How to Buy a Dollar for Sixty Five Cents

Readers know very well that I am a big fan of the frontier market economies of SE Asia. I am talking about Cambodia, Laos, and Myanmar. At this point there is really not very many ways average investors in the west can invest in these places. As these countries develop I am confident that ETF’s, private equity funds, and other investment vehicles will become available that will allow us to participate in the growth of these “tiger cubs”. While researching the above mentioned countries I kept reading about Vietnam. Although Vietnam is not a frontier market it has still not, in my view, graduated to emerging market status yet. Before the 2008 economic crisis Vietnam was the darling of the financial press and was the quintessential frontier market. After the 2008 crisis the bloom came off the rose so to speak and the Vietnamese economy was thrown into a bit of chaos as foreign capital flow either stopped or was repatriated. In addition the government pursued some poor decisions with regards to monetary policy and the currency, known as the dong, was devalued leading to high inflation.

Recently however the government has realized the error of its ways and has moved to privatize some state industries (which account for 60% of GDP), notably Vietnam Airlines. One of the most important changes has been the appointment of a new head of the central bank and tasking the bank with getting inflation in the country under control. Credit growth has gone from 28 percent per annum last year to a recent 12 percent. At the same time inflation fell to 14 percent last year and will fall further this year. Regarding the currency, there has been no devaluation of the dong since February 2011. Because of these policies the currency was the most stable currency in the region last year. Readers will recall that I look for economic or political catalysts, those small changes at the margin that in a small economy like Vietnam’s can lead to big economic gains. With the currency and financial reforms this appears to be the case. The other major catalyst is that Vietnam is now becoming one of if not the cheapest place to manufacture in Asia. This has led to Intel, for example, building it largest chip plant in Vietnam.

So that is the quick and dirty on where Vietnam has been and where it appears it is going. How to play it? Over the last five years the Vietnamese stock market is off 70% from its highs. The market has begun to recover this year and is up around 12%. There are two ETF’s but they are not the best way to participate in my view. These two ETF’s are for the lazy and are populated by institutions that just want Vietnam exposure and do not want to do any hard work. The way I am playing Vietnam is via the VinaCapital Vietnam Opportunity Fund (VOF). The VinaCapital Vietnam Opportunity Fund trades on the AIM board of the London Stock Exchange. If you have a broker that can buy foreign stocks it should be easy to purchase. The more typical and more difficult way is to buy shares on the pink sheets here in the US. The shares trade via the symbol VCVOF. I will state emphatically that if you choose to go this route you will have to use limit orders and be very patient.  It will take some time to build a position but this should be a looked at as a long term investment and not a trade. The reason I like VOF is because the people that run the fund are in Vietnam and invest in both listed securities and private equity deals. Having a team on site means relationships and access to people who know what is going on and who are able to facilitate deals that the ETF will never be involved with. This should lead, over time to better returns, as the fund is able to arbitrage their information advantage. This in itself should be reason enough to buy the fund. However the VOF is a closed end fund and is currently selling at approximately a 35% discount to net asset value. What this means is that you are literally buying a dollar for sixty five cents. If one looks at the historical relationship between the share price and the net asset value of VOF one would note that before the financial crisis in 2008 they tracked pretty closely. In fact there were some periods of time when the share price traded at a premium to net asset value. The management of VOF recognizes the substantial undervaluation and has been buying back shares on a regular basis. So the thesis is we have a growing emerging market that is getting its act together economically. We have identified an investment vehicle that is trading substantially below net asset value and that is run by people who have boots on the ground and know what is going on in the country. I think that if you have an investment time frame of three to five years and can be patient you could do very well buying shares of (VOF). This is not investment advice so please do your own due diligence as you are responsible for your own investment decisions. A link to the funds website is provided here.

Strum Ruger is out of guns

From the Strum Ruger website:

Sturm, Ruger & Company, Inc. (NYSE: RGR), announced today that for the first quarter 2012, the Company has received orders for more than one million units. Therefore, the Company has temporarily suspended the acceptance of new orders.
Chief Executive Officer Michael O. Fifer made the following comments:

• The Company's Retailer Programs that were offered from January 1, 2012 through February 29, 2012 were very successful and generated significant orders from retailers to independent wholesale distributors for Ruger firearms.
• Year-to-date, the independent wholesale distributors placed orders with the Company for more than one million Ruger firearms.
• Despite the Company's continuing successful efforts to increase production rates, the incoming order rate exceeds our capacity to rapidly fulfill these orders. Consequently, the Company has temporarily suspended the acceptance of new orders.
• The Company expects to resume the normal acceptance of orders by the end of May 2012.

Who is ordering all of these and guns and why? I think Americans eyes are beginning to open and they are realizing that eventually the chickens are going to come home to roost for this country. When we have our Greek debt moment and can no longer borrow $1.5 trillion per year to fund all the government stupidity, along with all the gibs me dat, there are going to be quite a few people who are going to begin acting out in bad ways and this scares people. My only advice is stock up on ammo for all those guns because the government has a bad habit of suspending ammunition sales when the SHTF.

"Gibs me dat" part 2

This is one case where I do not need to add any editorial content. I will say that this cannot go on forever as we are running $1.5 trillion dollar deficits every year. What happens when we have our Greece like debt crisis?

Mongolian cement company poised for liftoff

If you are a follower of my writing on investing in Mongolia you may find this of intrest. A recent decision by the Mongolian Parliament to subsidize citizens apartment mortgages bodes well for UB based Remicon JSC. From the Frontier Securities website.

According to Government of Mongolia on February 21,2012 Government resolved the issue of making a reality for citizens 6 per cent soft financing for residential purchases. Government has resolved for Development Bank of Mongolia to issue securities up to 200 billion MNT(149 million USD using Bank of Mongolia's today's reference rate). Finance Minister is to issue a Government guarantee for payments for principal and interests of the securities.

Until funding from issuance of securities of Development Bank of Mongolia will come in, commercial banks are issue soft loans to citizens from their own capital. Finance Minister, Minister of Roads, Tranportation, Construction and Urban Development and Mayor of city of Ulaanbaatar have approved on February 21,2012 procedures to issue soft loans up to 50 million MNT( 37 thousand USD) with 6 per cent interest and duration of 20 years to citizens with low and medium income.

• The apartments must be enrolled in 100 thousand apartments program which includes 75 thousand apartments in Ulaanbaatar
• Borrowers should be able to make 10% down payment
• The apartments will be a collateral and borrowers can pay off loan ahead of schedule
• Apartments will be built in locations such as Yarmag, Zuun ail, Televiz and 13th subcommittee and state will be responsible for financing required for infrastructure. Also ger substandard housing district will be moved and apartments built. In this way cost of the apartment will be reduced
• At the moment 79,486 families have been selected from 159 thousand applications into 100 thousand apartments program
• 28,300 apartments from total apartments in the program will be ready within 18 months and 6,341 apartment have area of 50 sq. meters
• Government increased area to 55 sq. meters, therefore it has become possible for citizens now to purchase 9,017 apartments
• For a start, possibility is created for first time buyer families with 1 to 4 family members of 1-18 age to purchase apartments
• Government aims to fully implement 100 thousand apartment program by 2016.

Remicon JSC (RMC) is a UB based ready mix cement provider that trades on the Mongolian Stock Exchange. From the information I have been able to gather Remicon's sales in 2011 were up 2.6 times over 2010 and earnings were up nearly 200%. This is what happens in an economy growing 17% per year. The shares are currently trading at around eight times earnings which is cheap for a compnay growing 100%+ per year. Remicon was already doing a ton of business just based on the massive growth and construction that is occuring in Mongolia. The fact that 100,000 apartments, 75,000 in UB, are going to built between now and 2016 is only going to supercharge the business, and hopefully the shares, of Remicon. Full disclosure I own shares in Remicon and I am looking to buy more.

Stupidity squared in Maryland

Maryland to raise taxes on wealthy. My prediction mass immigration of the wealthy to Florida.

The state Senate voted Thursday to significantly raise taxes on Marylanders earning half a million dollars or more — prompting complaints that liberals were bent on launching class warfare in the state.

The Senate's vote to adopt what is being dubbed a "millionaire's tax" came after some liberal-leaning senators said they would refuse to support a smaller, across-the-board increase in income taxes unless the wealthy took a special hit. The chamber was considering a plan to raise taxes on most Maryland taxpayers by up to a quarter of a percentage point — a proposal that eventually passed by a vote of 26-20.
But the Bolsheviks in the Maryland legislature already tried this a few years ago and low and behold wealthy people left and the state raised less revenue. Yet here we are again three years later with the same goofballs passing more of the same stupid laws.

One of Maryland's budget-balancing tactics - asking millionaires to pay more money to the state - appears to be backfiring as the number of the highest-earning taxpayers dwindles with the flagging economy.

A year ago, Maryland became one of the first states in the nation to create a higher tax bracket for millionaires as part of a broader package of maneuvers intended to help balance the state's finances and make the tax code more progressive.

But as the state comptroller's office sifts through this year's returns, it is finding that the number of Marylanders with more than $1 million in taxable income who filed by the end of April has fallen by one-third, to about 2,000. Taxes collected from those returns as of last month have declined by roughly $100 million.

I really have zero respect for politicians. They are the dumbest people on earth bar none. If it did not work in 2009 what makes these morons think it will work in 2012?

Producers fleeing California due to nutty policies

You mean producers do not like the products of their labor confiscated?

California politicians seem delusional in their continued delusion that high taxes have not savaged the State’s economy. Each month’s disappointment is written off as due to some one-time event.

The State Controller’s office did acknowledge that higher than normal tax refunds for February might have reduced the collection of some personal income taxes. Given that 2012 has an extra day in February for leap year, there might have been one day more of tax refunds sent out. But the Controller’s report shows personal income tax collections fell by $325 million, or 16% versus last year. Furthermore, leap year would have added another day for retail sales and use tax collection, but those revenues also fell during February-by an even larger $813 million, 25% decline from 2011.

The more likely reason tax collections continue falling is that businesses and successful people are leaving California for the better tax rates available in more pro-business states.

Everywhere in every place throughout history people flee confiscatory levels of tax. Who the hell in their right mind is going to go out and work or risk capital so that even if they overcome all the ridiculous regulations they get taxed to death. This of course will continue until the state of California collapses just as every other nutty high tax high regulation place has collapsed in the past.

So what is Governor MoonBeam's answer? Raise taxes of course!

California Governor Jerry Brown’s answer to the State’s failing economy and crumbling tax revenue is to place a $6 billion tax increase initiative on the ballot to support K-12 public schools. He promises to only “temporarily” raise personal income rates by 25% on any of the rich folk who haven’t already left.

Maryland and Oregon tried the same thing and they found out what California is getting ready to find out. You tax wealth and prodcuers and they leave, very simple. But that's what happens when the state is run for the benefit of the public sector unions and illegal aliens from south of the border.

Are Americans really this dumb?

It appears so:

A majority of Americans would support U.S. military action against Iran if there were evidence that Tehran is building nuclear weapons, even if such action led to higher gasoline prices, a Reuters/Ipsos poll showed on Tuesday.

(snip)

Asked whether they would back U.S. military action if it led to higher gasoline prices, 53 percent of Americans said they would, while 42 percent said they would not.

So after two wars that cost the country trillions of dollars, killed and maimed thousands of Americans, and resulted in further curtailment of personal liberty in the US the majority or Americans would support a war with Iran. All I can say is that this is a perfect example of how addled the American people really are. A war with Iran would lead to oil prices of upwards of $200 a barrel, an economic depression of biblical proportions, and unforeseen implications as Iran unleashed all kinds of terrorist and unconventional warfare against the US and Americans around the world. Is this really what people want based on what might happen in the future if Iran gets nuclear weapons? Do people in this country have critical thinking skills? I wonder.

Obama's achilles heel, gas prices

Yet he keeps wasting time and money on renewables:
Somehow we have to figure out how to boost the price of gasoline to the levels in Europe," Steven Chu, now the energy secretary, said in a 2008 interview with the Wall Street Journal.

A gallon of regular costs more than $8 there. The Oil Price Information Service thinks the average price here will rise to $4.25 a gallon by the end of April. That would exceed the record of $4.11, set in July 2008.

A gallon of regular cost just $1.85 the day before President Barack Obama was inaugurated. If the price were to double again during a second Obama term, Mr. Chu's goal could be achieved.

Sen. Obama expressed little concern when the price of gas was approaching the current record high.
"I would have preferred a more gradual adjustment," he told CNBC in a June 2008 interview. "But if we take some steps right now to help people make the adjustment ... then I think we can come out of this stronger and have a more efficient energy policy."

Earlier, Mr. Obama told the editorial board of the San Francisco Chronicle that "under my plan of a cap and trade system, electricity rates would necessarily skyrocket."

Because of the continued depreciation of the dollar at the hands of the Federal Reserve it is my view that oil prices will continue higher. The oil price will increase until the economy breaks. A gas price getting into the $4.00 and above range will provide ample ammunition for the republican nominee to attack Obama on his shortsighted green agenda which has nothing to do with high gasoline prices. Of course the president has no intention of doing anything about high gas prices as his own words betray his agenda. Raise the cost of energy in order to force consumers towards accepting overpriced green energy as an alternative.

High gas prices explained

My view is oil prices will continue to go up until the economy breaks. I notice that the role of central bank money printing is never mentioned in the mainstream media and by the likes of know it alls like Bill O'Reilly. Subscribe to my newsletter to learn how to take advantage of Fed money printing.

Lottery winner stays on welfare

"She thought it was ok because she was not working", throw this thief in jail as an example or at least confiscate her lottery winnings. My view, which is not popular, is that all recipients of welfare needy or not are receiving stolen goods. That is a fact which is conveniently ignored by most people. The state has no money of its own. It steals money via taxation from producers and gives it to other people. I for one would pay zero taxes to the state if I was not coerced into paying.