It’s time to get into this cheap European market before it’s too late … A legendary mutual-fund founder agrees with Jeff that U.S. stocks are headed for a fall … If you want to divorce Uncle Sam, you must answer these three questions…
It’s one of the cheapest markets in Europe — but not for long … One of the benefits of traveling the world, as Jeff has told me on more than one occasion, is seeing trends play out in real time. For instance, you can duck into an electronics retailer to escape a rainstorm in Myanmar (Burma), and get an unexpected firsthand taste of the country’s thriving tech revolution.
That’s why Jeff went off to Warsaw, Poland, last week — he wanted to personally experience the power of the pent-up consumer in a non-Western country, all without any filters.
As he wandered through the sprawling city, speaking to local restaurant owners, economists and more, he came to one main verdict: Poland is thriving — and just as he predicted for Myanmar, it’s going to be a place the smart money will start flooding into.
Jeff took this shot of Nowy Świat Street while exploring Warsaw. This street used to be the main drag centuries ago, shuttling Polish kings from the nearby royal castle to royal estates elsewhere in the country. Now it’s a huge shopping area, providing a great example of Poland’s burgeoning middle class.
Poland’s growing wealth is already bringing attention. Recently, the European Commission said it expects Poland’s GDP to grow 3.5% this year, up from previous estimates of 3.3%. Forecasts for the next two years also rose to 3.5% from 3.4%. That means this year, Poland (along with Romania) will be Europe’s fourth fastest-growing economy, trailing Ireland, Malta and the Czech Republic.
But to get more of an insider’s perspective, here’s Jeff:
Here’s the crazy thing: Poland has outpaced Europe as a whole for the last quarter century. It was the only significant European economy to continue growing during the global financial crisis. And it is an economy that will outpace the rest of Europe for at least another quarter century (not my analysis, but that of consulting firms in Europe that measure this stuff).
So … all throughout this past week during my research trip to Poland, I’ve been asking a simple question: Why is the Polish stock market so flippin’ cheap?
All the elements for a bull market are there: The country has 40 million residents and a growing middle class (even once-poor farmers are doing well these days). It has an economy that is the envy of much of Europe. It has one of the least corrupt cultures, which is getting increasingly less corrupt (again, according to those who measure it). Polish companies are doing well and several are spreading across the Continent successfully. It has the huge German market on one border, the huge Russian market on the other … and two long-haul trains connecting the country directly to China. It has one of the most entrepreneurial classes in all of Europe (once again, per the measurement pros). Every year, personal wealth is rising. Global competitiveness is increasing. Rule of law is strong. Human development — a measure of health/longevity, education and standard of living — rates as “very high.”
And get this … Warsaw today has per-capita GDP (on a purchasing-power parity basis) that exceeds Vienna, Austria, one of the truly great capitals of Europe.
All of this came about in just 25 years. (And really, it was 15 if you consider that the first decade was Poland trying to move to a capitalistic democracy from the disaster that was, and always will be, centrally planned socialism.)
The Soviets abandoned Poland and their other satellites in 1989, and the country collapsed into economic chaos. Hyperinflation (as much as 1,000% some months) destroyed the currency. Collective farms crumbled into a heap and disgorged nearly half a million workers almost overnight. Bloated state-owned industries had no matériel or innovative capacity — and no captive customer in the disunited Soviet Union. Everyone had to start from scratch — doctors, lawyers, cleaning ladies, beauticians. Everyone.
To think that from such a hideous mess has grown Europe’s “soaring eagle.”
If there is anywhere in Europe that deserves a bullish bet, it’s Poland. I’ve been here twice now in the past two years (once for my new book, Replay: Your Second Chance to Invest in the American Dream), and I tell everyone who will listen that a decade from now, Poland will have been the best place to have put your money on the Continent. That is precisely why I am soon to recommend a Polish stock in an upcoming issue of Sovereign Investor.
I don’t typically get so excited by an investment’s potential. But having been back to Poland two years after my last tour here, I am more convinced than before that I am right. All the ingredients are here. And the market is dirt cheap: It has a price-to-earnings ratio of 10! One of the cheapest in the world. This place is gonna rock for those with the vision to get in and the patience to stick around.
While Poland’s market is dirt cheap, American stocks continue to be ridiculously expensive … As you know from the February issue of Sovereign Investor, there’s a serious overvaluation problem with U.S. stocks. And success as an investor comes when you scale back exposure to overvalued assets and start jumping into cheaper assets. It’s why we never suggest putting all of your eggs in one thinly gilded U.S. basket.
You just won’t be making much money.
And now John Bogle, founder of the mutual-fund behemoth Vanguard Group, is saying the same thing. In a recent Morningstar interview, he said that U.S. stocks over the next decade will return just 4% on average a year. It’s an extreme divergence from his forecast just two years ago when he estimated a 7% annual return.
While Jeff is much more pessimistic than Bogle based on the data (Jeff is predicting average returns that could sink into negative territory over the next decade or so, or at least bounce around a barely positive return), this is the same theme: U.S. stocks have had their day in the sun, and it’s time for them to rest for years to come while corporate fundamentals catch up with ridiculous valuations.
To learn more about Jeff’s prediction, you can read the February issue here.
Three questions anyone considering divorcing Uncle Sam must answer … In late October, the government released a new batch of surprising (at least to some) data: 1,426 Americans had relinquished their U.S. passports in the third quarter — 15 times more than in 2008.
It was a record-breaking number, cleanly topping the previous record of 1,335 U.S. citizenship renouncements in 2015’s first quarter.
Now, this tells me a lot things, none of them good, about the state of this country. But foremost, it tells me that Americans are essentially writing a Dear John letter to Uncle Sam — and he doesn’t seem to care. And so this exodus is gaining speed as frustrated Americans pick up their roots and move them overseas.
So, in light of this growing trend, we thought it would be a good idea to provide you with a quick update on recent developments in the offshore scene, along with some tips for deciding if a second passport is the right solution for you.
Here’s more from Offshore and Asset Protection Editor Ted Bauman:
I admit that I’m not 100% satisfied with my current location in life. I get nervous if I’m more than a few miles away from a body of water that connects to the open ocean. Living in Atlanta doesn’t qualify.
That — and my love of cricket — is probably why I keep a close eye on residence and citizenship opportunities in the Caribbean. As tempted as I am by other locales, the cricket-mad “West Indies” speaks to a part of my soul. I was in hog heaven in The Bahamas for the recent Total Wealth Symposium.
So when I heard that another of the Caribbean islands had decided to launch an economic citizenship program, I hit my research straps. Grenada, Dominica, St. Kitts and Nevis, and Antigua and Barbuda already offer a passport to anyone who can pay the fee and/or buy a property and pass a reasonable background check. In some cases, these programs constitute one of the largest sources of government income. The islands used to earn money by exporting sugar and other planation crops, but that ended with changing global trade rules. Now island governments depend on tourism — and new citizens — for money.
That’s why St. Lucia, an English-speaking island in the Windward chain, has announced that it’s joining the passport-for-sale club. Should you?
The largest market for Caribbean passports is among people who have clear reasons to fear being limited to one passport. A small proportion of those people are scoundrels, but the majority are decent individuals from the Middle East, China, Russia and other places where instability and/or unreliable government make having a citizenship “Plan B” a high priority. Two of the islands don’t even require you to apply in person or ever to set foot in the country to get their passports, which grant unrestricted visa-free entry to most of Europe.
By contrast, only about 15% of Caribbean passport buyers are from North America. But the concept of “instability and unreliable government” is a lot more familiar to Americans these days, so that number is rising fast. I would suggest that you consider joining those passport buyers if the following conditions apply to you:
- You are prepared to part with about $450,000 for passports for a couple, which is a rough measure of the cost of a passport and a place to live. If you only want passports, you can figure on a minimum of $250,000.
- You can see yourself seriously considering renouncing your U.S. citizenship sometime in the future. Frankly, there isn’t much reason to buy a second passport unless you anticipate a situation where you might abandon Uncle Sam. You can easily gain residence in a number of places in the Western Hemisphere already, and a U.S. passport will get you into most countries without a visa. And once you gain residence, you can become a citizen (of, say, Uruguay) in as little as three years.
- You can abide a tropical climate, a slow pace of life and hit-or-miss access to many familiar amenities and products — that’s, of course, if you end up living there.
Frankly, I would definitely consider a Caribbean passport if I had the ready cash to spend on it. At this stage of my life, it’s not a priority use for a half-million or so.
How about you? Think about it … you may well decide that the answer is yes.
As we mentioned, more Americans are considering offshore options because of the increasingly unreliable government here at home. But it goes further than that. Americans are worried about losing their wealth, their retirement savings, to an ineffectual group of cash-hungry officials whose solutions for fixing a broken system seem to mostly involve grabbing at any easy fixes they can get.
Something’s gotta give.
That’s why we recently put together the Fortified Wealth Package. It holds some of our best research, which details the simple steps you can take to protect your wealth — including affordable options for moving offshore. Just click here to read more.
In the Sovereign Investor portfolio … Rexnord (NYSE: RXN, buy up to $32), our play on America’s upcoming water wars, announced earnings that topped analysts’ expectations — pushing shares up nearly 10% on the news.
As you may know from last October’s Sovereign Investor, Rexnord is composed of two primary segments: 1) process and motion control, and 2) water management. We own the company for its water management segment — and that continues to be a bright spot. With a strong backlog and improving order rates, Rexnord expects this segment to grow by the high single-digits for the rest of the year.
Meanwhile, Rexnord’s process and motion control segment remains a challenge, causing the company to revise guidance lower. Still, investors shrugged that off because the company believes the worst is behind it.
Since both segments are poised for continued improvement, and America’s water crisis is nowhere near being fixed, Rexnord remains a steal below $32.
Williams Partners (NYSE: WPZ, buy up to $50), our U.S.-based natural gas pipeline company, posted a 21% increase in EBITDA (earnings before interest, taxes, depreciation and amortization) because its fee-based revenues jumped a nice 18%.
This is great news, particularly since it comes despite the company’s struggle with lower natural gas margins as a result of low oil prices. Clearly demand for natural gas remains robust.
Williams Partners also received approval to expand its pipeline capacity, allowing it to deliver natural gas to Cheniere Energy’s LNG (liquefied natural gas) export facility at Sabine Pass.
Cheniere may sound familiar to some of you; it’s a stock that was in our portfolio in 2011 and 2012 — and it handed us an 86% return. Cheniere owns and operates the Sabine Pass LNG export terminal, which will be the first large-scale U.S. LNG export terminal. It is expected to begin exports in late 2015. Williams Partners’ expanded pipeline capacity is a significant win for the company that will bring in more revenue and add to the bottom line in the years ahead.
The company will send you its quarterly dividend this Friday of $0.85. Shares remain a buy up to $50.
In dividend news … Australia & New Zealand Bank (Australia: ANZ, hold) is paying us its semiannual dividend of A$0.95 on December 16. Our newest addition, Starhill Global Reit (Singapore: SGREIT, buy up to S$0.90) is dropping its S$0.013 quarterly dividend into your account on November 27.
Until next week,
Jessica Cohn-Kleinberg
Managing Editor, Premium Services
November 08, 2015