Looking to Buy BRIC? The 'ABC's Are Better (Part II) 25 comments
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Yesterday, in Part I, I pointed out that geopolitical issues are every bit as important as economic issues in determining how to invest. That is true even for U.S. companies trading on U.S. markets, and certainly must be done for investment opportunities beyond U.S. shores. I discussed my misgivings about corporate governance, corruption, bribery, lack of transparency, and populist and socialist regimes that view corporate success as government largesse. I used as my example the BRICs – Brazil, Russia, India and China – as the best-known of the “emerging” economies. They aren’t the only emerging economies, but are representative of the larger group that includes nations like Kenya, Nigeria, Indonesia, Vietnam, Romania, Lithuania, Colombia and many more.
The same is true of the “ABC”s I’ll cover today. I could as easily have reviewed Israel, Norway, New Zealand, Chile, Singapore, Taiwan, Korea, South Africa or a number of others. I chose to use natural resources, proximity to markets, and intellectual capital in my selections. Norway, Chile, and South Africa have extensive natural resources and intellectual capital, and Israel, New Zealand, Singapore, Korea and Taiwan more than make up for their lack of physical resources with their intellectual resource base and entrepreneurial cultures.
There are many natural-resource-laden nations where literacy is below 50%, governance is non-existent, violence is widespread, corruption is rampant and transparency is actually opaque. Still, the BRICs need what they have so they’ll overlook genocide in Sudan or anarchy in The Democratic Republic (though it is neither) of the Congo. Africa has far better examples than Congo and Sudan. That’s why the “B” of the ABCs is in Africa.
The A is Australia, the B is Botswana, and the C is Canada. Like Congo and Sudan, the ABCs provide the natural resources the BRICs desperately need to keep their restive populaces fed, housed, clothed and employed. But ABCs are nations with good governance, education, and transparency. All have freely elected governments answerable to the electorate. If you were a BRIC and needed coal, which would you rather trust, anarchic Congo or democratic Botswana? If you need oil, would you rather trust the populist rhetoric and crumbling economy of Venezuela or the 150-year-old stable democracy of Canada? You can find uranium in Kazakhstan, but why? There’s even more in Australia. I’ll engender little argument in my choices of two stable Western democracies, staunch US allies, and democratic capitalist nations like Australia and Canada. But Botswana? Please read on. I’ve spent time in all three nations and I believe you may agree with my conclusion after reading a bit further.
There is a fine website, doingbusiness.org, that has compiled a matrix of how many days and “procedures” (forms to fill, trips to various agencies, etc.) it takes to start a business in various countries. If you click by country, it shows you the exact hoops you must jump through “officially” (not counting bribes and favors.) Countries range from 1 day, 1 stop in business-friendly New Zealand and (while it varies from state to state) 6 procedures and 6 days in the U.S. to 13 procedures and 694 days in Suriname. It’s only 136 days but *20* procedures in Equatorial Guinea. There are 19 procedures required in Chad. I’m thinking “not real business-friendly.”
How do the BRICs stand up?
In India, you have to visit 13 bureaucrats, but can still get going in just 30 days. In China, it takes 14 different visits to bureaucrats and 40 days. In Russia, it’s only 8 “procedures” and just 29 days. If Putin likes you. If you aren’t Chechen. Or Jewish. Etc. In Brazil, as befits a nation where each bureaucrat has his hand out, it is a mind-numbing 18 procedures and 152 days.
The ABC countries are not without sin in this department. True, Canada requires just 1 procedure, filed electronically, with as little as a 1-day turnaround. And Australia has 2 whole procedures and 2 days out of your life. But Botswana requires 10 procedures and as much as 78 days waiting time (probably a legacy from their days as a British colony!) Still, in the “Ease of Doing Business” ranking, Botswana beats every single one of the BRICs. Doing Business compiles other data like investor protection, cross-border trading, enforcing contracts and so on and puts it all together in a best to worst “Ease of Doing Business Rank.” Of the countries I’ve mentioned in this article, Singapore is #1 in the world, New Zealand 2, the U.S. 3, Canada 8, Australia 9, Norway 10, Japan 12, Korea 23, Lithuania 28, Israel 30, South Africa 32, and Botswana 38. Others include Chile 40, Romania 47, Columbia 53, Taiwan 61, Kazakhstan 70, Kenya 82, China 83, Vietnam 92, Nigeria 118, Russia 120, India 122, Brazil 125, Indonesia 129, Sudan 147, Venezuela 174, and, dead last in the world, #181, is (Dem Rep of the) Congo.
In addition to fair and business-friendly business practices, good corporate governance, democratic institutions, intellectual capital and knowledgeable work forces, the ABCs have immense developed and yet-to-be-developed natural resources. They also have relatively low populations so unlike, say, China, which also has lots of mineral and petroleum resources, the ABCs can actually afford to export huge amounts beyond their native consumption.
Here, in a few sentences or so, is what I like best about each of our ABCs:
Australia. Look at a world map. Australia sits equidistant between the two great markets of India and China. (A distance just slightly greater than that from Seattle to Miami.) Both China and India desperately need more coal, more iron ore, more gold, uranium, nickel, aluminum, natural gas and oil. “The Lucky Country” is the world’s largest exporter of coal. And they have massive amounts of iron ore, gold, silver, uranium, nickel, aluminum, diamonds, natural gas, oil and more. Australia is a stable Western democracy, a staunch ally of the U.S., and a capitalist economy with an appropriate social net. Why should I buy a coal company in China, or worse, in Congo, when I can buy a company in well-governed and far safer Australia that supplies the BRICs with the materiel they need to build and modernize their nations?
Botswana. No one who has spent any time in Botswana, as I have, will be surprised by my choice. Just as RSA (South Africa) was under-appreciated by investors for years, so, today, is Botswana. China, India and every other nation with too few resources for their burgeoning populations will be turning to Africa. And I believe Botswana is the example they will strive to find. Every African dictator and his cronies will benefit from China’s insatiable quest for oil, minerals and food. But only the African nations that are well-governed like Botswana and neighbor South Africa will see its people benefit as well.
Botswana is the model for what those of us who care about Africa want to see succeed. Bono can raise all the money he can to hand to African rulers, but what does that do for the adoption of free elections, the rule of law, intellectual and physical property rights, the enforcement of contracts, and direct foreign investment? A nation like Botswana that seeks private business investment will be accountable to their global partners. Others that only get handouts from do-gooders or do-gooder governments are accountable to no one but their Swiss bank accounts.
London is currently the world’s diamond capital. DeBeers controls almost half of the world’s diamonds and it keeps its biggest stash in London. But it just completed a joint venture with Botswana creating a new diamond processing and storage facility there. After all, bigger-than-Texas Botswana produces the most gem-quality diamonds of any nation in the world. Why store in London when the diamonds are mined in RSA and Botswana? (By the way, diamonds have more and more industrial uses, like for oil drilling bits. While Botswana is #1 in gem-quality diamonds, Australia is #1 in industrial diamonds. And Canada is #3 in both gems and industrial diamonds.) In addition to diamonds, Botswana’s 2 million people have 200 billion tons of coal, extensive and not-fully-explored copper, nickel, potash (for fertilizers), iron ore, and silver. It is Africa’s longest continuous multi-party democracy and welcomes Western tourists and businesses.
Canada. As if the two previous suppliers for what the world, especially the developing world, needs and wants weren’t enough, here’s Canada: untold (literally – much of the country hasn’t even been explored for minerals and oil) riches in metals, natural gas, oil, fertilizer and renewable timber in amazing abundance. Ample water, peaceful neighbors, and diamonds, gold, and silver. Just 34 million people in a nation a smidgen under the size of the U.S. Did I mention uranium deposits? Aluminum? Copper? A well-educated workforce that holds its own in hi-tech? Oh, and they speak English. Just like they do in Australia. Just like most do in Botswana. And Canada didn’t go goo-goo over subprime and other garbage (and neither did Australia, Botswana, Israel, Singapore, et al) so their economy is in better shape than ours. Their bankers don't need money from the taxpayers' pockets to lend for expansion.
The future may or may not belong to the BRICs, a thesis so generally accepted that no one questions it. I can't buy into it. I believe the future more likely belongs to the suppliers to the future, no matter which nations are ascendant and which in decline. Foremost among these I count nations like Australia, Botswana and Canada. For me, good governance, transparency, intellectual capital, natural resources and the rule of law trump a hot tip on an unknown quantity any day.
DISCLOSURE: No positions yet. As / if the markets decline, I'll jump on EWA and EWC and consider FXA and FXC.
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This article has 25 comments:
Investors need reminders of the basics such as "governance counts". In the past couple of years I've lost 90% of two BRIC investments: one was a Chinese telecom hardware vendor that used US associations to buy feigned legitimacy; the other is the Indian IT company (Satyam) fraud and accounting debacle, thanks also to PricewaterhouseCoopers for their fine hand in that. It's hard to overcome losses like these. Oh, but what lessons they teach!
Governance and oversight meltdowns happen in the US, of course, Enron and AIG among many others, but the investor has better odds. As you point out, that despite " ... these last few years of frat-boy partying, the US of A still has some of the more stringent corporate and political governance systems."
Canada has long been a solid (if unexciting) place to invest with names as Royal Bank of Canada and Canadian National Railway. But Botswana? I never would have considered it as a legitimate location in which to have interests. Worth a look.
--R
They also have near zero political risk.
They cannot even be compared to places like Israel (which is in a perpetual war zone in good measure also of its own making and with most of its neighbors hating its guts) Or South Africa...which particularly since the recent election of Jacob Zuma does NOT inspire a great deal of confidence and neither does the beyond belief crime rate in the cities....even though it's a very beautiful country and is gradually developing in terms of its politics and economics. (and society)
India is certainly the world's biggest democracy but has very poor infrastructure, is extremely dirty and congested, has a horrific bureaucracy with far too many levels, and has not yet fully solved its Kashmir problem with Pakistan and etc. etc.
And Russia is ...well....Russia.....and although Russians are very nice people there is still far too much corruption, government bureacracy and old Soviet era mental and practical habits and of course still plenty of oligarchs and assorted more run- of -the-mill mafiosi (who have nothing better to do than to shake down business people)
And I could say additional similar such things about Vietnam and a few others of the countries that you mention. (including China for sure).
Botswana as you say has a reasonably high "doing business" index and it also has a fairly high "good governance" index. But look at where it is? It sits between Zimbabwe and South Africa. Does that seem like a safer regional / neighborhood context than let us say...Canada? (with U.S. missiles protecting it on both sides of it, an anglosaxon mentality, a transparent and accountable economic system and an honest military?)
And finally Singapore. I agree with you that Singapore could probably be a good place to invest. It is also a pretty nice city.
(if you don't chuck your chewing gum on the ground) Personally I never could stand Mr. Lee Kuan Yew and (he does not represent the kind of "democracy" that I happen to "believe in" and therefore I wouldn't invest in Singapore if only for that reason) I also don't like the old style Chinese conservatism which hearkens back to Confucius - which of course is also present in "The People's Republic" of China, there over-layered by a dose of lockstep Maoism followed of course by the "socialist market democracy"...(none of those things inspire any confidence in me at all)
Chile on the other hand is probably o.k. Mr. Pinochet is finally dead and buried and the neighborhood is not doing too badly either.
I have one personal litmus test that I often use before investing in any country:
How would I feel if I were suddenly stopped on the street and arrested in my potential target country? If I had not committed any crime (or even if I had spit out my chewing gum) would I feel safe and secure in that country is it likely that I would be treated justly and with some rights? If my answer is no, then there is NO reason for me to put any of my hard earned money there either.
So my own favorites (by a long shot) are 1) Canada 2) Australia and Norway neck-and-neck and 3) New Zealand. All the others come way way lower down.
Anybody who invests in the above four countries will not only make money in the medium term (they have some of the best commodity plays around) but will also sleep completely soundly at night. (whereas in almost any of the other countries which you mentioned to sleep truly soundly at night one may have to take a knock-out sleeping pill before hitting the sack)
One final argument for going beyond those four is that of course there are indeed also many good investments in the other countries that you discuss. But since (and right now in particular) there are SO INCREDIBLY MANY good investment opportunities why not pick the very best ones and in the very best places?
Unless of course one is looking for adventure which is a whole other ball of wax and introduces completely different criteria. (the four countries I mentioned can sometimes be pretty boring whereas some of the ones you mention can be more fun)
But we are talking about making money here first and foremost and about having fun second. (I wouldn't mind at all going on a nice two week vacation to Russia, or China or Israel or Botswana or any of those other countries)
O.K. I think I can safely rest my case now.
Thanks and keep it coming.
Now, how does one invest in Botswana. Canada and Australia are easy enough with good and liquid ETFs. Is there any aggregate investment with decent liquidity in Botswana.
I'll be following and looking for a reply.
A better way to reduce suffering AND create opportunity for sustainable living can emerge and start making changes right now as an integral and essential part of the global recovery.
If Brazil could ever get that corruption and bureaucracy straightened out, it would be unstoppable. Many of it's citizens are vigorously fighting it , but are unable to turn it around. Still, I would keep it high on the list of secondary considerations.
Thank you for a fine article.
Thank for another pair of enlightening and well-written articles,
both Parts I & II. You set a high standard for SA contributors
to follow.
Investors need reminders of the basics such as "governance counts". In the past couple of years I've lost 90% of two BRIC investments...
Yours is a well-thought-out and well-written cautionary tale that illustrates my concern that not enough investors do proper due diligence before racing headlong into some area where investors are ill protected and contracts are agreements of convenience. Thank you for your comment! I hope to see more of them,
JS
PS -- As for your question re Botswana, please see my response ot a different comment below...
Being Indian, I do have some Indian investments but they amount to a very small fraction of my portfolio - I tend to chose from the DJ India Titans, avoid any companies in the Reliance ADAG group and avoid all public sector under takings - after that check valuations, hold your breath, jump. Often the payout justifies the risk!
I will certainly keep my eye open for MNC's with significant Botswana interests for the future.
As far as corruption, governance, transparency, intellectual capital is concerned; problems are widespread in all EM's. But I think about it this way -
- for every Satyam there is an Enron;
- for every Harshad Mehta there is a Bernie Madoff;
- for every corrupt government official there is a subtantial political contribution or lobbying payment (only real difference is that it is disclosed and legal - still does not make it any less a polite form of bribery);
- for every corrupt employee there is a morally bankrupt management (look at management compensation in US and you will see management stealing from shareholders; only difference is that it is disclosed and legal!).
People just tend to change the words for the old actions to give them new legitamacy when social norms change. In India, a maid was called an "Aya"; once that became an impolite word, they were called "Didi" (means elder sister). Now calling a person Didi offends some. Cynical eh!
On May 15 09:49 AM max12345 wrote:
"...I have one personal litmus test that I often use before investing
in any country:How would I feel if I were suddenly stopped on the street and arrested in my potential target country? If I had not committed any crime (or even if I had spit out my chewing gum) would I feel safe and secure in that country is it likely that I would be treated justly and with some rights? If my answer is no, then there is NO reason for me to put any of my hard earned money there either..."
THANK YOU for your exhaustive and informed take on my article. I particularly like the "litmus test" you use that I've quoted above. Having spent much time in each of the 4 nations you have concluded you like best, I will not disagree! (Of course, the fact that I spent more than 5 years of my life in Norway may contribute to that agreement //grins//)
As for why I rely less upon the WGI (World Governance Index) from the World Bank, it relies more on surveys than on actual research into processes. It's more, "What do you as a [fill in the blank: citizen, researcher, economist, etc.] feel about this issue. I still consult it and have the Excel spreadsheet on my desktop, but I take it with at least a small grain of salt!
Thanks for following our discussions,
JS
Sort of how it works in the USA, if you are a Bank CEO, you may receive assistance if Hank likes you, or Ben, or if Larry was on your payroll.
Corruption is universal, the only difference is the magnitude and lexicon. In Russia its called "Nomanklatura," in America its called lobbying, or hiring ex/future Administration officials to work for you!
OK. Great article, and thanks for your promotion of decent values.
too. Now, how does one invest in Botswana... I'll be following and looking for a reply.
You are not yet a regular reader of ours but your question is one that deserves a thoughtful response. (I know you aren't a regular or you'd know that, because I enjoy the discussion with readers, I *always* strive to answer questions posed. Nevertheless, my first responsibility is to our clients so on a day we are rebalancing positions, I may miss a few -- and I am never influenced by anyone telling me they are expecting a response. That would be their issue, not mine...)
So -- How to profit from Botswana's emerging presence as a stable supplier of essential resources? You might start by looking at (at least the online versions of) "Business in Africa" and "African Business" magazines. You may be pleasantly surprised at the quality of reporting and the numerous issues discussed. Second, for nations without a well-established stock exchange of their own, I always suggest considering the multinationals that are investing there -- if you like their other business activities as well. You won't get a pure play but you may rest assured that firms that do business in 100 or 200 countries have region and country teams that are doing due diligence to protect themselves just as you and I would. An example is Swiss water, milk, pet care, pharma, nutrition, food, and chocolate (which I place on a higher plane than mere food) purveyor NESTLE (NSRGY.) When you see these giants that have been active for 50 or 100 years in a nation announce a new plant there or the transfer of a couple hundred employees, etc., you may rest assured they are preparing to step up their activities. Finally, I would consider the iShares MSCI South Africa Index (EZA.) Many South African firms have joint ventures, subsidiaries, or outright internal ownership of the huge resource base in their neighbor to the north. Typically, it will be in what we used to call, in the bad old pre-politically correct days, "First World" South African banks, miners, telecoms, etc., that have the money and the firsthand knowledge to establish networks in Botswana long before the rest of the world does.
JS
On May 15 12:29 PM SeekingTruth wrote:
> As one who can never get enough international news, I found this
> a most interesting and helpful article.
> If Brazil could ever get that corruption and bureaucracy straightened
> out, it would be unstoppable. Many of it's citizens are vigorously
> fighting it , but are unable to turn it around. Still, I would keep
> it high on the list of secondary considerations.
> Thank you for a fine article.
JS
On May 15 01:18 PM Maya_ wrote:
> Wow. Spot on. Personally, I try to invest in Oz & Candada because
> they can deliver what China & India need. I have always avoided
> direct investment in China, India & Russia,simply because a safer
> return can be obtained by investing in their needs rather in the
> Countries. Unfortunately, BP has significant Russia interests so
> I guess I have indirectly invested in Russia - am thinking of switching
> to RDS. Brazil for some reason I have ventured into in a small way
> through an investment in Vale & I would not mind some Petrobras
> either - I have worked for and with Brazil in my job for a number
> of years and recognize that working in Brazil is difficult for a
> foreign company or foreigner; but Brazilian entities manage to be
> successful - I particularly like the management at VALE.
> Being Indian, I do have some Indian investments but they amount to
> a very small fraction of my portfolio - I tend to chose from the
> DJ India Titans, avoid any companies in the Reliance ADAG group and
> avoid all public sector under takings - after that check valuations,
> hold your breath, jump. Often the payout justifies the risk!
> I will certainly keep my eye open for MNC's with significant Botswana
> interests for the future.
> As far as corruption, governance, transparency, intellectual capital
> is concerned; problems are widespread in all EM's. But I think about
> it this way -
> - for every Satyam there is an Enron;
> - for every Harshad Mehta there is a Bernie Madoff;
> - for every corrupt government official there is a subtantial political
> contribution or lobbying payment (only real difference is that it
> is disclosed and legal - still does not make it any less a polite
> form of bribery);
> - for every corrupt employee there is a morally bankrupt management
> (look at management compensation in US and you will see management
> stealing from shareholders; only difference is that it is disclosed
> and legal!).
> People just tend to change the words for the old actions to give
> them new legitamacy when social norms change. In India, a maid was
> called an "Aya"; once that became an impolite word, they were called
> "Didi" (means elder sister). Now calling a person Didi offends some.
> Cynical eh!
I really enjoyed your article and instead of investing in Brazil like I had planned to do, now I am going to instead shift part of my portfolio to Australia. In your mind, what would be a bargain price for EWA?
Thank You
I have questions about your underlying assumptions, though. First, resource-rich countries have not fared well historically. All the way back to the earliest wars in history; good organization (Rome, Genghis Khan, Ming China, British Empire, and 20th-century America) has had its way with resource-rich areas. The same is true today. In fact, resources probably attract conflict. Even without imperial armies, Vikings made a mess of Britain and northern France for at least 500 years.
Thus, I concur with much of what Max says about apples and oranges. Neither resources nor business-friendly government is enough to assure good investment opportunities. Security is needed, too.
Even the "business-friendly" measure is too simplistic, since you're only using the composite score. I'm not starting a business, so I don't care how long it takes to get permits; if someone is selling stock, they have already done that. So look at the investor protection score, first. Surprise! Business-friendly Switzerland is #164-- I'd be better off investing in Albania or Peru. And even your darling Australia is #53 in this category, on par with Angola. Angola!?
So perhaps more finesse in using these screens would be useful.
Okay, I do invest in Australia, and Canada, so that's no big news. But...
There are no Botswana stocks available in the US: not even on the pink sheets; none in any ETF.
There is a Botswana stock exchange, and MSCI started tracking the index 6 months ago. It's down -22% since inception and -6% YTD, so it appears that the market is not enjoying whatever virtues the country has to offer.
Nor does it make sense to buy shares of Barclays Bank (for example) simply because they have a prominent presence in Botswana. How prominent is Botswana in Barclays' earnings?
So I'm afraid a better answer to "how to invest," if you're in the US, might be, "wait 10 years."
Thanks for a delightful idea. I'm afraid it's not practical. And China stocks are doing very well.
For an investor, better to invest in companies that will act effectively on the ground (e.g., Toyota, Royal Dutch Shell, and certain vaccine-making big pharms may be better investments in Africa than most African companies).
"I believe the future more likely belongs to the suppliers to the future, no matter which nations are ascendant and which in decline."
Concur - BUT the mere fact that the future belongs to the suppliers doesn't mean investments within them will be profitable. Given the political risks, the insider trading risks, and the variety of other risks - I trust dividends as a signifier of virtue. If the regulatory climate in a country compares with America of the 1920s/30s, then I demand the same dividends I would have received in America of the 1920s/30s.
Last tidbit: take the World Bank "Doing Business Guides" with a grain of salt. Compare Dubai, where it's relatively easy to set up a company, with Saudi Arabia, where it's relatively hard and takes twice as long - even though Saudi scores many notches better. It's a 'better'n'nothin'" tool - but often not a whole lot better than nothing.
And I knew I had arrived in a place with a whole other level of civilization the second day after I arrived in Stavanger. There are two lakes in Stavanger right in the middle of town....one small and one big. (Lille Stokkavatnen and Store Stokkavatnen)
And lots of ducks live happily in both of them. I was waiting for the (red) traffic light to change to cross the main street in front of Lille Stokkavatnen...
...when all of a sudden two baby ducklings started to cross the street (and they were still too little to be able to tell red from green)
The (fairly heavy) traffic in both directions immediately came to a full stop and stayed stopped for well over two minutes until both the baby ducks had made it safely across the street.
So investing in Norway for me is a no-brainer. (not to mention that Statoil, Norsk Hydro and several other Norwegian companies are great plays, pay great dividends, are rock solid and etc. etc.)
Some people have "normal" investment criteria and some have "weird" ones; but mine for some reason have always served me pretty well.
And yes, I also like the Oracle of Omaha and for some of the same reasons... honesty, integrity, decency, general truthfulness and extremely low amounts of double talk and triple speak... and etc. etc. (and I don't mind at all if he's a bit folksy and even "farmy" at times)
And both Norge and Warren of course "have a lot in common" with Wall Street" and the broader Big Apple. (though I definitely wouldn't wanna be any kind of duck anywhere around there) ...either floating happily in the Hudson or the East River...or maybe sinking with a pair of cement shoes....
Fabien Hug – While I believe strongly that Botswana should be and very well may be the model for many African nations, I view it as a long-term play on its coal, potash, copper, nickel and other mineral resources, and on its stellar governance thus far, with a stable democracy, large budget surpluses, and hefty forex reserves. Having said that, I believe that the next 18 months will be difficult for Botswana because, today, so much of its revenue is tied to gem-quality diamonds and not a lot of people are making big diamond purchases right now. Times of turmoil are times of opportunity; as the nation gets through this rough patch, the opportunity for finding bargains in securities that will benefit from recovery increase. For instance, one of my favorite resource firms is Anglo American (AAUK.) They are the world leader in platinum and diamonds, a behemoth in coal, a major player in copper, and coming on strong in iron ore. They own 45% of DeBeers, which is in a 50/50 partnership with Botswana to produce diamonds there. As I said in the article, there are no pure plays but AAUK is a good example of a company that is active in Botswana.
neanderthal – I can’t predict pricing on any single security (and neither can anyone else, whether they admit it or not!) I can only tell you that I will be taking a small pilot position in EWA somewhere in the current range and will take a meaningful position if it declines to 12 or so, and the prospects for Australia remain as good as I see them now. If it drops below 10, I would consider that a screaming bargain and would over-allocate based on price and prospects.
Alan Young – What a wonderful riposte to my basic premises! I always appreciate a reasoned response that stimulates me to question my assumptions. It keeps me from getting stale or complacent. I would only take issue with two of your counters:
1. Your historical references refer to situations where resource-rich – but militarily weak – nations were invaded by far more sophisticated and militarily advanced civilizations. The situation is different with the ABCs. One could make the argument that Botswana’s close ties to South Africa might not provide it enough capability to rebuff an outside invader, but I have fought alongside both Canadian and Australian troops and would strenuously disagree that they would be easy marks. Particularly with the multilateral ANZUS and NATO Treaties, as well as separate bilateral treaties, the United States considers an attack on either of these allies an attack on our sovereignty, as well…
2. You may have posted before I responded to max 12345, “As for why I rely less upon the WGI (World Governance Index) from the World Bank, it relies more on surveys than on actual research into processes. It's more, ‘What do you as a [fill in the blank: citizen, researcher, economist, etc.] 'feel' about this issue?’ ” I used business formation because it is quantifiable; the others are pretty touchy-feely. For instance, I’ll wager Switzerland’s ranking fell to 164th in “investor protection” simply because a lot of Swiss bank account holders were angry about the new transparency laws. “Feelings” based surveys can do that. It fails the common-sense test that Switzerland is 101 positions below Angola (or that Australia is on a par with Angola.) Does common sense tell you it’s smarter to put your life savings to a bank in Angola or one in Switzerland? I say, “Use the force, Luke; trust your gut.”
Thanks again for a thought-provoking post!
donzelion -- You are so correct; political stability is a thin and reedy beast in Africa. I believe Botswana will face its biggest test since independence in the next 18 months as thousands of miners are laid off. I’m pulling for them, individually and as a nation. First, I’d like to continue my visits there; and more importantly, Africa needs the example of Botswana. They have enough dictators who are traitors to their own people…
max 12345 – This is a more personal response than the one I responded to earlier: Tusen takk for din utmerket brev – og Gledelig Syttende Mai! I found your experience in Stavanger traffic both telling and redolent of my own experiences. I’m having Norwegian friends for dinner tonight – for Syttende Mai, of course – and I’ll pass your story along!
Thanks to all for keeping me interested in continuing to research these issues. I wish you successful investing, Joe
Max 12345
"2. You may have posted before I responded to max 12345, “As for why I rely less upon the WGI (World Governance Index) from the World Bank, it relies more on surveys than on actual research into processes. It's more, ‘What do you as a [fill in the blank: citizen, researcher, economist, etc.] 'feel' about this issue?’ ” I used business formation because it is quantifiable; the others are pretty touchy-feely. For instance, I’ll wager Switzerland’s ranking fell to 164th in “investor protection” simply because a lot of Swiss bank account holders were angry about the new transparency laws. “Feelings” based surveys can do that. It fails the common-sense test that Switzerland is 101 positions below Angola (or that Australia is on a par with Angola.) Does common sense tell you it’s smarter to put your life savings to a bank in Angola or one in Switzerland? I say, “Use the force, Luke; trust your gut.”
Thanks again for a thought-provoking post!"
I found particularly humorous (and therefore wished to comment on it) your "definitive proof" of the failure of "common sense" (I am of course only joking) in concluding to put one's life savings in Angola instead of in Switzerland! (that is, "Luanda or bust" rather than Luanda AND bust)
And unfortunately regarding what I am going to say next I am not going to be speaking from direct personal experience since I don't have (either fortunately or unfortunately for me) ) any personal bank accounts with either the Gnomes of Zurich or the Oil "Rip-Offers" of Luanda.
Whereas I was speaking from experience -usually something also a lot more interesting for readers than people's -including me- various opinions based on....their assorted "brilliant logic".
For example regarding my Norwegian BABY DUCKS anecdote, through which I basically was trying to say (indirectly) that a society's values are at least as important if not more so in terms of whether one may wish to invest there or not... than "mere" economic criteria. That is, values (and social norms and culture and etc.) can be much more important (when later on, push comes to shove) than "more tangible" economic variables and the assessments thereof that one typically carries out when investing. (even though for those two baby ducks not being run over was tangible enough!)...
Let me also say that I don't particularly feel a lot of sympathy for Switzerland in terms of the pressure it is now coming under to
cease being a tax haven. (I have no doubt however that after all of the other "push comes to shove" is finally over, Switzerland definitely will still have its Swiss banking secrecy intact and the application (not just the paperwork) of related laws firmly in place.
(though their disguising and dissembling about it will have reached a much higher level of "sophistication" )...(they are fairly sophisticated folks in general).... (and in fact from what I have read they are not just mere "laws" but are covered directly by the Swiss Constitution itself, so it's most unlikely they will pass a constitutional amendment just because it suits Uncle Sam at this particular political moment. (as Sam continues to engage in an orgy of self-righteous populism)
It would OF COURSE be much better if we all could live in a fully honest world with full transparency, accountability and rule of law
that would apply to EVERYONE, EVERYWHERE (and where every country would be tied neck and neck for the number one spot on the (noble) (but not yet Nobel) World Bank's assorted indeces)
A world where not only folks like Mr. Madoff are put in jail but so are all the other Wall Street "best and brightest" (and their senior managers) who engaged in much bigger Ponzi schemes. (costing the U.S. Fed trillions rather than a mere 60 billion).
And when one sells on a bunch of CDO's to unsuspecting others that one knows full well are nothing but junk (since one had to pay off some very moody guy (or gal) at Moody's to stamp them all AAA) .... and since by so doing they will be able to sell even more such junk later....(all hinging on house prices continuing to go up)....I don't really see how that overall process differs very much from the more run of the mill simplistic Ponzi scheme that Mr. Madoff designed and operated. (except that the "supply chain" is a bit longer and more complex and also has more actors)....(thereby conveniently also making it much harder to pin the responsibility on any single actor in the chain)...(something the various actors were definitely all "banking" on)
As I said, although I have little sympathy for the Swiss....(they also successfully stonewalled Mario Cuomo's attempt a few years ago to give back the money that had been deposited by Nazis in their banks and the other even bigger bunch money that had been deposited instead by Nazi holocaust victims themselves... that they just conveniently kept)...(the account holder did not reply to their letters inquiring regarding the maintenance of their accounts and so what else could the "poor Swiss banks" do?)
....But I have perhaps even less sympathy for some of the high handed moralism (and hypocrisy) on the part of Uncle Sam. (who should know better (the CIA knows EVERYTHING)...(except of course where the heck Bin Laden is precisely hiding out)...and also should set a much better example)...
And since -as I said earlier- I always try to base whatever I conclude about a topic on at least a little bit of direct personal experience (just to try to keep myself honest) I do have one concrete example to offer:
I once had a bank account at the Riggs National Bank of Washington D.C. (a long time ago) which now has become PNC bank. At one stage I learned that one of my fellow customers at Riggs was none other than the good Augusto Pinochet and his happy extended family.
And Augusto was a guy (installed by Kissinger on the other 9/11)
(9/11 1973) who for years and years practiced the most brutal tortures imagined or even imaginable.... on "communists and other dangerous subversives" and who basically used water boarding just for appetizers. (fairly quickly "moving on" to such "more effective" tactics as the rape of female prisoners (which also provides an incentive to the pervert-guards) and the application of 110 volts...(or maybe it's 220 there) (though it's probably 110 now) to the genitals of the male prisoners) (and I do realize that none of this stuff is in the least bit funny and that perhaps I shouldn't be making any even indirect jokes about it even 30 years later) (but readers please rest assured that my intentions are definitely good)
And so where were the highly moral positions on the part of Uncle Sam then, and how come good old Augusto (then still bad young Augusto) was allowed to have an account at Riggs? (Maybe I might have run into him if I had gone in to cash a check one day and would have had to figure out what to say to him?)....(other than may you and the people who put you in power in Chile all burn in hell for eternity?)
Instead he lived to a ripe old age and is probably NOT burning in hell probably also having first gotten an official special dispensation from both the Pope and Uncle Sam.
Which brings me full circle back to my initial point. (about whether it's more safe to have an account in Switzerland or in Angola)
Since Cabinda province (located in Northwestern-most Angola for those Alpha Seekers who may not be familiar with African geography) (i.e. roughly 94.6438 % of them ) is still very much under the protective Angel wings of both Uncle Sam and several U.S. oil multinationals.... so perhaps it WOULD INDEED BE safer to have one's secret bank accounts in Luanda rather than Zurich or Geneva? (destinations which have temporarily fallen into disfavor).
Though if the Swiss were clever....(they are certainly smart enough but maybe not always all that clever) they would agree to release the names of all those secret accounts that assorted Americans have with them but by first starting first out by releasing one by one the names of all the U.S. Congressmen (and Congresss ladies) and assorted other U.S. politicos who have been stashing their money there for years (I did mean decades) (when they finally figured out that the Bahamas and other idyllic Caribbean Paradises were much better for just going on vacation?)
And although I am sure that my comment above will NOT end up advancing the cause of honesty, transparency, accountability and rule of law by one single IOTA...I do hope (and trust) that it will have furthered the (much more important) COH....(Cause of Humour) by a few millimiters....(and if I failed at that too, at least I had some fun myself writing it)