Last week, I mentioned starting a "Blood in the Streets, LP" fund to invest in war-torn areas like Darfur, and I'm quite serious about the idea.
As I outlined in that prior piece, some misguided activists are pressuring investors to sell their assets in these countries. But I argue that smart investors want to be on the buying side of pressured liquidations. Besides, if these areas are vacated by the capitalists, they'll only become more isolated.
To build on this, I've started to dig up ideas for some big-cap ways to invest in the concept. With a nod to Baron Rothschild's famous saying of "Buy when there's blood in the streets," the thesis is to buy when things are horrible (much like when I launched my tech hedge fund in October 2002) and then invest in those places as they improve. The best way to drive improvement in impoverished and war-torn areas is to make people care about them.
Getting citizens and corporations to risk their capital and look for returns in these troubled places will ensure that we in the private (nongovernmental) developed world have a vested interest in helping these areas create sustainable economies of private ownership and trade. (I refuse to use the word "free" to describe "trade" because, by definition, if two parties engaging in an exchange aren't "free," then it's not really a "trade," is it?)
Certainly, there are huge risks when investing in war-torn places. That's why there's so much upside potential, too.
Today's edition of The Wall Street Journal featured an article about Total, which underscored why this company based in, yes, France is one name on my list.
France has a long history of colonization in Africa, and Total, which bought its French competitor Elf in 2000, has long invested in oil discovery in Africa. Indeed, the article nails exactly why investing in, say, Darfur -- where civil war and genocide run rampant -- carries so much potential upside: "But the real boost [for Elf/Total] came with the company's decision two decades later [the 1980s] to step into Angola's offshore concessions in the midst of a civil war [Italics mine] ."
Total expects to get most of its new production from Africa over the next few years. The stock is up more than tenfold since the 1980s. I do believe those are exactly the types of returns that Rothschild was talking about.
While many activist groups continue to push for divestment from Darfur, I'd be loading up on any company with the guts to step into Sudan/Darfur in the midst of a civil war. Total is not aggressive in Sudan just yet; these well-intentioned but wrong activist groups that are trying to stop private investment in Sudan are impacting all the major oil companies' thought processes about investing there. But the company is actively investing in other places in Africa.
In addition, a rush of private investment dollars flooding into such a situation would create all kinds of new pressures -- including political, media and capitalist -- that would drive improvement to the living conditions for those suffering there. All economies are only self-sustaining when they're profitable. And therefore, profit-driven investment is the best way to drive these economies forward.
How's that for some virtuous cycles that we, as private citizens, can kick off?
More information about Total as well as more ideas for good companies actively investing in war-torn areas are welcome on the StockPickr Answer board.
The title of my post today on my RevolutioNetwork Blog intentionally reads like a headline from The Onion; it's meant to highlight what Cody and I see as a bit of absurdity on the part of the Darfur Divestment crowd. The post is here for your reading pleasure.
Be sure to shoot me an email and leave your comments below. As always, the sticks-and-stones credo applies.
China invests its/our money; America accepts
"On both TheStreet.com and in the Financial Times, Cody Willard has been on the tear about divestment from Darfur, by activist targeting companies associated with the government in Sudan. He has some pretty valid points and he has sparked some heated discussion on Stockpickr.com.
The discussion centers around pulling dollars out of a regime that supports genocide in the attempt to choke off oxygen to despotic elements.
Darfur cannot be compared to the horrors of Apartheid; it is a perverse hybrid of the systematic genocide of the Holocaust and the chaotic killing spree of the Khmer Rouge. Darfur is unlike anything ever witnessed by the world, where a central government has mobilized disparate elements to carry out its twisted plans and has endorsed vehicles such as rape and wholesale slaughter. Make no mistake, the attention level the world pays to Darfur is in no way connected to the level of depravity.
As a global community we are more connected than at any previous time in our history; this is not hyperbole and everyone reading (with the strange exception of Internet Luddites) will agree. The inherent entanglement that is felt by all of us no doubt extends to the arena of finance. Debt, private equity, derivatives, commodities, ETF's, hedge funds, high-powered money are all connected. It's as though the world of money was written by Paul Haggis. To advocate divestment without considering the consequences is the kind of linear thinking that will hopefully go out of vogue.
Everyone agrees who the real perpetrators of the genocide are; the Chinese government. Their support for the regime in Khartoum has been paramount in its effect of accelerating genocide. As a rising military power, China is quick to flex its prowess at any juncture. In Darfur there will soon be 300 CONFIRMED "multifunctional" Chinese troops, in addition to the reports of more troops guarding pipelines. Sound like the U.S. military 'observers' in Vietnam to anyone else? China is thirsty and Sudan has the quenching drink of oil.
It is impossible to separate the importance of the Chinese government from the American economy. Hiccups in Chinese regulation have translated to dips in our stock markets and we rely heavily on the purchase of American debt by China to maintain our low inflation and continuation of the D.C. pork diet. Certainly none of the well intentioned activists are suggesting that we refuse Chinese purchases of U.S. Treasuries, right?
If refusal of debt sales to a country supporting Genocide is extreme, then what about private interactions with China? Surely the government should legislate that the private sector must cut off financial ties with the Chinese. Shouldn't Blackstone be barred from accepting the Chinese government as a $3 Billion partner? If it is unethical for Warren Buffet to own PetroChina stock then it is wrong for anyone to buy Blackstone and for Blackstone itself to try to make money by interacting with the Chinese.
The logic of isolation, from the new breeds of Neville Chamberlains, who are OK with a situation getting worse before it gets better, is stunning. The Bush administration called Darfur a genocide TWO YEARS ago. What is stopping unilateral U.S. action against the Darfur genocide? A certain veto at the U.N security council by China, a fellow permanent member. None of the Darfur divestment activists are suggesting we abandon the U.N. and cut off access to its headquarters on the East River--instead they rightly say that the U.N. is a flawed, but potentially useful venue for sparking change and bringing overdue outrage over Darfur. We have seen the consequences of unilateral U.S. actions and how it fundamentally transforms processes to centers of hostility.
Making the leap as to how investment dollars catalyze a process of creating self-sustaining and virtuous cycles that destroy evil is not all that difficult. We have seen Capitalism create positive change before--just look another region once completely taken over by a genocidal regime---Western Europe."
Oh, do I have a "flip it" for him. The world will be better off when David Weidner is gone.
Weidner says he wants Warren Buffett to show he cares about the genocide in Darfur by selling Berkshire's investments in PetroChina, which is controlled by the government of China, which in turn does business with the government in Sudan, where Darfur is located. Weidner says that Buffett "shot down a series of do-gooder proposals that would have required the company to spare some profits in the name of social responsibility, and maybe saving a few lives."
How the heck does forced liquidation of the few cash-generating businesses in Sudan "do good" for anyone? People care about their investments, so shouldn't we want more investments in Sudan rather than fewer? If you had some real money on the line in Sudan, you'd probably follow the news and be much more active in pursuing sustainable economic foundations for the country. Those economic foundations can only be self-sustaining if they're profitable -- by definition.
Ignore those shortsighted activists who claim they're doing good for the world by forcing private investors in the developed world to leave war-torn areas. As Buffett himself asked these Darfur disinvestment activists: "Proponents of the Chinese government's divesting should then ask the most important question in economics, 'And then what?'"
If we leave -- if Warren Buffett leaves -- these areas, Sudan will only become more isolated. The corrupt factions will have more power and access more capital.
I'm considering starting a fund called "Blood in the Streets, LP" to invest in these types of war-torn areas. There is, heartbreakingly, literal blood on the streets in Sudan. And on top of it, people like Weidner are pressuring good, self-sustaining capitalists and investors to sell their assets in these countries, driving prices below even the ridiculously low fair value at which they'd otherwise be valued. Smart investors want to be on the buying side of pressured liquidations.
Anyone who would put money into such a fund will certainly be all over the U.S. government and the rest of the world to make sure they, along with the individuals suffering in Darfur, have opportunities to get a return on what they put into the country. That's virtuous for everyone except the bad guys killing hundreds of thousands of people in Sudan.
Come a little bit closer
Hear what I have to say
Just like children sleepin'
We could dream this night away.
But there's a full moon risin'
Let's go dancin' in the light
We know where the music's playin'
Let's go out and feel the night. -- Harvest Moon, Neil Young
A couple weeks ago, I'd awoken in a fit of stress about missing a
trade for both my investors and my readers. It was what David Morrow
calls the "Edith Wharton time of the night", and I
sat in the bright full moonlight and street light illuminating my
apartment in Soho.
I started reading Neil Young's interview in this month's Rolling Stone
that's yet another anniversary for the magazine to celebrate itself.
In it, he talks about how, if you're gonna make a serious change in
your life, you need to wait for the full moon and then change it.
That very day, I'd been discussing making some changes to this trading
blog as well as the vision and opportunity for building a community
across not just RealMoney, but StockPickr's Answers section,
TheStreet.com and other platforms, with James Altucher, David and
others. And there was that full moon blasting down on me, chiding me
to make a change.
As many readers have noted and asked about over the past year, I've
got an awful lot on my plate. My day job is running money. But I
also write a trading blog on TheStreet.com as well occasionally at a
few other places like the FT. I get to write about running people's
money, along with politics, geopolitics, technology trends, rock n
roll and depending on the the situation, just about anything else that
crosses my mind. And last May, when I'd gone mostly to cash and Microsoft
common and calls, I took on a lot of new projects too.
I teach Revolutionomics at Seton Hall, I launched the RevolutioNetwork, I do a lot of TV and other
media, and I've even got a book deal in the works for something in
And I run money.
These days, I'm running that money more as long-term investment money
than as aggressive trading money. I'm positioned for a potential
echo techo bubble by using some common and some long-dated calls.
I'm also using a lot of pair trading themes like the long semi's/short
semi suppliers so that my net long exposure isn't much right now.
The upshot is that I'm going to shift formats a little bit here.
Today is the last day of this trading blog. I'm going to be writing
a daily column for RealMoney.com, some of which will be part of a
series or two of themes that will be featured on TheStreet.com too.
I'll also be much more active on CodyWillard.com and especially in
Columnist Conversation, which I'll almost always combine with
StockPickr's Answers section to further the community and
collaboration potential that we've just now started tapping.
Thanks so much for having helped me build this blog over the last
year. I always tell my students and colleagues that sometimes we have to tear
things down to build them back up. So it goes.
Keep on rockin in the free world, as I wrote in my first blog post. I'll see you Monday, just in a different spot.
At the time of publication, the firm in which Willard is a partner was long Microsoft, although positions can change at any time and without notice.
Here's a great example of why brand names that have credibility, such as The Wall Street Journal, are as valuable as ever. engadget just cost who knows how many investors how much money by reporting that "iPhone delayed until October, Leopard delayed again until January."
Apple immediately tanked on volume. Soon thereafter, while the stock was still in free fall, engadget updated its big supposed scoop:
Here's the story. Our source supplied us with an internal Apple email that went out to thousands of employees (published after the break); as it turns out, the internal memo Apple employees received was actually redacted shortly thereafter. (Also published after the break.) We also just heard back from Apple PR -- they let us know that the iPhone and Leopard are both still on track, and should meet their expected launch timeframes. We'll keep you up to the second with any further developments.
Oops, seems Apple says that "internal Apple email" was a fake.
A young(er) hedge fund manager who is going through a big drawdown asked me despondently the other day if I had any advice for him. I told him that we always get in trouble when we start chasing short-term gains. Trading, like good journalism, is a marathon, after all.
engadget, in the pursuit of breaking a potentially big story, just stepped a couple rungs down the credibility ladder and cost a lot of people a lot of money. Not cool at all.
That Murdoch -- he sure does have a long-term vision of his own, huh? And he gets the value of brand in this new Internet world of ours.
At the time of publication, the firm in which Willard is a partner was net long Apple and News Corp., although positions can change at any time and without notice.
eBay took a huge risk and got slammed at the time of the deal in 2005 for overpaying (more than $4 billion) for Skype. That bet will pay off only if Skype becomes a global de facto standard for calling over the Internet.
This deal with Wal-Mart seals the deal for Skype as the standard in VoIP services. And there's going to be good upside in the fundamentals for eBay stemming from the Skype business over the next few years. eBay's a buy.
At the time of publication, the firm in which Willard is a partner had no positions in any of the stocks mentioned in this post, although positions can change at any time and without notice.
This old guitar ain't mine to keep,
Just taking care of it now
It's been around for years and years
Just waiting in its old case
It's been up and down the country roads
It's brought a tear and a smile
It's seen its share of dreams and hopes
And never went out of style
The more I play it, the better it sounds
It cries when I leave it alone
Silently it waits for me
Or someone else I suppose
This Old Guitar -- Neil Young
The bull run continues and continues. The market's on a tear and Thursday's action already seems like a gentle memory to the bulls. Here's what'll be burning energy in my brain this weekend:
Other than Apple and Hewlett-Packard, you'd be hard-pressed to find a big-cap tech stock that's actually breaking out and acting as strongly as the broader markets. That might be a tell for a coming fall to the broader market. Or will Microsoft, which is very close to its recent multi-year highs, or Google, 10% from its all-time high, finally break out and join 'em?
It's interesting that I compared the trading action in that old guy Microsoft with that young punk Google, and it almost makes sense. And sure enough, that's another thought to think about this weekend: Is Google, already valued as a mature company with a market cap of $145 billion, essentially going to trade a lot like Microsoft, also valued as a mature company at $295 billion albeit with a higher beta?
Of the two, Microsoft is the one that has seen its multiple expand in the last year. How's that for a mind-blowing stat, given all the hype Google gets and all the chagrin Softee gets?
Watching this late into the season in American Idol, don't you start to feel like you're in a science-fiction movie starring Arnold Schwarzenegger based on a book by Richard Bachman, which is a pseudonym of Stephen King's, that you read when you were camping on Loma Grande, N.M. as a teenager? Or maybe that's just me, but man, it's nuts how passionate people are about the individual contestants on this show. I bet I'll get more email about this topic than any other this weekend. And that's exactly my point! Stick with News Corp., the stock. These guys are hitting home runs.
Want me to show you just how outta control my brain can get in the overthinking things department? If I keep writing about the markets trading in synchronicity, then the second derivative of us thinking in synchronicity about the markets trading in synchronicity would be positive. As I noted in Columnist Conversation the other day, I sure seem to be overthinking things a lot lately. Slow it down, big guy.
In all seriousness though, it's in large part a function of how cold I have/had been in my shorter-term trading lately that I'm letting myself overthink things. I bought those puts Wednesday right before the market trashed itself on Thursday, caught a few other hits this week and feeling more in sync with the market now. (Made you think about synchronicity there again, didn't I? Second derivative still positive.)
Click here to join the discussion (or just check it out) about these synchronized markets on Stockpickr's awesome new Answers feature.
And with that, I'm off to pick up my repaired Les Paul guitar that I'd mentioned I was trying to replace a few weeks ago. (Got a lot of feedback about that. People love their music, all the claims to the contrary from the whiny labels not adapting to the Revolutionomics of the Internet notwithstanding.) I want a stock vintage Les Paul from the early 1970s but just haven't found the right one yet.
So one final vittle then: How much of my knowing my baby, my guitar, is fixed is part of me feeling like I'm back in sync, since I noticed I'd gotten cold right about the time I broke it? Psychology is a funny thing.
Thanks for reading. See you Monday.
At the time of publication, the firm in which Willard is a partner was net long Apple, Google, Microsoft and News Corp., although positions can change at any time and without notice.
I keep going back to this theme that you don't want to be a buyer when things are this good. I was just reminded of that by my mentor, "Duke" let's call him, who just stopped by my offices before flying back to his home in Lexington.
When I was working as a real estate appraiser in Ruidoso, N.M., back during college in the early 1990s, Duke was running the bank in town and was scaling out of some of the oil companies (yes, entire companies) he'd bought in the late 1980s when oil crashed. Er, make that he was scaling out of some of the oil companies he'd repurchased during that 1980s crash because Duke has correctly ridden the oil cycle from bottom to top three times in his lifetime. My hometown's economy is dependent upon Texas oil money (yeah, things are booming in Ruidoso right now, you can imagine ... real estate included), and he'd also taken over the bank during that downturn.
I just can't get comfortable with these markets. I recognize that we might be entering my echo techo bubble, but that's not helping me get comfortable putting money to work on the long side in this wild environment. It all seems sooo easy -- just buy and shut up.
From a longer-term perspective, I'm happy to stick with my longs and many long-dated calls. But also from a longer-term perspective, I remember how sick it felt to buy when things were horrible. And I now feel sick about selling and shorting when things are great.
I've not participated as much in this ongoing rally as I'd like, and certainly that's part of what I'm feeling sick about. But, guys, I really don't like the short-term setup here. People can and do call the permabears idiots (I've certainly implied that permabear thinking is idiotic over the years!), but that doesn't mean markets go straight up. And not being a permabear doesn't mean you have to be levered up long every second the Chinese market's up 40% in the last few weeks. Yes, everybody's favorite growth economy's stock market is up 40% since it crashed 9% a few weeks ago.
Duke's mostly playing with horse races in Lexington these days. That's because things are great. Cycles matter.
With things as wild on the upside as they are here, and with a nod to the cycles that matter in both the long term and short run, I just outright bought some puts to really get hedged.