Norway, Robertson on the Kroner, And Other Reasons to Increase Foreign Exposure

Julian Robertson was a featured interview on CNBC and as usual he was very worth listening to. I think the most important takeaway was his repeated insistence that if the Chinese and Japanese reduced their purchases of US debt, let alone outright sales, the US would be in a world of hurt. Obviously this is an unknown variable but is clearly the risk. Despite Erin's responses to this line of thought, there is nothing new about this. Even I've been talking about that for a while.

The extent to which our financial functioning has relied on foreign purchases of our debt should not be new to you. Additionally, the amount of borrowing it takes now to create a dollar of GDP growth versus how much debt it used to take is also something you should be familiar with. These are crucial dynamics.

These looming issues have not prevented the S&P 500 from going up 60% from its March low, but are the essence of why I have been writing about increased foreign exposure from the start of this site. It seems logical that these, and the other issues, will matter at some point and have to be reckoned with. Obviously this line of thinking has existed for a while so it could be a long time before it matters.

As opposed to guessing when this will occur I'd rather just slowly increase foreign exposure slowly over several years.

On a somewhat humorous (to me) note, Robertson said the Norwegian kroner was his favorite currency. Erin said he had a very big bet on Norway - who knows what big is, but Robertson cited all the things that every Norway bull has been talking about for years.

My exposure to Norway has been the same for several years now: Statoil (STO) and short term sovereign debt. Obviously anyone can buy a stock, but the debt is a little trickier as minimum order size for foreign debt is $100,000 (I am able to buy all at once and allocate smaller positions into client accounts).

GlobalX has filed for a Norway ETF, but who knows when that will come out. In the meantime, there are some stocks besides STO to check out for anyone so inclined. In the materials sector there is Yara International (YARIY), in telecom there is Telenor (TELNY) - a name I used to own for a few clients - in financials there is DNB Nor (DNBHF) and there is even an ADR for one of the fishery stocks, Marine Harvest (MNHVF)--careful there though as neither Yahoo Finance or Pinksheet.com shows volume and Schwab did not have the ADR set up in its system for trading but ADRBNY has quote information, as does Google Finance, so go figure. In tech there is Opera Software (OPESF) and there are others. To be clear, I am just mentioning that these stocks, exist not suggesting they be bought.

Each country can be looked at for stocks in this manner as a starting point for research. I have stuck with STO because it is by far the biggest company in that market, heavily involved it what the country is known for making it a good proxy. At some point, though, I will want to increase my exposure from the one name to include a second stock.

Comments

[mechhouse:]

Also, there is Norsk Hydro (nhydy), primarily aluminum, but, in addition to fostering Yara, it also holds a large stake in Ascent Solar (ASTI) in the U.S.

Sep 25 11:54 AM

[Roger Knights:]

Thanks for the info on Norwegian investing.

"I think the most important takeaway was his repeated insistence that if the Chinese and Japanese reduced their purchases of US debt, let alone outright sales, the US would be in a world of hurt. ... there is nothing new about this. Even I've been talking about that for a while."

I saw Julian Robertson's video interview linked to by an article here: seekingalpha.com/artic... . What struck me as new was the impression I got that:

1. This shift in buying patterns might be forced on them by events out of their control. (He cited disruptions in western China, but a more likely scenario is a bursting of their bubble-economy.)

2. This shift could happen fairly suddenly--or at least so quickly that few US investors could reach the exit unsinged. Who knows, maybe all it will take is the new party in power in Japan, or some big cheese in China getting miffed at our stance on tire imports and deciding to show us who's the boss.

3. The effect would would be apocalyptic, sending interest rates up to over 12%, which would devastate the stock and bond markets, not to mention the economy.

IOW, despite the fact that our complete dependence on Asian Treasury buying is well-known, the size and likelihood and steepness of the downside hasn't really "registered"--especially not the speed with which prices of assets would unravel once Mr Market lost confidence. He's climbed a fragile beanstalk. Effectively, a slowdown in Asian bond-buying a black swan, because we lack a lively appreciation of its existence. We're snatching pennies in front of a steamroller.

Sep 25 02:41 PM

[Roger Knights:]

PS: Make that an invisible steamroller.

Sep 25 02:44 PM

[HerrHansa:]

I have been going with a Norway strategy for most of this year, including Statoil (STO) and a few other choices. I continue to look into this market, since it contains some well managed companies. Many are small, a little low on volume, and sometimes volatile, so I consider a long term evaluation the best way to approach research.

Disclosure: Long on Statoil (STO), and Golar LNG (GLNG)

Sep 25 03:08 PM

[richjoy403:]

Thanks Roger for a timely article; I very much appreciate that you always take a reasoned approach without shouting or hyperbole.

Unless I read something contrary here over the weekend, I am likely to place a limit order for STO on Monday (my technique of choice for building a position).

I have read that STO has invested in CHK's Marcellous Shale play, principally so they can learn the technology required for shale drilling and adapt it to untapped shale formations already known to exist in Europe (which we all know is under Russia's thumb for natural gas).

Fortunately, STO already owns pipelines for transporting gas to Europe. I think this could turn out to be huge for STO, whose stock price presently reflects declining oil fields offshore Norway. STO is also expanding to other international oil developments, and is known for its expertise in working in very difficult conditions.

Does anyone have contrary data that might change my mind?

Oct 10 09:31 AM

[The Duck:]

I've been digging around for the best way (for me, that is) to play the NOK's (Norway currency) attractive position.
I just found out that Fidelity now facilitates direct trading directly on 12 country exchanges, Oslo Norway included (as of Thur.). It also allows for holding just the currency or buying and selling the natural resources companies on the Oslo exchange without incurring currency exchange fees on each trade after the initial deposit. I'm looking at the DnB NOR ETF which tracks the OBX (the 25 largest and most liquid co.'s traded), Natural resource companies such as oil,gas, fishing, shipping, alternative energy, etc. You can go with NOK's or stocks or both. The NOK portion does not pay interest. I still have more research to do; but it looks promising.
Anyone else have more info?

Oct 25 08:16 PM