to a certain age or at least a certain stage of development you learn that too much booze does not make you better looking or bullet proof but it takes a bit longer to internalize that it doesn´t make you any smarter or cure ignorance or arrogance either. In case you are wondering about the trip on the tramp vessel plying the North African coastline, it is a fascinating but, uncomfortable way to travel. For days after the voyage ended, everything I ate or drank tasted like fish marinated in diesel fuel. I gave away the jeans and shirts I wore on the trip because even after several washings they still smelled of grease and grime. It is probably not wise to outline the how to travel under the radar in these pages but this trip did prove it was possible. When I finally decided the sea portion of the journey was over I did go through the immigration and customs procedure before heading overland but I had to actually search for the right office and find someone to stamp me into the country. To just wade into the country unofficially would have been very easy indeed. I think about that voyage whenever I am confronted by the ignorance and arrogance of the cretins staffing most airports in the US and Europe. Not long ago I was at Heathrow standing in the cattle line and wearing a winter weight suit. The sweat was rolling down my back and I started to smell like wet wool. The crumpled suit and wet wool smell was not quite so severe that I would have to throw the bespoke ensemble away but at least the journey adjacent to the engine room did not insult my dignity or erode the soul.

This month I am writing again from home after spending the previous weeks away. Here is a picture of my desk as it was when I sat down to write. Consider this the ¨Before¨ picture. The maté should get me to noon time when I will then light the pipe and start with the wine. In a couple of hours it will be Scotch and cigars and sometime around mid day on the first of July in Tokyo the final dram will be consumed and this edition will be on its way to you.

In This Edition

We have touched on Russia a time or two in these pages but never really talked about Russia as a place to invest or a place to live. For good reason. Lots of good reasons. I started my career in the Soviet business. My degree from West Point was in Soviet Studies. At least I thought it was. Years later when I needed a copy of my transcript I noticed that my major had been changed to geopolitics and cultural geography. Someone must have decided on my behalf that Soviet Studies was no longer marketable. I always joke that at West Point I majored in ¨graduating¨ with a minor in ¨on time¨. I was not a stellar cadet by any metric other than tomfoolery and irreverent sense of humor. In order to graduate, a cadet had to have a minimum of a 2.0 grade point average and pass a series of physical and leadership hurdles. I firmly believed that a 2.1 grade point average was .1 worth of fun missed out on somewhere along the way. Every cadet also had to have at least a minor in engineering. A cadet could major in history, philosophy or economics but you had to study engineering because the Army rightfully believes that the engineer´s problem solving methodology is essential. The idea is that under stress the ability to break down large pressing problems into smaller manageable elements is the basic requirement for a combat leader. It is quite effective. Calculus, differential equations, and statistical probability almost killed my career before it started. It was torture. I would have gladly signed up for the water-boarding elective if it only meant there would be no more constant coefficients in my life. I am now grateful for the experience and knowledge and I use the rational thought process learned in those classes all the time. Unfortunately as a 20 year old exponentially ( a word I learned only the year before in plebe math) more interested in rugby, boxing and a certain freshman at Colombia University I chose to minor in computer engineering and management information systems. This was in the days of mainframes, punch cards and a proprietary top secret programming language called Ada which required a security clearance just to take the class. I had no idea that fortunes would soon be made in computers and while I had heard of Apple I had not heard of Microsoft. I simply picked computer engineering because it required less math classes than any other engineering discipline. This would allow me to concentrate on the important things for a future Green Beret and international man of mystery, like how many self propelled artillery pieces were manufactured in Kubinka and who were the rising stars within the politburo. In retrospect it is intuitively obvious to the casual observer that I majored in buggy whips and minored in typewriters. Within a few years of graduating there was no Soviet Union and my final project, a database programmed in Ada and probably still classified, had about one fiftieth the functionality of the first generation of Lotus 123 spreadsheets. But at least for a while people thought I was a Russia and computer ¨expert¨. Remember in those days both were obscure niche fields and the bar was set very very low. My first jobs in investment banking and fund management were as a direct result of my Russian ¨expertise¨. I spoke German, could understand more Russian than most westerners and could build a fire without a match so I was put to work on privatization projects of Polish sewer plants and Ukrainian steel mills. Don´t question the logic, just accept it. I spent a good amount of time looking at Russian investments and always came away with the same conclusion. Bad idea. I had good friends who made and lost fortunes in Russia and others who learned the hard way how violent the culture can still be. I have Russian clients who remain good friends. We have done deals together on several continents and they think foreigners are nuts to invest in Russia. Over the years the contrarian in me wanted…no needed to prove them wrong so I followed Russian economics and politics closely for a decade in search of an angle. Yet the more I learned the more I came to the conclusion they were right. So I simply retired my expertise that never really was and moved on to much more compelling opportunities. However, in the last few days my phone has rung off of the hook with calls from friends from my previous lives. About mid week the calls were from friends in the fund management world and investment banking world. President Medvedev´s trip to the US was the cause for the questioning. Do you think the Russian silicon valley idea has legs? We need to increase our BRIC allocation and need advice on Russia, can you help? How do we source venture capital opportunities in Russia? So I thought it was about time to write about Russia. Then the ¨Spy Ring¨ story broke and my phone really started ringing so I knew it was time to write about Russia. So this month is our Russia Issue.

The Markets

What more can we say? The second leg down is coming! The Eurozone will not survive intact. Inflation will violently follow a prolonged period of deflation. Inevitable? Yes. Imminent? Looks that way. We remain comfortable with our precious metals and equity positions and we are still holding on to and building our cash reserves. This month we bring you an international energy company that is global, aggressive and often overlooked despite being a major producer. This is a contrarian play on several levels requiring a little patience but will perform well through the rough spots and pay out a nice dividend while we wait. Finally, friend and subscriber Mark R., a professor of Geography at the University of Hawaii, is staying with us. He is a very learned guy from whom I have personally learned a great deal. He is not a traditional academic. Far from it. Although a long time tenured professor, he is a critic of the painful divide between academia and the so called real world. Like many of our subscribers, he and his wife are international people. She is originally from Holland and together they have worked and lived in Latin America, Europe and the US. Our conversations range from business and economics to linguistics and etymology to steak and country music. His visit, like so many other visits from subscribers who become friends, reminds me what an eclectic and sophisticated band of intellectual adventurers we are. Not sophisticated in a pretentious way but sophisticated in a way that embraces a multitude of subjects. The Without Borders subscribers are both interested and interesting and I am better for the experiences. I hope you feel the same way and I hope we can eventually figure out a way to cross paths in person. One other item of note: Mark, like many others before him, said at dinner last night, ¨I love your letter but you really need a proof reader or editor.¨ He then offered his help as have many of you before him. He is right. But did I mention it was already noon on the last day of the month? It is nobody´s fault but my own. Travel schedule, research, sloth and Uruguay´s run for the World Cup are reasons but not excuses. Scroll down to the bottom of the letter for the ¨After¨ picture if you need any further explanation. Until next time, thanks for joining us and thanks for your patience with the typos and dangling participles. We hope the insight, portfolio performance and sense of shared experiences with kindred spirits keep you coming back for more. Yours in exploration, Fitzroy Mc Lean Chief Bon Vivant and Speculator

Volume IV, Issue 5/ May 2010

Welcome Letter

Evo Morales

Welcome back. This month I’m on the road again in Peru and Bolivia. I am writing you from the Bolivian city of Santa Cruz, where I had drinks with one of the rebel leaders of the separatist movement. The ‘rebels’ are desperate to remove the resource rich southern province from the tyrannical reach of Evo Morales and the socialists controlling the Bolivian government.

When most people think of South American rebels or ¨freedom fighters¨ they think of the fiery and scraggly ideologues like Che Guevara, or the coked up bandolier bearing FARC fighters of Colombia. The rebels I met with this week were nothing like that; they wore pressed khaki slacks, with polished slip-on calf skin loafers and talked about agricultural production and the efficient allocation of resources. But don´t let the outward civility belie the deadly seriousness of the situation. In the past 18 months Morales’ government has killed or imprisoned more than 50 people who openly agitated for a separate state. Several of the dead were foreigners who were accused posthumously of trying to overthrow Morales. The tension is palatable and after the meeting I felt compelled to conduct a full three hour surveillance detection route to ensure I had not attracted the attention of the Bolivian secret service.

Santa Cruz Bolivia

Santa Cruz is a powder keg in search of a match. The Morales government gets more aggressive by the day and, in addition to nationalizing the assets of foreign companies, he is squeezing productive individuals to the point where they feel they have no choice left but to fight or flee. As I cleared immigration on my way out of Bolivia, I could not help but think how much it reminded me of Belgrade in 1991. I will be going back to Bolivia in a few weeks and will report again with a full Dispatch. In the meantime keep your eye on the headlines, and if you own shares of any company with operations in Bolivia sell them now! Take a look at the chart of Rurelec Plc, the London-listed electricity provider whose Bolivian assets were nationalized this past month. If you are still holding any miners with high hopes for rich Bolivian deposits, you may want to redeploy that capital elsewhere.

Peru and Bolivia, although neighbors, and once part of the same country, could not be more different. Peru is booming. The government is pro-business and the country is actively courting international investment. On this visit I met with a Peruvian family in the iron ore business, and the positive energy was contagious. Things are looking up in Peru and we think we have found some very interesting investment opportunities. We will also be covering Peru in much greater detail in an upcoming edition.

In this month´s edition of our roving rambling capitalist quest we review our portfolio of investments and recommended locales with an eye towards the near future. The world may have survived the financial crisis of ‘08 more or less intact, but the real economic crisis is yet to come. We can’t help but feel that the markets are not at a crossroads, as much as they are running full-speed towards a jagged cliff.

Rage Against the Machine

We know we’ve said this before and will likely say it again, but we remain convinced that calamity lies dead ahead. We are surprised it has taken this long for catastrophe to strike, both in the markets and in the economy. Remember, the economy and the markets are not one in the same. Our hypothesis is that we are witnessing the markets and the economy ¨rage against the machine¨. That is, they are fighting against an unnatural force.

In the case of the markets, the ¨machine¨ is the programmed ‘trading systems’ that buy and sell trillions of dollars of securities based entirely on mathematical formulas. Stocks, bonds, currencies and commodities are all traded within these ‘systems’ based solely on price movements and historical data. This explains why stocks may fall rapidly during a majority of the trading day (for good reason) and then have a sudden spike in the afternoon. Don´t let this incongruity bother you. Here is what is happening. In the morning, living, breathing human beings wisely dump stocks, sell the euro or buy bonds for a good reason (like the Eurozone disintegrating before our very eyes, just as we predicted back in 2007). So, stocks plunge and the Euro plunges and so called ¨safe assets¨ such as short term Treasuries spike. Then around three in the afternoon an arbitrary ¨trigger point¨ is reached and electronic buy signals kick in. These ¨trigger points¨ are determined by mathematical regressions or deviations from the long term averages, which are calculated by historical price movements. Since so many of these systems share the same analytical formulas there is a wave of programmed buying that sends prices back up.

But don´t let this volatility bother you. The zig-zagging of prices will slow the trend but it will not change the trend or change the fundamentals. As we wrote to our FLASH CABLE subscribers a few weeks ago, the ¨flash crash¨ of May 6^th was a good example of the effects these programmed trades can have on the markets. They can also provide us with some fantastic trading opportunities. According to the Wall Street Journal, over 70% of the daily volume on the NYSE results from programmed trading systems. The bottom line for us is that the trends we outlined as early as September 2007 are now unfolding before our eyes, and while it will not be a straight line, our portfolio is positioned for profit. These artificial interventions give our FLASH CABLE subscribers the chance for extraordinary profits, because with this service we have the ability to alert them intra-day.

In the case of the economy, the ¨machine¨ is government. Governments around the world are taking unprecedented, and what will eventually be seen as unsuccessful measures, in order to slow the inevitable economic reckoning resulting from a half century of excessive debt and spending at the household, corporate and government level. They may know it only prolongs the pain, but they don´t care as long as it gets them through the next election cycle.

Just like the programmed trades that send falling shares temporarily higher, government intervention sends economic data in the opposite direction, also temporarily. House prices fall until the government pours massive amounts of tax money into the system to ¨help¨ homeowners purchase homes. This artificial increase allows for government sponsored, or government corrupted economists to declare the worst is over; but, as we will shortly see that only lasts until the ¨stimulus¨ runs out and the inevitable trend continues. The same was true for the futile ‘Cash for Clunkers’ campaign, and it will be true for Germany´s short selling ban and any future government-sponsored folly.

The important lesson to learn is that these measures are irrelevant in the long term, but important in the short term because they do affect price movements and send false signals. We need to be cognizant of, but not fooled by, the artificial, the contrived and the increasingly volatile actions of both programmed trading systems and government intervention.

Our Portfolio

Our core portfolio continues to perform well. Our precious metals positions, US dollar allocation and our short positions have done very well in the last several months. Our long positions are all in the black and should do well throughout the next cycle. Even so, this month we are going to lock in some profits and increase our cash position for the next phase. As both speculators and investors we recognize that crisis breeds opportunity, and therefore we want to be poised to deploy ready cash as we did in the fall of ‘07 and the winter of ‘08. As the financial crisis morphs into a sovereign debt and general economic crisis we will be well prepared.

Our Places

All of our subscribers recognize that Without Borders is much more than a financial publication. We are at our core a freedom publication. Financial independence is merely one of the more important elements of personal freedom but it is not an end in itself. Far more important is the ability to live free and have control over all elements of your life.

Our search for individual freedom and enlightenment is the driving force behind all that we do. Unfortunately, we live in a time where the global trend is against personal freedom and it is only going to get worse as governments begin to crumble. Throughout history the period just before the death rattle of a nation state is marked with aggression and often violence. Therefore it is incumbent on us to find the best places to spend our time, either as a primary residents or as a place to ride out the storm should it be impossible, or unwise to remain where you are. At last count we have written dispatches from nineteen different countries since we first started publishing Without Borders in 2007. We only write about places that have something to offer and there are many places where we arrive with high hopes, only to be disappointed with what is on offer after spending some real time there and analyzing the way personal freedom and private property are treated.

This month we will review the countries and places which had topped our list of potential second homes. As immigrants ourselves it saddens us to note that many of the places we really like are trending in the same direction as the US and Europe. Again this does not mean you cannot benefit from spending time in these places or investing in them but it does mean that we need to be aware of trends and outright changes. As Intellectual Adventurers we need not despair, as we are geographically agnostic and always seek the path that provides the most promise, yet we must be mindful that trends move very slowly and then all at once. The megatrend we talk about more than any other is the trend away from liberty towards tyranny, and we are preparing for the trend to gather momentum in the very near future. We must remain in a posture that allows us to act ahead of the crowd both in the markets and in our personal lives. We want to watch the riots on TV, not out of our living room window. We want to plant the garden before the grocery store shelves are bare. And, most importantly we want to enjoy the company of those who add positive value to our daily lives.

On a personal note, our free market band of brothers keeps growing. In the last month I have had the pleasure of breaking bread or popping corks with over twenty five Without Borders subscribers. Some form the nucleus of our ‘rational wing of the lunatic fringe’ here in Uruguay, while others were passing through. A special thanks to our visitors from Vancouver who kindly brought Olympic souvenirs for the boys. They were a big hit at school. Recently returned from Australia and New Zealand, another couple now occupy the guest quarters on our farm. As we compare notes of our recent travels, our world shrinks while our knowledge grows. They wrote an excellent ebook which covers relocating temporarily or permanently to New Zealand. We highly recommend it. You can get your own copy HERE.

Friend and respected resource analyst Carlos Andres of The Frontier Research Report is also going to be back in Uruguay for a while on his way to Brazil and Chile so we plan on spending some quality time with him discovering the latest opportunities in the resource stock market. We hope you are getting as much out of your free subscription to his newsletter as we are. For investors interested in the powerful returns that can be found in small resource companies the three must read publications each month are the International Speculator, The Casey Energy Report and The Frontier Research Report. If you consider yourself a learned global speculator you should be tracking the progress of these intrepid analysts as they hunt for proverbial elephants. Their advice has made me many multiples of the subscription price year in and year out.

There is also another subscriber-turned-friend, and soon to be investment partner, who I have now had the pleasure of meeting several times, and always in a different country. Based between Zurich and London, he has holdings in as many out of the way places as we do. As we smoked cigars and sipped Scotch on a Bolivian sidewalk, we found out that we share a similar Weltanschauung and were born on the same day exactly ten years apart. [space]Encounters like these, and the friendships that result, are what make Without Borders so unique.

Until next time thanks for subscribing, and please keep us posted on your personal life Without Borders.

Yours in Exploration,

Fitzroy McLean

Chief Bon Vivant and Speculator

Volume IV, Issue 4/ April 2010

Welcome Letter

Welcome back!  We are excited to bring you Turkey as our focus this month. This historic and pivotally placed land plays an extremely important role and will increase in influence with the increase of trade barriers. Under such conditions, trading blocs will form and Turkey will become a key player as the most European of the Middle-eastern countries and the most Middle-eastern of European countries.  The collapse of the Eurozone, which is now a near certainty, will favor Turkey as many of the overseas Turks will return home or at least send back capital for safe keeping.

I first went to Turkey in the early 90s.  Although I passed through Ankara and Istanbul briefly, I spent the majority of my time living in a warehouse outside of Batman with a group of Brits and Americans.  A casual observer might have thought us a group of oil company employees or aid workers as we were all under 40 and only referred to each other by first name.  But a closer look would have revealed we were neither commercially oriented nor terribly interested in providing aid.

If you know what to look for you can spot a clandestine military or paramilitary team from 100 meters.  First,  ¨relaxed grooming standards¨, as the military calls long hair and beards, do not hide military bearing.  You can spot the mannerisms of a field soldier by the preciseness of his actions which make him look uncomfortably alert when compared to civilians. An aid worker will completely ignore the hustle and bustle of a third world city as soon as the novelty wears off.  They wander around alone with their hands stuffed in their pockets on a cold day or wearing nothing but shorts and a t-shirt in summer. Most special operators, unless they have lots of field time and complete disdain for their professional culture, never truly blend in.  Operators almost always move in ¨buddy teams¨ even when going to the local market for provisions.

There is a standard issue ¨non uniform¨ uniform for special ops types.  If you see a group of thirty something athletic guys with cargo pants, wrap-around sunglasses, big watches and black backpacks with at least one snap link attached there is a better than 50% chance they are special operators or wannabe´s.  If most of them are also wearing black nylon fanny packs the odds are better than 90% they don´t hold passports and tour books but rather 9MM pistol in a tear away pouch.

The informality of our group was not borne of familiarity but rather necessity as we were all operating under alias.  I had never seen any of the others before arriving but first names are standard operating procedure when you are using throw away identities.  At first encounter the first name only thing may not jump out at you but after a short while it feels forced and is noticeable.

I begin with these random musings for two reasons. The first is to point out one of the problems with western intelligence and Special Forces human intelligence or HUMINT capabilities.  All the agencies have become mature bureaucracies and mature bureaucracies are founded on regimented systems.  There is an organizational bias against any operative who ¨goes native¨ or blends too well.  They cannot be fully trusted and a whiff of renegade or individual spirit will remove an operative from an attractive career path.   Hence nine times out of ten the best field operatives are either forced out or choose to leave after only a few years in the clandestine services.  The guys that actually get pretty good at running agents and gathering information are promptly rewarded by being removed from the field to dwell in a cubicle.  Note: in the spy business the guy in the employ of an Agency is called a clandestine service officer, case officer or intelligence officer.  Never an Agent.  An Agent is a foreign national that is either wittingly or unwittingly committing treason by sharing classified information or otherwise providing services to a foreign intelligence service.  In the spy trade Agents are thought of as necessary evils and disposable tools most of the time.  It should not be that way but it is the case more often than not.  Unfortunately, the hubris of the US government is now so widespread that the us vs them mentality has all but destroyed the effectiveness of the US intelligence agencies.

The second reason I bring this up is to introduce you to one of the rare exceptions to the rule.  I first met ¨Nick¨ in Batman.  Batman is an oil town on the border of Kurdish Iraq.  We were there ostensibly to support Kurdish refugees in Turkey but in reality we were there to meddle in other people´s business.  I was new to the game and had carefully packed my cargo pants, fanny pack and black ¨civilian¨ rucksack…eh I mean backpack with snap links.  I synchronized my big watch and was ready to go.  Nick picked me up at the airport in a beat up Toyota pickup with a goat in the bed.  A picture of a Syrian pop star hung from the rear view mirror.  Nick looked like a cross between The Dude from the Big Lebowski and Sam Elliot´s character in Roadhouse.  He was wearing white linen pants and slip-on Turkish sandals.  Real operators wear Merrill hiking boots. There were tea and tobacco stains on his loosely fitting hemp shirt.  Were it not for his American accent he could have been from anywhere.  He certainly did not look Turkish or Kurdish but his origins could have been Lebanese, Southern European or even Indian.  At the time I thought his picking me up reinforced the fact that I was below ground on the totem pole.  I thought they sent some administrative local hire pogue from accounting to pick me up.  This middle aged washout with a potbelly and scraggly beard was the boss´ way of saying, ¨mind your business junior and stay out of the way”.  They probably found this driver slash fixer hanging around the US embassy in Ankara and figured he was harmless.  But I was wrong…Very Wrong.  Nick was the boss.  And Nick was the man.

Nick is a legend in certain circles, famous and revered by some and infamous and despised by others.  Nick is a trust fund baby.  He was born rich. He didn´t have to work.  He was thrown out of several snotty but not terribly academic eastern colleges before he joined the Navy to piss off his family.  He served with the SEALS in Vietnam.  He then left the navy and traveled the world in search of enlightenment.  Enlightenment in those days involved a lot of cannabis, sex and communal living which he found along the hippie trail that roughly followed the old silk road through Turkey, keeping in close proximity to the poppy fields of Afghanistan, before continuing on to Tehran and Nepal for enlightenment. Doug Casey recently sent along an Arabic proverb,

“Paradise can be found on the back of horses, in books and between the breasts of women.”

I´m not sure about paradise but Nick is living proof that this form of enlightenment is possible and his quest took the better part of a decade in which he became a student of eastern philosophy and an accomplished linguist.   At one point he lived like a Pasha and had a palace complete with harem just over the Uzbek border in Iran.  He claims Jimmi Hendrix and Jim Morrison both stayed at his place.  He has pictures of the model ¨Twiggy¨ bathing nude in his fountain. Sometimes local Uzbek men would drop off their eligible daughters because the ¨pasha¨ did not require a dowry.   When he talks of those days you can see the wistfulness in his eyes.  But that ended badly when the Shah was deposed.

A more enlightened Nick found himself back in the US in the early 80s where he taught European literature and eastern philosophy at an elite (read expensive) prep school for nearly six years before being fired when someone noticed his college transcript was a forgery and closer investigation revealed that the enlightened one was still a university sophomore in the eyes of academia.  Alas Nick was thrown from the ivory tower once more.  Luckily for him the Soviets had invaded Afghanistan and Nick not only spoke Pashto, Farsi, Arabic and Urdu but he was once a SEAL and would work on the cheap.  When a fancy prep school throws you out where do you go?  To the CIA of course. It’s easy if you have an old navy buddy trying to round up a crew of ¨advisors¨ willing to live in Peshawar.

The rest as they say is history or, as is often the case amongst shadow dwellers and door kickers, one part history and one part exaggerated legend.  Legend has it that Nick was the first westerner to link up with the Mujahidin inside Afghanistan.  Legend has it he lived in the midst of the Soviet occupation for two years inside Kabul.   I don´t know exactly how much of the legend is true but I have seen a picture on his wall of a young Nick and a young General Rashid Dostum arm in arm standing over the wreckage of a Soviet helicopter.  I´d heard Nick and Dostum knew each other during Nick´s stint as a Pasha and Dostum´s early days as an Uzbek smuggler.  I´ll leave what Nick consumed and what Dostum may have supplied up to the imagination.  I asked Nick once but he just deflected the question and I let it drop.

After Afghanistan he became the black ops journeyman equivalent of the surfer always in search of big waves.  Whenever there was an interesting hot spot in some place and it was hard to recruit from the cocktail party crowd that runs the clandestine service, Nick would be there.  But if and only if the job piqued his interest.  He was never officially a CIA officer because he could not pass a polygraph. However, he was what is referred to as a diversified cover officer (DCO).  An independent contractor. In practice this means he can work in the field but can never have access to classified information beyond what he generates.  When I first met him I knew none of this but as luck or misfortune would have it our paths crossed several more times and we became friends.

Nick no longer does any work for the government and, as he tells it, shortly after the Northern Alliance arrived in Kabul he made a trip to DC and outlined in painful detail what would happen should the US try to install Karzai or another puppet and call it democracy.  Two days after he told anyone who would listen that the US would never find bin Laden and the occupation would only move the radicals into Pakistan and destabilize a fragile nuclear power he was visited at his parent’s home in Connecticut by two young men in blue blazers and cheap shoes who ¨looked like they should be working at the mall¨.  They were polite and respectful.  It was obvious they had never heard of him a day or two before and this was just one of their daily errands.  During the conversation Nick learned that a ¨Burn Notice¨ had been issued on him.  A burn notice is a directive that goes out to all CIA and DOD stations stating that an individual has become unreliable and there can be no further contact with him.  This is normally reserved for dodgy office boys who peddle fabricated information and suspected double agents.  It is very rare for a burn notice to go out on an American.  But according to Nick the ¨careerists and their Neocon overlords¨ were afraid he would subvert their plans by arriving in Kabul and linking up with old friends.  Who knows?

We remain close and I have learned many valuable lessons from Nick over the years. He and his girlfriend, a thirty five year old liberal Turkish woman, have a house on the Turkish Riviera where they spend three to four months a year.  With his help we take a peek behind the headlines this month and explore the social and cultural scene in Turkey.  In a coming edition we will explore the Turkish financial and political situation in greater depth with another friend, this time a Turkish entrepreneur that has made a fortune several times over in Central Asia and has recently returned with an eye towards politics.

Also in this issue we explain how to profit from investing in Turkey from the comfort of your home or office. Turkey flies under the radar and is certainly not without problems but there is real value to be found in the Turkish bazaar and the Turkish capital markets.  We will also touch on the property market but our advice is to hold off on any investment in Turkish real estate.

We will close out this issue with further evidence that Greece is merely a skirmishing action by the economic scouts.  The real battle lines will be drawn in Spain. We suspect the problems are set to accelerate this year and we will discuss how to position your portfolio to profit.

On another note, our friend Carlos Andres, who brought last month´s stock pick to our attention, has extended a compelling offer to Without Borders subscribers.  Carlos is a rare breed of analyst who in similar fashion to the folks at International Speculator and Energy Speculator provides some of the best coverage of the resource industry.  His letter is The Frontier Research Report. While there are many letters that concentrate on Canadian resource shares, Carlos concentrates on companies listed in the UK, Australia, Hong Kong and Singapore.  That doesn´t mean he won´t recommend a US or Canadian listed company but he feels the lack of coverage in other places creates opportunities.  Almost everything he recommends can be bought easily through a US online broker. We have been very impressed with his work to date and we think you will be too.  You need not do anything to receive his letter for three months free of charge.  We will send it to you automatically next Wednesday unless you tell us you do not want it.  Read it for three months and if you want to keep receiving The Frontier Research Report then, as a Without Borders subscriber, you will receive 50% off the annual subscription price.

Finally, we have been dragged, kicking and screaming, into the digital age and are now taking a giant leap (for us anyway) forward.  We now have a Linked In profile and group.  So if you use Linked In and you want to connect there and communicate with other members of the Without Borders community you can ¨link in¨  with Fitzroy McLean and the Without Borders Group.

Yours in Exploration,

Fitzroy McLean

Chief Bon Vivant and Speculator

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.

Volume IV, Issue 2/ February 2010

Welcome Letter

Social Science Fiction

Fitz here. I just returned from spot checking the Uruguayan health system with my eight year old son who has tonsils the size of golf balls. I am very happy to report our satisfaction with the care and attention this relatively minor ailment received including a follow up house call from a kindly bilingual doctor with a great sense of humor who had no qualms about a twenty kilometer trip down our bumpy dirt road to check on what was little more than a sore throat. And the cost for such care? Let´s just say I felt almost guilty when paying the bill which included the price of ten days antibiotics and some sort of fruity concoction with ibuprofen as the core ingredient.

Yet it is now Saturday the 27th so we best begin putting pen to paper and try to bring some semblance of order to this month´s research and musings. How time flies, especially when the month only has 28 days and the travel schedule starts heating up. Add to that the fact that only a day or two after I returned from the last company visit, Frau Fitz left for Cartegena Colombia to enroll in a month long intensive medical Spanish course. So it is just dad, the six dogs, three horses and our overworked yet loving maid around the farm. It´s a mad house but we have been having a lot of fun.

This Month, Tim reports from the frigid boom town of Harbin in Northeast China. Often referred to as the ¨Oriental Moscow¨ Harbin not only has a fascinating history, it is an intrepid intellectual adventuring capitalist´s land of opportunity. Over the last several month´s the team here at Without Borders has been putting together our answer to the now burning China question. As you will see in the Actionable Intelligence section, and as we mentioned in the December 09 edition, we don´t believe there is a catastrophic collapse imminent in China yet the real estate markets and capital markets are more than overdue for a correction.

China plays by China´s rules and we ´loawai´ are little more than tolerated intruders in the best of times and intolerable nuisances when times are difficult. The fact that most of the major finance houses have discounted the risk premium in China and the rest of the emerging world boggles the mind until you start to realize they need to have a market for their own holdings as they lighten up on their exposure to ¨risk¨. In the Actionable Intelligence section we have two ways to profit and like our wildly successful ¨Trade Trade¨ that brought in a net profit of over 400% this recommendation has both a long and a short position.

The title for this month´s edition; Social Science Fiction is also the title of this month´s Pulse article. Academics, in order to win acclaim, research grants or a big prize with some dosh attached try to quantify their research with ´data´and ´expected outcomes ´ with four decimal places. For more than twenty five years, academic economists as opposed to practicing capitalists, have been trying to make Economics a ¨respectable¨ science while desperately trying to transform the field of study from the domain of the Worldly Philosophers who took note of how individuals willingly interacted with one another in the provisioning of goods and services to a formulaic science replete with Greek letters and tomes dedicated to the area under the curve. While always flawed, their accepted scientific method has now become the ethos of politicoramuses who run the politiconomy and the egg head strategists at bailed out banks. But it is now clear someone forgot to carry the one deep inside the sub equation inside one of the complex variables in the overall global economic equation. As we have written before a root problem was the definition of risk as volatility but there are indeed many other flaws that are now coming to the forefront.

Other than providing the letters, the Greeks have recently contributed to the world of economics and intricate formulas not only through their experiment with derivatives and balance sheet skullduggery but perhaps also by demonstrating (in the streets) that no matter how much one may want to quantify, it is a lot harder to quell an angry mob than it is to slide a variable or two to the other side of the equal sign. We will discuss the fallacies of central planning and the madness of entitlement heavy economies from China to California. We will touch on Greece, Spain, Iceland, Italy and the United Kingdom along the way as we take a tour through the global debt laden minefields that remain passable only because enough people are willing to suspend reality. In order to appreciate a Science fiction novel, the reader must be willing to suspend disbelief and accept the parameters outlined in the author´s alternate world. In order to accept the reasoning of Bernanke and Trichet one must be willing to do the same. Actually we will explain why we think that Social Science Fiction is far less grounded in today´s reality than anything Robert Heinlein or Neil Stephenson could ever create. We will explain why we believe that despite all the headlines, Greece, like Iran is a weapon of mass distraction and there are much bigger threats out there.

We will finish up this edition with an update on our favorite Merchant Bank which has seen its share price spike over 40% since our recommendation a few months ago and we will discuss why we think the best is yet to come.

Thank you once again for your time and patronage. We are honored to have you as a member of our wandering band of intellectual adventurers.