Archive for November, 2009:
This Ignored Country is Booming
Emerging markets have been the success story of 2009.
While more developed economies such as the United States and Europe have struggled to recover, countries like Brazil, Russia, India and China are on a roll.
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Another emerging economy is also rocketing. Morgan Stanley Capital International has upgraded this market, and it will make the coveted leap to “developed” market status in May of 2010.
It’s Israel. This tiny nation on the Mediterranean Sea might not be the first place that comes to mind when investors think about international diversification, but it should be at the top of the list.
The Tel Aviv 100, a benchmark of Israel’s 100 largest stocks, is up +69% this year.
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Israel’s currency, the shekel, has gained ground against the dollar.
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Investors may be reluctant about shouldering political and geographic risk. Israel is surrounded by enemies and has been plagued by the constant threat of violence. Yet that has been true since its founding in 1947, and Israel has nevertheless developed into one of the world’s most innovative economies.
Israel’s workforce is among the most educated and is renowned for its entrepreneurial spirit. The country has one of the highest numbers of patents filed in the world and is crawling with start-up companies. The World Bank notes it consistently ranks near the top in per capita research and development spending.
After years of GDP growth at about +5.0%, Israel’s economy — along with the rest of the world — experienced a mild recession last year. Now, it’s rebounding: GDP grew +2.2% in the third quarter of this year and should grow by +2.9% next year, according to a Barclays Capital forecast.
The downturn in Israel was brief enough to make the Bank of Israel the first major central bank to raise short-term borrowing rates, a sign of strength signaling confidence in the economy. The central bank has held the rate steady the past two months, but could announce another rate hike by the end of the year.
Part of Israel’s success can be attributed to its status as the Silicon Valley of the Middle East. Tech has been the best performing sector in the market this year, gaining more than +55% compared with the S&P’s +23%. About 75% of Israel’s exports are technology products, so it should be a prime beneficiary if this trend continues.
Two funds offer the best broad exposure to Israel: iShares MSCI Israel Capped Investable Market (NYSE: EIS), an exchange-traded fund, and First Israel Fund (AMEX: ISL), a closed-end fund.
Each of these funds offers broad exposure to the Israeli market, with both funds holding many of the same securities.
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EIS is a bit top-heavy: Its top five holdings comprise more than 50% of the portfolio. ISL is more balanced: Its top five holdings make up 33% of the holdings. The fund trades at a -7% discount to net asset value, meaning investors get a dollar of assets for 93 cents. Considering that the TA-25 Index is trading at 34 times earnings and the TA-100 Index at 44 times earnings, cost-conscious investors may want to pick up ISL.
Brad Briggs
Staff Writer
StreetAuthority
The Most Valuable Business in the United States
The most valued company in the United States? If you guess Coca-Cola (NYSE: KO) or ExxonMobil (NYSE: XOM) or Berkshire Hathaway (NYSE: BRK-A), you’re way off. Hint: This company been around since 1851 and does business in nearly every town in the world. Another hint: A band called The Five Americans made it the subject of a hit song in 1967.
The biggest company in the United States by revenue, earnings and market cap is ExxonMobil. But even Exxon’s No. 1 position in the petroleum world doesn’t make it the most valued business in the United States.
That honor belongs, believe it or not, to Western Union Co. (NYSE: WU). Though the company’s market cap is only equal to about two weeks of Exxon’s revenue, its underlying financial-services business — the one that helps people send cash around the world — is valued more richly than Exxon’s oil exploration and production activities, lucrative though they are.
In this case, “richly” is determined by calculating net asset value and comparing it with market capitalization. That might sound complicated, but it’s not. Here’s how it works out in three easy steps.
1) Add up the company’s assets — anything that has value.
2) Subtract every debt. The resulting net asset value is known as “shareholder equity.” You’ll find shareholder equity on every balance sheet in the world. It’s the part of the company that belongs to the owners free and clear, just like the equity in your house.
3) Divide market cap by shareholder equity. If the number is 1.0 or less, investors can buy the company for less than the value of the company’s net assets. Anything above 1.0 is the value of the company’s underlying business. It’s the premium investors pay to own the future of a retail store, the oil business, or the soft-drink industry — whatever the sector.
In most cases, companies trade at a multiple of book value. That makes sense, of course, as a company certainly should be worth far more than merely the value of its headquarters, desks and inventories. The S&P 500 index, in fact, trades at an aggregate 2.21 times book value. In other words, if you take the average company in the S&P and multiply its book value by 2.21, you’ll get its market cap.
Western Union trades at 41 times the value of its net assets.
Which brings us to an important point: There are lies, damned lies, and statistics. The only reason Western Union trades at such a steep premium is that it has almost no shareholder equity. Its balance sheet shows $6.2 billion in assets but only $327 million in equity. As things stand, Western Union’s market cap is currently about $13 billion.
The question, of course, is why Western Union’s market value hasn’t fallen. If it were an “average” S&P company, after all, it would be trading at 2.21 times its equity, or $722 million, not even enough to merit it a spot on the benchmark index.
The answer is that investors are humans, not computers, and the market is not an efficient or accurate processor of information. Western Union’s price didn’t fall because investors really do place a high value on its business, which it will use to boost its balance sheet by either growing its assets or reducing its debt, or both. When that happens, its price-to-book ratio will happily regress to the mean.
Here is the list of the most valuable U.S. businesses. This screen omits companies worth less than $10 billion. Except for Amazon (Nasdaq: AMZN), UPS (NYSE: UPS), Southern Copper (NYSE: PCU) and perhaps IBM (NYSE: IBM), these are all defensive, countercyclical companies that will have customers in nearly any economic climate.
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Are these stocks good investments? I’d be a proud owner of any of these shares except Lockheed Martin (NYSE: LMT). All but Lockheed have seen a positive return year-to-date, and 65% of these companies have beaten the S&P so far this year.
The biggest winners have been Amazon, +156%, and Southern Copper, +124%. Amazon and Southern Copper trade at not only a rich premium to book but also at a steep P/E ratio: AMZN sells for 76 times earnings, Southern Copper for 65. That strikes me as far too rich, given tepid demand for both copper and the prospects for the upcoming holiday shopping season, which is expected to underwhelm.
Of the companies with a positive return for the year, the best values, that is, the lowest earnings multiples, are Altria (NYSE: MO) (11), IBM (13) and Lorillard (NYSE: LO) (13).
Western Union — whose price/book is likely to fall — is attractively valued at only 14.4 times earnings. Western Union’s assets may be worth a pricey 18.4 times the S&P’s net asset value, but WU’s earnings can be had at a -34.5% discount to the index.
Companies with good businesses command a high book value. When those companies can be purchased at a fair price, it’s a good profit opportunity for long-term investors.
So with that in mind, can you guess which of the companies mentioned in the introduction have the highest price-to-book ratio?
Times are never too tough for a Coke. So if you said Coca-Cola, you’re right.
(Coca-Cola, 5.5, Berkshire, 1.3, Exxon, 3.3)
So have a Coke and a smile and enjoy this oldie.
Andy Obermueller
Chief Investment Strategist
Government-Driven Investing
Where in the World is the Next Generation of Rampant Consumers?
And How Can we Profit?
By Ashish Advani
As you look out across the U.S. – across your hometown and your local big city, each and every one of us can pick out at least a few vacant retail spaces… it seems each medium-sized town has its own “ghost mall,” and at least a few abandoned strip malls.
How did that happen? Are we not the largest consumers in the world? Do we not need all the Malls we can make to continue our insatiable consumerism habits?
This problem’s been building for a while.
The simplest way to put this is; America is getting older. The median age of the American population is 37. The baby boomers (kids born between 1944-1964) are slowly beginning to retire. They are reaching the age of 65. The first round of baby boomers retired in 2007.
And this trend will only continue to escalate…
America is not the only country afflicted by the aging of its population.
Many of the world’s largest economies are headed down this same demographic hill. Japan’s median age is 44…the second highest on the planet. Italy’s median age isn’t far behind at 43, UK is 40; Australia is tied with the US at 37… As you can see, folks aren’t getting any younger here.
And an older population means lower consumption patterns. As folks get older, retire, and start to live on a fixed income, they have less need for consumer products. Now healthcare is an exception. But beside this sector, most other sector consumption patterns will gradually go into overall decline.
But, over on the other side, the developing economies are still quite young.
China’s median age is 27, along with Indonesia, while Pakistan’s median age is just 20. But it’s not until you look to India that you the most interesting facts…
1/3 of India’s population is below the age of 14 …and the median age in India is 24, which is even younger that that of China. And India has a total population is 1.1 Billion. India is expected to overtake China in total population by 2020, when the Indian population is estimated to be at 1.3 Billion and growing.
India also has an educated, English speaking and dynamic population. An average Indian in the city can speak English, is very entrepreneurial by temperament and is always looking to make money and grow his/her wealth base.
When You Add it All Up…
The Indian economy is expected to grow by 6% GDP next year, a rate that it’s consistently held up for the last few years.
Indians are continually increasing their disposable income. The younger, richer Indian population can now afford to buy a better living standard than ever before. The media is open without restrictions, giving their dreams access to the gadgets of comfort they have long desired.
They are eager to consume and the overall trajectory of consumerism is only going to head upwards for decades to come.
Granted, not all sectors of the Indian economy will grow evenly…but it’s a no brainer that the Consumer Goods, Electronics. Automotive, Food and Beverages, Travel, and Discretionary Spending sectors – to name a few – will continue to see double digit growth for many years to come.
What makes this growth story even more exciting is the fact that the overall economic growth is taking place against the backdrop of major political reform…
Bureaucracy is reducing, economic liberalization is deeply supported by the masses and foreign investments are being welcomed with open arms in most sectors. As history has proven time and time again, this translates into companies having blockbuster years in sales and profits.
Often times, when one sees a confluence as described above, we see significant long- term growth opportunities in an economy.
As long as we can select the correct companies in the right sectors, only one word comes to mind…
$$$ Cha-Ching $$$$.
Stay long India dear readers, stay long for a long time!!!
Ashish Advani
Editor, Dalal Street Insider
Source: Sovereign Society
See No Asset Bubbles … Hear No Asset Bubbles … Speak No Warnings About Asset Bubbles
by Mike Larson
Dear Subscriber,
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Ever see one of those “See no evil, hear no evil, speak no evil” statues or pictures? The ones with the three monkeys, one covering his eyes, one covering his ears, and one covering his mouth?
That’s pretty much what the Federal Reserve appears to be doing now when it comes to the asset markets …
Stocks up 67 percent from their lows? No worries.
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| The Fed seems to be ignoring what’s going on in the asset markets. |
Is it just me or are we apparently ready for round THREE of idiotic asset speculation fueled by too much easy money? Sure looks like it …
Deny, Deny, Deny
You think I’m exaggerating the Fed’s blissful state of ignorance here? Don’t take my word for it. Take THEIRS!
In just the past several days, Fed speakers have practically been tripping all over themselves to deny the existence of any asset bubbles.
First up was Fed Chairman Ben Bernanke in New York. He said:
“It is inherently extraordinarily difficult to know whether an asset’s price is in line with its fundamental value,” … but “It’s not obvious to me in any case that there’s any large misalignments currently in the U.S. financial system.”
Next in line was Fed Vice-Chairman Donald Kohn in Illinois. He said:
“The prices of assets in U.S. financial markets do not appear to be clearly out of line with the outlook for the economy and business prospects as well as the level of risk-free interest rates.”
Then there was San Francisco Fed President Janet Yellen. She basically waved off the idea of raising rates to combat surging asset prices, saying in Hong Kong that:
“Further research into the connections among monetary policy, the banking and financial sectors, and systemic risk is needed to help answer this question.”
That’s bureaucrat-speak for “We’re going to kick the can down the road.”
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| Fed President Bullard said we could expect two more years of easy money. |
But St. Louis Fed President James Bullard trumped them all. In a speech in his hometown, he essentially pledged that the Fed would keep rates unchanged through 2012. His comments:
“If you look at the last two recessions, in each case the FOMC waited two and a half to three years before we started our tightening campaign … If we took that as a benchmark, that would put us in the first half of 2012.”
Yes Virginia, there is a Santa Claus. And he lives in Washington, DC! He’s going to give you more than two years of abundant liquidity and cheap money. Go ahead and party and speculate like mad because the cops aren’t going to shut things down anytime soon.
What Does this Mean For
Investors Like You?
Well, in my trading services, I have been aggressively long various ETFs and options despite technical indicators that don’t look incredibly bullish. My subscribers are sitting on a couple rounds of triple-digit gains, and in my view, more are coming down the pike.
Why the success?
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| Investors who stick around too long will get creamed. |
Because I’m keeping it simple. This is an environment where any and all assets are levitating on a sea of easy Fed money. We had the tech stock bubble. We had the housing bubble. Now we have an “everything” bubble — courtesy of the “See nothing, hear nothing, speak nothing” crowd at the Fed.
I say ride it while it lasts. Make as much money as you can. But keep an eye on the exit door, take profits along the way, and use trading tools like trailing stop losses.
Because I will guarantee you right here and now that this Fed-fueled insanity will end in yet another epic blow up. And investors who overstay their welcome are going to get creamed … again.
Until next time,
Mike
Gold and Oil Fall Sharply as Dubai Debt Fear Drives Investors Out of Risks
Commodities drop sharply around the world as markets sentiments are deeply pressured by risk of contagion effect from Dubai debt payment delay request which could trigger second wave in the credit crisis. Gold extended the decline from record high of 1195 and falls sharply to as low as 1130 level before recovering. Crude oil’s selloff also accelerates after taking out 75.57 support and reaches as low as 72.39 so far. Global stocks are under much pressure with Nikkei closed -3.22% low at 9081. European stocks are also sharply lower with FTSE 100 and DAX dropping more than -1% in initial trading.
Dubai World, the government investor company, sought to delay debt repayment until at least May. The news was a shock to confidence in the region and triggered much doubt in governmental support. More importantly, this will be a troubling development for international banks which are increasing dependent on Middle East markets as source of businesses. It’s believed that UK’s RBS, HSBC, Barclays, Lloyds and Stand Chartered are having large exposures in case of defaults.
Gold’s selloff today is a significant indication of short term profit taking after the multi-month power rally to new record high of 1195. 1200 level should be an important psychological level in near term and some correction should be seen to keep gold below 1200 for a while, with some risks of a break of 1100 level. But 1072 should provide strong support to contain the pull back.
Crude oil’s outlook is noticeably worse and 75.57 level will become a key near term resistance level to limit recovery. The choppy fall from 82.00 level would likely extend further towards 70 in near term at least. Meanwhile, deeper decline towards 60 could be seen if sell off in global stocks persist next week.
Sri Lanka as the Third Central Bank to Buy from IMF This Month, Gold Shines
Comex Gold advanced to as high as 1195 in Asian session after Sri Lanka purchased 10 metric tons of the IMF’s planned gold sales. According to the press release from the central bank of Sri Lanka, it has been acquiring Gold from the international market over the past several months ‘as a part of the diversification of the external assets portfolio’. The central bank believes the long-term stability of Sri Lanka’s external reserves will be strengthened as gold holdings will provide ‘a stable and long-term cushion against the impact of any potential volatility in major international currencies and financial instruments, in international financial markets’.
Sri Lanka was the third central bank in the world, as well as in Asia, to buy gold from the IMF this month. Earlier, the Reserve Bank of India and central bank of Mauritius purchased 200 metric tons and 2 metric tons, respectively, from the world lender.
Sale to Sri Lanka was announced shortly after Financial Chronicle’s report that India may want to buy the remaining of the IMF’s planned gold sales. This reinforced the notion that central bankers are seeking to diversify their reserves and gold is believed to be a good choice.
Apart from Asian economies, emerging markets such as Russia is also accumulating gold. Earlier this week, Bank Rossii, Russia’s central bank, reported that it increased its gold holdings by +2.6% to 19.5 metric tons in October so as to raise precious metals’ percentage in reserves.
According to Chairman Sergei Ignatiev, ‘the central bank has in the course of several years replenished its supply of gold with the goal of diversifying our gold and foreign currency reserves’.
Bank Rossii First Deputy Chairman Alexei Ulyukayev said on November 18 that the central bank is ready to buy all gold (30 metric tons) that Gokhran, the precious metals stockpile in Russia, has planned to sell this year.
Although the benchmark contract retreats to 1184 in European morning, the pullback is driven by USD’s recovery which is expected to be short-lived. In our view, minimal profit-taking despite US holiday indicates strong trading momentum.
Crude oil retreats to 77 in European morning after surging more than +2% yesterday. We believe the rally yesterday was mainly driven by slump in USD and strength in gold. Inventory report could definitely not support such a price hike. Crude inventory surged to 337.8 mmb, the highest in 4 weeks. Demand for oil products, while rising on weekly basis, remained depressed when compared with the same period last year. These spurred worries on the recovery outlook in energy market.
Source: Oil n Gold
Gold to Rally to 1200 as India May Buy More from IMF
Gold extends strength after consolidation after news said that Indian central bank may buy more gold. The December contract for the yellow metal rallies to 1180 and looks to march to 1200.
Indian newspaper the Financial Chronicle said that the Reserve Bank of India might buy the IMF’s remaining amount of gold. According to the newspaper, ‘RBI is an independent body and the government does not interfere in its affairs. It will get the gold if its bid is successful and at the price it has offered’. Although the news was not yet confirmed by India’s central bank governor, Duvvuri Subbarao, it thrilled gold bulls.
In early November, IMF announced the sales of 200 metric tons of gold to the Reserve Bank of India (RBI). The amount represented about 50% of the total sales volume of 403.3 metric tons that was approved by the Executive Board in September. About a week later, the world lender reported that sold another 2 metric tons, out of the rest of its planned gold sales of 403.3 metric tons, to the central bank Mauritius at market price. If the RBI makes the purchase, then India will become the world’s 8th largest holder of bullion in terms of volume, surpassing holdings in the Netherlands and Russia.
Further news pushing gold price higher was news that Vietnam has been granted quotas for the import of 10 metric tons of gold since lifting an import ban this month and 6.8 metric tons had already come in.
Central banks in the world, especially those in Asian regions, have strong demand for gold as they want to diversify their reserves from USD.
Crude oil recovers to 76.4 after sliding to as low as 75.78 in Asian session. Market’s focus is on the inventory report by the US Energy Department (EIA). Consensus forecast crude oil inventory rose +1.5 mmb while gasoline stockpile increased +0.3 mmb in the week ended November 20. For distillate, the stockpiles probably remained unchanged from the previous week.
Released after US market close on Tuesday, the industry-sponsored API reported an increase of +3.35 mmb of crude inventory to 336.4 mmb last week. The report was quite disappointing as the build was much higher than market expectation of addition of +1mmb. According to the report, gasoline inventory rose +1.17 mmb to 212.2 mmb and distillate stockpile drew -2.36 mmb to 166.9 mmb.
While the EIA’s report may echo API’s bearishness in oil market, oil trading should remain thin ahead of Thanksgiving holiday.
| Weekly change in inventory as of 20/11/09 | Change | Market Expectation | Previous |
| Crude oil | +1.50 mmb | -0.89 mmb | |
| Gasoline | +0.3 mmb | -1.76 mmb | |
| Distillate | +/- 0 mmb | -0.33 mmb |
Comparison between API and EIA reports:
API (Nov 20) | EIA (Nov 20 ) | |||||
Actual | Inventory | Previous | Forecast (using API’s inventory level) | Inventory | ||
Crude oil | +3.35 mmb | 336.4mmb | -4.37 mmb | -0.39 mmb | 336 mmb | |
Gasoline | +1.71mmb | 212.2 mmb | -0.96 mmb | +6.32 mmb | 212 mmb | |
Distillate | -2.36 mmb | 166.9 mmb | +0.51 mmb | -0.50 mmb | 167 mmb |
API collects stockpile information on a voluntary basis from operators of refineries, bulk terminals and pipelines. The government requires that reports be filed with the Energy Department (EIA)for its weekly survey. Oil inventories from the API and EIA moved in the same direction for over 70% of the time, using data in the past 4 years.
Source: Bloomberg, API, EIA
Gold’s Friends Now Outflank Its Foes
By: Rick Ackerman, Rick’s Picks
In the Rick’s Picks chat room, where the focus is sometimes obsessively on gold, the meaning of “long-term” can range anywhere from 90 minutes to about three hours. Small wonder, then, that whenever Comex precious-metal futures hit an air pocket and briefly plunge, the shock waves wash over the room like a tsunami. In fact, these fleeting episodes mean nothing, considering that the larger, bullish environment for gold contains more testosterone than a Chicago stockyard. Who needs to worry about what those nasty, retrograde bullion bankers, commercial traders and by-now impotent central banks are doing when you know for certain that the likes of China and India are size buyers?
And they are, along with Russia, Indonesia, Arabia and every other sovereign entity that is not afraid to offend the U.S. with a defensive leap out of dollars. Under the circumstances, now that its fan club has grown to encompass the entire non-English-speaking world, gold can barely sell off any more. China is naturally gold’s biggest supporter, since the country supposedly holds three quarters of its $2 trillion cash hoard in dollar-denominated instruments, among them an Everest of U.S. Treasury paper. Since we know the Chinese didn’t get that rich by being stupid, we can be fairly certain they are not content to merely “hope” that the U.S. economy turns around, taking the dollar along with it. This scenario is as implausible as a credit-financed auto-and-housing boom in the U.S., and they know it. And so we shouldn’t be surprised to find them quietly buying bullion whenever a large quantity is offered for sale.
Subversive Ideas
This type of buying does not typically drive gold quotes into a bullish frenzy; rather, it supports the market whenever prices turn soft. (There will always be big sellers around to make this happen — Great Britain, for instance, which treats sovereign gold as though it were radioactive. And why should they not, since, as long as a government stores the stuff as though it were valuable, the citizenry is bound to harbor the subversive notion that gold is itself money.)
For our part, we can only look upon the mood swings that roil the chat room from time to time with bemused detachment. In the room, even when gold is rallying, the fear persists that THEY are going to pull the plug one day, sending quotes into one of those horrific tailspins that make gold bugs wish they’d stuck with stamps, coins or some other investable whose prices is governed by staid investors who clip coupons, tie flies and train carrier pigeons when they are not tuned to Prairie Home Companion.
Information and commentary contained herein comes from sources believed to be reliable, but this cannot be guaranteed. Past performance should not be construed as an indicator of future results, so let the buyer beware. There is a substantial risk of loss in futures and option trading, and even experts can, and sometimes do, lose their proverbial shirts. Rick’s Picks does not provide investment advice to individuals, nor act as an investment advisor, nor individually advocate the purchase or sale of any security or investment. >From time to time, its editor may hold positions in issues referred to in this service, and he may alter or augment them at any time. Investments recommended herein should be made only after consulting with your investment advisor, and only after reviewing the prospectus or financial statements of the company. Rick’s Picks reserves the right to use e-mail endorsements and/or profit claims from its subscribers for marketing purposes. All names will be kept anonymous and only subscribers’ initials will be used unless express written permission has been granted to the contrary. All Contents © 2009, Rick Ackerman. All Rights Reserved
New Haven on the Horizon; the Cook Islands
By Bob Bauman
A broad net of 15 coral islands in the central heart of the South Pacific, the Cook Islands are spread over 850,000 square miles, southwest of Tahiti and due south of Hawaii. The islands occupy an area the size of India, but have a population (a little over 21,000 people) no larger than a small town in America.
Local time is 10 hours behind GMT, with 9:00 a.m. in Hong Kong is 3:00 p.m. the previous day in the Cook Islands. When it is noon EST in the United States it is 5:00 p.m. in the Cook Islands.
This geographic location gives the Cook Islands, with its excellent modern communications, a strategic advantage in dealing with both the Asian and American markets.
Not as well known as some offshore financial centers, in 1981 the Cook Islands government first began adopting (and updating) a series of wealth and asset-friendly laws. Since then these islands have attained a definite role in offshore financial circles, especially when it comes to asset protection trusts.
Named after Captain James Cook, the famous British explorer who visited them in 1773, the islands became a British protectorate in 1888. By 1900, administrative control was transferred to New Zealand; in 1965, residents chose self-government and a free association with New Zealand. A member of the British Commonwealth, the islands have a constitution with a Westminster style parliament elected every four years by universal suffrage. The legal system is based on British common law and English is widely spoken.
There is much here to for serious persons of any nationality who want strong asset protection supported by sympathetic government and judicial policies.
Existing statutes provide for IBCs, offshore banks, insurance companies, and trusts. All offshore business conducted in the Cook Islands must be channeled through officially registered and regulated trust companies. A comprehensive range of professional trustee and corporate services is available.
In a major American legal case, the U.S. government tried to force the repatriation of funds held by a Cook Island trust and lost, even though the Americans who created the trust for a time were jailed for contempt of court. Not even a federal court could crack the Cook Island trust laws. For more about what is known as the “Anderson case” see FTC vs. Affordable Media LLC, 179 F. 3rd 1228, U.S. Ct. of Appeals, 9th Cir. (1999).
I have a good friend who has had a Cook Islands trust for many years as as protection against possible business liabilities. He is fully satisfied with its operation and protection, with his local American attorney acting as liaison with his Cook Islands trust company.
Source: Sovereign Society
India – Back page bull market
While Other Asian “Tigers” Grab Headlines, This Forgotten Giant Has Quietly Begun an Economic Boom…
By Justin Ford
The front pages were busy last week with President Obama’s trip to Asia. Yet while experts debate whether he bowed too low (or shouldn’t have bowed at all) in Japan… one of the most important stories about Asia didn’t make the front pages at all. In fact, the country wasn’t even on the Ppresident’s itinerary.
Yet, it’s the largest democracy in the world, the U.N. predicts it will become the most populous country by mid-century, and the World Bank expects it to become the fastest growing economy on earth next year.
I’m talking about India.
India has been off the radar even for many emerging-market investors for a long time.
- When investors talk about “Asian Tigers,” they don’t include India even though it its stock market is up nearly 500% in the last seven years.
- When they talk about rapid growth, they inevitably refer to China, even though India also never sank into recession during this credit crisis. Instead, it has averaged 7% annual growth for the last three years and is expected to grow by about 8% next year, surpassing China for the first time as the world’s fastest growing economy. And it is achieving this with far less reliance on exports than China, so it may be a more sustainable growth should the Great Recession deepen.
- When Washington talks about spreading democratic values around the world, they often neglect India—which alone among the Asian nations has had an uninterrupted democracy since the end of World War II.
India simply hasn’t gotten much attention from the investment community, though some of the neglect has been deserved.
The country has long suffered widespread poverty and for many years a caste system impeded the spread of knowledge and opportunity—two prerequisites for economic growth. Initially, after winning independence, the country also embraced socialism and developed so many pockets of bureaucracy that it became known as the “license raj.”.
But in recent years, this has changed and this year the pace of progress has accelerated dramatically. So there are now some very good reasons you may want to put India on your radar and consider investing in some of its rapidly growing companies.
Economic Liberalization Is Gaining Steam
In the last few decades, one phenomenon has probably created more wealth—in people’s everyday lives and in the markets—than any other. It’s called “economic liberalization.”. The term refers to what happens when a formerly controlled economy moves towards free-market policies.
In the 1980s, the “Chicago Boys” took control of economic policy in Chile. These were economists educated at the University of Chicago and influenced by the writings of Milton Friedman. In the 1990s, Chile experienced strong economic growth, the United Nations says one million Chileans rose above the poverty line, and stocks shot up 1,725% in less than seven years.
In Poland, per-capita GDP has more than doubled since the Soviet Union fell. And when the country began to privatize in 1993, the stock market soared 1,144% in a single year.
According to Stanford economist Robert McKinnon, South Korea’s economic growth nearly tripled after it began to liberalize. Its stock market went on to rise 1,578% during a 10-year bull market.
In 2002, Eastern Europe went into a 2nd phase of economic reform in preparation for joining the E.U. Once again, economies grew at record levels and markets soared. Hungary’s stock market rose 517%, Poland 556%, and the Czech Republic 1,391%.
Also in 2002, Inacio Lula Da Silva ran for the presidency of Brazil. He ran as a populist, but ultimately turned out to be a “radish”—red on the outside and white on the inside. That is, he implemented social safety net reforms but also reforms to cut regulation, increase privatization, liberalize foreign trade and reduce taxes. The stock market rose 130% in a year… and 2,000% over the next seven years.
These are compelling precedents because something similar is happening in India.
A History of Accelerating Reform
India began to move away from socialism after the fall of the Soviet Union in the late ‘80s/early ‘90s.
The first major change came with the appointment of Manmohan Singh as finance minister in 1991. Singh – an economist educated at Oxford and Cambridge – worked to reduce taxes and bureaucracy and free up the private sector. Progress was painstaking as socialist’s maintained significant influence in the congress. Yet over the next five years the economy’s growth rate rose from 5.6% to 6.7%. In 2004, Singh was elected prime minister, reforms accelerated and economic growth jumped to 8.7% a year over the next five years.
But this May 16th marked the biggest milestone of all.
Indian voters re-elected Singh as prime minister and for the first time in history they also gave his Congress Party effective control of the legislature! Indian stocks shot up 17% in one day. And they haven’t looked back. They’re up over 40% since the election.
Most importantly, this isn’t about a one-year boom. India is entering the 21st century and the 20th century at the same time. Its 21st century IT and pharmaceutical sectors are growing rapidly. But so are its 20th century automobile and telecom industries. And because India is starting from such a low base (its per capita GDP is about half that of China and about one fifteenth that of the U.S.), the growth can be strong for many years to come—much as China has averaged nearly 9% annual growth for the last 25 years.
Various Ways to Play
The simplest way to play India is through an exchange-traded fund. The top-performing U.S.-listed fund year to date is Wisdom Tree India Earnings Fund (EPI), up 85%. Since this fund follows an index, it’s passively managed and expenses are reasonable, just 0.88%. This could be a good place to put money, especially after any significant pullback in global equity markets.
For greater profit potential, you can target emerging leaders in some of India’s fastest growing core industries, including telecom, pharmaceuticals and information technology. A number of these are listed in New York and London and are easily traded from any U.S. brokerage account. And the number of Indian companies available to trade this way is steadily growing so keep an eye out for more opportunities in the future.
But when you look to diversify your portfolio internationally, be sure to consider India. The Bengal Tiger could turn out to be the most exciting Asian Tiger of all.
