Take a moment to consider just how dark the future is for economic growth worldwide. The slaughter in oil aside, real demand is collapsing at a rate never seen in the last half century, implied volatility across assets classes is exploding and correlations are racing to one, wrote American author and trader Christian H. Cooper in a recent article published in the news website Business Insider. Excerpts follow:
Japan has joined other industrialized nations declaring a negative interest rate policy—policy talk for “we have no hope left”—and the other shoe in securitized oil products has yet to drop.
All the while, central bankers have been borrowing growth from the future via quantitative easing at a rate that is rational only if they hope to be out of office before anyone notices.
Even the Federal Reserve has begun to sheepishly ask US banks how they would “handle” negative rates (hypothetically, of course). As the new reality slowly begins to dawn on those still holding public equities, the private equity market, home to the truly delusional valuations, is where the real pearl clutching is about to begin in the West.
The question is no longer “what is my valuation?” but “how can I avoid losing half my assets?” There is only one place left in the world where doing so is possible: Tehran.
Even if the world wasn’t falling apart and Tehran Stock Exchange hadn’t rocketed 25% in the last month alone, the single greatest growth spot in the world still lies in Iran.
Based on my first-hand observations of the daily trading activity over the last two years, I can easily deploy $1 billion equivalent without disrupting the public markets or significantly altering the liquidity profile.
I also reasonably expect a 150% currency adjusted return in Tehran over the next 24 months. And unlike equity markets in the West, there are generations-worth of untapped private capital waiting to go public and a world hungry for stable yields.
All of this good news begs the obvious question: How to invest? Based on guidance issued by the Office of Foreign Asset Control in mid-January, Americans are limited to offshore vehicles and require a special license–no small hurdle, but not insurmountable. But for the rest of the world, the flood gates are wide open.
The one major risk factor that keeps me up at night is the lack of tools available to the central bank to effect monetary policy in any significant way.
The only other investor I have noticed echo the same concerns is in a recently issued research note by Sturgeon Capital. This is significant because the risk is very real that the tools and experience to tame interest rates during a time of explosive growth are not in place.
As I wrote in Business Insider in September, bank savings rates remain in the 15% range. The challenge for the central bank is to push this rate lower to accommodate domestic growth—at the same time the world is buying rials—is no small task.
The opportunity in Iran in both the public and private equity space remains a singular moment in history and, despite its uniqueness, is one that will not pass quickly.
There are decades of growth ahead for this highly educated, energy independent and entrepreneurial-focused nation that is also a rare beacon of stability in the Middle East.
To be sure, there are problems—but there are problems in all states. There will be growing pains in Iran but slow, steady and prudent stock selection will be rewarded with spectacular returns if, and only if, the known unknowns are managed with the attitude of mutual respect.
