Saturday, September 22, 2007
We've sent our editor-in-chief, Brian Hunt, to Botswana to see for himself the greatest economic and political anomaly in the world. In the heart of southern Africa, landlocked and surrounded by civil wars and chaos, Botswana has maintained a remarkably civil, stable government and produced the highest per-capita increases in GDP of any nation in the world over the last 30 years. This is a place worth investing in. Hunt e-mailed us his first impression Thursday morning:
The first thing you notice about the airport in Botswana is the birds. The weather is perfect today, so they leave lots of windows open, and, let's call them sparrows, fly in, make noise, and even build nests inside.
The second thing you notice is the Chinese. I've talked to two businessmen – both in construction – who say the Chinese have descended on Africa. Two Chinese restaurants interrupted my views of poverty and goats on the drive to the hotel... and many guests in the hotel are Chinese nationals. In addition to funding the mining operations in Africa, the Chinese are actively building the roads, bridges, rails, and ports needed to ship the materials out. Chi Africa Inc.
It's a perfect marriage really... Most African nations are horribly corrupt, poor, and have lots of resources. The Chinese are old hands at corruption, they're rich, and they're desperate for natural resources...
We've been watching the big banks report earnings this week. How much did the mortgage meltdown cost them? Do any seem likely to fail? Not Goldman Sachs (GS). The world's largest securities firm increased net income 79% and beat estimates for the seventh consecutive quarter. The bank offset its $1.48 billion loss from noninvestment grade loans by selling its wholly owned Horizon Wind Energy, boosting equity sales, and increasing its mergers and acquisitions activity.
Bear Stearns (BSC), the Wall Street bank most dependent on mortgage revenue, wasn't as fortunate. The bank's earnings tumbled 61%, missing estimates by 35%. Nevertheless, BSC was up a bit Thursday... though shares are down close to 30% for the year.
Oil closed above $80 a barrel this week, an all-time high, and Matt Badiali's Oil Report picks are skyrocketing. Oil-services giant Schlumberger (SLB) is up 64%. Brazilian oil major Petrobras (PBR) is up 46% in seven months.
You have an important choice to make, dear reader. According to people like Ron Oxburgh, the former chairman of Royal Dutch Shell, the price of oil will hit $150 a barrel in coming years. The oil bulls say prices will continue to soar, unabated by market forces, because "it's different this time." Ever-higher oil prices are inevitable because of the looming "crisis" of peak oil and the insatiable demand of a place called "Chindia." Oxburgh goes so far as to claim the oil industry is "sleep walking" into the peak oil crisis. Ha, ha, ha...
I find it difficult not to laugh when folks who should know better use not one, not two, but three classic, top-of-the-market expressions in a single sentence.
"The U.S. has so far in the 21st Century achieved prosperity and paid for prosperity with a steadily deteriorating credit-worthiness..." says Marty Whitman, one of the world's most renowned value investors. If that sounds familiar to you, perhaps you've been reading my friend Bill Bonner's books: Empire of Debt and his latest, Mobs, Messiahs, and Markets.
Thinkers like Bonner and analysts like Whitman see something in our economy the Fed, Congress, and most investors studiously ignore: While asset prices have risen (fueled by the booming credit markets), the real wages of most Americans have been falling. At some point, these two forces must collide. Housing, for example, has become extraordinarily expensive, as compared to wages. What happens to our "prosperity" when most people can't afford to buy anything, unless it was made in China?
From a reader: Since the Fed has opted for the path of least resistance (interest cuts), it seems obvious that the direct consequence of such act will be the demise of the dollar. Can you please help us to find investments that can offset the dollar downfall as well as investments that will do well in an environment of very high inflation?
Let's see, maybe you've heard us mention gold or silver once or twice? Seriously, the last issue of my newsletter, I spent half of the space explaining how to get 16-to-1 leverage over gold (for free) in the perfect inflation hedge.
Like geese that feel the winter coming even when it's still warm outside, wise investors have watched the credit bubble build and have flown to gold. Anyone with any sense has long since bought gold – as we've been preaching regularly since 2003. Soon, the kind of investors who like to chase performance (a short-lived, but sometimes influential group) will jump into gold, too. That's when you'll know it's time to take some off the table...
Date Range:9/13/2007 to 9/20/2007
Date Range:9/13/2007 to 9/20/2007