Iran is a Buy

I learned a long time ago that the best way to gather intelligence on a country is to tune into their markets.  Even boots on the ground cannot compete with thousands of locally informed investment decisions.  One can even sense pending shifts or even black swans.  I have picked off a few over the years.  The only question is always what?

For what it is worth we are approaching a bullish phase for resource stocks, although this may be at the expense of general markets and continuing unemployment woes in the US.  The USA continues to track the development of a full blown depression based economy similar to 1929 through 1932.  Failure to resolve the foreclosure crisis has hamstrung the economy and I see only fools in charge who will never give up their positions.  If anything Obama is far less prepared that Herbert Hoover.

In Iran, the money is betting that whack job and the blind mullahs cannot hold it together any longer.  The only question is what will tip it over.

I have not looked at the available stocks, but the telecommunication companies are a good place to start.  When money disappears, they can accept chickens and pay folks in chickens every day and still come out like bandits.

Iran is a Buy

By Christian A. DeHaemer | Friday, August 6th, 2010

In yet another example of why sanctions don't work, the Tehran Stock Exchange  (TSE) is booming. In fact, the TSE just hit a record high, and it remains one of the most undervalued markets on Earth.

You know the deal...

Iran has been a supporter of terrorism for the past forty years. The current president is a rabble-rouser who plays to his most conservative Islamic base. He denies the holocaust, and threatens to destroy Israel on a regular basis.

He steals elections.  His thugs in the militia beat and jail students who protested the sullied election. His judges sentence females accused of adultery to death by burying them up to the waist, and having their neighbors throw rocks at their heads.

Iran will have the bomb

On top of this, Iran is actively seeking the atomic bomb.  And in a year or two they will have it.  There is nothing to stop them from getting this weapon, just like there was nothing to stop India, Pakistan, North Korea or Israel.  But that's not going to stop the powers that be from posturing like a guinea hen.

In fact, the U.S. believes Iran is such a threat that it has built up bases and carrier groups completely surrounding the country.

Chairman of the Joint Chiefs of Staff, Mike Mullen, said last week on "Meet the Press" that the Pentagon has plans for attacking Iran and that "military actions have been on the table and remain on the table."

CIA Director Leon Panetta, in late June, appeared on ABC's "This Week" and carefully hinted at covert war options against Iran's nuclear ambitions.

And the United Nations has written a strongly-worded letter and offered up a fourth round of sanctions on high-tech and military goods. Hillary Clinton gave away who-knows-what to get the Russians on board.

It is not working

Despite all the saber rattling and jawboning, Iran remains uncowed.

In fact, judging by the stock market, Iran is doing just fine. The Tehran Stock Exchange hit an all time high on Monday and is up more than 60% this year.

Furthermore, the TSE remains ridiculously undervalued.

The average price to earnings ratio is 5.5, and the average dividend yield is 15.8%. This is the average of 337 companies listed with a total market capitalization of $70 billion.  The average.

That's incredibly cheap for the country that ranks third in the world in terms of petroleum and natural gas reserves.

In fact, the Tehran Stock Exchange's main index is up 27% since March 21 – about the time the saber rattling began.

This is because while the U.S. and Europe are trying to "put the pressure" on Iran, the leaders in the country are making it easier for foreigners to invest.

In fact, in the new sanctions there are no restrictions for foreign investors to invest in Iran. Capital gains taxes have been cut to zero.  And as far as I can tell there are no restrictions on investing in Iran.

According to Reuters the sanctions are as follows:

The U.S. effectively deprived foreign banks of access to the U.S. financial system if they do business with key Iranian banks or Iran's elite Revolutionary Guards.

And EU measures set limits on the transfer of funds into Iran, requiring any transfer of over 40,000 euros to have prior government authorization.

Despite these sanctions Iran is taking a different course than America - Iran is trending toward capitalism.  Iran will raise $12.5 billion this year by selling state firms, including two refineries.  I forget how much Bush and Obama paid for GM, AIG, Freddie, Fannie, etc.  Was it billions or trillions?

The truth is that Iran was the only country in the Middle East to hold candlelight vigils after 9/11.  The vast majority of the country (two-thirds, or some 50 million people), is under the age of 30.  They do not remember the Islamic revolution in the 1970s, nor do they care.

They want what we all want: peace, prosperity and freedom.  And they will get it along with the bomb.

Despite what you may have heard, the atomic bomb has brought more peace for longer than any other item, thing or philosophy in history.  In ancient Rome, the doors to the Temple of Janus were closed when Rome was at peace.  They were closed on five occasions for a total of twelve years. 

And as an aside, the Samurai sword killed far more people in WWII than the atomic bomb did.  And the Roman short sword, or gladius, has killed more people than any weapon ever devised.

My point is that Pakistan and India used to go up 16,000 feet in the Hindu Kush and lob artillery shells at each other in the dead of winter.  They were arguing over a boundary line in a piece of territory that no one could ever use or inhabit.

Since they both got the bomb all they do is strut at the border like chickens. 

 Don’t get me wrong, there are obvious political risks to investing in Iran.  But right now there is tremendous upside.  The more sanctions you put on the country the more they will pull their money back home.  The political situation can’t be worse, so it will likely get better.  They will find a Mikhail Gorbachev.  Oil and gas will not get cheaper.  No one can beat a diversified 15% dividend yield.

If I can find a way in I’m betting on Iran.  I’m currently looking into ways to invest.  I’m rounding up my contacts as we speak (if you know anyone who can buy Iranian stocks drop me a line).

The only way I know how to play it is indirectly by buying the Wisdom Tree Middle East ETF (NASDAQ: GULF), which I told you was a buy last week.  GULF is far from a pure play however. 

I’ll find a way sooner or later.  And as I wait, I’ll be happy knowing my other frontier market, Mongolia, has given my readers 727% gains in six months.  The best way to make the most money in stocks is to get there first with the most.  I've done it in South Africa, Libya, and Mongolia.  I’ll do it in Iran as well.

Keep in touch,

Christian DeHaemer

Energy & Capital