A Scary Story For Emerging Markets

Thoughts from the Frontline: A Scary Story for Emerging Markets By John Mauldin The consequences of the coming bull market in the US dollar, which I’ve been predicting for a number of years, go far beyond suppression of commodity prices (which in general is a good thing for consumers – but could at some point threaten the US shale-oil boom). The all-too-predictable effects of a rising dollar on emerging markets that have been propped up by hot inflows and the dollar carry trade will spread far beyond the emerging markets themselves. This is another key aspect of the not-so-coincidental consequences that we will be exploring in our series on what I feel is a sea change in the global economic environment. I’ve been wrapped up constantly in conferences and symposia the last four days and knew I would want to concentrate on the people and topics I would be exposed to, so I asked my able associate Worth Wray to write this week’s letter on a topic he is very passionate about: the potential train wreck in emerging markets. I’ll have a few comments at the end, but let’s jump right into Worth’s essay. A Scary Story for Emerging Markets By Worth Wray “The experience of the [1990s] attests that international investors have considerable resources at their command in the search for high returns. While they are willing to commit capital to any national market in large volume, they are also capable of withdrawing that capital quickly.” – Carmen & Vincent Reinhart … Continue reading

Favorite The Secret Of Investing With Stock Warrants

We start with the premise that warrants are a secret as so few investors know about the potential benefits via the additional leverage that warrants can offer. Did you know that virtually every company has some outstanding warrants in their capital structure? Simply, a warrant is a security giving the holder the right, but not the obligation, to purchase the underlying security at a specific price and expiring on a specific day in the future. Since the 1920s warrants have been issued in connection with initial public offerings and financing arrangements in which investors or the acquiring companies are seeking more leverage and thus warrants are viewed as an ‘equity kicker’ in those transactions. A call option would be defined very similar, except an option would be created/written by an investor where as a warrant originates from the company and the options will always have much shorter lives, usually 90 days to 1 year. Private Placement Warrants The warrants of most companies were issued in connection with a private placement and thus will never trade. Yes, a few investors will have the financial ability and legal opportunity to participate in a private placement in the resource sector but those offerings by U.S. companies outside of the resource sector give little opportunity for investment. Savvy investors like Rick Rule and Warren Buffett would never participate in a private placement without receiving warrants with at least two (2) years before expiration and many times substantially longer. Trading Stock Warrants Few investors are … Continue reading