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Guest Post: Iraq
Submitted By: Geoffrey Batt
No one rings a bell at the top? Watch CNBC. There may not be a better counterexample. Late to just about every party, CNBC’s favorable coverage of a stock, commodity, ETF, etc., typically presages a turn and subsequent decline in the asset(s) in question. Think wildcat oil in June 2008- to select one out of uncountably many examples.
Disclosure: I am long equities listed on the Iraq Stock Exchange, having made my first investment in January 2008.
Disclosure: upon learning CNBC’s Erin Burnett would spend the week highlighting ways to invest in Iraq, I threw up a little in my mouth.
After watching three days of coverage, however, I take solace in the fact that Erin Burnett and sidekick Jim Cramer do not have the slightest idea what they’re talking about, enthusiastically promoting a private water bottling company, a sports complex, British Petroleum, Caterpillar, etc., while altogether neglecting the Iraq Stock Exchange: beautifully dysfunctional, cheap, and, it seems, off the radar.
Before continuing a few points merit further comment:
- Contrary to what Erin Burnett would have you believe, there is nothing patriotic about investing in Iraq. To slightly modify Samuel Johnson, patriotism is for scoundrels seeking refuge with fools, neither of whom have any business investing in Iraq at this stage in the game. Patriotism implies irrational emotion, recognition of arbitrary borders and distinctions, and a spurious moral superiority best left to politicians and military recruiters. Patriotism changes the focus from Iraq to the United States, from Iraqis to Americans- it’s hard to imagine a more odious, self-serving frame of mind.
- Recommending British Petroleum as a way to gain exposure to Iraq makes about as much sense as recommending Wal-Mart as a play on China. Wal-Mart = dead money; Wal-Mart seeks growth in China; China booms; Chinese and Hong Kong equities soar ; Wal-Mart still = dead money. In much the same way: BP moves into to Russia, Russia booms, Russian equities soar, BP still = dead money. For BP’s shareholders, Iraq will prove no different.
- Private Equity may work in Iraq. Some will surely make their fortunes in PE; others will end up in an unmarked grave somewhere in Anbar. Meddling with private Iraqi companies increases the likelihood of threatening powerful local interests, and in a place like Iraq that’s a game you do not want to play.
It’s fair to ask at this point what, apart from oil, makes Iraq’s economy and equities so special.
- Iraq’s economy is largely insulated from the global financial crisis. It thus represents one of the few investments suffering from a set of problems wholly separate from those plaguing the rest of the world. Those problems are very real and have the potential to turn the country into a failed state, but the key here is that in a world where everyone is attempting to figure out the same puzzle, it sometimes makes sense to find a different one to solve. Moreover, as it’s increasingly obvious world finance is dominated by issues of regulatory capture, there is little hope for all but the very well connected to consistently achieve above average returns. To shift the metaphor slightly, when the game is rigged against you the rational choice is to either stop playing, or, as I hope I have done, find a completely different game where the house does not always win.
- The Central Bank of Iraq (CBI) could teach Chairman Bernanke et al a thing or two about sound monetary policy. Consider, for instance, that Iraq’s CPI spiked 75% YoY in mid 2006, a time when it appeared the country was on the brink of civil war and total collapse. Today CPI stands at 8% YoY. To regain control over inflation the CBI allowed the Dinar to appreciate roughly 20% vis-à-vis the USD; in this respect Iraq enjoys an enviable advantage over other non-oil export oriented countries. That is, since Iraq’s principal export is dollar denominated, Dinar appreciation does not make it more expensive for other countries to buy. And the benefit of a stronger currency, of course, is that it reduces Iraq’s import costs, thus relieving a major source of inflationary pressure.
- CBI data from August put Forex Reserves at $42 billion, which represents approximately 15 months import cover.
- In 1980 Iraq had a population of 14 million. Today it’s 30.7 million. In case you’re curious, that’s equivalent to a 30yr CAGR of 2.6%. In addition, with 40% of the current population aged 14 years or younger, Iraq will likely benefit from a strong demographic profile.
- While improving, the Iraq Stock Exchange is moderately dysfunctional, e.g., on a good day the exchange trades $2 million of stock, trading was not electronic until July 2009, the exchange holds three two hour trading sessions (this will change to five 2 hour trading sessions Nov. 1 2009), company information is hard, but not impossible, to come by, etc. These problems, coupled with the misaligned perception that Iraq already IS a failed state, mean this market is largely untouched by major institutions and foreign individuals.
- A depressed market with few participants indicates a lack of significant sources of selling pressure.
- Many listed companies are solidly profitable and have been for the past five years; some companies are beginning to experience YoY bottom line growth in excess of 200%.
- The Palestinian Stock Exchange’s market cap at the end of September 2009 was $2.36 billion. As of last week, Iraq’s was $2.74 billion.
For those eager to learn more, I encourage you to put the time into researching Iraq’s publicly listed companies. The Iraq Stock Exchange offers the contrarian investor pure exposure to Iraq’s non-oil sectors. The potential risks are great, but so too are the rewards.
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Other than oil, what exactly do the companies listed on the Iraqi exchange sell/do? Sell stolen arms and munitions and/or drugs?
Plus if Iraq's market cap is only S2.7B,Goldman Sachs could buy whole thing with their petty cash account.
Guys, he's not talking about using your own money. Some chump named "taxpayer" is footing the bill.
Belly up to the bar boys, this round's on the chump.
i agree there is nothing there but a hoard of wild animals. the dinar was a possibilty before, but the smart money says they will use the euro, or maybe the dollar, if they managed to steal enough.
Well, you could replace the Iraqi exchange with the Mongolian, or Botswana or Egypt stock exchanges and have the same concept.
I think the point was that there are valid and invalid ways to invest in a country, and in terms of Iraq, buying the second or third derivatives is not it.
Caveat emptor in a country where might makes right in every sense of the word, and moreover where everything is viewed through horseshit religion, (pick one), lenses.
A fool and his money are soon parted, or more appropriate for Iraq, a kafir's head and his body are soon parted
Stop changing the subject. We're talking about Iraq, not the USA.
You might be correct in your risk assessment. In that case, I'll use the Fed's money instead of mine. How's that?
If investing in Russia is considered risky, what can be said about investing in Iraq? How many foreigners lost massive amounts of investments in Russia - Iraq is the same but the problem is raised to an exponent because of the possibility of collapse.
What external auditors or regulatory bodies exist to protect investors and evaluate companies?
Consider Venezuela with its nationalization of foreign investments. Thes same could (and probably will at some point) be repeated in the case of Iraq. What measures will protect a foreigner's investment?
No guts, no glory, I suppose. Give my best to al-Maliki & the Boyz, and is Chalabi already working on ways to game the system?
Disclosure: upon learning CNBC’s Erin Burnett would spend the week highlighting ways to invest in Iraq, I threw up a little in my mouth.
__________
Two words, my man: "Tight Stops."
++
Ah yes, the Iraqi Stock Market. A truly efficient market, free of any insider trading, front running, and manipulation. I suppose i can easily calculate the actual value of a stock using CAPM (oh how easy to find a true risk free rate!) , and if its undervalued vs what its trading at on the exchange, BUY BUY BUY!
And look, no danger of HFT!!
http://www.isx-iq.net/page/english/bulletins/year/2007/2007report_files/...
HAL is on it's lunch break
http://www.isx-iq.net/page/english/bulletins/year/2007/2007report_files/...
Having trouble coming up with the market Beta of British Petroleum against the Iraqi Stock market. Then again, it's probably better to be getting crude by the barrel. When oil hits $200bbl, the whole world will come crashing down.
Burnett should blow a camel for the camera.
I'll stick with China. That's an emerging market that at least understands capitalism.
Burnett is so desperate to be taken seriously with her "where in the world" routine. Yeah erinn we know Africa exists. And we know we fought a war in Iraq. And yeah we read Jared's Collapse. I just puked myself.
The wannabe Katie Curic routine is an epic fail or at least the audition.
Erin is a tool of the elites; never any need to guess as to the reasons for her 'big pieces'. Always been her weakness - willing to do anything to be in with 'that' crowd.
Still y'gotta admit this was a brave post: The love of carrion!
I hereby call a market top.
Call me the anti-Dennis Kneale, because as of right now, THIS RALLY IS OVER!
The fact that both CNBC and a Zero Hedge poster both recommended investing in the world's most corrupt and least transparent markets is a sure sign that we've run out of good investments, and the only way out is down.
+10
I plus 10 your plus 10.
And a great big WTF?!
Dude, it's only money. Go ahead and lose it. We'll just print some more.
It's only money, and the collapse of the world power structure.
Some facts about Iraq(of course,for the doubters,they can always research,nd they should).
1-Iraq has always existed as an entity(not necessarily with borders),untill being established as a nation in 1921.
2-Iraq was admitted to the League of nation back in 1932(the organization preceeded the UN).
3-The Christian minority(consiststing mostly of the decendants of the old civilisation)lived in peace during all different political systems who came into power. Untill the last gulf war,and the breakdown of law and order,when they became a target of extremist,and they started to leave the country in droves. There is a large Caldanian community who live in Detroit MI who could be contacted to find out when their relatives situation in Iraq deteriorated.
4-Iraq did have a viable industry before the socialists policies of the Baath party,which came into power in 1968,destroyed the private sector.(guess where is that going on now)
5-While the situation is not yet stable, once the people in the country realize that they have no choice but to live with each other in peace,things will be completely different.For those of you who are old enough,look at Beirut twenty years ago and now.(may be Robert Fisk can say a thing or two about that,because he lives there)
6-With (generally speaking)better ethical standards and work ethics than say Egypt or Syria,and with huge oil reserve ,the potential for growth is unlimited,once peace(or if)prevails.
The provocative post is appreciated. A bit too risky for my tastes. . . which sums up my view of most stocks today. On the anti-information business network CNBC, I sent this email to Power Lunch yesterday:
Hey Dennis, remember when you complained about 30k hits googling "dennis kneale idiot"?.
Well I've got great news! If you google "dennis kneal idiot" (leave off the "e") you get . . . drum roll . . . 3.7 million hits.
You're a star . . . sorta.
Seriously, if the market rolls over into a double dip recession, there is no amount of spin that will mask that you (and pretty much all of CNBC) are "all in" to the sharp recovery. You've used every gimmick and spin (some would say distortion) of data to lure retail traders back into the market. If they follow you again and get slammed again, you're done. All of you.
I stopped watching you long ago. But blogs are all over this, which is now what I do instead of AGAIN being misled by CNBC. 3.7million hits is just the warm-up act.
"To regain control over inflation the CBI allowed the Dinar to appreciate roughly 20% vis-à-vis the USD; in this respect Iraq enjoys an enviable advantage over other non-oil export oriented countries. That is, since Iraq’s principal export is dollar denominated, Dinar appreciation does not make it more expensive for other countries to buy. And the benefit of a stronger currency, of course, is that it reduces Iraq’s import costs, thus relieving a major source of inflationary pressure."
- Never considered that aspect of using dollars to price oil, makes a hell of a lot more sense rather than the idea that "it's just easier". Allows for our inflating of prices and their ability to appreciate their currency. Thank you for posting that.
Speaking of oil, anyone who's making the $300 argument on inflation alone is wack. Iraq is about to come back online, we've got several large resevoirs announced, one of them in the gulf. Even the transportation secretary said it was obviously a bubble and speculation... man are American RIAs dumb.
Your posters really don't want to get me started Tyler.
to Brett in Man. Gluteus to the MAX
BBC recently reported on conditions of date farmers in Iraq. Dates had been major export of Iraq. War and drought has ruined date growers.
Kudos to Brett, very incisive. I was one of the first investors in Eastern Europe after the fall of the Wall, and I made an absolute FORTUNE. I will be looking Iraq up. As long as I don't have to go there!!
"6-With (generally speaking)better ethical standards and work ethics than say Egypt or Syria,and with huge oil reserve ,the potential for growth is unlimited,once peace(or if)prevails."
What are you smoking? Anyone that has spent 10 minutes with Iraqis knows the only gumption they have is to just avoid a beating (the only motivational system known there for a generation).
I won't even start on the corruption and nepotism.
Anybody ethical in that country was either killed of fled a long time ago. The only thing I want to invest in are the $4 pirated DVDs sold to all the soldiers there.
Good article - but how do you invest there? Does any US based broker cover this market?
There is a forum called investors in Iraq and all the info you need is there. The Iraq stock market is on its way up.
Now is the time to get in and by the way life is a risk that's what makes it fun.
anyone looking for more information on the ISX, check out www.isxwatch.com many of the company websites can be found there.