Mad Hedge Fund Trader

What Dubai's Financial Crisis Means for Emerging Markets

dfu Who did Dubai’s emir, Mohammed bin Rashid Al Maktoum, think he was kidding? He launched one of the biggest construction booms in history, erecting the Burj Dubai, which at 161 stories is the world’s tallest building. He built artificial islands in the Persian Gulf with lofty names like “The World” that are so big they are visible from space. He bought the legendary Queen Elizabeth II, a ship that holds many fond memories of transatlantic crossings for me, to convert into a floating hotel at unimaginable expense. The spending didn’t stop there. His spending binge went global, taking a partnership role in the Las Vegas City Center, which became the worst commercial real estate project since the Tower of Babel. The problem is that all of these acquisitions were done on credit, with only a fig leaf of equity, and the wind is now blowing with hurricane force. Dubai property values have slid 50% in a year, and the plunge shows no sign of abating. No surprise then that development arm Dubai World has defaulted on $59 billion in debt. The spendthrift emir spent way too much time on horse racing and not enough on research. Sure, turning Dubai into the next Hong Kong was a laudable goal, but did anyone think this through? While the former crown colony is backed by the sweating masses of China, tiny Emirate is surrounded on two sides by 2,000 miles of sand and on the other two by the not so friendly maritime neighbors of Iran and Iraq. Oil, you may ask? My Caesar salad has more oil than Dubai. Haven’t they heard of peak oil? I always thought Dubai would revert to a ghost town once the neighborhood ran out of Texas tea. Now that Dubai’s debt has been correctly marked down to junk the big question is who else this hubris gone wild is going to take down. The shareholders of the UK’s Standard Chartered Bank and HKSB, the lead lenders, are going to take a body blow, and a rash of hickies will spread among the many syndicate members. Greece and Ireland could be next, as the premiums for their credit default swaps have skyrocketed. Things could get ugly in Dubai when the country’s 360,000 migrant Indian workers find out they aren’t going to get paid. How do you say “domino theory” in Arabic?

African Risk and Opportunities

xxch Feel like investing in a state sponsor of terrorism? How about acountry whose leaders have stolen $400 billion in the last decade andhave seen 300 foreign workers kidnapped? Another country lost four warsin the last 40 years. Still interested? How about a country thatsuffers one of the world’s highest AIDs rates, endures regularinsurrections where all of the westerners are massacred, and racked up5 million dead in a continuous civil war? Then Africa is the place foryou, the world’s largest source of gold, diamonds, chocolate, andcobalt! The countries above are Libya, Nigeria, Egypt, and the Congo.Below the radar of the investment community since the colonial days,the Dark Continent has recently been attracting the attention of largehedge funds and private equity firms. Goldman Sachs has set up EmergingCapital Partners, which has already invested $1.6 billion there. Chinasees the writing on the wall, and has launched a latter daycolonization effort, taking a 20% equity stake in South Africa’sStandard Bank, the largest on the continent. In fact, foreign directinvestment last year jumped from $53 billion to $61 billion, whilecross border M & A leapt from $10.2 billion to $26.3 billion. Theangle here is that all of the headlines above are in the price, thatprice is very low, and the perceived risk is much greater than actualrisk. Price earnings multiples are low single digits, cash flows arehuge, and returns of capital within two years are not unheard of. Thereality is that Africa’s 900 million have unlimited demand for almosteverything, and there is scant supply, with many firms enjoying localmonopolies. The big plays are your classic early emerging markettargets, like banking, telecommunications, electric power, and otherinfrastructure. For example, in the last decade, the number oftelephones has soared from 350,000 to 10 million. It reminds me of theearly days of investing in China in the seventies, when the adventurousonly played when they could double their money in two years, becausethe risks were so high. This is definitely not for day traders. If youare willing to give up a lot of short term liquidity for a high longterm return, then look at the Market Vectors Africa Index ETF (AFK),which has rocketed by 82% from the March lows to the recent highs, andthe SPDR S&P Emerging Middle East & Africa ETF (GAF).

Two Strong Africa ETFs

fgm. Feel like investing in a state sponsor of terrorism? How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the westerners are massacred, and racked up 5 million dead in a continuous civil war? Then Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms. Goldman Sachs has set up Emerging Capital Partners, which has invested $1.6 billion there. China sees the writing on the wall, and has launched a latter day colonization, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent. In fact, foreign direct investment has jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the headlines above are in the price, that price is very low, and the perceived risk is much greater than actual risk. Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure. For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It reminds me of the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years because the stakes were so high. This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (AFK), which has risen 59% since March, and the SPDR S&P Emerging Middle east & Africa ETF (GAF).

Africa ETFs: Will Foreign Investment Help or Hurt Them?

xcvn. Feel like investing in a state sponsor of terrorism? How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the westerners are massacred, and racked up 5 million dead in a continuous civil war? Then Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms. Goldman Sachs has set up Emerging Capital Partners, which has invested $1.6 billion there. China sees the writing on the wall, and has launched a latter day colonization, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent. In fact, foreign direct investment has jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the headlines above are in the price, that price is very low, and the perceived risk is much greater than actual risk. Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure. For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It reminds me of the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years because the stakes were so high. This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (AFK), which has risen 59% since March, and the SPDR S&P Emerging Middle east & Africa ETF (GAF).

Wheat Crisis: The Next Black Swan?

Here’s a follow up on my call to buy wheat yesterday (www.madhedgefundtrader...). There is a new fungus out there called UG 99 which has the potential to wipe out 80% of the world’s wheat crop. It has been doing damage to crops in Africa for the last ten years, and if it escapes to Asia, where wheat is a major part of the diet, the results could be disastrous. Sygenta (SYT) is the world leader in producing the fungicide for this particularly nasty form of wheat rust, and has already seen its stock double over the past eight months. Unfortunately, ridiculous European fears about genetically modified crops and “Frankenfoods” have discouraged further research in the field. There is no money in wheat, so companies like Monsanto and Du Pont focus their attentions on rice, soybeans, and canola, which see more processing and are therefore less subject to the EC restrictions. Needless to say, if UG 99 makes it to Asia, or Heaven forbid, here, the effect on prices would be unimaginable. See the long term bull case for the grains at www.madhedgefundtrader.... There will be no food bailout. The Fed can’t print calories.

Wheat Crisis: The Next Black Swan?

Here's another reason. There is a new fungus out there called UG 99 which has the potential to wipe out 80% of the world’s wheat crop. It has been doing damage to crops in Africa for the last ten years, and if it escapes to Asia, where wheat is a major part of the diet, the results could be disastrous. Sygenta (SYT) is the world leader in producing the fungicide for this particularly nasty form of wheat rust, and has already seen its stock double over the past eight months. Unfortunately, ridiculous European fears about genetically modified crops and “Frankenfoods” have discouraged further research in the field. There is no money in wheat, so companies like Monsanto and Du Pont focus their attentions on rice, soybeans, and canola, which see more processing and are therefore less subject to the EC restrictions. Needless to say, if UG 99 makes it to Asia, or Heaven forbid, here, the effect on prices would be unimaginable. See the long term bull case for the grains at www.madhedgefundtrader.... There will be no food bailout. The Fed can’t print calories.

Wheat Crisis: The Next Black Swan?

How about a block of black swans? The harvest for spring wheat is in full swing and the weather has been great, both here and in India, so prices have dropped $1.00 from the $7.25 top it put in two weeks ago. You usually see peak production in June, so this is traditionally a timely window to put on medium term long positions, as cash strapped farmers hedge known inputs. New plantings are down 25% in Argentina, and 18% in Canada. A multiyear drought continues in Australia, where my younger sister, unable to coax life out of her 7,000 acres near Esperance, has resorted to driving a huge Caterpillar truck at the ore mines up North to make ends meet. It’s just a matter of time before the food riots resume. For the raging long term bull case for wheat see www.madhedgefundtrader.... There is maybe $1.00 of downside here if we get perfect weather, but a possible double on the upside, and more if we get lucky. This is the kind of risk/reward ratio I am constantly hunting for. Wheat is one of the few Ag plays that is not overbought right now.

Digging into Africa: 3 Investment Funds

Buy when there is blood in the streets. When things slow down and there is nothing to do, like now, I do deep research for the unfound investment opportunity. Feel like investing in a state sponsor of terrorism? How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the westerners are massacred, and racked up 5 million dead in a continuous civil war? Then Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms. Goldman Sachs has set up Emerging Capital Partners, which has invested $1.6 billion there. China sees the writing on the wall, and has launched a latter day colonization, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent. In fact, foreign direct investment has jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the headlines above are in the price, that price is very low, and the perceived risk is much greater than actual risk. Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure. For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It reminds me of the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years because the stakes were so high. This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (AFK), which has risen 59% since March, and the SPDR S&P Emerging Middle east & Africa ETF (GAF).

Digging into Africa: 3 Investment Funds

Nice research. When things slow down and there is nothing to do, like now, I do deep research for the unfound investment opportunity. Feel like investing in a state sponsor of terrorism? How about a country whose leaders have stolen $400 billion in the last decade and have seen 300 foreign workers kidnapped? Another country lost four wars in the last 40 years. Still interested? How about a country that suffers one of the world’s highest AIDs rates, endures regular insurrections where all of the westerners are massacred, and racked up 5 million dead in a continuous civil war? Then Africa is the place for you, the world’s largest source of gold, diamonds, chocolate, and cobalt! The countries above are Libya, Nigeria, Egypt, and the Congo. Below the radar of the investment community since the colonial days, the Dark Continent has recently been attracting the attention of large hedge funds and private equity firms. Goldman Sachs has set up Emerging Capital Partners, which has invested $1.6 billion there. China sees the writing on the wall, and has launched a latter day colonization, taking a 20% equity stake in South Africa’s Standard Bank, the largest on the continent. In fact, foreign direct investment has jumped from $53 billion to $61 billion, while cross border M & A leapt from $10.2 billion to $26.3 billion. The angle here is that all of the headlines above are in the price, that price is very low, and the perceived risk is much greater than actual risk. Price earnings multiples are low single digits, cash flows are huge, and returns of capital within two years are not unheard of. The reality is that Africa’s 900 million have unlimited demand for almost everything, and there is scant supply, with many firms enjoying local monopolies. The big plays are your classic early emerging market targets, like banking, telecommunications, electric power, and other infrastructure. For example, in the last decade, the number of telephones has soared from 350,000 to 10 million. It reminds me of the early days of investing in China in the seventies, when the adventurous only played when they could double their money in two years because the stakes were so high. This is definitely not for day traders. If you are willing to give up a lot of short term liquidity for a high long term return, then look at the Market Vectors Africa Index ETF (AFK), which has risen 59% since March, and the SPDR S&P Emerging Middle east & Africa ETF (GAF).