Saturday, June 25, 2016

Peace in Colombia

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It has been a long time coming. After 52 years of fighting, almost four years of peace negotiations and three months after a final deadline, the Colombian state and the Marxist guerrillas of the so-called Revolutionary Armed Forces of Colombia (FARC) have agreed to a bilateral and “definitive” ceasefire. That is cause for celebration, for Colombia and for the region. But the peace deal is controversial. Putting it into practice will be tricky and it may be made harder by the unpopularity of the government of Juan Manuel Santos, Colombia’s president.

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Unfortunately, the peace agreement comes when Colombia is facing a sharp economic adjustment. The IMF expects the economy to grow by only 2.5% this year, compared with 4.4% in 2014. To fill a hole in government revenues caused by the oil slump, Mr Santos is preparing to raise taxes later this year. His opponents bridle at the notion of paying taxes to help the FARC.


But as Mr Santos says, war is more expensive than peace. If the agreement is less than perfect it is because Mr Uribe’s military build-up—which for three years was directed by Mr Santos as defence minister—weakened the FARC but did not defeat them. That Colombia’s conflict has long been an anachronism does not make it any easier to end. Peace with the FARC will improve the lives of Colombians, especially those in remote rural areas. However late in the day, it is a big prize.

This is a big deal in that the government will not have to spend large amounts of time and money fighting this insurgency. The other benefit will be the way that the rest of the world views Colombia. Business will be more apt to invest in the country if they believe that their people will not be killed or kidnapped and that their business and infrastructure will not be blown up. 

As oil prices rise Colombia will get the wind back in its sails and should recover nicely. having the end of this conflict will be icing on the cake. 

I currently own Canacol Energy which has just brought on stream a significant gas project in the energy starved country. As oil prices recover I expect the company to take its its massive natural gas cash flow and plow it into its oil projects. I would not rule out more acquisition by Canacol as they sift through the wreckage wrought by low oil prices. 



Post Brexit sell off yields plenty of bargains for astute investors

This week in a historic vote the people of the UK narrowly voted to leave the European Union. The leave side was maligned in the press relentlessly as racists and rubes for not understanding the damage they would do to the UK economy.

Being a member of the EU means giving up sovereignty to unelected bureaucrats in Brussels, some of which were former communists! I suspect the main reason the British voted to get out was the immigrant invasion and all that goes with it. Nevertheless I don't see how this will be a negative long term. Sovereignty will be restored to the British people and the elected officials will now determine what policies the UK will put into place. The tendency will be to put British interests ahead of the interests of the EU whatever hell that means. 

This action is part and parcel of what I have been predicting for some time. As people begin to see that government policy and the elites have failed them economically, socially, and politically they are rejecting the status quo for more populist and nationalist sentiments. 

They are throwing off the yoke of central authority that is concerned only with its powers and perks and could care less about the "little people". Expect to see more of this all over Europe and here in the US as Donald Trump has real chance to become President.

As this is an investment blog the comment I have is that the big worldwide selloff that happened post election is an excellent opportunity to take advantage of peoples irrational fear. The first fact to realize is that although the UK voters are choosing to leave the EU it will take at least two years before this even happens. The second thing to realize is that the UK is a very large economy and regardless of the scaremongering there will be trade between Europe and the UK.

The reason that the mainstream media and statist politicians are painting a negative picture for the future of the UK is because they are scared that this "leave the EU sentiment" will spread to other EU members, which of course it very well could as both Marine Le Pen in France and Geert Wilders in the Netherlands have called for referendums. 

Investment markets hate uncertainty so with the 24/7 press putting forth all kinds of apocalyptic scenarios we have a "ready shoot aim" scenario where people just sell because they are scared due to uncertainty. When you panic sell of course you do not get a good price especially if other lemmings are selling also. 

I like panic selling because prices tend to drop significantly as selling pressure overwhelms the buyers. I will make other peoples irrational panic my opportunity. For example, the Vietnam Opportunity Fund which I discussed in a previous post was selling for $3.00 a share prior to Brexit. This price was already a discount of 17% to the net asset value of the fund's holdings. The stock dropped to $2.83 post Brexit which is even more of discount to the value of the funds holdings. 

Vietnam is going to grow at plus 7% per year over the next several years regardless of what happens in the UK. The selling in VOF is unwarranted but it is an opportunity to pick up shares at a cheap price. There are many other examples. Oil was down 7% however nothing changed regarding the supply and demand fundamentals. 

There might be some more selling over the next several weeks but interested investors should be putting together a shopping list of companies they want to buy and take advantage of other peoples irrationality. 

Thursday, June 23, 2016

Vietnam continues to boom

Foreign Direct Investment is way up:

Foreign investors have ploughed into Vietnam an estimated $7.25 billion in actual investment in the first half of this year, up 15.1 percent from a year ago, the Planning and Investment Ministry said on Thursday.

New foreign direct investment (FDI) pledges in the January-June period surged 105.4 percent from a year ago to $11.3 billion, with most of the funds going to manufacturing, processing and real estate projects, the ministry said.


HCM City’s economy grew at 7.47 per cent in the first half compared with 7.2 per cent in the same period last year, a meeting to review the socio-economy heard.
The value of its gross regional domestic product rose to around US$21.4 billion.

This is not your fathers Vietnam

Vietnam is really growing. My recent research has led me to elevate it to my most favorite frontier market. The population of almost 92 million is relatively young, vibrant, and wants to get wealthy. The economy is growing rapidly and it appears that investors are beginning to get the message that Vietnam warrants a portion of their capital.

One of the facts that really intrigues me is that the stock market has not really kept up with the growth in the economy. The market cap of the stock market is around 25% of GDP which is relatively low.

I continue to like Vietnam and I am continuing to put money into the market there.


Wednesday, June 22, 2016

Mongolian economy continues to improve albeit slowly

Link:

The Mongolian recession entered its 28th month in June but there are signals that business conditions are slowly improving. If this trend continues it is likely that the summer months will offer a respite from these challenging conditions. Up to 39.0 in June from 36.9 in May, the World Economics Headline Sales Managers' Index (SMI) for Mongolia indicates easing business conditions across the country. Market growth remains low, but is continuing to build on the upward trend exhibited in the past few months.

The index is well below the 50 mark which would indicate expansion. Nevertheless the index is heading in the right direction. Elections for parliament will be held on 6/29/2016 and after those results we may have a more clear view of what will happen policy wise. OT underground should be starting to contribute to the economy as ramp up to starting work continues.

All recessions and depressions eventually end. After 28 months of decline we are more than likely closer to the end than the beginning. 


Monday, June 20, 2016

Adding Nevsun Resources (NSU) to portfolio

The stock got knocked down on Friday due to perceived bad news I like its prospects and its near 5% yield. In depth write up to follow later.

Canacol Update from the field

This is from a newsletter writer Chen Lin from 'What is Chen buying" via the Stockhouse message board.

 The missing part of CNE story I learned during my trip is that investors will not wait till 2018 to see the huge jump in profits. Many things can happen in between. They are planning to sell some compressed natural gas this year, about 10-15 MCF/day. They are planning more gas for thermal generation(25-30 MCF/day) and micro LNG plant (5-10 MCF/day) some time next year. Plus the current pipeline has about 10-15 extra capacity and likely additional 10-15 next year when a new compressor is installed. So there are a lot of incremental increases coming in the next 12 month.


In the meantime, CNE is likely having its eyes on the bankruptcy sale of Pacific. CNE is probably keen on the La Creciente field of Pacific Exploration. It is right next to VM19 with all the infrastructure built already. I don't know when the field is up for sale, but it will likely increase CNE gas output significantly. In the process, CNE will also consolidate the whole area.

As a side note, when I was in Bogota, it suddenly started to rain heavily. I ran into a coffee shop. Nobody spoke English there I finally found the manager who spoke good English to help. It turned out he is the well known oilman Nelson Contreras, who used to be the second man in command of Pacific Rubiales! We had long and interesting talk about the industry. He was born in Venezuela and he believed Venezuela is heading to a civil war very soon, which is very bullish for oil. He probably has his eyes on some world class oil fields there after socialists driven out of the office... I wish him luck!

When I was leaving, he offered his advice on Columbia energy companies, he told me that Canacol is the most successful energy companies in Columbia, period! This is for people doing the math. Canacol production increase possibilities in the next two years. You may have questions why Canacol is willing to take price at below the nation spot price? Jobo station was recently upgraded to 100 MCF/day to fill the national pipeline. The cost for upgrade was about $60 million and I was told the operator Promigas SA will seek to get their money back in 5 years and turn the operation to Canacol.

If you add additional profit margin, toll of 100 million in 5 years is not unreasonable. That will take 10- 20% off Canacol profit margin. Selling gas locally will not need to be process through the facility and net net is pretty good for Canacol. In addition, Conoco is fracking the La Luna shale this year, it is estimated to contain 50 to 200 billion barrel of oil in place, net to CNE is anywhere from 17 to 70 billion oil in place. These are huge numbers but require high oil price to make it working. It is a free "call option". Plus CNE also has a lot of light oil targets ready to drill when the oil price recovers. 

Selling gas to energy starved areas of Colombia is quite profitable!


Joel Greenblatt: Don't make this investing mistake

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"Stocks are not pieces of paper that bounce around," he said. "As far as we're concerned, they're ownership shares of businesses that we value and then try to buy at a discount. So that's value investing. Figure out what a business is worth, and pay a lot less."

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"When you're paying 100 or 1,000 times earnings, or buying something that's losing money, these are hope stocks," he said.
"It doesn't mean Tesla won't work out," Greenblatt said. But, "if you bought a bucket of Teslas, really bad strategy ... history would say pretty much the worst thing you could do."

He also says in the interview that most people should not attempt to be active investors as they are not qualified to properly value businesses and determine over/under valuation. 

I agree with this and it is backed by empirical data. It took me years of trial and error and making all the rookie mistakes before I finally learned by educating myself as to how successful investors value stocks. You have to buy cheap. But just because something is cheap does not mean it is valuable. 

Most stocks that are cheap are cheap for a reason. The prospects for their business suck. However with proper work and discernment it is possible to find the diamonds in the rough so to speak. 

It takes education and work which is why most people should just stick to a passive investment plan.

Sunday, June 19, 2016

Western welfare states continue to dry up and blow away

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The problem is though: the fact that socialism evidently doesn’t work, doesn’t mean people will want to give up on it – especially not if it works for them personally.  In this case this definitely applies to France’s union leaders, whose organizations represent almost a State-within-the-State.

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He has in other words understood something many of his clients – the people who voted him into power – still fail to understand. Kill the goose laying the golden eggs, and you’ll soon run out of golden eggs. The protests, and the fight between Hollande’s government and the unions is all about the distribution of wealth. They have seemingly forgotten that it has to be produced as well. Once the golden goose is dead, one is simply fighting over scraps.

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Actually, the battle between different strands of French socialism/ welfare statism over the remaining scraps of wealth is nothing new or special. We have seen similarly inspired protests and riots in Spain, in Greece and other places. On the one hand, it is great fun to see socialists fighting amongst each other, but unfortunately it is also a symptom of what is coming – and what is coming is not going to be fun at all.

Let us think about this a bit. To paraphrase the late Margaret Thatcher,  what we are in essence  witnessing in many European welfare states these days is what happens when socialists are running out of other people’s money.

To some degree the political elite that forms the leadership of Europe’s welfare states and the bureaucratic Leviathan in Brussels may realize that the whole enterprise has become unaffordable. The same is however not true of a vast portion of the electorate.

Regulations such as France’s code du travail are an attempt to suspend the laws of economics. One might as well issue a political decree suspending gravity, or prohibiting birdsong between 6:00 am and 7:00 am (the latter ordinance does in fact exist in some US town, we don’t recall which one. The birds have reportedly ignored it so far).


I am not big believer in my fellow man. In fact I subscribe to to Winston Churchill's quote "The best argument against democracy is a five-minute conversation with the average voter." I do not believe in democracy as it is just mob rule dressed up in a sport coat. Voting is just as H.L. Mencken said, "Every election is a sort of advance auction sale of stolen goods."

The fact that most people are ok with stealing from their neighbor via the ballot box does not give me confidence that things in the West are going to get better. In fact, I expect for most people they will get decidedly worse. 

Because the average person in the west has been trained to look to government for all answers, this will engender the hoi polloi to demand that someone in government better do something. This will mean all sorts of extreme left and right wing swings as the voters lurch back and forth between extremes as various sociopaths emerge with all the right answers. Expect more class and racial rhetoric which will inevitably lead to violent clashes which people in government will exploit to limit freedoms even more. 

The answer is to look to other places around the world where these things will not be happening. As I expect that the west is in terminal decline Asia is ascendant. That is where your money should be flowing. As a place to live I am setting myself up to move to eastern Europe. I like the homogeneity of the society and the fact that they are still relative socially conservative societies. As the west declines I think they will pull back from integration with western Europe and the failed ideology of western liberalism.  

If you decide to stay here in the US you will have to look forward to declining economic prospects, racial divisiveness and violence, less freedom and liberty, and a general shitty and deteriorating quality of life. Stay and try to change it you say? Life is to short and why bother. Because of unfettered immigration from turd world hellholes you as a productive person will be cast into the role of Afrikaners in glorious South Africa. Shut up, keep the lights on for the barbarians, and pay for the whole mess. No thanks I'm out. And no even if Trump gets elected he cant stop this from happening as the die was cast in 1965. 

It is not a big deal as all our ancestors emigrated from places where they had no or declining prospects to a fresh start in America. That America is dead and it will not be coming back. Why stick around and go down with the ship. If not for you than for your progeny. 


Saturday, June 18, 2016

Cyprus central bank lifts growth forecast

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The Central Bank of Cyprus has significantly upgraded its projections over the growth of the Cypriot economy in 2016 citing “better than expected recent economic indicators as well as preliminary data for Cyprus` GDP in the first quarter.”


According to the CBC’s bi-annual economic bulletin, the Cypriot economy will grow by 2.7% in 2016 from 2.0% in the December`s Bulletin, while economic growth in 2017 will accelerate to 2.9% from 2.7% in the previous projection. The CBC also estimates economic growth will reach 3.3% of GDP in 2018.

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“The banking sector is recovering with the latest data suggesting that non-performing loans may have reached their peak,” the CBC points out, pointing out “loan write downs have significantly increased in March 2016 pursuant to the broader effort towards the banking sector consolidation."

Tourists are pouring in and setting records:

Bailed-out Cyprus has recorded its best ever tourist arrivals figures for the month of May, tourism officials said on Friday.

The state-run Cyprus Tourism Organization said in a statement the 364,943 tourists who arrived on the eastern Mediterranean island in May were the “highest ever recorded” for that month.

In May there was an 18.7 percent hike in arrivals compared with the same month in 2015 when 307,449 arrived, indicating that the economy is on an upward curve, official data showed.

Even the central bank of Cyprus is saying the worst is over for the banking sector and the economy is rebounding nicely with tourism setting records. I expect that Cyprus will see many tourists that would have went to other resort areas that are in Muslim countries like Egypt, Tunisia, Turkey, etc... The listing of Bank of Cyprus in London sometime in the third quarter coupled with declining bad loans should be a catalyst for a higher share price. The backing of several billionaires (Wilbur Ross) versed in turning around various businesses doesn't hurt either. 



Pakistan included in MSCI list of Emerging Markets

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Federal Minister for Finance Mohammad Ishaq Dar Wednesday termed the inclusion of US based index provider Morgan Stanley Capital International (MSCU) in the list of emerging markets as historical and reflective of the right direction of Pakistan’s economy.

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He expressed the hope that inclusion of Pakistan into emerging  markets would help attract huge foreign investment in the country and its fruits would trickle down to the masses.

This was one of the items I highlighted as a positive catalyst for the Pakistan market. Because it is now deemed an emerging market various investment entities that try and mimic the index will have to purchase Pakistani stocks. The market in Pakistan is liking this news as the ETF I own moved higher on this news.



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