The Daily Reckoning October 12th

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Rand’s Dystopian Masterpiece

IN A LENINGRAD UNIVERSITY CLASSROOM in the early 1920s, as the professor drones on about orthodox Marxist theory, a young woman with an intense gaze is writing furiously in her notebook. The woman is Alisa Rosenbaum, later to be famous as Ayn Rand, and her jottings do not concern the relationship between dialectical materialism and the dictatorship of the proletariat; they are notes for a play to be called Ego, about the rediscovery of individuality in a totalitarian society based on the worship of the collective.

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Over a decade later, having escaped to the United States, Rand would complete the story — now a novella rather than a play — and publish it in 1938 under the title Anthem.

Anthem is perhaps the only work of Rand’s in which the influence of Russian symbolism is greater than that of French romanticism. In its stark, formal style, devoid of colloquialism, and minimalist in characterization, plot, and descriptive detail, Anthem is strikingly different (apart from brief passages in longer works) from anything else that she wrote; it represents a vision stripped to the bare essentials, to the sheer power of simplicity. Its cadences are at times biblical (e.g., “I guard my treasures: my thought, my will, my freedom. And the greatest of these is freedom”).

Indeed, while the book is usually described as a novella, Rand confided to fellow novelist and libertarian theorist Rose Wilder Lane that she thought of Anthem as a poem; and the very title suggests a sacred song of praise or devotion, in this case to the unconquered self.

The book’s most striking feature, both stylistically and in the substance of the story, is the absence of the first-person singular. The idea of a totalitarian state suppressing subversive ideas by banning or distorting the language needed to express or even formulate it has been made generally familiar by George Orwell’s Nineteen Eighty-Four, with its fictional language, “Newspeak”; but Rand’s treatment precedes Orwell’s by more than a decade (and may possibly have influenced it).

In Rand’s dystopia, the first-person singular pronoun — the word “I” — has been abolished in order to prevent people from thinking of themselves as individuals with identities distinct from that of the collective. The struggle of Equality 7-2521 (Rand modeled her characters’ names on telephone exchanges of the “Pennsylvania 6-5000” form) to discover his own individuality is mirrored in his, and the text’s, struggle to move from “we” to “I.” (And Liberty 5-3000’s groping after singular pronouns in her declaration “We are one… alone… and only… and we love you who are one… alone… and only,” while it anticipates the statement in The Fountainhead that “To say ‘I love you’ one must first know how to say the ‘I,’” also implicitly raises the question whether the loss of the distinction between singular and plural second-person forms in standard English should be seen as likewise problematic, y’all.)

Again like Orwell, Rand would later go on to analyze the political abuse of language in her nonfiction as well, describing “extremism,” for example, as an illegitimate term, or “anti-concept,” designed to blur the distinction between thoroughgoing advocacy of freedom and thoroughgoing advocacy of violence and authoritarianism.

Another distinctive feature of Anthem is the impoverished, nearly primitive nature of the society it depicts — one where the candle is a relatively recent discovery, the inventors of which (a committee, of course) are immortalized in paint on the walls of the Council of Scholars. In most dystopian novels — whether those that preceded Anthem, such as Zamyatin’s We and Huxley’s Brave New World, or those that came later, such as Nineteen Eighty-Four and Bradbury’s Fahrenheit 451 — the totalitarian regime is depicted as commanding a vast array of high-tech tools for surveillance and manipulation.

But for Rand, the functioning of industrial civilization requires individual initiative and free exchange; any society that suppresses these as thoroughly as the one in Anthem does would pay the price of backwardness, and she depicts this result accordingly. (What relations of influence there might be between Anthem and these other dystopian fictions is a fascinating topic, but one where evidence is elusive.)

If the book’s linguistic center is the first-person pronoun, its imaginal center is light — the guttering candlelight of the collectivist dystopia, contrasted with the electric light that the protagonist reinvents, the latter symbolizing the fire that Prometheus of Greek myth stole to give to the human race, and, consequently, symbolizing as well the creative fire of the unfettered individual mind. (The theme of the gift of fire, and the giver’s punishment therefor, would recur in The Fountainhead and Atlas Shrugged as well.)

The world of Anthem is in many ways a reflection, or more precisely an intensification and extrapolation, of the setting in which Rand initially conceived it — the Soviet Union under Lenin and Stalin, with its collectivist ideological conformity, economic stagnation, lack of privacy, and general dreariness (vividly portrayed in more literal terms in Rand’s semiautobiographical novel We the Living).

Even the universal title of “brothers” in Anthem is an echo of the Soviet “comrades.” By the time Rand completed and published her story, however, she knew all too well that the virus of authoritarian collectivism was not confined to Soviet Russia; fascism and communism, two species of We-worship between which Rand saw little reason to choose, were dividing up Europe between them, while less advanced forms of the same syndrome were well entrenched in her adopted homeland of America. Against these trends Rand held up the vision of Anthem as a warning.

But contemporary ideologies were not Rand’s only target. Rand was a dedicated Aristotelian and a lifelong critic of Plato, and many of the features of Anthem’s dystopia, such as government assignment of professions, state regulation of breeding and reproduction, and abolition of private property and the family, seem drawn from the recommendations in Plato’s Republic. The prohibition of the word “I” in favor of “we” is likewise a natural development of Plato’s dictum in the Republic that all citizens should say “mine” and “not mine” about the same things — a proposal criticized by Aristotle, who warns in his Politics that the attempt to give a community the same degree of unity as a single individual is doomed to disaster.

Moreover, Equality 7-2521’s journey down into an abandoned subway tunnel to discover an artificial light source turns on its head Plato’s allegory of the cave, in which the wise man ascends from the cave of physical reality, lit by the artificial light of the senses, to discover the “real” world of abstract Forms, lit by a sun of pure ineffable intellect. By reversing Plato’s parable, Rand, in Aristotelian fashion, reorients the pursuit of knowledge away from the supernatural and back to this world, to empirical reality.

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There are also passages in Anthem, however, that seem potentially at odds with the Aristotelian orientation of Rand’s mature philosophy. The protagonist’s courage, integrity, and intellectual curiosity are described in terms that imply that they are innate; for example, he describes himself as having been “born with a curse” that has “always driven us to thoughts which are forbidden.” Such a suggestion clashes with Rand’s later insistence on the decisive role of choice and habituation in determining one’s character.

Moreover, Equality 7-2521, after rediscovering the concept of the ego, declares that “the choice of my will is the only edict I must respect” — a stance that the later Rand would denounce as “whim-worship,” insisting on the normative primacy of reason over will. Likewise, Equality 7-2521’s declaration, quoted earlier, that among “my thought, my will, [and] my freedom,” the “greatest of these is freedom” parts company with the mature Rand, who would surely have said that the greatest of these is thought; after all, in her later years, she would explain: “I am not primarily an advocate of capitalism, but of egoism; and I am not primarily an advocate of egoism, but of reason.”

Anthem’s differences from Rand’s later positions may just be nonliteral simplifications for artistic effect, or they may reflect the greater influence of Nietzsche on Rand’s early work. Her full diagnosis and repudiation of Nietzsche’s version of individualism would come in her next novel, The Fountainhead. But already in Anthem we see a firm rejection of the glorification of domination that represents at least one strand in Nietzsche’s thought, a strand that had found a degree of aesthetic affirmation in some of Rand’s earlier work such as We the Living and Night of January 16th. “I shall choose friends among men,” Equality 7-2521 tells us, “but neither slaves nor masters.”

Clearly, by this point at least, Rand was conceiving of self-interest in Aristotelian terms, as requiring respect for the rights of others.

One aspect of Anthem that seems jarring and distracting, given the book’s overall theme of independence, is the heroine’s attitude of submissiveness toward the hero. It would seem that for Rand, saying “I” does not mean the same thing for women as for men. Indeed, Rand can be found championing women’s independence and women’s submissiveness alternately throughout her career; this is an inconsistency she never seems to have satisfactorily resolved.
Despite the dissimilarities in style and complexity between the two works, Anthem points forward to Rand’s best-known work, Atlas Shrugged.

The hero of Atlas, John Galt, is also an inventor of something electrical that is unappreciated by a collectivist society, and his invention likewise doubles as a symbol of the power of the individual mind. Like Anthem’s protagonist, Galt is explicitly compared to Prometheus; and like Anthem’s protagonist, Galt sets out to undermine the ruling order by leading a covert exodus of individualists from it. Equality 7-2521’s promise to protect his citadel of individualism with a “barrier light as a cobweb” prefigures the “screen of light” that hides Galt’s Gulch from the outside world; and Equality 7-2521’s final vow — “I ask none to live for me, nor do I live for any others” — is a first draft of the vow that unites the Gulch’s inhabitants.

When Rand, in Anthem, has Equality 7-2521 say that “this wire is a part of our body, as a vein torn from us, glowing with our blood,” so that there is no “line to divide this thread of metal” from “our hands which made it,” she is laying the groundwork for her later defense in Atlas of the producers’ right to own what they produce; Dagny Taggart in Atlas completes Equality 7-2521’s thought when she comes to the realization that engines and motors “are alive… because they are the physical shape of the action of a living power.”

Throughout Atlas Shrugged, the specter of Anthem’s world is a perpetual threat; without “the power of thought and choice and purpose,” Dagny muses, the “motors would stop,” and “steel cylinders… would become stains of rust on the walls of the caves of shivering savages.” When Dagny feels “sudden, blinding hatred” against a weed she finds growing through a crack in the steps of an abandoned factory and uproots it “in rebellion against the weed’s impertinence, knowing of what enemy this was the scout,” or when the ordinarily mild-mannered Eddie Willers, at the end of Atlas, lunges with “murderous fury” toward the “small gray shape of a rabbit” sniffing at Eddie’s abandoned locomotive “as if he could defeat the advance of the enemy in the person of that tiny gray form,” the world of Anthem — the collapse of civilization, through the betrayal of the values on which it rests — is the advancing enemy that they seek to combat.

Even “Directive 10-289,” the regulation in Atlas that completes the conversion of the United States into a rigid authoritarian collective well on its way to becoming Anthem’s dystopia, can be converted to the format of the names in Anthem simply by shifting the hyphen one space to the left. Anthem is essentially the future that awaits the world of Atlas Shrugged if its protagonists fail in their struggle — and, Rand suggests, it is the future that awaits all of us if the sacred value of individuality is rejected or suppressed.

It is appropriate, then, that this e-book of Anthem is being released the same day the film Atlas Shrugged: Part II opens.

The text of Anthem has appeared in various slightly different versions over the years; the version presented here follows Richard Lawrence’s arguments, on his website Noblesoul.com/orc, concerning the best evidence as to Rand’s intentions.

Regards,
Roderick  Long

Original article posted on Laissez-Faire Today

Rand’s Dystopian Masterpiece appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

A Formula for $12,000 Gold

Gold has steadily advanced over the last 60 days from $1,600 to this morning’s $1,767. Which is making some people a little nervous.

For instance: “Can you comment,” a reader asks, “on what you think might happen to the price of gold if Romney gets elected?”

We’ll answer that question today in the course of examining some longer-term trends that will prove immune to whatever happens [checking the calendar] 25 days from now [thank God].

One of the most respected gold fund managers sees gold reaching for a new high inside the next 12 months.

In his latest shareholder letter, Tocqueville Gold Fund chieftain John Hathaway bases that forecast on continued negative real interest rates: That is, as long as central banks push interest rates below the rate of inflation, gold performs well.

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“Some suggest,” Hathaway writes by way of answering the reader’s question, “that a Republican victory in November would be a game changer for gold. It could bring about the dismissal of Bernanke, the taming of fiscal deficits, the painless elimination of excess liquidity from bloated central bank balance sheets and the restoration of robust economic growth.”

[Pausing while your editor guffaws…]

“All of this,” Mr. Hathaway goes on, “would need to occur within the four years allotted to a new administration while voters patiently awaited the magic to take effect. While this rosy scenario is possible, we believe it would be a long shot.

“Therefore, we regard any possible pre-election weakness in gold and mining stocks based on such a possibility as a buying opportunity.”

A few mainstream analysts, believe it or not, are one-upping Mr. Hathaway.

Bank of America Merrill Lynch has assembled an intriguing chart tracking the expansion of the Federal Reserve’s balance sheet going back to the first round of “quantitative easing” in early 2009… and the price of gold. The chart yields a target both for next summer and the end of 2014.

Those numbers might prove conservative. “This target doesn’t take the love trade into consideration,” writes Vancouver favorite and U.S. Global Investors head Frank Holmes, who brought the chart to our attention.

The “love trade” is his term for the centuries-long affinity that Chinese and Indians have had for gold, in contrast to the Western-minded “fear trade.”

In recent months, Indian demand has slumped as the local currency weakened, driving the rupee price of gold to all-time highs. Now that trend is starting to reverse: The exchange rate is now back where it was six months ago, and UBS reports Indian gold demand at a five-month high.

“In addition,” says Mr. Holmes, “Diwali will be celebrated in November. The Festival of Lights is India’s biggest and most important holiday of the year and is celebrated by almost 1 billion Hindus around the world. Traditionally, on the first day of Diwali, it is considered auspicious to clean the home and shop for gold.”

And what of China, the other emerging-market driver of gold demand?

China’s gold imports via Hong Kong — an imperfect measure, but it’s as transparent as the Chinese get about these things — fell 29% between July and August. But it’s the year-over-year trend that matters… and at 53.5 metric tons, it’s up 22%.

Another way to look at it: In the first eight months of this year, China has imported 512 metric tons of gold — more than the total for all of last year, 428.

“What’s happening in precious metals,” says Gary Dugan, “is that they are becoming more mainstream.”

Mr. Dugan is the chief investment officer for Asia and the Middle East at Coutts — the private banking arm of the Royal Bank of Scotland.

Ten years ago, investors rarely held any gold in their portfolios. Now, he tells Reuters, “We are going back to normality, and the normality is that precious metals are the core part of your portfolio.

“Some of the clients ask where gold prices are going, and I say don’t even think about prices. It’s a store of value.” Music to our ears…

Here’s another way to look at how Fed action is driving gold: It’s called the gold coverage ratio.

It measures the amount of gold on deposit at the Fed against the total money supply. “This ratio,” writes Guggenheim Partners chief investment officer Scott Minerd, “tends to move dramatically and falls during periods of disinflation or relative price stability.”

You might not think we’re living in a period of “relative price stability”, but we’ll take Mr. Minerd at face value: The gold coverage ratio is currently at an all-time low of 17%… yielding two tantalizing possibilities.

“The historical average for the gold coverage ratio,” Minerd writes, “is roughly 40%, meaning that the current price of gold would have to more than double to reach the average.”

It gets better: “The gold coverage ratio has risen above 100% twice during 20th century,” most recently at gold’s 1980 peak. “Were this to happen today, the value of an ounce of gold would exceed $12,000.”

Cheers,
Addison Wiggin

A Formula for $12,000 Gold appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

A Tale of Two Trade Balances

Well, the mini-rally that the euro (EUR) was putting on yesterday morning, on the news that Italy had put in a successful bond auction, continued throughout the day yesterday and through the overnight sessions. Pretty strong rally, as the euro pushes the envelope to 1.30 again. That 1.30 level has been quite a line of resistance for the euro, but to me, if the euro remains around this level, it shows me that things certainly are quieting down in the Eurozone, and soon the focus will shift to the US.

Yesterday we saw the tale of two countries’ trade balances. The US trade deficit widened to $44.2 billion in August from a revised $42.5 billion deficit in July. The US trade deficit was pushed higher because of a collapse in exports. (Remember what I warned the markets about a couple of months ago, when they were whopping it up about the trade deficit narrowing, and running the dollar up in price? I said, be careful what you do here, as a stronger dollar will hurt exports.) Well… That’s not the only thing hurting exports these days. The global slowdown is dragging down everybody.

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Everybody, that is, except Canada! Canada’s trade deficit narrowed to $1.3 billion in August. This was a very sharp narrowing, as July’s trade deficit was $2.5 billion. The experts had forecast a narrowing to $1.9 billion. Here in Canada, it was a sharp decline in imports that brought the trade deficit down to $1.3 billion. Which sounds like chump change compared to the US trade deficit, eh? (Don’t worry… I get it… The size of Canada’s economy versus the US…) The Canadian dollar/loonie (CAD) pushed higher by about ¼-cent on this news. But in reality, the loonie has been stuck in the mud, ranging from $1.02 to $1.03. But, think about this for a minute, folks. If you use the loonie in your mix to diversify out of the US dollar, it’s not bouncing all around like a Mexican jumping bean, and with little volatility, it makes things go smoother, eh?

Today, the US data cupboard has some stupid PPI (wholesale manufacturing index), the U. of Michigan Consumer Confidence for the first two weeks of October, and the Monthly Budget Deficit statement is due to print. The Monthly Budget Deficit data will be from September, the last month of the US’s fiscal year, and is expected to be around $75 billion. If that’s where it comes in, the budget deficit for the fiscal year 2012 will be around $1.240 trillion. And, for those of you new to class, that gets added to our national debt. I shake my head in disgust, for this expanding debt was what I warning people about over 10 years ago. Back then, we were booking $550 billion budget deficits, and back then that made me stop and yell and the walls! Imagine what $1+ trillion budget deficits do to me!

Ok… Onto other things before I get my blood pressure sky rocketing! We received word from the Monetary Authority of Singapore (MAS) that they would not be changing the slope and width of the Singapore dollar’s (SGD) band. That’s good news, as there had been some rumors going around that the MAS would opt to narrow the band. Now, for those of you new to class, what the MAS does is first and foremost, use the strength of the Sing dollar to fight their inflation fights. A novel concept, and one I wish most countries would use, instead of an arbitrary interest rate. But to further the discussion of what the MAS does, is they set a band for the Sing dollar to trade in, and it can float within that band. So, the Sing dollar is somewhat “managed”. But, the MAS has been widening the band for a couple of years now, and that has led to some very nice gains in the Sing dollar… So, having the MAS leave the band unchanged in today’s environment, where most countries are debasing their currencies is a very good thing.

While I’m in Asia… The Chinese renminbi/yuan (CNY) has really been “putting on the Ritz” again, with 10 consecutive weeks of gains (albeit small ones, but gains nonetheless!) Last night, the renminbi was allowed to reach a 19-year high. Investors are pushing the envelope here for larger gains on thoughts that the Chinese government will announce more stimulus for the economy. The Chinese Communist Party will hold a congress starting November 8, and most observers believe that after the congress the stimulus will be announced. China did get some good data news overnight when they printed a 5.5% gain in overseas sales in September, versus the 2.7% increase in August.

Remember, the Chinese official who claimed the second quarter would be the bottom for the Chinese? I get a sneaky feeling that he will be proven correct. But I don’t really expect the Chinese government to let loose of the reins on the renminbi/yuan. The People’s Bank of China (PBOC) Deputy Gov. Yi, said that “CNY was close to its equilibrium based on market supply and demand.” Hmmm. sounds like they were sending that message to the US lawmakers who continue to yap at the heels of the Chinese about allowing the renminbi to gain a larger margin versus the dollar.

In Australia, the Aussie dollar (AUD) looks to be trapped in a tight range above $1.02. The earlier gains the Aussie dollar made on the rise in iron ore prices seems to have faded, as if the markets are saying “what have you done for me lately?” The risk sentiment has improved a bit, and some that comes from the Weekly Jobless Claims report from the US that showed a large drop of 30,000 to 339,000 last week. With the risk sentiment improving a bit, that gives the Aussie dollar an underpinning. But just when you think it’s ok to get back into the water, along comes Reserve Bank of Australia (RBA) Gov. Stevens, who reminded the markets (out of the blue, mind you) that he still has ways to slow the economy. What a dolt! Why would you do or say something like that? Central Bank Governors are strange birds, folks. There have only been a few since I’ve followed this stuff that made providing price stability their main job, and they did it well! Don Brash is at the top of the list. Wim Duisenberg. Hans Tietmeyer. And some others that are slipping my mind right now. Those were central bankers.

Australia’s kissin’ cousin across the Tasman, New Zealand, has had their fill of a central banker, Bollard (now retired), that didn’t fill the bill as far as I’m concerned. And now they have a wacky party leader that called for the RBA to print more money in a bid to devalue the New Zealand dollar (NZD). What a whack-job! Good thing the N.Z. Prime Minister put it all in perspective. And something our leaders should listen to. This statement by PM Key is classic, so it gets a paragraph to itself! Mr. Key said this in response to the call to print more money:

“If printing money made you rich, Zimbabwe would be the richest county on the planet, and it’s not.” — NZ PM John Key. Classic… Just classic!

And in the land of quantitative easing and stimulus packages… (Sorry, I’m not talking about the US, but I very easily could be!) Japan cut their economic assessment last night, and Japan’s Economy Minister, Maehara, said he has a “sense of crisis”. Really? Where was this “sense of crisis” back in the ’90s? Or the 2000s? Of course, Maehara only sees the strong yen (JPY) as the problem. I have to say that, they are correct in their assessment that the yen is too strong, but as I outlined earlier this week or late last week, the Japanese are out of arrows. A massive coordinated intervention to sell the yen is all they have left. And right now, they are the kid in the playground without any friends.

Then There Was This. The winners of the “Forecaster of the Month Award” from MarketWatch, Toronto-based Capital Economics had this to say in MarketWatch about the US Economy. “The US economy is missing that vital spark that could lead to a virtuous cycle of faster growth and more jobs. Capital Economics are forecasting another year of the same, weak economy, with 2% growth and 8% unemployment through 2013. They don’t see much movement in stock prices or interest rates, or inflation rates between now and the end of next year. And that’s IF nothing horrible happens in Europe, and IF Congress doesn’t drive the economy off the fiscal cliff.”

Chuck again. Good insight from some economists that don’t have the Sword of Damocles held over them like the economists do here in the US. Say something like that here, and you’ll get blasted in the NY Times. And just goes to show you how “underground” the Pfennig is! I’ll tell you that I think that one of the major things holding back the economy is the debt. It’s that simple. Debt burdens, worries, and confusion, keep the lid on the economy.

The other thing I see is the unemployment problem, but even more is the feeling by people that do have jobs, and income streams that spending right now is the right thing to do. The savings rate in the US is rising, and debt levels of consumers are falling. When this gets more in line then the economy could make a comeback. But that could take years. UGH!

To recap. The successful Italian bond auction carried a lot of weight yesterday and throughout the overnight sessions, as the euro pushes toward 1.30 again. US Weekly Jobless Claims fell 30,000 last week, giving risk sentiment a little boost. The Singapore Monetary Authority is leaving the bandwidth and slope for the Singapore dollar unchanged, which Chuck sees as a good thing given the propensity for central banks to debase their currencies these days. And N.Z. Prime Minister, John Key, gives us a classic quote on money printing!

Chuck Butler
for The Daily Reckoning

A Tale of Two Trade Balances appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

Monetary Mayhem From Myanmar

I handed the cab driver a $10 bill. He held it with two fingers, as if he were holding a dead mouse by the tail, and looked at it doubtfully.

“Sir, this one is…” he paused, searching for the right words, “too old.”

“Too old?” I said.

“Yes, sir. Do you have a new one?”

And so began a little game played throughout Myanmar. The Myanmarese are very particular about the appearance of the US currency they accept.

I’ve been in Myanmar since last Tuesday. I spent the first few days in Yangon. I’m traveling with my friend Lawrence Mackhoul of Leopard Capital. We left Myanmar with no set itinerary. We would just go by whatever means seemed best at the time — plane, boat, train or bus. We’d book our hotels at the counter when we arrived. We’d let the wind take us where it might, so to speak. We had a few spots we knew we wanted to hit, such as Mandalay and Bagan, and we had some meetings we’d arrange as we went. But otherwise, we’d be flexible.

Between us, we started with about $3,000 in cash. There are no ATMs, and we knew that credit cards are nearly worthless in this country. You have to pay cash for everything, even hotels and airfare. (One hotel did take credit cards, for a 5% transaction fee. They sent the information to Laos, of all places, for processing.) We also knew that the people of Myanmar like clean US bills. But their pickiness on this last point quickly had us worried we might run out of money.

We had bills rejected because of small tears or tiny ink spots or small pen marks. We had money rejected because the crease in the center was too great. Most absurd of all was when Lawrence tried to change his hundreds at a hotel desk and they rejected his perfectly crisp hundred dollar bills because they had “CB” in the serial number.

Lawrence stood there at the counter with a small pile of hundreds as they rejected each one. It seems the whole stack had “CB” in the serial number.

When asked why the “CB” mattered, we got a long answer that didn’t make much sense to us. Something about how the US sanctions make certain money impossible to exchange.

I went to the bank before I left home to get cash. As luck would have it, my banker is from Myanmar and goes there every year. She carefully went through my stack of hundreds and fifties. She did a good job too. None of the money I got from her has been rejected.

We found, however, that not everyone in the country is so well trained. We started to keep separate envelopes of “bad money.” This was money that was rejected once. Sometimes, more than once. But we found we were able to pawn off this money here and there.

The Myanmar currency is the kyat — which sounds like “chat” when people here say it. About 800 of them will buy you a dollar.

But it is the US dollar, despite all the problems, that remains a king among peasants. Despite, say, the Canadian dollar’s better performance against the dollar over the last decade or so, you can’t go to Burma and buy an airline ticket or pay for a hotel room with Canadian dollars.

At some point, the US dollar will lose its prime seat at the center of global commerce. And when it does, it won’t matter how clean your dollar bills are. People who don’t have to take them won’t take them.

That won’t happen until there is some kind of competitor. Looking at the world’s paper monies, though, is like looking through a mangy kennel of flea-bitten dogs. The best alternative is the one everyone used to accept for goods and services the world over. The alternative is gold. Maybe we won’t live to see a day where you can buy groceries with gold. But gold’s place as a store of wealth will remain, as it has for millennia.

In the 19th century and earlier, gold leaf was a popular money in Myanmar. It was easily divisible and easy to carry. While in Mandalay, I visited a shop that made gold leaf by hand.

So far, I’ve been to Yangon, Mandalay, Bagan and Ngapali. I’ll have more notes to share about these places when I get a chance to write them up. I also have some amazing pictures that will give you a sense of the place. But my Internet connection is not great. I can send and receive emails OK, but anything beyond that is impossible or painfully slow.

My general impression of the country so far is not what I expected. I expected that 50 years of relative isolation would’ve left a pretty desperate and decrepit country. I expected something more like the look and smell of India, with all the awful poverty and filth that you see traveling through Indian cities.

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I found a place much more prosperous looking than official GDP figures and the like would indicate. Traveling here shows you how stupid US sanctions are, too. It just meant that the Myanmarese cozied up more with the Chinese, who imposed no such sanctions. Nor did Thailand, which remains a big trading partner (and gets about 20% of its natural gas from Myanmar). Nor did India. The only thing US sanctions did (and continue to do) is handcuff US businesses from tapping into this market.

As far as investment ideas go, I have a strong sense that this is a market where there must be a great opportunity somewhere. In the big-picture sense, the upside for Myanmar is clear.

People best grasp emerging markets by analogy. You find another market with broad similarities and/or some historical parity that has since widened. Then you think about what happens when the other market catches up. Mongolia, for example, could be the next Kazakhstan. This gives the boom in Mongolia some context, some tangible upside. It makes the upside plain because you see how far Mongolia has to go — in terms of real estate prices, incomes, etc.

In Myanmar, the analogy is neighboring Thailand. Even a move halfway to where Thailand is would be huge for Myanmar. This upside has investors excited.

But the particulars of investing are harder. It is easy to like a market, harder to find the winning opportunity. Or as Lawrence likes to point out, you can lose a fortune in a booming market and make a bundle in a weak one.

Prices have already adjusted quickly here. A taste: A studio apartment in Yangon in a less-than-average-quality building goes for $1,500 per month. Real estate prices have moved big-time already. There is no “Growth Group” here, like there is in Mongolia. The one listed property stock, Yoma, is very expensive, in my view. More on all this soon.

All is to say, I am still searching for the right idea here. I still have some crisp hundreds left. And there is always something over the horizon that makes me want to have a look. Until the money runs out, I’ll keep exploring. Stay tuned…

Regards,

Chris Mayer,
for The Daily Reckoning

Monetary Mayhem From Myanmar appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

A Strange Game… Played With The U.S. Dollar

I handed the cab driver a $10 bill. He held it with two fingers, as if he were holding a dead mouse by the tail, and looked at it doubtfully.

“Sir, this one is…” he paused, searching for the right words, “too old.”

“Too old?” I said.

“Yes, sir. Do you have a new one?”

And so began a little game played with U.S. currency throughout Myanmar…

Just to back up, I’ve been in Myanmar since last Tuesday. I spent the first few days in Yangon. I’m traveling with my friend Lawrence Mackhoul of Leopard Capital. We left Myanmar with no set itinerary. We would just go by whatever means seemed best at the time — plane, boat, train or bus. We’d book our hotels at the counter when we arrived. We’d let the wind take us where it might, so to speak. We had a few spots we knew we wanted to hit, such as Mandalay and Bagan, and we had some meetings we’d arrange as we went. But otherwise, we’d be flexible.

My general impression of the country so far: It is not what I expected. I expected that 50 years of relative isolation would’ve left a pretty desperate and decrepit country. I expected something more like the look and smell of India, with all the awful poverty and filth that you see traveling through Indian cities.

I found a place much more prosperous looking than official GDP figures and the like would indicate. Traveling here shows you how stupid U.S. sanctions are, too. It just meant that the Myanmarese cozied up more with the Chinese, who imposed no such sanctions. Nor did Thailand, which remains a big trading partner (and gets about 20% of its natural gas from Myanmar). Nor did India. The only thing U.S. sanctions did (and continue to do) is handcuff U.S. businesses from tapping into this market.

As far as investment ideas go, I have a strong sense that this is a market where there must be a great opportunity somewhere. In the big-picture sense, the upside for Myanmar is clear.

People best grasp emerging markets by analogy. You find another market with broad similarities and/or some historical parity that has since widened. Then you think about what happens when the other market catches up. Mongolia, for example, could be the next Kazakhstan. This gives the boom in Mongolia some context, some tangible upside. It makes the upside plain because you see how far Mongolia has to go — in terms of real estate prices, incomes, etc.

In Myanmar, the analogy is neighboring Thailand. Even a move halfway to where Thailand is would be huge for Myanmar. This upside has investors excited.

But the particulars of investing are harder. It is easy to like a market, harder to find the winning opportunity. Or as Lawrence likes to point out, you can lose a fortune in a booming market and make a bundle in a weak one.

This brings us back to the currency game played in Myanmar. The Myanmarese are very particular about the appearance of the U.S. currency they accept.

Between us, we started with about $3,000 in cash. There are no ATMs, and we knew that credit cards are nearly worthless in this country. You have to pay cash for everything, even hotels and airfare. (One hotel did take credit cards, for a 5% transaction fee. They sent the information to Laos, of all places, for processing.) We also knew that the people of Myanmar like clean U.S. bills. But their pickiness on this last point quickly had us worried we might run out of money.

We had bills rejected because of small tears or tiny ink spots or small pen marks. We had money rejected because the crease in the center was too great. Most absurd of all was when Lawrence tried to change his hundreds at a hotel desk and they rejected his perfectly crisp hundred dollar bills because they had “CB” in the serial number.

Lawrence stood there at the counter with a small pile of hundreds as they rejected each one. It seems the whole stack had “CB” in the serial number.

When asked why the “CB” mattered, we got a long answer that didn’t make much sense to us. Something about how the U.S. sanctions make certain money impossible to exchange.

I went to the bank before I left home to get cash. As luck would have it, my banker is from Myanmar and goes there every year. She carefully went through my stack of hundreds and fifties. She did a good job too. None of the money I got from her has been rejected.

We found, however, that not everyone in the country is so well trained. We started to keep separate envelopes of “bad money.” This was money that was rejected once. Sometimes, more than once. But we found we were able to pawn off this money here and there.

The Myanmar currency is the kyat — which sounds like “chat” when people here say it. About 800 of them will buy you a dollar.

But it is the U.S. dollar, despite all the problems, that remains a king among peasants. Despite, say, the Canadian dollar’s better performance against the dollar over the last decade or so, you can’t go to Burma and buy an airline ticket or pay for a hotel room with Canadian dollars.

At some point, the U.S. dollar will lose its prime seat at the center of global commerce. And when it does, it won’t matter how clean your dollar bills are. People who don’t have to take them won’t take them.

That won’t happen until there is some kind of competitor. Looking at the world’s paper monies, though, is like looking through a mangy kennel of flea-bitten dogs.

The best alternative is the one everyone used to accept for goods and services the world over. The alternative is gold. Maybe we won’t live to see a day where you can buy groceries with gold. But gold’s place as a store of wealth will remain, as it has for millennia.

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Sincerely,

Chris Mayer

Original article posted on Daily Resource Hunter

A Strange Game… Played With The U.S. Dollar appeared in the Daily Reckoning. Subscribe to The Daily Reckoning by visiting signup for an Agora Financial newsletter.

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avatarThe Daily Reckoning - The Daily Reckoning posted Friday, October 12th, 2012.

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