Beneath Mongolia’s rugged mountains and slumbering sands lie huge untapped resources of copper, coal, gold, uranium, iron ore, oil and more — only recently discovered. Already, Mongolia’s exports are up 50% from 2009, swelling Mongolia’s cash reserves to $1.8 billion.

But there is a long way to go. Production of coal, iron ore and crude oil should rise 10-fold over the next 10 years. As of now, the 10 largest deposits are worth over $1.3 trillion. For perspective, Mongolia has a $4.5 billion economy.

Oyu Tolgoi is one of those big deposits. It is a joint venture between Ivanhoe Mines and Rio Tinto. It is the world’s largest new copper and gold mine, with some 80 billion pounds of copper and 46 million ounces of gold. Here is the mind-boggling part: This one mine will represent about 30% of Mongolia’s economy when it starts producing. Just one mine!

Another big one is Tavan Tolgoi, which is in what may be the largest undeveloped coking coal district in the world, with more than 6 billion tonnes of coal. This is another multibillion project. They’ll start building it sometime this year.

There are staggering piles of wealth for a nation of only 3 million people. Some believe these resources could turn Mongolia into another Qatar or Norway.

Qatar is an example of a country that got rich after exploiting a massive natural resource. In Qatar, it was natural gas. The Qatari stock market went from $4 billion in 1998 to $104 billion by 2010 — a 27-fold increase!

Another example is Kazakhstan, as Brad Farquhar, a correspondent and friend from Regina, Saskatchewan, points out. Farquhar is the co-founder and vice president of Assiniboia Capital. Farquhar has been making regular investing field trips to Mongolia, enthralled by the opportunity he sees there.

“The Kazakhstan stock market went from something like a billion-dollar market cap to $100 billion in eight years,” he writes:

“Mongolia, I think, is on a faster growth track with a more diverse resource base. It also has better logistics than Kazakhstan to access markets in China, Eastern Russia, Japan and Korea. Plus, Mongolia is a free and open democracy… And the Mongolian stock market just surpassed the $1 billion market cap mark.”

That stock market was the best performing in the world last year, up 125%. My guess is that is only the beginning of a long bull market. Eurasia Capital estimates that Mongolia will be the fastest-growing economy in the world over the next decade.

The Mongolian currency, the tugrik, was the second-best-performing currency last year against the dollar, up 9%. Farquhar sent me a neat little stack of fresh Mongolian tugriks. It’s colorful money. The blue-green five spot features Sükhbaatar, an important figure from Mongolian’s struggle for independence in 1921. On the reverse side is a pastoral scene of horses eating grass with mountains in the background.

“I went to Mongolia last summer,” our correspondent continues:

“I came home convinced that the country will do incredibly well over the next decade…. In order to try it out myself, I opened an account on the Mongolian Stock Exchange in early November, and I have been searching out companies on other global exchanges that have significant Mongolian exposure. In the first four months, my own Mongolia-specific portfolio is up 84%, and I have some friends and colleagues clamouring to get in.”

There should be other opportunities, too, outside of mining. Mongolia will need to double its power output in the next five years at a cost of at least $2 billion. It needs highways and railroads. All that mining will need water. Mongolia has water in deep aquifers beneath its deserts and there are northern rivers it could divert, but all this too costs money. Somebody has put all that together.

Mongolia has waited a long time for another turn at bat in a big game. In the 13th century, Mongolia was the seat of the largest territorial empire the world has ever known. The hordes erupted out of Central Asia, conquered Russia, China and most of the Middle East. (Only the powerful armies of the Mamluks of Egypt checked the hordes’ advance at the Battle of Ain Jalut.) Pax Mongolica reigned until the arrival of the Black Death. As far as the rest of history goes, Mongolia hasn’t registered much since.

Now, thanks to its mineral wealth, it looks like Mongolia will enjoy another turn on the big stage with the eyes of the world watching — and some getting rich, besides.

Sincerely,
Chris Mayer
Penny Sleuth

March 14, 2011

Get Rich in the Land of the Blue Sky was originally featured in the Penny Sleuth.

Since then, banks and brokerage stocks were punished. Energy and material stocks have soared-thanks to the Fed’s inflation campaign. Fed officials have taken their ability to devalue the U.S. dollar to new heights. Sure, it’s recovered slightly. But, what collateral backs today’s dollar? Mostly mortgage securities that nobody wants — as if Treasury bond collateral weren’t bad enough.

Despite the latest “reports,” current trends still have room to run. Just consider Fannie Mae and Freddie Mac. Those shareholders could be effectively wiped out by endless equity offerings as early as next year. The mountain of debt holders and bond insurance policyholders comes first.

Now, it’s possible that the federal government could issue hundreds of billions in new Treasuries to officially guarantee Fannie’s and Freddie’s liabilities. If no one lines up to buy these bonds, the Fed could monetize them. Such a scenario could herald a return to double-digit long-term interest rates and a collapse in confidence in paper money — demanding a new monetary system. We live in interesting times. Billionaire currency speculator George Soros thinks we’ve just entered the ugly side of a “super bubble.”

I wrote about George Soros’ investing framework in the August 2007 Strategic Investment. Here’s the excerpt on Soros:

The growth of securitization has truly altered the global economy… One negative consequence is that financial markets are starting to shape the destiny of the real economy, not the other way around. Storied currency speculator George Soros was one of the first to speak publicly about the phenomenon of markets shaping economies. He calls it the theory of “reflexivity” and described it when testifying in front of Congress in 1994:

“The generally accepted theory is that financial markets tend toward equilibrium and, on the whole, discount the future correctly. I operate using a different theory, according to which financial markets cannot possibly discount the future correctly, because they do not merely discount the future; they help to shape it.”

Here’s reflexivity at work: As a company’s stock grows more coveted by wild-eyed speculators, its cost of capital gets lower and lower as its stock skyrockets; the higher its stock price, the more capital a company can raise in a secondary stock offering by issuing a set amount of shares. So its ability to reinvest capital and grow — its future — is shaped by the whims of speculators.

A second consequence of the securitization revolution: The further a lender is separated from a borrower, the more potential there is for fraud on the part of the borrower and underestimation of risk on the part of the lender.

Now, before you dismiss Soros as a Big Government “world improver,” keep in mind that he took the right side of every major financial crisis since World War II. The man clearly understands how markets can boom and bust, especially when greed and fear overwhelm rationality.

To see how Soros views the current crisis, I picked up his latest book, The New Paradigm for Financial Markets: The Credit Crisis of 2008 and What It Means. In the first half, Soros laments that reflexivity is not taken seriously in university economics departments. In the second half, he argues that the current crisis marks the end of a decades-long expansion of U.S. dollar-based credit. Soros dubs the period from the early 1980s-2007 a “super bubble.” He makes a convincing case:

Credit conditions have been relaxed to such an extent that I wonder how they could be relaxed any further. This is certainly true as far as the U.S. consumer is concerned. Credit terms for mortgages, auto loans, and credit cards have reached their maximum extension… It may also be true for commercial credit, particularly for leveraged buyouts and commercial real estate.

Only one thing is off the mark: Soros’ prescription for more government regulation. Nowhere in his book will you find an explanation of how the global paper money system practically guaranteed the formation of his “super bubble.” This super bubble would not have been possible under an international gold standard. The international gold standard of the late 1800s fostered a time of incredible growth and wealth creation in a stable price environment. It wasn’t perfect.

It had periodic depressions. But it was far better than what we’re looking at: Government’s inflationary policy responses to problems created by its policy of perpetual bailouts.

Don’t forget that every paper currency in history eventually fell to its intrinsic value: zero. The dollar is no different, although it has taken longer than most others. For decades, foreign governments have aggressively bought dollars, propping up their value, hoping, thus, to insure long-term economic stability. Instead, this action is heavily responsible for the runaway inflation we’re seeing all over the world.

Soros seems to believe that the real economy cannot grow unless credit is growing. This ignores the fact that credit growth does not create economic growth. It merely assists growth. Over the long term, the economy grows as the capacity to produce goods and services grows. No credit necessary.

But we must invest in the environment we face, not the one that we wish were in place. The government response to the ugly side of Soros’ reflexivity will seriously impair confidence in paper money.

Look for gold, energy and other natural resources to keep performing. Avoid financials, real estate and consumer discretionary stocks.

If gold, energy and other natural resources don’t do it for you, be sure to keep your eyes peeled tonight. I’m sending you my brand-new strategy, that not only has the government’s backing, it quite possibly could bring you upwards of 400%-600% over the next few weeks.

Until tonight…

Regards,
Dan Amoss
August 20, 2008

Protecting Yourself in this Dismal Economy was originally featured in the Penny Sleuth.