Emerging Market Investing: Really an Ex-Communist Play?

This article has 16 comments:

•  
  CLH

  Jun 26 06:29 AM
  A very good article and very true. Socialism does not work as an economic system because its a moralistic religion that leads to disaster for all concerned.
  
  What will happen to the US under socialism? It wont be pretty!!
•  
  J.D

  Jun 26 08:51 AM
  According to your methodology you should be selling China. Increasing government ownership + re-institution of price controls + increasing financial sector controls =move AWAY from free market.
•  
  kkin365

  Jun 26 09:28 AM

  My Website
  The theme of this post escapes me. How should a country moving toward protectionism be classified? Sell short?
•  
  Flash Gordon

  Jun 26 12:06 PM
  This is the author. I suppose you might short some of the country funds mentioned if they moved towards protectionism. I was thinking more like if you were in at the right time, when would you sell.
  
  I actually did get out of China and Russia about a year ago. China because I was worried about momentum investors and it just seemed like maybe lack of the rule of law (manifested in quality problems) was going to slow them down. Russia I was worried about the Putin transition. After I got out I read that Putin does have a free market streak so if I had known that, I might have stayed in.
  
  A few clarifications. The return calculations were correct when the article was written about a week and a half ago. The more mathematically inclined amoung you might notice that some of the return calculations are slightly off now. I had trouble getting the article to seekingalpha (it took a week and a half), the returns were accurate when the article was written.
  
  seekingalpha doesn't allow articles about mutual funds. The "other" investments mentioned are mutual funds that were available in the relevant time frames. letrx for russia is an example.
  
  ... Flash
•  
  mdmrjsds

  Jun 26 01:07 PM
  I agree with your analysis to a point. If you free people from tyranny, even into lesser tyranny, their natural creativity will generate wealth. However, I think this is a short term burst. In other words, I disagree with this statement
  ...
  A country doesn’t have to have the United States’ rule of law and rewards for individual initiative, it just has to move solidly in that direction to improve the lot of its people and provide an opportunity for investors.
  ...
  
  I think the initial burst will fall in upon itself unless there is rule of law. What every emerging country you named has in common is high levels of corruption. What that means is no one can count on their persons or property being safe. A corrupt official can be bribed to take it from them at any time. How much long term wealth will be created under those conditions? How much investment?
  
  So the returns you showed will falter unless the oligarchy running each of those countries allows their power, their control, to be challenged, allows people who aren't rich and powerful to become rich and powerful. Maybe.
  
  The other point is that these countries are starting from such a low base that the return on investment is distorted and gives an overly optimistic picture. The economy of Australia with 20 million people almost produces as much as India with 1.3 billion (800 billion vs 1 trillion). And the economy of Canada with 30 million people produces over half as much as China with 1.3 billion people (2 trillion vs 3.0 trillion). The numbers are from memory, from the CIA factbook or world bank.
•  
  User 79572

  Jun 27 03:39 AM
  'A very good article and very true. Socialism does not work as an economic system because its a moralistic religion that leads to disaster for all concerned.
  
  What will happen to the US under socialism? It wont be pretty!! '
  
  Are you retarded? Chuck Prince of citi were given $60m to leave when citi lost $10b just druing a quarter of year, is that American Moral or socialist moral? Is raping and invading another nation for oil American Moral also? let me say there is no moral at all in Capitalism which is a slef distructing system; just look at what is happening in USA and the West, this imoral system is destroying everything right no.
•  
  Cicero

  Jun 27 07:21 AM
  The rule of law and capitalism does not eliminate human greed and stupidy and ignorance, it merely minimizes them and maximizes human creativity, ingenuity, and voluntary good will (charity). America is doing as well as it is DESPITE our slide into collectivism. The Kleptocracy in DC sees private bankers and corporations colluding with Congress to skim off most of the cream and a good bit of the milk too. What's left is still healthier and more nutrious than any other nation at any other time in history. Can you imagine how much propserity might be unleashed in the world if statesmen like Ron were elected and we tried re-applying the Constitution? For decades Paul warned Congress about our decades long unconstitutional and immoral meddling in the Mid East and for about the private "Federal Reserve" (not federal and there are no reserves) creating money at essentially no cost and reaping perpetual interest payments out of taxpayers' pockets because Congress makes us pay about 8% of our national debt in interest only payemts to this private mafia.
  
  Sources on Ron Paul's speeches to Congress are all public records and easily proven (his book Foreign Policy of Freedom is a collection on just that topic). And here's proof about the Fed courtesy of the NY Times and the Federal Reserve itself:
  
  The NY Times article “The Nixon Recovery” of 2/4/04 admits the Fed is independent and that they print or don't print money to sway elections, causing runaway inflation (as in the 70's): query.nytimes.com/gst/...
  
  The NY Times, article, The Education of Ben Bernanke admits the Fed is independent and that they created the housing bubble by pumping easy money in an effort to stem the damage of the dot.com bubble (that they fueled with easy money in the 90’s): www.nytimes.com/2008/0...
  It notes the Fed has “…control over the supply of money” and that this “…power ...is unique... only the…Fed can create new money.” It notes Bernanke helped create the housing bubble and that the Fed ignored the warnings (of people like Ron Paul) and “the speculative lending continued.”
  The same article notes the Fed flooded the economy with money specifically to manipulate the 72 election for Nixon, creating the “brutal recession” and massive double digit inflation that marked the economic havoc of that decade. We learn that idle builders (my father was a carpenter) “were so enraged that some sent him two-by-fours in the mail.”
  
  Bernanke admits Fed caused depression in the conclusion of this 2002 Speech here on Fed Website: www.federalreserve.gov...
  
  Bernanke admits creating money from nothing in a speech on 11/21/02 on the Fed’s website: www.federalreserve.gov.../ (4th paragraph under heading “Curing Deflation.” He is duplicitous in stating the US gov’t creates it – if this is so, why pay independent private bankers 8% of our national budget in interest? Talk about an investment! Imagine spending $3,000 to print a million back in 1960, lending it to the fedgov, and collecting 3% “interest only” for life. That’s $30,000 a year for perpetuity – a 1000% return on investment each and every year for perpetuity without investing another dime.
  
  Wake up America, join the revolution!
•  
  Flash Gordon

  Jun 27 01:42 PM
  Interesting Comments:
  
  Mdmrjsds: You are obviously well versed in the details of comparative country economics. My first preference would be that all countries respect the Rule of Law. I certainly am not arguing that China is a pluralistic, democratic, capitalist country. But since the Wall fell it is clear that some countries are not the U.S./U.K. and not Cuba, they are somewhere in between.
  
  User99752: Your desire for a humane and fair outcome for all individuals is admirable. As for Chuck Prince I assure you, to get where he was, he worked incredible hours, probably neglected his family and/or those close to him to advance his career, and had stress in his life that you can only dream of. I’m not saying it was a fair outcome, I’m saying you have to work really hard and have luck to get where he was.
  
  You seem to reject Capitalism. The alternatives of the 20th century were Communism and Socialism. Communism in Russia and China resulted in millions of people killed by the government, just to get started. This did not surprise those of us who understand that giving the government total power over the economy (the government has complete control over where individuals work), the police, health care, the school’s , and the military will lead to a bad outcome. Karl Marx should have interviewed the U.S. Founding Fathers, who would have been quick to tell him that concentrating all power in one place is a recipe for tyranny.
  
  We are not arguing that Capitalism is a perfect system, but if there is something better than Capitalism, you need to explain it to us.
  
  Cicero: You seem to admire free markets and free minds, as do I. You bring up a point that I have seen a lot lately in financial blogs, that the fed pushed bubbles from internet stocks, to housing, to commodities. I’m not sure I agree and I’m not sure it’s a free market argument. Speculators go where they think they can make money. I guess the fed can provide excess liquidity but I don’t really see the mechanism where the fed could direct where speculators are putting their money. Greenspan spends a fair amount of time talking about this in his book.
  
•  
  johnthebear

  Jun 27 08:37 PM
  There is no true safe hiding place to park capital during the downturn that seems to be gaining momentum.
  
  It is amazing to continue to hear so many of the talking heads call for increased exposure to China and BRIC countries as an alternate for US. It does not appear that have a clue as to the 54% decline already experienced off the high of the China Bubble. China Shanghai (^ssec) index is now at it's 52 week low at 2,748 and was down 5.29% today (Friday).
  
  The high was over 6,100. Best get out or be short on both markets IMO. I own FXP which trades at a 2:1 ratio with FXI. FXP is up over 20% during the last 6 months.
  
  If you would look at all of the indexes around the world, you will find all are trading below their 200 day moving average and China and India are down the most. This true of most of the stocks on the NYSE. That is why they call it a "bear market"
  
  It is so dumb to give investment advice without looking at the markets where you are suggesting investment. Check out FXI and FXP and do your own analysis. That way you will be a winner, regardless of what the DOW does.
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  Cicero

  Jun 28 04:15 PM
  Flash, my point is that private control of the money supply and interest rate is not capitalism. If the fedgov didn't force us to use fiat money and if they didn't force us to pay interest to the private bankers, we would be free to seek alternatives (and would inevitable end up with a gold or silver backed currency, unless a new form arises). I agree 100% that the fed alone couldn't create the .com or subprime disasters - greed and stupidity on the parts of the lenders and investors and individual home owners were vital ingredients.
  
  Inflation, on the other hand, seems to rest squarely on the shoulders of the Fed and Congress, who allows the shell game to take place. Only the Fed can inflate the money supply. This IS inflation. Rising prices are the results, just as wet streets are the result of rain, and not rain. Prices can rise and fall in any given geogrpahic area or section of the economy, but on a large scale across the economy as a whole, only the creation of more money causes inflation. Think of the nutritional vale of any pot of soup. Add a bit ore water to thin it down, and you don't notice the difference. Double the water and you need two cups of soup to get the same nutrition as you got in one before. Check out how many times they have doubled the supply of money in our economy, and you realize how thin our monetary soup has become. And I'm not even getting into "fractional reserves", which allows them to loan $9 for every new $1 they create from nothing.
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  User 79572

  Jun 29 04:34 AM
  It is criminal act to loose 10billion dollars in a quarter of year, how come you guys so retarded saying chuck prince works so hard to get $60m for loosing $10bn??? He is working so hard for what? do you think he was just making an intensional mistake to loose $10bn ??? During this credit crisis the banks lost almost $1.3thrillion; if you fuys have any human decency you must know these Prince crooks knew exactly what they are doing. shame on you American!! You guys deserve what happened to you right now.
•  
  User 79572

  Jun 29 04:36 AM
  You American evil capitalists lost $1.3thrillion; shame on you !!!
•  
  Tom B

  Jun 30 10:15 AM
  "It is amazing to continue to hear so many of the talking heads call for increased exposure to China and BRIC countries as an alternate for US. It does not appear that have a clue as to the 54% decline already experienced off the high of the China Bubble."
  
  I hate China in that it is essentially a Ponzi scheme. 1) What is ANY Chinese company WORTH? Who knows? You think they have an SEC over there? Could be a bunch of Enrons! 2) How close is the country to environmental collapse? An American lifestyle for everybody there AIN'T gonna happen-- they have a lot of mouths to feed. 3) If the US gets leaders with brains in Washington, we'll see tariffs. We SHOULD see tariffs; China rapes their environment worse than we do; they have no labor protections; and they steal American jobs. Yet, so far, they have received a FREE RIDE.
  
  "It is criminal act to loose 10billion dollars in a quarter of year, how come you guys so retarded saying chuck prince works so hard to get $60m for loosing $10bn???"
  
  Damn straight! Fortune 500 CEO's are like feudal kings; producing nothing; demanding rich fealty. When I visited many years ago someone pointed to the "Little Palace"--which was humungous- and said "that's why the French Revolution happened". Nowadays-- are we all so anesthetized by "American Idol" that we we can't see the Federal Marshalls coming up the stairs to evict us from our foreclosed houses?
•  
  carey_jim

  Jun 30 12:43 PM
  We shouldn't simplify economics, especially when our money is at stake.
  
  History teaches us that socialism produced excellent results for the Nazis in the 1930's.
  
  Israel and Sweden, to mention only two contemporary examples, do quite well under socialism today.
  
  It's arguable that the Chinese “miracle” is due to the continuing totalitarian nature of the Chinese society.
  
  Japan, socially speaking, is still a totalitarian country. A great deal was written about “fortress” Japan in the 1980's. They control exports and imports in a decidedly “un-free enterprise” way and they never allowed American cars in Japan, for example, even when they were much better than Japanese cars.
  
  The economy of the former Soviet Union produced about 60-70% of the GDP of the United States but now the combined GDP (under free market capitalism) is far below that percentage. (Anyone who disagrees, please provide sources.)
  
  It is also true that while creative, intelligent, energetic and bold people do much better in (relatively) free societies (have there ever been any truly "free" societies?), the disadvantaged do better under socialism, on average.
  
  Free education and cheap housing, etc. from cradle to grave, produce some good results among the bad results of laziness, slower rates of growth, inefficiency, etc.
  
  It will probably sound like heresy, but it is true nevertheless that totalitarianism governments are actually more “efficient” than free, democratic governments:
  
  Virtually all armies are "totalitarian&quo... because when winning is more important than anything else, the most efficient means are used.
  
  For example, if America ever faces a true crisis of any kind (energy, medical, military etc.) socialistic, totalitarian methods will be used to fight it. If proof were necessary, 911, which was a relatively minor attack, would be the proof.
  
  We in America have not been inoculated against the evils of socialism by trying it the way Europeans have done, and discovering its good aspects and throwing out its bad aspects.
  
  So we Americans are far more vulnerable to the excesses of socialism than Europe is.
  
  It is absurd to call the United States "socialistic"... either now or in the past. If socialism/totalitarian... ever comes to America, it wont look like the New York Times or the Democrat Party which are representatives of the Plutocracy. It will look more like the AFL/CIO controlling Congress and the corporations.
  
  Simplifying economics and history is dangerous, especially for our investments. But even more dangerous for our future freedom.
  
•  
  Flash Gordon

  Jun 30 11:13 PM
  johnthebear - I think you make a valid point. When you read seekingalpha you assume that the author is recommending most of the investments covered. I wasn't saying that all the symbols in the article are good investments at the current time. I was examining the causality of why they were good investments in the past, and I think that is useful to think about for investments going forward. I had never read that Mao Tse Tung stunted China's growth in a major business periodical and I wanted to say that. I hinted at which investments I felt were currently good in my disclosure and later comments I made, but you're probably right, I should be very specific.
  
  Tom B - This was great: "Nowadays-- are we all so anesthetized by "American Idol" that we we can't see the Federal Marshalls coming up the stairs to evict us from our foreclosed houses?" I love things like that. Do you write articles? Write one called "The U.S. of A - Overweight and Over-Indebted"
  
  Just for the record it is possible to lose 10 billion and not be criminal. You are the ceo of 'c'. Your cfo tells you that you made your numbers because of subprime. You are nervous about subprime but everyone is doing it and "residential real estate has never declined at the national level". You decide to keep doing subprime - bingo you just made huge losses for 'c'. Can more than 1/2 of us gaurantee we wouldn't make the same decision?
  
  carey_jim - Intersting comments. So interesting I can't figure out what side you're on. I read some of your other posts and I suspect that you are very familiar with the dismal science but like to be the devil's advocate.
  
  Concerning Nazi Germany. One thing I read said that the Nazi's took very good care of the average German citizen. They did this by bring the spoils back from conquered lands, hardly win/win economic activity at the global level.
•  
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