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The Daily Reckoning | Saturday, February 18, 2012 Revisiting the concept of “supranational” investing, Readers weigh in on the possibility of war with Iran, Plus, all this week’s reckonings, archived for your earthly enjoyment... --------------------------------------------------------------- Retire Off This One Penny Stock? All of your retirement woes could be lifted thanks to this one penny stock’s massive resource discovery... You could quickly make money no matter how the market moves! But you must hurry before Wall Street catches wind of it... Expert geologist Byron King reveals the full details in his new presentation — here. The Rapidity of Change Joel Bowman Checking in today from Buenos Aires... As any cosmologist worth his stardust will tell you, the universe is expanding. Give him or her a couple of minutes longer and they’ll tell you, more interestingly, that the rate of expansion increases the further “away” you go. In other words, a galaxy 100,000 light years over yonder is moving away faster than a galaxy merely 50,000 light years (virtually around the corner in cosmological terms) is moving away. What does this have to do with investing, you ask? Nothing, really. We just thought it was interesting. But besides the obvious inflation metaphor, there’s another parallel to which we’d like to draw your attention. The further we continue along time, away from our own Big Bang moment, the more change seems to speed up. This appears to be true individually. (Notice how, the older you get, the more “time flies”?) And it seems to be the case at a societal level, too. It took 1811 years after the clock rolled over from BC to AD for the earth to amass a human team of 1 billion members. Two hundred years later and we’ve multiplied that seven-fold. (Go us!) Already, more people have experienced the wonders of the still-juvenile 21st Century than were alive throughout the entire 17th century. It is true, too, of wealth creation. As we mentioned recently, the twentieth century alone was responsible for more wealth creation than the preceding 19 centuries. Incredible. What does this mean? As usual, we have no idea. Only guesses. We guess, for one, that an increase in the rate, frequency and magnitude of change, of evolution at every level, will translate into a drastically different world for 2020 than today. And, if the trend continues, the difference between now and 2020 will be negligible next to the size and scope of the difference between 2020 and 2030. The future is always unpredictable, in other words...and increasingly so. For individual investors, this means an impetus to constantly revisit accepted wisdom, to rework strategies and to question “known” knows and “known” unknowns alike. It means, as Addison explains below, learning to recognize subtle nuances before they become obvious (to everyone else) opportunities. It also means not being afraid to be a little “out there”...even if that means being “out there” all alone. Please enjoy Addison’s column, the feature for this week... [The column below originally appeared in these pages on February 17, 2012] The Daily Reckoning Presents “Supranational” Investing AddisonWiggin Some of the very best Argentine steak houses are in Amsterdam, some of America’s very best rodeo cowboys are Brazilian and some of the world’s very best beach volleyball courts are high in the Swiss Alps. The “cosmopolitanization” of the world is under way — creating vast, new and diverse patterns of commerce... which also means vast, new and diverse investment opportunities. Because cultural influences continuously tend to travel and disperse like pollen on the breeze, the resulting cross-pollination produces a dizzying array of cultural hybrids. In one sense, therefore, the world is becoming smaller. But as it “shrinks,” it is also expanding culturally. When cultural influences combine with one another, they sometimes produce sociological phenomena and expressions that defy strict national categorization. To illustrate the point, let’s return to those Argentine steaks, American cowboys and beach volleyball courts... According to a colleague who sometimes knows what he’s talking about, “There’s an Argentine restaurant in Amsterdam named CAU that serves a filet mignon that is as good as any filet I have ever eaten in Argentina or Uruguay...maybe better. CAU stands for ‘Carne Argentina Unica’...and that’s exactly what CAU serves. Argentina itself still holds the title for best-ever rib-eye, but the filet at CAU was incredible!” A similar Southern Hemisphere/Northern Hemisphere curiosity is unfolding in the American rodeo world. “Five of the top six riders on the Colorado-based Professional Bull Riders Tour all hail from Brazil,” The Wall Street Journal reports. “[And] there are five more Brazilians among the [rest of the] top 40 riders... The South American country has been producing strong contenders since the tour began nearly two decades ago, but never before this season have its cowboys been so dominant, with Brazilians winning 17 of the 27 events so far. Their prowess has other riders frantically reassessing their techniques, scrambling to learn Portuguese and even vacationing in Brazil in hopes that secrets to the Brazilians’ success will somehow seep in.” “I’m kinda ticked about it,” a 60-year-old computer specialist from Fargo, N.D., tells theWSJ. “There’s nothing more American than a cowboy, and all of a sudden these Brazilians are walking away with everything.” The Brazilians are also walking away with a lot of the beach volleyball titles...often without even the setting foot on a beach. Last summer, the FIVB Beach Volleyball Swatch World Tour hosted a tournament in Gstaad, Switzerland — 3,440 feet (1,050 meters) above sea level, the highest altitude tournament on the tour. Brazilian duos won both the men’s and women’s 2011 event in Gstaad, but the semifinal contests also featured teams from Germany, Poland, China, Italy and, yes, the US. As recently as 10 years ago, most beach volleyball tournaments featured mostly American beach volleyball players playing on actual American beaches. No more. Today, the best professional players could hail from almost any country on the planet...and the tournaments, likewise, could take place almost anywhere on the planet...including the Swiss Alps. This very unscientific sample of cultural cross-pollination and hybridization mirrors a powerful trend in the world of commerce and, therefore, in the world of investing. Regional cultural differences remain, but national borders are becoming increasingly irrelevant to economic trends. They are accidental, artificial constructs that surround underlying supply/demand phenomena. International commerce, therefore, is becoming less and less about bilateral trade between nations and more and more about worldwide demand for a specific product or service. Accordingly, international investing is becoming less and less about “where” and more and more about “what.” Investors can benefit by recognizing this subtle nuance. Let me explain. Traditionally, US investors seeking to invest overseas would allocate capital to a specific country or region. They might buy an “Asia Pacific Fund,” for example, or maybe something more targeted, like a “Singapore Fund.” But country- or region-specific considerations drove the investment decision. That’s traditional international investing, and it is still a valid strategy. But a complementary international investing strategy is something we call “supranational” investing. “Supra-,” according to Webster’s Unabridged Dictionary, is “a prefix meaning above, over, beyond.” Supranational investing, therefore, looks above, over and beyond national and regional borders. It seeks to identify the companies that will deliver the greatest growth around the world, rather than the countries that will deliver the greatest growth. Supranational investing seeks to identify the products or services that will attract the greatest demand growth throughout the entire world and then invest in the companies that provide these products or services. A company like Pall Corp. is a great example. Pall, which trades right here on the NYSE under the symbol PLL, manufactures and supplies filtration, separations and purification products. In the company’s own words, “Pall’s fluid management solutions enable customers to purify and conserve water, consume less energy, make alternative energy possible and practical, advance medicine and minimize emissions and waste.” Pall benefits from local demand, yes, but also it benefits from demand from the rest of the world. The company generates only one- third of its sales from the Americas. Europe accounts for 39% of its sales, while Asia accounts for 28%. As such, Pall is not an “Asian trade” or an “African trade”; it is a world trade. It is an investment in the growing global demand for clean water...and Pall’s stock market performance makes the point. During the last five years, PLL has charted an independent course that bears little resemblance to the trends of either the S&P 500 index or the MSCI EAFE index of international stocks. In other words, Pall’s share price has tracked the strong performance of its own operations, rather than the performance of any particular national economy or stock market. Even more dramatic is the two-decade-long divergence between Japan’s Kurita Water Industries and the overall Japanese stock market. Over the last two decades, Japan’s Nikkei 225 index has tumbled 59% in US dollar terms (78% in yen terms!), while the EAFE index of international stocks has scratched out a gain of 109%. But over the same time frame, Kurita has delivered a total return of 200%. Past performance is no guarantee of future performance, but in this case, we think it will be a reliable hint. For the future — both near term and long term — water purification is one of our favorite supranational investment themes. Regards, Addison Wiggin, for The Daily Reckoning Joel’s Note: As most of our Fellow Reckoners well know, Addison has been calling the big trends now for over a decade, sometimes in these pages...sometimes by way of book, conference, documentary, newsletter, interview, etc... Although, as he mentions above, “past performance is no guarantee of future performance,” we feel pretty confident that the method Addison uses to arrive at his predictions holds strong. And now that method has led him to predict, in his own words, the “mother of all bubbles.” If you didn’t catch this eye-opening presentation when we ran it yesterday, please feel free to do so here: World oil production is about to be shaken to its core... You won’t believe which nation analysts at Wall Street’s biggest banks expect to become the world’s biggest energy producer by 2017 — or the effect it will have on America... our economy... our future... Click here to see who is set to become the new king of oil — and how you can use the news to go for big profits as early as this MAY! ALSO THIS WEEK in The Daily Reckoning... Moneyball Investing: A Simple Way to Beat the Market By Chris Mayer Gaithersburg, Maryland The key dilemma around Moneyball, the book by Michael Lewis and the movie based on it (I recommend both), is pretty simple. The New York Yankees had a payroll of $126 million in 2002. The Oakland A’s had a payroll of only $40 million. How does an underfunded, outgunned outfit like the A’s compete with the Yankees? As A’s General Manager Billy Beane puts it in the movie: “There are rich teams, and there are poor teams. Then there’s 50 feet of crap. And then there’s us.” The Federal Reserve’s Explicit Goal: Devalue the Dollar 33% By Charles Kadlec The Federal Reserve Open Market Committee (FOMC) has made it official: After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years. The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level. Default Therapy By Eric Fry Laguna Beach, California The Greek crisis has been solved...again. Let’s see...that’s probably about 24 “solutions” during the last 24 months. But since these solutions never seem to solve anything, Europe’s central bankers, technocrats and politicians get to huddle together every few weeks and solve the crisis over and over again. It’s kind of like Disneyland for euro-meddlers. They get to keep going on their favorite ride over and over again. Is a US-Iran War Inevitable? By Doug Casey Buenos Aires, Argentina US-Iranian saber-rattling or impending shoot-out? In his usual, candid manner, contrarian investor Doug Casey talks about why he believes it’s serious this time... why the US is the greatest threat to peace today... why Iran might move towards a gold standard... and what smart investors should do. Only 62 People Know Exactly Why These Four Companies Could Change the World Now you’re #63 “on the inside” — and you’re on the verge of raking in lasting wealth. This could go down in history as the story of our era. Click here for all the details. The Weekly Endnote... As is usually the case when we feature one of his columns, Doug’s musing on possible (“probable,” says he) war with Iran inspired plenty of reader feedback. Some of it was positive. Some not so much. Either way, it’s good to know people are thinking. Let’s dive right in... First up, this one from Reckoner Benton M. ... In all the discussions I read on the possibility of a strike at Iran, little or no mention is made of China’s involvement. China is said to import some 16% of its oil from Iran — a sixth of its needs... Is the USA actually going to connive at an Israeli strike and/or back it up, disrupting the Chinese economy thereby? If so, it is a monstrous blow-back. China (and the other five-letter countries — India, Korea, Japan) is our principal foreign creditor, upon whose largesse our debt relies. Is China willing to continue to finance our debt, or even continue to hold it, or continue to hold dollars at all, if the USA connives at a major disruption of the Chinese economy? The USA now borrows upwards of 40% of every dollar it spends. It is obvious to any sane person that we can no longer afford our military commitments and forces OR the social welfare programs of our governments. The USA and its constituent states, counties, cities, towns, districts are insolvent, period. If we look coldly at the future, we realise that economic supremacy (and the other supremacies) is passing over sea back to Asia, from whence it came. Mark my words. In our lifetimes, we shall see the President of the United States performing the triple kowtow to the Son of Heaven, with the cameras rolling. No mere respectful bowing, but down on his knees, knocking his head on the floor. Oh, yes, he and his subjects will all be wearing their hair in pig-tails. He will bring great tribute gifts, too. And this, from Reckoner Ralph B. ... I have always enjoyed Doug’s commentary because he deals with the issues honestly and straight forwardly. I think he needs to do a little more research into Islam, particularly the Jihadist version, and more particularly with respect to Iran the “Twelvers” sect of Shiite Islam. The Twelvers are represented by the Khomeini and Ahmadinejad elements that currently rule Iran. They have announced their intention to destroy Israel primarily for the purpose of bringing the Mahdi or 12th Imam back to the physical world to rule the new Islamic Caliphate. Their teachings call for his return during 2012. One of their requirements for his return is for the world to be in chaos with blood running in the streets. This is sort of like the 2nd coming of Christ in the Christian world. Should the Iranians actually identify the Mahdi, no doubt he will be seen by Christians as the Anti-Christ. While Doug’s comments cover a number of interesting and valid observations, we also need to recognize the spiritual aspect from the Twelvers’ point of view. Iran has been continually provoking the Western world for a reason. I believe that we need to consider that they are actually calling for an attack on Iran itself in order to bring on the chaos and bloodletting required for the return of the Mahdi, so that he can lead them to world domination under Sharia Law in the form of the 3rd Caliphate. Remember, Jihadists live to die and return to paradise. We die to live in our secular world. I think that their quest for a nuclear weapon to bring on the chaos for these purposes is pretty clearly tied in with the Mahdis planned return. And finally this, from Reckoner Ron S. ... Of course, Doug Casey is right about virtually everything. What concerns me most is the shadow government. You know, the one which skulks about in dark corners of the Pentagon, NSA and other paranoid cloak and dagger operations. These are the people who told us Iraq had WMD and who believe we are a bunch of troglodytes who couldn’t find our way home without their ‘expert’ advice. (This cost us $55 billion per year.) I hope Doug is wrong about the probabilities of a war with Iran. If this one comes — and it is totally avoidable — it won’t be like the last three debacles. Iran is not a small weak country incapable of defending itself. If you think things are bad now, and if the war comes, you ain’t seen nothin’ yet. --- As always, we welcome your thoughts. Email them to the address below and... ..enjoy your weekend. Cheers, Joel Bowman Managing Editor The Daily Reckoning