I’ve seen people extremely focussed on the “crisis” today, and with good reason, the media and politicians hve forced you to (and you might have been personally affected), but the world’s economy is expanding and unavoidably Asia is the perfect example. I’ll begin posting this article by Tom Dyson.
This Is What a True Free Market Looks Like
By Tom Dyson
September 19, 2008
The smell was so pungent, my stomach lurched and I immediately started sweating. I clutched my nose with my shirtsleeve and started searching for a place to throw up…
But I was six stories up… on a catwalk above a pulp mill. There was nowhere to go.
The smell was coming from a vat of chemicals to my right. A machine was heating these chemicals, bubbling them in the open air and then piping them to a floor below. A sign on the side said “Danger – Black Liquor.”
I’m writing to you from India. Two days ago, I went to visit a paper manufacturing plant in the state of Tamil Nadu. First I climbed to the top of the pulp mill. Here, they mix woodchips with powerful chemicals and bleaches until they turn into a thick, white liquid. This is wood pulp.
The company bought this pulp mill from a Canadian firm. They took it apart in Quebec, shipped it over, and rebuilt it in the jungle of South India.
Later, I wandered through the papermaking plant, where they turn the pulp into paper. This plant makes office paper… the sort you’d use in a copy machine. Dozens of industrial rollers – rotating 50 times a second – stretched the pulp into sheets and wrapped them onto 10-foot spindles.
This plant produces 125,000 tons of paper each year… and about $11 million a year in profits.
To build this plant from scratch, you’d have to spend at least $225 million. But right now, you can buy this company on the Indian stock market for just $35 million.
The story gets even better. This plant is expanding its capacity. In two years, it’ll produce 225,000 tons of paper per year, almost twice as much. The expansion could not come at a better time. The Indian paper industry is short of capacity, and paper prices are soaring.
An Indian hedge fund – Atyant Capital – asked the DailyWealth team to come visit. They wanted to show me, Steve Sjuggerud, and editor in chief Brian Hunt what fantastic investments you can find in India if you look beyond the high-profile stocks that trade on international exchanges.
Here’s another example: Yesterday, Atyant introduced us to an Indian power-generating company. India has chronic power shortages. This company owns a power plant that’s worth $150 million. Yet the company trades in the stock market with a market cap of $21 million. “They could sell this asset for $150 million tomorrow if they wanted,” says Rahul, the fund manager. “There are bidders. It’s a liquid asset.”
Last week, I was in Shanghai, China. Shanghai is a glorious city of glass skyscrapers, modern roads, and expensive train stations. The government planned it. So a lot of this infrastructure will turn out to be wasted money. Take the Maglev train in Shanghai…
The Maglev train travels at 270 miles per hour. It takes you from the city center to Shanghai Pudong Airport in seven minutes. The Maglev cost $50 billion. But no one uses it. It’s cheaper to take a bus… and more convenient to take a taxi. There were only 20 passengers on my train.
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India is the opposite of Shanghai. It’s in shambles… It’s dirty and noisy. People sleep in the streets. We’re in the country’s fourth-largest city, and there are no skyscrapers. It takes an hour to drive 15 miles to the airport. You share the road with cows pulling carts. People dump their trash in the street gutters.
This is what a true free market looks like. It’s chaos.
As an investor, I’m more impressed with India than I am with China. They respect property rights in India. They have honest accounting and one of the most advanced stock markets in the world. And as we’ve seen this week, India is loaded with wonderful stock market opportunities…
Good investing,
Tom
A Free Market doesn’t look good, but it’s always better than the maked up alternative. I think of cleanest Pyongyang as an excellent example. The problem is that the make up itself is indeed a value initself.
I’ll give you a personal example. I live in Recoleta, Buenos Aires. The neighborhood is mainly residential but it’s right next to downtown; and both are separated from the waterfront by a “Villa Miseria” (fabela). Villa 31 is a particularly prosperous shantytown with 3 -4 sory buildings. The 30.000+ people that
inhabitate this public land enjoy free infrastructure, electricity, clean water, sewage, and they steal telephone linbes and thus adsl all they want. There’s a Direct Tv parabolic anthena in every house. I don’t own a TV.
The land belongs to the Federal Gov not the City of B.A. and thus the executive has authority (a populist). The mayor of B.A. who claimed has read A.R., Mauricio Macri, leader of a Soros semi-Orange semi-Revolution, want to incorporate the area to the city and then deal with it as usual.
The question is “what to do” with this villa placed in the most valued real esatate in Buenos Aires. Regardless of the specifics, the alternatives are to either consider the villeros as homesteader on unsused public land, and grant them property rights to their “buildings” and obligate them to pay for their upkeep and infrastructure - or outright expropiation, or reclaiming by te government, then demolition and privatizatin.
The latter alternative would look a lot better. It’s the make up way. It would serve a “practical” purpose on the short run, a new riverside neighborhood would be built among the richest areas of B.A. But these thieves of utilities are also the ones who turned unsused federal land into a “neighborhood” where a crappy house sells at 25.000 USD! Homesteaders and thieves at the sames time, they were forced to that situation by government populism and now they exert an unavoidable evil force on the rest of downtown.
However as ugly as it would be, I’m afraid, I wouldn’t superficially like it, that to grant them property rights, then buy them off and slowly gentrify the hood. ç
This is an alternative that isn’t even considered here, since it’s eithe tear it down now! or let them be looters, they deserve it for claiming to being poor.
As I’ve said before the illusion of cleanliness is a value, and perhaps one that many people chose over reality: a true free market entails ugliness.
On the other hand there’s free land where free people can settle.
We are trying to change the culture, but do we have to chose between changing the existing societ and forming a new one? Which alternative, if therer is one, is less platonic?