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Exponential Growth, Finite World – Analyst Blog

Dirk Van Dijk — Fri, 20 Nov 2009 21:27:04 +0000

I want to talk about the challenge of exponential growth in a finite world. This is a concept that while on its surface seems easy to get, most people don’t fully grasp it.

Any growth rate that is positive will lead to a doubling in size eventually -- the higher the growth rate, the quicker the doubling. A quick "back of the envelope" method of figuring it out is known as the rule of 70. If you divide a growth rate into 70, it will roughly give you the time for something to double. Thus if something is growing at 2% a year, then it will double in about 35 years, at 5% only 14 years, etc. If you want to be more precise, you can always use your Y^x button on your calculator, but the rule of 70 will do for this discussion.

Clearly, exponential growth is what we are looking for when we invest -- better known as compound interest -- and it is vital to anyone’s financial health that they stay on the right side of it. People who get on the wrong side -- for example, by carrying a credit card balance -- are eventually headed towards financial oblivion. If that is you, then your best investment is probably not one of the stocks or ETFs that I recommend, it is paying down you damm Visa bill.

It is also why I try to watch the downside when I make investment decisions. It is far more important to avoid 50% losses than it is to have a 50% gain. After all, if you had a 50% gain in one year, but in the next year you suffered a 50% loss, at the end of two years that dollar would have turned into just $0.75 -- a 25% loss.

However, far more important to the world is the dark side of exponential growth. Let's start with the obvious one: population growth. The table below comes from Wikipedia, but is based on UN data. Note that from 1750 to 1800, the world population grew from 791 million to 978 million -- an increase of 187 million, or 0.4% per year. From 1850 to 1900, it grew from 1.262 billion to 1.650 billion -- an increase of 388 million or at 0.53% per year.

Thus, even very small growth rates can result in some very large increases extended long enough, and as the base grows, the absolute increase gets larger each year even if the rate of increase stays the same. Now look at what has happened more recently. From 1950 to 1999, world population increased by 3.457 billion, more than doubling from 2.521 billion, an increase of 1.78% per year. Lately we have seen a slowdown in the growth rate; from 1999 to 2008 it was just 1.29% per year, but that has meant an increase of 729 million in just nine years, or 92% of the entire world population in 1750.

Looking forward, the U.N does see a further reduction in the rate of growth, to just 0.68% per year, or almost back down to the growth rate in the very earliest days of the Industrial Revolution. But the base is so much larger, the absolute increase is 2.2 billion, or almost the world population of 1950. The effect is that a long-term graph of world population looks like a picture of a rocket launch. And unless you believe in the Mayan calendar or the equally silly "end times" nonsense, this is going to cause some very big problems (not that the end of the world in 2012 wouldn't be a very big problem on its own).

Now look at where the growth is coming from. The combined populations of North America (Mexico is included in the Latin American numbers, so basically the US and Canada) and Europe are actually expected to fall from the current 1.069 billion to 1.020 billion. All of the growth is coming from Asia, Africa and Latin America.

The only thing that can keep up with exponential growth is something that itself grows exponentially. Fortunately, the one thing that grows exponentially at a very fast rate is computing power, which in turn allows for technological advances. So far, technology has managed to hold off the worst of the problems that one might expect. After all, this analysis is not exactly original. It was first made by Thomas Malthus back before world population hit the 1 billion mark.

However, you can eat potato chips, not computer chips. One of the things that technology has done is level the playing field, so that people in Asia and eventually Africa will have the same shot at success as people in the U.S. and Europe. They can see how we live, and surprise, surprise -- they would prefer to live the way we do, and are increasingly able to do so. As they do, the economic growth opportunities will be huge.

That is why I like the emerging markets story so much. However, given the challenges of trying to research foreign firms who might be best positioned to take advantage of these trends, it probably makes sense to use ETFs such as the I-shares MSCI Emerging Market Fund (EEM) or more country-specific variants like the Claymore China Small Cap ETF (HAO) or the Wisdom Tree India Earnings ETF (EPI).

One of the things that has been absolutely key to our ability to have so much higher living standards today than back in, say, 1850 is that we use a lot more energy.

So let’s take a look at energy consumption per capita (the data I’m using comes from here if you want to investigate further). In 2005, people in North America used the equivalent of 8157.9 kilograms of oil per year (kgoe/y) per person, up from 7942.9 kgoe/y in 2000. Thus while our rate of increase in energy consumption was just 0.54% per year, it was on a high base so the absolute increase was 215 kgoe/y over that time.

Now look at Asia (excluding the Middle East). In 2000, they were using 865.2 kgoe/y, and by 2005 it was up to 1051.5 per year. That is an increase of 3.98% per year, or to go back to the rule of 70, it means that if it keeps up Asia’s energy consumption per capita will double by 2022. Combine that with a population that is expected to grow at 0.6% per year, and Houston, we have a problem.

However, note that the absolute increase in energy use per capita in Asia was just 186 kgoe/y, or just 86.5% of the increase in North America, despite the far higher growth rate. However, if the relative growth rates continue, that will not last. If we extrapolate out the growth rates of 2000 to 2005 then by 2015, Asia’s per capita consumption will grow to 1,553.0 kgoe/y, an increase of 501.5, while the absolute increase in North America will be "only" 451.4 kgoe/y.

Put another way, right now we use 7.76x as much energy per person as in Asia (keep in mind these figures include relatively rich countries like Japan and South Korea, as well as basket-cases like Burma and Bangladesh), and by 2015 that ratio will fall all the way down to 5.54x as much.

Now, the peak year for actual oil discovery in the world was in 1964, and as you pump oil out of the ground it is gone. Once you reach the point where you have pumped half the original oil in a field, it is basically impossible to increase the annual output from that field without causing serious damage that eventually results in that oil being trapped forever. Most of the currently producing fields are past their peak. As the International Energy Agency (IEA) found last year:

"Output from the world's oilfields is declining faster than previously thought, the IEA said in its annual report. Without extra investment to raise production, the natural annual global crude oil depletion rate is 9.1%. The findings suggest the world will struggle to produce enough oil to make up for steep declines in existing fields, such as in the North Sea, Russia and Alaska. The effort will become even more acute as prices fall and investment decisions are delayed. Even with investment, the annual rate of output decline is 6.4." (See here for full story.)

Now the situation is better for natural gas (NG) than it is for oil, but eventually that will run out as well. However, we have much more time thanks to the new shale plays here in the U.S. We need to shift to more usage of NG as a bridge towards the eventual goal of producing most of our energy from renewable sources like wind and solar. But given the tiny fraction of the world’s energy they now represent, we will need many years of very fast growth in them to make a substantial dent in world energy needs.

Natural gas also has the benefit of being located here in North America, rather than in rather unstable and hostile areas of the world, the way oil is.

The U.S. cannot continue to run massive trade deficits with the rest of the world. The trade deficit is the source of our external debt, not the fiscal deficit. Our external debt is now (as of 6/30/09) at $13.454 trillion -- up from just $7.744 trillion five years ago. That is a growth rate of 11.7% per year, and is clearly not sustainable (that might be overstating it since it is a gross number; we do hold some debts of other countries that offsets it in part). Still, even if the net growth rate is half that amount, it is clearly unsustainable, and is one of the reasons the dollar is going to be under long-term pressure.

Putting this all together it seems clear to me that the price of energy must continue to rise over the long term. Companies that are going to be able to increase their production of oil, such as Petrobras (PBR) are going to be exceptionally well positioned.

While natural gas should see a big growth in demand, it is not a perfect substitute for oil. Still, big gas producers like EnCana (ECA) have a very bright long-term future. I would also note that what I am saying about oil also holds true for other commodities. Energy and commodities are going to be the real stores of value and of wealth over the next few decades.
Read the full analyst report on "EEM"
Read the full analyst report on "HAO"
Read the full analyst report on "EPI"
Read the full analyst report on "PBR"
Read the full analyst report on "ECA"
Zacks Investment Research

TLK to Deploy WiMAX – Analyst Blog

Zacks Market Commentaries — Thu, 01 Oct 2009 17:45:17 +0000

P.T. Telekomunikasi Tbk (TLK), the largest telecom carrier in Indonesia, is likely to launch the country’s first 4G WiMAX network in first quarter of 2010. As of now, the company provides both 2G and 3G wireless infrastructure that includes GSM and WCDMA/HSPA technologies and is quickly expanding its wireless infrastructure. TLK’s wireless division, popularly known as Telkomsel has decided to raise capital expenditure plan to $1.4 billion in fiscal 2009, an increase of 25% from previous fiscal. Telkomsel commands 45% share of the total Indonesian wireless market, well ahead of its competitors, P.T. Indosat Tbk (24%), and P.T. Excelcomindo Pratama (17%).

Through WiMAX, TLK will offer an alternative to cable and digital subscriber lines technology. WiMAX enjoys commendable growth potential especially within the emerging markets. The technology provides a low-cost, open network system with an all IP mobile Internet solution that enables efficient and scalable networks for voice, data, and video transmission. TLK announced that the company is ready to comply with the required minimum of 40 percent local content in the products to be used for setting up the necessary infrastructure.

Indonesia is an emerging economy in the Asia-Pacific region with a mobile penetration rate still below 60%. Favorable industry trends are expected to sustain robust growth in the wireless business of TLK for the next several years. Mobile services are becoming increasingly popular as a result of declining handset prices, attractive service plans and better network coverage. Telkomsel has decided to spread out its radio access network infrastructure throughout Indonesia. The company has expressed continued interest in acquiring ownership stakes in telecommunications operators based in neighboring countries possibly Bangladesh, India and/or Sri Lanka.
Read the full analyst report on "TLK"
Zacks Investment Research

AMKR, PWRM, NWMT, CVAT, CSRH, GTXO, AQNM, TSPG, DOW, DrStockPick.com Stock Report!

Dr. Stock Pick — Wed, 16 Sep 2009 20:21:28 +0000

Dr Stock Pick HOT News & Alerts! _________________________________________ FREE Daily Stock Alerts From DrStockPick.com _________________________________________ Wednesday September 16, 2009 DrStockPick.com Stock Report! AMKR, PWRM, NWMT, CVAT, CSRH, GTXO , AQNM, TSPG, DOW ************************************************************** PWRM, Power 3 Medical Products Inc, PWRM.OB Power3 Medical Products, Inc. is a leading bio-medical company engaged in the commercialization of neurodegenerative disease and cancer biomarkers, pathways, and mechanisms of diseases [...]

DrStockPick.com Stock Report! 9/16/09, PRPL, MITI, NCR, GTXO, MDT, FTCH

Dr. Stock Pick — Wed, 16 Sep 2009 17:18:56 +0000

Dr Stock Pick HOT News & Alerts! _______________________________________ FREE Daily Stock Alerts From DrStockPick.com _______________________________________ Wednesday September 16, 2009 DrStockPick.com Stock Report! ************************************************************** Celebrating the stories, culture and heritage of America’s Deaf and Hard-of-Hearing Community, Purple Communications, Inc. (Nasdaq: PRPL) will honor National Champion Motocross Rider and Floridian, Ashley Fiolek for being a role model to deaf youth [...]

Suspect Detection Systems, Inc. (SDSS.OB) Joins with Gujarat to Combat Terrorism

QualityStocks — Thu, 27 Aug 2009 17:10:24 +0000

Suspect Detection System Inc. is a leading developer of proprietary counter-terror and crime technology. The company’s products are designed to gather intelligence quickly through a unique interrogation system, allowing for identification of threats in real-time and the ability to prevent incidents before they occur. The company’s technology will soon be adopted in Gujarat, India. Gujarat is [...]

Orascom’s free cash flow predicated on diverse sources, both frontier and otherwise

Jason G. Wulterkens — Mon, 03 Aug 2009 15:08:38 +0000

While assigning a “buy” rating to Egypt’s Orascom Telecom Holding (OTH), MENA investment bank Naeem Holding praised the company’s growth strategy and noted that it has “evolved into a well-balanced group with operations in mature markets providing healthy cash flow, while more exotic markets offer growth.” Its analysts forecasts the firm to generate free [...]

Gold Investment Opportunities.

Investment Education Staff — Sat, 11 Jul 2009 08:25:38 +0000

In the past few months, it wasnt really possible to believe that the price of gold would go up to $1000 per ounce and above. But when it did, it was a sheer surprise. We are not expecting the price of gold to go up even further and there are countless reasons for the rise in price of gold. Gold is very much in demand in many countries like China, India, Bangladesh and Pakistan and there isnt any probability of the price to fall. Gold is used in all these countries as jewelries and ornaments also apart from being a potential investment vehicle so they buy gold and sell gold often.

Federal Agency in India Purchases Suspect Detection Systems Inc.’s (SDSS.OB) Cogito Crime Prevention Technology

QualityStocks — Tue, 07 Jul 2009 12:41:08 +0000

Suspect Detection Systems Inc., a leading developer of counter terror and crime prevention technology, announced after the closing bell yesterday that it has sold the Cogito rapid interrogation system to a federal law enforcement agency in India. This sale was made after the agency’s extensive evaluation of Cogito technology over a period of several months. According [...]

The Economic Damage of Politicized Justice

Robert Amsterdam — Thu, 02 Jul 2009 16:38:45 +0000

Stephen Blank has an interesting new article on Forbes in which he assesses the economic damage being caused by Russia's inability to effectively reduce legal nihilism and corruption, both of which are dragging on the country's attempt to recover from...

Words from the (investment) wise for the week that was (June 22 – 28, 2009)

Prieur du Plessis — Sun, 28 Jun 2009 08:37:06 +0000

“Words from the Wise” this week comes to you in a shortened format as I do not have access to my normal research resources while on the road in Europe. Although very little commentary is provided, a full dose of excerpts from interesting news items and quotes from market commentators is included.

And Then There’s This…Friday, May 15th, 2009

Contrarian Profits — Fri, 15 May 2009 19:12:53 +0000

pDespite things looking decidedly negative in Far East and London trading yesterday, the bottom in the gold price [such as it was] came at the beginning of Comex trading at 8:30 a.m. New York time yesterday morning. So the sell-off I was so concerned about in yesterday#8217;s rant didn#8217;t amount to a hill of beans, because by the time the smoke had cleared, the gold price was virtually unchanged from Tuesday. Let#8217;s see what happens today./p pHowever, if one looks at the silver chart, it looks like someone found a cliff to shove the price off of shortly before 4:00 p.m. during Hong Kong trading. The silver price dropped about two percent in half an hour or so#8230;as some not-for-profit seller#8230;/p

Energy Blast – May 14, 2009

Robert Amsterdam — Thu, 14 May 2009 08:48:44 +0000

'Everything is murky in this part of Europe where Russia continues to expand its grip over the energy sector': the New York Times looks at the shady dealings surrounding Emfesz. After refusing to sign the EU-led Nabucco deal, the president...

Words from the (investment) wise for the week that was (May 4 – 10, 2009)

Prieur du Plessis — Sun, 10 May 2009 08:16:00 +0000

As investors welcomed the less-than-feared stress-test results and their hopes for an early economic recovery mounted, they drove up the prices of risky assets such as equities and commodities. However, traditional safe havens like developed-market government bonds and the US dollar experienced selling pressure. Read all about this and the implications for financial markets in the weekly “Words from the Wise” review.

Video-o-rama: Are stock market gains built on solid foundations?

Prieur du Plessis — Fri, 17 Apr 2009 08:13:18 +0000

As stock markets attempt to notch up a sixth consecutive week of gains, the debate as to the longevity of the nascent rally rages on. An interesting selection of video clips on stocks, as well as on the economic outlook and related issues, is featured in this post.

Telecom (Asia/Pacific Rim) – Industry Outlook

Zacks Market Commentaries — Thu, 26 Mar 2009 05:00:00 +0000

Market development in the region is characterized by two extremes. On the one hand are the developed countries with near-saturation penetration rates (Hong Kong, Taiwan, Singapore, South Korea), and on the other end are emerging markets still in the early to mid-growth stage (China, India, Pakistan, Bangladesh).

The effect of a recession in the U.S. would be an economic slowdown in the region, but its effect on the telecom industry in the region would be less pronounced. This is because, unlike in developed countries where the consumers are being sold on replacement/upgrade durable goods, the emerging market consumer still has large untapped potential, with many buying their first car, PC or cellular phone.

For telecom services, with its low penetration rate of 40% and low ARPU (average revenue per user), in many cases less than $10 per month, the industry in this region should be more resilient to a downturn.

OPPORTUNITIES

We have a HOLD recommendation for Philippine Long Distance Telephone Co. (PHI) because of their dominant market position in all segments of the industry. PHI is likewise expected to gain from the wave of rising broadband internet subscribers.

In addition, the company continues to generate substantial free cash flow enabling high dividend payout and share buyback. However, overall revenue growth rate will be tempered by slower wireless subscriber gains and lower ARPU.

WEAKNESSES

Some service providers in the region are cautious about the viability of introducing 3G at this time. With the low average revenue per user and expensive handset prices for 3G, the number of users willing to upgrade to 3G might be too limited for service providers to recoup their investment.Zacks Investment Research

Telecom (Asia/Pacific Rim) – Industry Outlook

Zacks Market Commentaries — Wed, 25 Mar 2009 20:11:27 +0000

For the past several years, the telecom industry in Asia has been one of the fastest growing markets in the world, with year-on-year growth rates of almost 30% for the last five years. By September 2008, mobile subscriber count in Asia reached 1.4 billion, with overall penetration rate of 40%.

Market development in the region is characterized by two extremes. On the one hand are the developed countries with near-saturation penetration rates (Hong Kong, Taiwan, Singapore, South Korea), and on the other end are emerging markets still in the early to mid-growth stage (China, India, Pakistan, Bangladesh).

The effect of a recession in the U.S. would be an economic slowdown in the region, but its effect on the telecom industry in the region would be less pronounced. This is because, unlike in developed countries where the consumers are being sold on replacement/upgrade durable goods, the emerging market consumer still has large untapped potential, with many buying their first car, PC or cellular phone.

For telecom services, with its low penetration rate of 40% and low ARPU (average revenue per user), in many cases less than $10 per month, the industry in this region should be more resilient to a downturn.

OPPORTUNITIES

We have a HOLD recommendation for Philippine Long Distance Telephone Co. (PHI) because of their dominant market position in all segments of the industry. PHI is likewise expected to gain from the wave of rising broadband internet subscribers.

In addition, the company continues to generate substantial free cash flow enabling high dividend payout and share buyback. However, overall revenue growth rate will be tempered by slower wireless subscriber gains and lower ARPU.

WEAKNESSES

Some service providers in the region are cautious about the viability of introducing 3G at this time. With the low average revenue per user and expensive handset prices for 3G, the number of users willing to upgrade to 3G might be too limited for service providers to recoup their investment.

Zacks Investment Research

Jobs Rundown, Market Records, Coming Megatrend, a Special Announcement and More!

Addison Wiggin — Mon, 09 Mar 2009 13:07:24 +0000

pMore tough news for U.S. jobs… what you need to know in today’s BLS employment report#8230;Dow setting records left and right… two historic looks at just how lousy 2009 has been#8230;a href="http://www.contrarianprofits.com/articles/author/chris-mayer/" class="alinks_links"Chris Mayer/a on the next megatrend… far bigger than the current crisis#8230;Chuck Butler explores “a strange thing happening in currencies”#8230;Plus, a reader exposes our “simple-minded,” “right-wing babbling” for what it is… at last#8230;/p p strongEmployment will make or break this depression./strong Today, it’s not looking so good. 12.5 million Americans are out of work, and counting. Here’s the quick and dirty on the rest of the employment numbers this morning:/p ul liThe economy shed 651,000 jobs in February, right in line with Wall Street’s expectations. That’s the 14th month in a row of net job losses/li liJanuary#8230;/li/ul

Mobius: Frontier stealing EM thunder

Jason G. Wulterkens — Tue, 03 Mar 2009 17:20:55 +0000

I’m always on the lookout for a good, general take on the state of “frontier markets” as a whole, because as diverse as they are from a political, economic, cultural and demographic standpoint (among others) they do tend to share macroeconomic characteristics in particular that form the foundation for their growing global economic relevance. For instance, [...]

Catastrophic Fall in 2009 Global Food Production

Alex Stanczyk — Tue, 17 Feb 2009 22:00:40 +0000

Catastrophic Fall in 2009 Global Food Production Commodities / Food Crisis Feb 09, 2009 - 07:11 AM By: Eric_deCarbonnel After reading about the droughts in two major agricultural countries, China and Argentina, I decided to research the extent other food producing nations were also experiencing droughts. This project ended up taking a lot longer than I thought. 2009 looks [...]

Why Asia Could Be The Best Place To Park Your Money

Irwin Greenstein — Wed, 28 Jan 2009 18:52:50 +0000

pA new labor report by an agency of the United Nations indicates that Asia could be the best place for investors to wait out the global recession. While the report does not indicate abundant opportunities in Asian regions, it does show that Asia could be more resilient and consequentially return potential longer term gains. /p pFor investors in survivor mode, the report may be interpreted as an investment roadmap with a relatively safe course./p pThe report, titled Global Employment Trends, is an annual survey from the International Labour Office (ILO), arm of the U.N that brings together governments, employers and workers to jointly shape policies and programs for fair and humane employment practices./p pBased on new developments in the labor market, the report#8230;/p

Labor Laws in China Could Hinder Investors’ Profit Potential

Irwin Greenstein — Mon, 19 Jan 2009 18:15:19 +0000

p class="MsoNormal" style="margin: 0in 0in 0pt;"New labor laws in China have forced the manufacturing sector into an ever-tightening vice, giving investors further pause for any significant rebound in the world’s fastest growing economy./p p class="MsoNormal" style="margin: 0in 0in 0pt;" /p p class="MsoNormal" style="margin: 0in 0in 0pt;"In January 2008, Beijing introduced new workplace legislation called the Labor Contract Law. Its objective was to ensure job security by making cursory dismissals more difficult. The Labor Contract Law comes in on heels of anti-discrimination labor laws instituted last year, which streamlined the process for workers to file grievances against their employers. /p p class="MsoNormal" style="margin: 0in 0in 0pt;" /p p class="MsoNormal" style="margin: 0in 0in 0pt;"As a result, labor disputes have surged by approximately 119% since last year as workers exercise their new rights./p p class="MsoNormal" style="margin: 0in 0in 0pt;" /p p class="MsoNormal" style="margin: 0in 0in 0pt;"While the global recession throws a monkey wrench into China’s manufacturing engine, the Labor Contract law could compound the crisis by making#8230;/p

Looking to 2009 after 2008: Fear but Much Promise

Jonathan O'Shaughnessy — Tue, 23 Dec 2008 22:53:36 +0000

As one of the most shocking and dismal economic years of our time comes to a close, it deserves a moment to take a look at the vast shifts which have transpired. Major banking giants which have fallen, stock markets have plummeted, and a whole host of issues have reared their head for the [...]

Nettel Holdings Inc. (NTTL.PK) is “One to Watch”

QualityStocks — Mon, 22 Dec 2008 21:56:46 +0000

Headquartered in Longview, Washington, Nettel Holdings Corporation is a holding company owning subsidiaries engaged in diverse business activities. Their mission is to produce successful subsidiaries that are financially viable and freestanding. Their main subsidiaries are in telecommunications and software. Founded in 1999, the Company’s subsidiaries work to develop new and innovative technologies. Nettel Holdings focuses on [...]

Grigory Pasko: A Portrait of Norway’s Erling Borgen

Robert Amsterdam — Fri, 14 Nov 2008 16:55:01 +0000

Erling the frenetic A portrait of a journalist against the background of a fortunate country Grigory Pasko, journalist Если Вы хотите прочитать оригинал данной статьи на русском языке, нажмите сюда. The Norwegian television journalist Erling Borgen is sanguine and choleric...

India’s Development Prospects: Between Doomsday and Utopia?

Edward Hugh — Thu, 06 Nov 2008 23:31:40 +0000

Progressive critiques of India’s recent development prospects are often marked by schizophrenic worldviews – between what is and what ought to be. Mira Kamdar’s recent piece in the World Policy Journal illustrates this well. By Ms. Kamdar’s account Indians are heading down an inevitable path to doomsday. Malthusian population pressures, resource scarcity, global [...]

RA’s Daily Russia News Blast – Sept 23, 2008

Robert Amsterdam — Tue, 23 Sep 2008 11:53:25 +0000

TODAY: Georgian authorities to protest to the European Union about violations of the Sarkozy-Medvedev agreement by Russia; Corruption in Russia is at its worst for eight years, watchdog Transparency International states; Georgia states it had shot down a Russian reconnaissance drone over Georgian territory just south of South Ossetia; Venezuelan President Hugo Chavez arrives in China for a three-day state visit, part of a world tour including Russia, Portugal and France; . Georgian dignitaries today propose to protest to the European Union about “violations of the Sarkozy-Medvedev agreement by Russia.” Tbilisi has stressed that the agreement was violated in the village of Khurcha, a region near the border with Abkhazia, where one Georgian policeman has died and two were wounded in gunfire issuing from as of now unknown sources. Shota Utiashvili, head of the Georgian Interior Ministry information department, told Kommersant that "on Sunday night, a diversionary group crept up to the village from the direction of the Russian checkpoint located nearby and it opened fire with snipers rifles, machineguns and grenade launchers." Ruslan Kishmaria, Abkhazian presidential representative in Gali District, responded in stating that "this was an internal Georgian clash and the Abkhazian side has no relation to it.” Watchdog Transparency International said on Tuesday that corruption in Russia is at its worst for eight years, stoking investor fears just a week after Russian markets suffered their biggest losses in nearly a decade. The annual survey issued by the Berlin-based watchdog put Russia in 147th place alongside Bangladesh, Kenya and Syria.

RA’s Daily Russia News Blast – Sept 23, 2008

Robert Amsterdam — Tue, 23 Sep 2008 11:53:25 +0000

Democracy’s Retreat

Robert Amsterdam — Thu, 18 Sep 2008 15:18:39 +0000

An article by Joshua Kurlantzick, one of our favorite writers, argues that the middle class in many countries has turned into an anti-democratic force. Certainly seems true in Russia, where the narrative of the day is authoritarianism in exchange for economic growth. Will the three-day market crash motivate the middle class to ask for their rights back? From the Boston Globe:

And the villains, surprisingly enough, are the same people who supposedly make democracy possible: the middle class. Traditional theories of democratization, such as those of Harvard professor Samuel Huntington, predict a story of middle class heroics: As a country develops a true middle class, these urban, educated citizens insist on more rights in order to protect their economic and social interests. Eventually, as the size of the middle class grows, those demands become so overwhelming that democracy is inevitable. But now, it appears, the middle class in some nations has turned into an antidemocratic force. Young democracy, with weak institutions, often brings to power, at first, elected leaders who actually don't care that much about upholding democracy. As these demagogues tear down the very reforms the middle classes built, those same middle classes turn against the leaders, and then against the system itself, bringing democracy to collapse. This is a process now being repeated in Africa, Asia, and parts of Latin America, regions that once seemed destined to become the third and fourth waves of global democratization, following the original Western democracies and the second wave in southern Europe and several other regions. The pattern has become so noticeable - repeated in Venezuela, Russia, Bangladesh, and other states - that one must even wonder about democracy's future itself

Surveying The Landscape

Roger Nusbaum — Thu, 04 Sep 2008 12:17:00 +0000

A few things today.

There is a new frontier market CEF from Morgan Stanley that has ticker FFD. Here is a little bit of info, here is a little more but for now the MS page has no info to speak of.

According to the Yahoo News release, linked above, frontier can include Bahrain, Bangladesh, Botswana, Bulgaria, Croatia, Ecuador, Estonia, Ghana, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Latvia, Lebanon, Lithuania, Macao, Mauritius, Namibia, Nigeria, Oman, Panama, Qatar, Romania, Saudi Arabia, Serbia, Slovenia, Sri Lanka, Trinidad and Tobago, Tunisia, Ukraine, United Arab Emirates and Vietnam.

The money was just raised so the fund owns nothing yet. It may take a while to deploy the assets and for now it has a premium to NAV to pay for the sales charge that will likely erode over the next couple of months.

Frontier will become an increasingly important asset class to access. For now there is no way to know whether FFD will be any good or not. Generically speaking this space might lend itself to active management. For example an active fund could avoid Latvia for now, which could add value versus its benchmark. Further value could then be added by adding Latvia back in at some opportune time in the future.

When the fund populates and MS discloses I will write more about it.

Here is an interesting idea from James Picerno over at The Capital Spectator about benchmarking a portfolio against the yield of the ten year TIPS which he cites for the purposes of the article as 1.69%. It does not sound like a high hurdle but he makes an interesting observation that has fascinating implications. He said that five years ago the ten year TIPS yield was 2.43%. Five years ago to the day the S&P 500 closed at 1026.27. Yesterday it closed at 1274.98. Using simple math that averages out to 4.8% per year plus 2% (which is generous) for the dividend.

2003 was a great year for equities but most of the lift was in by the time September rolled around. The numbers for equities would look a lot better going back five years and a few months but at the same time there many people missed 2003 as they did not trust equities yet.

Additionally it would have only taken a couple of bad mistakes (panicking out at the wrong time or making an incorrect sector decision) for someone to have missed out on that 4.8% number in the last five years.

What makes this interesting is that I think the post helps to better conceptualize what benchmarking is about and although not mentioned by James I think it stresses the importance of dividends. 6.8% total return is low historically. Anyone who increased his yield in the time either had better returns or got the same returns without having to work as hard.

James Stewart had a post in the WSJ about investing like the Harvard Endowment. A caveat; you really need to be be careful reading this guy's stuff.

He says "Individual investors can emulate the principles, if not the exact returns, of Harvard's approach....But you too can achieve similar -- maybe even better -- results by embracing a variety of asset classes."

I say "No you can't."

Don't get me wrong I can't either, not with any regularity (applies to you and me). The point here might be granular but it is important. Access to many of the sorts of asset classes are now available in exchange traded vehicles. However I don't think it is a stretch to say that in addition to the asset classes available to the super endowments they also have a little bit of know how for when to make changes to these holdings that other people may not have.

As long commodities as we think these funds are, something tells me they did not take the full brunt of this summer's decline. If one of the endowments was 25% commodities on June 1 and somehow you knew that, took your position up to 25%, the market then corrects with much velocity which they sidestepped; they are fine. Would you have likely taken the same evasive measures? In real life did you take evasive measures?

If you had 25% or thereabouts you better hope you did. If you had a moderate weight then you didn't need to.

Learning from and being influenced by these funds (like owning some commodities as opposed to 25%) is plausible and unlikely to leave anyone holding the bag.

Finally, congrats to Charles Kirk on five years of blogging.