Agora Financial’s Rude Awakening

Jump to Comments

Baltimore, Maryland

• 6,000 miles of investment potential in oil-rich Russia,
• Car ownership is on the move in the wild, wild east,
• Riding in the back of pick-up trucks and other simple joys of life…

Eric Fry, reporting from Laguna Beach, California…

Last Sunday morning, your sleepy-eyed editor slowly shuffled into his kitchen to begin preparing his morning espresso. En route to the espresso machine, he bumped into his 9-yeart old son, Ethan, who was holding out a handmade card that read, “For Daddy.”

Your editor opened the card to find one of Ethan’s typically artistic renderings of a palm-lined beach. But this particular beach scene included a pick-up truck with two kids standing up in the back of it.

Below the drawing, Ethan had scrawled: “Happy Father’s Day! My favorite memory with you is the time everybody went to Nicaragua and I got to ride around in the back of a pick-up truck.”

Your editor was surprised that riding in the back of a pick-up truck would rank among Ethan’s fondest memories. But then again, the American legal system has all-but-eliminated such simple pleasures (for our own good, of course). So zipping around on dusty dirt roads in the back of a pickup must have seemed just as exotic to Ethan as one of Nicaragua’s many wild monkeys or parrots, particularly since he would often spot these creatures WHILE riding in the back of the pickup.

This particular pastime did not provide unalloyed delight, however. One day, while Ethan was standing in the bed of the moving pickup, a bee collided with his cheek and stung him. It hurt.

Nevertheless, Ethan was just as eager to hop into the back of the pickup on the next trip. He usually accepts small doses of collateral pain as the inevitable component of larger joys.

Yesterday, after Ethan and his much-older brother had spent about 30 minutes “boxing” (a modified version of the real deal), your editor asked Ethan, “Hey, have you ever noticed how so many of the games that you play with your older brother and sister cause you some kind of harm?”

“Where have you been?” Ethan asked matter-of-factly. “That’s been the story of my life.”

His father, lauging, replied, “Ahhh…I’m sorry Ethan.”

“No, I don’t mind,” Ethan said. “I don’t get hurt that often.”

Ethan often displays such a non-traditional perspective. So his father was not surprised by some of Ethan’s schoolwork that was on display at a recent “Parent’s Night.”

Atop Ethan’s desk sat a large illustrated storyboard that detailed aspects of California history. Alongside drawings of the missions and the gold miners, Ethan had provided a narrative: “In 1849, many gold prospectors rushed to California. Some came west across the Overland Trail. Others came through the Panama Canal.”

“Hmmm,” your editor thought to himself. “Ethan must not have been paying close attention during the Panama Canal lesson.” (The canal was not completed until 1914). But as your editor floated around the classroom, he noticed that every other student in the class had reported the identical historical inaccuracy.

So your editor mentioned the error to Ethan, who dutifully mentioned the error to his teacher the following day. The teacher did not thank him. Instead, she explained that the miners crossed Panama about where the canal WOULD have been. Interesting.

If only the Panama Canal had existed in 1849, the U.S. economy might have produced even greater prosperity. The canal revolutionized global commerce, much like the Transcontinental Railroad, 45 years earlier, had revolutionized North American commerce. Both of these monumental engineering feats “shrank the globe,” and facilitated capitalistic enterprises throughout the Americas. (The canal, for example, slashed 18,000 miles off of the voyage from the Atlantic Ocean to the Pacific.)

Four years ago, Russia cut the yellow ribbon on the “final phase” of the Trans-Siberian Highway, an 11,000-kilometer patchwork of roads that stretches from St. Petersburg to Vladivostok. Will this new transportation artery provide similarly valuable benefits to the resurgent Russian economy?

Chris Mayer examines this question in the column below…

— Your Account Has Been Flagged —

As an Executive Series member, you’ve been invited to upgrade your account to receive our finest financial publications…for life.

You’ll also grab over $6,000 discount to our most elite investment circle if you choose to take us up on the offer.

But you must act fast – the Agora Financial Reserve is only open for a very limited time… Read On Here

——————————————–

Wild, Wild East
By Chris Mayer

The Trans-Siberian Highway, arguably the longest highway in the world, stretches from Saint Petersburg to Vladivostok, a distance of over 6,000 miles. Some folks would award the “world’s longest highway” title to the Trans-Canada Highway, by virtue of the fact that every mile of it is paved. Russia’s version features 1,000 miles of unpaved highway.

Nevertheless, the Trans-Siberian Highway was finally “completed” four years ago, and, as such, could begin bestowing sizeable benefits to the greater Russian economy. For the first time ever, a Russian may drive from one side of the country to the other.

McKenzie Funk recently made the 6,000-plus-mile trek and wrote about his experiences in National Geographic Adventure. It’s a great glimpse at globalization in the frontiers of Russia.

The highway has upped the flow of trade across Russia. It helps Russia bring more timber, oil and minerals to a hungry outside world. A 2,580-mile-long pipeline parallels the highway for stretches, and carries Russian oil to Asian and American buyers. There are plans for a natural gas pipeline that will cut across the Ukok Plateau, like a scythe across the plains. “There are plans for new roads to the north and west,” Funk writes, “and new oil wells in every direction.”

The towns along the road also enjoy a new prosperity. Around Lake Baikal, the world’s largest freshwater lake, there is a new 270-mile stretch specially zoned for tourism. There are plans for golf courses, spas, five-star hotels and more. Funk reports that Vladivostok is so full of tourists and traders from South Korea, Japan and China it can be hard to find a hotel room.

Part of the new prosperity arises from a raw entrepreneurialism. A booming east-west car trade is one example. Ships leave Vladivostok with timber and return with new and used cars from Japan. Some entrepreneurial Russians, called peregonchiks (movers), drive the cars from Vladivostok to Russia’s big cities in the west. It takes about a week. They sell the cars, make a profit and head east to do it all over again. One writer called it “a revamped Russian dream: Go east, young man. Then go west. Then east again. Then west again.”

The Economist reports that car ownership in Russia is well below that of other developing countries. In Russia, about 200 out of every 1,000 people own a car. The ratio is over 500 out of every 1,000 people in Europe, and about 800 in the U.S.

In 2007, new car sales were up 36% by volume — some 57% by value, reflecting the new buying power of Russia’s burgeoning middle class. Some think that this year, Russia will surpass Germany as Europe’s largest car buyer. “[According to Ernst & Young], by 2012, Russians will be buying more than 5 million new cars a year,” The Economist continues, “of which nearly 90% will be foreign brands.”

Think of the consequences of so many new cars hitting the road. Add in China and India. Think of all the fuel they will have to burn. All the steel consumed. The roads yet to be paved. The storefronts and hotels and all the trappings that go with an increasingly mobile population. It’s mind-boggling.

Some might mourn the passing of Russia’s wild frontier. But these changes are like letting the toothpaste out of the tube. They seem irreversible. Russians, enjoying the taste of this new wild form of capitalism, would seem unlikely to shift into reverse. Strange things happen all the time, of course, but I’m betting Russia will stay in the big leagues with China, India and Brazil as an economic powerhouse.

Even if individuals never invest directly in Russia, the Trans-Sberian Highway is just one example of developments that can nurture Russia-related investments. For example, Lundin Mining (NYSE), a stock I have recommended to the subscribers of my investment service, Mayer’s Special Situations, has a 49% interest in a large zinc mine in Ozernoe, Russia. The property is not far from Lake Baikal and is only 100 miles north of the Trans-Siberian Highway, not to mention the Trans-Siberian Railway. Ozernoe is one of the largest undeveloped zinc mines in the world. It could be a big asset for Lundin in the future.

Lundin’s existing operations more than support today’s stock price, and you get potential upside from projects like Tenke (in Congo) and Ozernoe for free. The stock trades a big discount to peers. The company should do well over a $1 per share next year. The consensus guess is $1.25, meaning the stock trades for less than 6 times next year’s earnings. It’s well financed and generates plenty of cash. The Lundins also own 16% of the shares.

The Trans-Siberian Highway, alone, will not determine investment merit of Lundin. But the access that the highway provides to the resource-rich Siberian interior will certainnly improve the investment potential of Russia-based investments like Lundin.

In short, if you’re looking for exciting new investment opportunities, go East!

[Joel's Note: Avid readers already recognize Chris’ knack for uncovering investment opportunities where few others look. Many have been following his guest essays in Rude for years or have seen him on television. Well, next month, you get the chance to meet Chris, along with the rest of the Agora Financial editors, when they converge in Vancouver for our annual investment symposium.

There’s sure to be plenty of investment ideas rattling around the conference room as Chris is joined on stage by the likes of Jim Rogers, Doug Casey and Bill Bonner. If you haven’t reserved your tickets, I urge you to click here . This is the one event on the financial calendar you do not want to miss.

—- Energy & Scarcity Investor Latest Report —-

The breakthrough that could put oil refineries out of business…

This tiny company’s private technology refines crude oil as it’s pulled out of the ground

And you can get in on it today for a potential 250% gain this year – but you must act before the “Oil Vacuum” achieves a milestone targeted for no later than July 12, 2008. Details Here

——————————————–

[Rude Endnote: In the absence of any “trans-Tunisian express,” your editor is off to claim a couple of seats in any vehicle available to carry us south to the seaside city of Sousse. Who knows, maybe we’ll get lucky and snag a spot in the back of a pick-up truck.

Cheers,

Joel Bowman
Rude Awakening

aussiejoel@the-rude-awakening.com