Bad news for our "sh*thole portfolio"

[Bill Bonner’s Diary]( Bad News for Our “Sh*thole Portfolio” Wednesday, August 15, 2018 – The Feast of the Assumption By Bill Bonner, Chairman, Bonner & Partners [Bill Bonner] POITOU, FRANCE – Today is a holiday in France. The 15th of August recalls the day when the Virgin Mary was assumed into Heaven. It also typically marks a change in the weather. The locals say the heat of summer tends to end on the 15th. Recommended Link [Expert Warns: “This Is Reminiscent of the 1987 Crash”]( [image]( Master trader Jeff Clark made 10 times his money on the Friday afternoon right before Black Monday in 1987… which, at the time, was the worst stock market crash in 25 years. On March 2, 2000 – just before the dot-com crash – Jeff says he made an investment that netted him more in a single day than he’d ever made before in his life. And from 2007-2009 – while many folks thought the world was coming to an end – Jeff identified 84 opportunities to make money, including 12 triple-digit windfalls… with gains like 133%, 182%, 166%, 225%, and more. Now, for the first time in our firm’s history, Jeff is going to reveal the perfect play for today’s market – and show you how he’s used it to target trades that have seen returns of 1,174% MORE MONEY than his regular recommended trades… every single year since 2004… [Details here]( -- Pretty Country To mark the occasion, we got into our little Renault Kangoo and drove south. The roads were narrow, winding through valleys and over hills, always with beautiful views. France is a very pretty country. “The French don’t deserve it,” said a Belgian acquaintance recently. Cattle and sheep grazed in green fields bordered with oak, lime, or chestnut trees. We were crossing into the Limousin, a hillier region with large ferns – many of them already golden-brown from the warm weather and lack of rain – growing on the flanking roadsides. Every few miles, we came upon a nearly deserted village. In the 1960s, on a warm summer evening before a holiday, these towns would have been full of life – with people sitting outside in front of cafes and bars… playing boules in front of the World War I monument… or perhaps enjoying music and dancing in the town square. Local people have their own folk music called la musette, which is played on accordions, concertinas, fiddles, and guitars. Even as recently as 23 years ago, when we first came to the region, we went to festivals and danced to the musette, doing something similar to a Texas two-step, until late at night. But little by little, the young people left. TV and Netflix replaced local entertainment. Bars closed. Restaurants locked their doors. The residual geriatrics retreated into their own homes, barricaded their doors, and closed their shutters. So when you drive through one of these little burgs at 8 p.m., it appears completely dead. Recommended Link [Trump Fights Back]( [image]( This crisis is ravaging our country. More than 300,000 Americans have died from it since 2000. Now, President Trump is fighting back… He declared it a National Emergency under federal law, and Congress approved $6 billion to answer this growing threat. And now, a company is joining the fight. If it wins, it could help solve one of the biggest problems our country has ever faced… and show investors returns of 1,000% or more. [Get all the details here before time runs out]( -- Cocktail en Blanc Our destination last night was a “cocktail en blanc.” The invitation came from an elegant Argentine woman who had married a Frenchman. Every summer, they install themselves in his ancient family house deep in “la France profonde.” We had only the name of the farm, which we plugged into our GPS. We trundled along, arriving an hour later. Everyone wore white in honor of the Virgin. About 100 people all told, we all foraged for appetizers and sipped wine, standing on the lawn and admiring the rolling hills in front of us. These were different people from those of the farms and villages we had driven through. These were the elite… who lived in apartments in the 16th arrondissement of Paris, but maintained handsome family homes in their native regions. Professionally, they were fund managers, engineers, managers, bureaucrats, and university professors. Their children went to top schools and, more often than not, moved abroad to take advantage of career opportunities before returning to France to marry and raise children. As the conversation began, inevitably, our fellow cocktailers detected an accent. “Are you English?” they asked. “No…” Relieved, they probed further. Sooner or later, the question came up: “What do you think of Mr. Trump?” We ducked, dodged, and managed to deflect the conversation onto a related subject: the story we have been following for the last couple of days. Recommended Link [China’s Huge New Factory Could Spark the Biggest Metal Price Spike in Modern History]( [image]( As soon as tomorrow, China is proudly opening the largest factory in world history. Its sole purpose is producing one specific device – the same device set to power the 21st century. It requires an enormous amount of raw materials – as much as 1,073x the world’s current stock pile – every single year. The companies who supply these materials to China are about to be in high demand – in fact, one small company could have its entire deposit bought out, shooting its $1 stock through the roof. For all the details on this time-sensitive opportunity… [Click here]( -- Suspected Sh*thole So, we leave the soft pleasure of summer garden parties in douce France and turn to the “sh*tholes.” The phrase, “sh*thole country,” was popularized by the U.S. president, the same fellow who just referred to one of his former colleagues as a “dog.” For him, faithless lieutenants have tails… and anything north of the 49th parallel, south of the Rio Grande, west of the San Gabriel mountains, or east of the Hudson River is a suspected sh*thole. Readers may not know this (we barely remembered it ourselves), but we have invested in what we now call a “Sh*thole Portfolio.” The idea is simple: Just look for the markets that have done the worst… buy them… and count on regression to the mean to make money. No research necessary. Last year, for example, that portfolio made a healthy 30% return. But when the credit cycle turns, the dogs howl. One of the five investments in our Sh*thole Portfolio was – you guessed it – Turkey. That market was a dog at the beginning of the year. But it’s down another 55% since January. And it’s dragging our whole portfolio down to a 12% loss. Is it time to buy Turkey? Well, who knows? In a real downturn, the sh*tholes tend to become even worse sh*tholes… especially when they’re deep in debt. Turkey has used cheap money to build houses, roads, and shopping malls all over the country. President Recep Erdoğan, a strongman president with big plans, hopes to spend a further $1 trillion (an amount greater than the entire Turkish GDP) on bridges, canals, and even a third airport for Istanbul. Already, the country has nearly half a trillion dollars in external debt to reckon with. More than likely, the next few years will be long, slow, and painful, as Erdoğan stiffs foreign creditors. From macro economist, Russell Napier: One wonders why investors expect President Erdoğan, a man who has referred to them as like the loan sharks who enslaved the Ottoman Empire, to choose to repay the foreigner and accept the crushing socio-political cost on the local population of doing so? Even if Turkish institutions have the ability to pay, something your analyst has long doubted, the president will forbid them from doing so. This is a large default and it will prove to be almost a total default. Grim News We also have substantial investments (though not in the stock market) in two other sh*tholes – Argentina and Nicaragua. Long-time readers will already know of our mountain ranch high in the Andes of Argentina. And we also have a small interest in an oceanside estate on the Nicaraguan coast. How are they doing? The news from Nicaragua is grim. There, too, today’s troubles have a financial root. Violence erupted when the government tried to raise taxes to cover its deficits. People were fed up with President Daniel Ortega, his wife, and their cronies, who have been skimming from public funds in various flagrant ways for many years. A revolution seemed to be underway. But our sources tell us that rather than negotiating an exit, the Ortegas are digging in. They are sending death squads to scour the cities, arrest dissidents, and lock down the entire country. Our community on the Pacific coast of Nicaragua – Rancho Santana – is calm and peaceful… but empty. “It’s just like it was when we first got there,” said one of the family. “It’s delightfully quiet.” “This is really probably the best time to go,” she urged. “You can get there by going through Costa Rica, so you don’t run into any of the problems they’re having up in Managua, the capital.” “I don’t know,” said a Nicaraguan friend. “If I were you, I’d be thinking about how I could moth-ball that place until the troubles are over.” Seasoned Champion Meanwhile, Argentina is a seasoned champion at stiffing creditors. Fake money causes errors. And when lenders are making a mistake, the Argentines don’t interrupt them. So it was, almost unbelievably, that the financial press reported “hot demand” for an offering of 100-year Argentine bonds in June 2017. Argentina defaults about once every 10 years, so the lenders could expect to be stiffed 10 times before the bonds matured. Nevertheless, they ponied up $2.9 billion… with a 7% yield… and looked forward naively to collecting $20 billion in coupons by 2117. It took only nine months for the first pedals on this rosy scenario to drop. The peso began falling in April. It’s down 33% since. With that background, the country can’t possibly attract the dollars needed to make the interest payments. So the Macri government went to the International Monetary Fund (IMF) to ask for a $50 billion bailout. And it raised its key central bank rate to 45% to attract foreign capital. This is not necessarily bad for us, personally. We don’t make money in Argentina, we spend it. The drop in the peso helps our dollars go further. But in a tightening cycle, everything goes wrong. Credit disappears… but debt remains. And then the debtors – in acts of patriotism, desperation, or depravity – find ways to get rid of it. More tomorrow… Regards, [signature] Bill MARKET INSIGHT: TURKEY TANKS By Joe Withrow, Head of Research, Bonner & Partners [Joe Withrow] As Bill wrote above, Turkish stocks have been cut in half this year… That’s the story today as we map the iShares MSCI Turkey ETF (TUR) – which tracks a basket of 62 Turkish stocks – from August 2017 through today. [Chart] As you can see, Turkish stocks have plunged 55% from their January 2018 peak. So far this week, Bill has been connecting the dots that have contributed to this fall: Trade spats, a falling currency, rising debts, and “strongman politics,” just to name a few. That’s bad news for anybody with exposure to Turkish stocks, including Bill. As he mentioned, his country-specific portfolio is down 12% this year thanks, in part, to the collapse of Turkey’s stock market. – Joe Withrow FEATURED READS [Turkey’s Next Move]( Bill showed above, the situation in Turkey is deteriorating fast. The country’s stock market plunges while foreign investors abandon the local currency, the lira. Now, Turkish bankers are taking a bold step to ward off a complete collapse… [Why Trump Blocked the Biggest Tech Merger in History]( March, President Trump blocked what would have been the largest tech merger in history. The official reasons are classified. But Jeff Brown, Bill’s top technology analyst, thinks he knows why POTUS took this unprecedented step… [Millennials Aren’t the Best Investors]( – those in their twenties and early thirties – recently became the most populous generation in the country. But they’re not great at investing. Here’s why… MAILBAG In the mailbag, dear readers share their thoughts on [the trouble in Turkey]( Erdoğan, like all politicians, is just a conman, more successful than most, in his own bailiwick. When ISIS owned Mosul and the oil fields around it, members of his family were said to be profiting from huge convoys of ISIS oil hauled into Turkey and sold on the grey market. I’m sure he got a cut. He will, of course, do whatever he thinks is needed to stay in power. If that means throwing Turkey into the radical Islamist camp, he will do it. Though Turks have a strong tradition of a more liberal outlook – in some ways similar to Iranians since the revolutions after World War I – and that will cause strife. Keep an eye on the generals. They have had a say in the past. – Chuck B. Bill, I really enjoy reading your updates on the economies around the world. Keep up the good work! You did not mention that Michael Flynn and his son were involved in a plot to kidnap Gülen and return him to Turkey. Hopefully, Flynn will spend time in jail and lose all of his federal pensions and benefits. – Mike D. It appears that Erdoğan reneged on an agreement to release the American pastor after the U.S. pressured Israel to release a Turkish prisoner. Trump is doing the only thing despots like Erdoğan understand: using force – in this case, economic – to bring down a rogue and “unfriendly” regime. There’s more to this story, as is usually the case. The U.S. relies on Turkey to sanction the operation of huge U.S. air bases in Turkey, which are critical for strategic use in that fragile region. Moreover, Turkey is the sworn enemy of the Kurds, who have been enormously helpful as U.S. allies against Iran and ISIS. Let’s not be too critical of “The Donald,” as you disrespectfully refer to our president, who is light-years better than Obama, the Clintons, and the Bushes combined. – Gerard T. Meanwhile, a dear reader suspects there’s a method to Trump’s madness… Bill, connecting the dots: All Trump does is attack after attack on various countries and leaders – China, Iran, Turkey, Canada, Germany, etc… I smell a variation of The Shock Doctrine: The Rise of Disaster Capitalism – creating uncertainty and chaos in order to take advantage of the ensuing weakness. A stealth mode to implement the hegemony of American exceptionalism. The U.S. dollar, the world’s reserve currency, used to mop up the devalued assets left as plunder. Is Trump acting on his own? Or following a script by Mr. Bannon? – John L. IN CASE YOU MISSED IT… Two months after taking office, President Reagan started a secret initiative… It was a plan to bypass the big banks and politicians and return America’s money to the people. But these so-called “Reagan dollars” were never circulated. The plan was forgotten… …[until now](. 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