“America’s New Currency: Issued by Only Four Banks in the World”

By Travis Johnson, Stock Gumshoe, March 30, 2008

This is a new teaser that has gotten the attention of many of my readers, if my bulging emailbox is any indicator. The special report, which they’re releasing to subscribers on April 2nd, is called “America’s New Currency: How a Unique ‘Legal Tender’ Helps Americans Grow Wealthy Regardless of the Economy or Dollar.”

If you know the Gumshoe at all, you know that he doesn’t want to wait until April 2nd to figure out what this might be. So let’s continue …

The ad is for Porter Stansberry’s Investment Advisory, the main newsletter from Stansberry & Associates. They tend to focus on value investments and longer term recommendations that they call “super safe”, in my limited experience with their picks, but they also make some highflier picks of technology companies. It’ll cost you $99 a year if you’re interested in subscribing — and whether it’s worth it is, of course, up to you.

I do know that you don’t have to subscribe just to find out what this “new currency” is — that “secret” is fairly thin and won’t make this newsletter any better than any other one, so let’s just investigate a little and see what they’re talking about.

The teaser is very short on specifics about the actual investment recommended (this will make sense in a moment), but it compares the performance of this “new currency” to the US dollar — which probably gets the attention of many folks just because the dollar has fallen so abysmally over the past few years.

And there are quotes from several reputable financial sources, including these:

“Billionaire investor Warren Buffet has made over $3.5 billion investing in “America’s New Currency” during the past two years. In his recent annual letter, Buffet compared the value of ‘America’s New Currency’ to ‘giant oil companies…’ later adding: ‘when you invest like this, you will make money.'”

“The Financial Post in Toronto calls ‘America’s New Currency,’ ‘a new investment frontier that offers investors enormous growth potential.'”

“And even the conservative Wall Street Journal reports that ‘America’s New Currency…’ is a ‘big winner… it shines.'”

There’s quite a bit more, of course, but I won’t bore you with more of the details. They do say in the text that this is not an actual currency, which hopefully was clear to you from the beginning, but that it is a security of some sort.

Which means …

drum roll, please!

this “secret currency” is …

American Depositary Receipts. ADRs. Also known as just Depositary Receipts or DRs.

For those who don’t know about ADRs — and you might own some, even if you don’t know about them — they are effectively shares of foreign companies that trade on a US stock exchange. Formally, they’re securities that trade on the exchange of one nation but that represent shares of a company whose shares trade elsewhere, so you will find depositary receipts of various kinds, including Global Depositary Receipts, on most major exchanges.

But in effect, and as far as most individual investors need to understeand, they are just shares of foreign companies that trade on US exchanges, which means it’s much easier to buy them. You don’t have to deal with foreign currency, or get a brokerage account in a foreign country, or pay extra for your broker to trade for you in Sao Paolo or Hong Kong, you can just (for the limited number of companies that do have DRs) buy then like you would any US stock.

And for the most part, the price of ADR will match very closely the price of the stock on the home exchange for that country. So the price of shares of Petrobras (PBR or PBRA), for example, the Brazilian oil company, will be worth almost exactly the same amount on the NYSE as they are on the Brazilian Bovespa. This isn’t always true, especially for countries where access to the local stock exchange is restricted for foreigners, but it is usually true — any irregularity that made for a difference in price between two exchanges for the same stock would be snapped up by arbitrageurs pretty quickly and the gap would close. There are certainly some discrepancies — for example, mainland Chinese stocks like PetroChina (PTR) generally trade at a much higher price in Shanghai than they do in NY, even though they are the same company, because foreign access to the mainland market is effectively cut off and therefore there isn’t enough access for arbitrage to take place.

There are several different kinds of ADRs — there are those that trade on the pink sheets, OTC, and are generally not subject to the same filing and listing requirements as US companies. There are those that trade on the NYSE or Nasdaq, and they generally follow the same rules as US companies. There are ADRs that are officially sponsored by an investment bank, which makes some investors more comfortable, and those that are more informal. If you’d like to get into the details, three good places for a quick overview are the Wikipedia entry for ADRs, the JP Morgan ADR Directory, and the Bank of New York Mellon ADR directory and info site.

They do say that “only four banks in the world” can issue this “new currency.” It’s true that there aren’t many issuers of Depositary Receipts, but I don’t see how that matters. By far the largest issuer is Bank of New York Mellon (BNY), but JP Morgan (JPM) certainly issues a bunch of them and there are others. The issuer doesn’t particularly matter for individual investors. What matter is the company that you’re buying shares of indirectly through these “receipts.”

And they don’t tease about any particular ADRs they’ll be recommending on April 2, so we’ll have to wait to see if they spit out some more clues for the ‘ol Thinkolator next week. It’s certainly true that ADRs have done remarkably well over the past few years, as many foreign stock markets have dramatically outperformed the US markets, and the dollar’s collapse has made these shares go up in dollar terms. Doesn’t mean that they’re all great or all good, or the reverse — it does mean that there’s unlikely to be another 40 or 50% drop in the dollar in the next couple years, unless you’ve really got a good dose of doom and gloom in you, so part of that tailwind might be dying down.

And of course, this is against the backdrop of the Wall Street Journal article this morning that noted that the US market has actually outperformed most of our peers so far this year — though in dollar terms many of those have still done better. The strongest performers this year have been the Western Hemisphere markets — Mexico is among the few that are positive overall (Taiwan is the only other major exchange whose index is in the black this year), and Brazil, Argentina and Canada are all outperforming the U.S. — but the US has, in turn, recently outperformed Europe and every other major exchange in Asia except Taiwan. Food for thought, as pundits have speculated for several months now that the massive inflow into foreign stock funds by US investors might finally be peaking as a contrarian indicator (meaning that it’s small investors like you or I that continue to throw money into hot sectors, like foreign stocks, even as they peak). The article is here if you happen to subscribe.

If you’re interested in indexing the returns of the larger ADRs, there are several ETFs available — the BLDRs family from PowerShares (that stands for Basket of Listed Depositary Receipts, in case you’re an acronymophobe) tracks ADRs from the BNY indexes — tickers are ADRA for the Asia 50 ADRs, ADRD for the Developed Markets 100, ADRE for the Emerging Markets 50, and ADRU for the Europe 100. There are others as well. I don’t know if it’s worth buying any of those instead of buying ETFs that track individual countries or regions, but it is often true that many ADRs tend to be the largest and strongest companies from a particular region (definitely not always true).

I invest quite a large portion of my portfolio internationally, through ADRs of several types and directly, and through mutual funds and foreign companies whose primary stock market listing is in New York, which means that their stock really is just regular common stock, not an ADR (like Baidu, for example, which is listed on Nasdaq and not in Hong Kong or Shanghai). There’s nothing magical about the concept of the DR or ADR, though many of these companies certainly have shown some magical performance over the years … especially recently, when measured in dollars.

Many of the 300 or so stocks that I’ve uncovered here at StockGumshoe have been foreign stocks, most of those ADRs of one form or another (most big newsletters restrict their selections to ADRs that are either listed on a US exchange or that have high volume on the pink sheets, like Nestle (NSRGY) or BMW (BYMOF), because only the smallest newsletters can effectively recommend low-volume pink sheet stocks without impacting the share price dramatically, and most US investors won’t trade directly on a foreign exchange even if they are interested in foreign stocks).

And if anyone wants to throw out their favorite ADRs, I’m sure we’d all be pleased to catch them. There are hundreds, of all stripes and all levels of quality, and I certainly don’t know them all.

P.S. The ad also included some more push for America’s Secret Investment Societies — or as they call them this time around, the “syndicates” that wealthy people assemble to grow their money. I wrote all about these back when that report was still released, and I can’t imagine it has changed at all in the interim — the writeup on America’s Secret Syndicates starts here if you missed it the first time around.

P.P.S. And in case you missed the fabulosity that is the Gumshoe over the weekend, the last couple articles were about Zero Downside Gold and the Sleeping Giant of India (itself, coincidentally, an ADR). Time to catch up with the group!

full disclusure: I do own several ADRs and shares of some foreign stock mutual funds, and I do own shares of Baidu (BIDU), but do not own any other company or investment mentioned here. As of this writing, foreign shares in my portfolio include ABB Grain (ABBGF), Centamin Egypt (CELTF), Lynas (LYSCF), Swire Pacific (SWRAY), Ambrian Capital (AMNZF), Sadia (SDA), Gol (GOL), KepCorp (KPELY), Focus Media (FOCM), HDFC Bank (HDB), Novartis (NVS), and SeaDrill (SDRLF). This is not a recommendation that you make any particular investment decision. I will not trade in any investment mentioned here for at least three days.

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19 Comments on "“America’s New Currency: Issued by Only Four Banks in the World”"

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David Hyers
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David Hyers
March 31, 2008 10:14 am

Appreciate your time and effort. I’m fairly new. Have you run a report on Jayhawk Energy – JYHW from Scott Frasier’s Elite Stock Market Advisory? Dave Hyers

Mister
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Mister
March 31, 2008 10:44 am

Any Info on S. Frank Lee’s Taipan Report and the 5 Global Retirement Funds (SWFs). Just got a HSI tease on this. Think I read the Gumshoe listing several in a recent report, but can’t find it.

Pete Ewing
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Pete Ewing
March 31, 2008 11:07 am

I like the CHT ADR’s here 20% earnings growth 10 PE and making new highs.

Bob
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Bob
March 31, 2008 12:03 pm

Would you include the symbols for stocks you make reference to? Thanks.

Ray Gawlak
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Ray Gawlak
March 31, 2008 2:39 pm

Can anyone out there in Gumshoeland answer this question: Is there any recourse to a broker buying shares of stock on margin when not authorized to do so? I got clipped badly by such a move in ’07.

Gravity Switch
Admin
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March 31, 2008 2:51 pm

Hi Ray — I have no idea what the rules are for brokers when you have a margin account — in my experience they’ve only used margin when I didn’t have enough cash for orders that executed, but they never asked specifically whether I wanted margin used or not. For something like this I’d definitely ask for a lawyer’s opinion if your broker provides a disappointing response, but I’m afraid I don’t know what your recourse might be, if any.

Gravity Switch
Admin
11
March 31, 2008 2:51 pm

Bob, I’ve gone back in and edited the text to include the US exchange tickers (some pink sheets, some listed, some ADRs, some not). Thanks.

G IMBURG
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G IMBURG
March 31, 2008 3:05 pm

Brokers have a duty to give full disclosure to their clients. If you were financially damaged,the most important thing is to figure out your true damage in relation to your instructions to him. Yes, I am a lawyer.
IF YOU ARE TRULY DAMAGED,figure out which court has jurisdiction and consult an attorney or arbitrate the matter if your contract with the broker requires arbitration which most do.

John
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John
March 31, 2008 7:36 pm
How does a JP Morgan, for instance, acquire the right to issue shares of a company in another country? Do they have to own an equivalent number of the shares that are traded in that other country? How do we know they really own them? A large investment bank just admitted to selling silver to its customers and charging storage fees for it, when no such silver really existed. The same investment banks packaged subprime mortgages as AAA securities, and sold auction rate bonds saying they are “as good as cash”. Those auction rate bonds are now illiquid and possibly… Read more »
Patrick NETO DUARTE
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Patrick NETO DUARTE
April 1, 2008 9:08 am

France Telecom (FTE) is one of them. Do you own homework.

Lory Mikulcik
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Lory Mikulcik
April 1, 2008 1:34 pm

This is all new to me & I don’t know who to trust.. I have had some of the elite e-mail me offering thier books for $47.00, $97.00 etc. etc. My financial advisor currently nakes me about 6.5% to 7% per year. But now I need to make some serious money for an operation & need to double my money. He says the secret society just makes it look attractive!!!!

Lory Mikulcik
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Lory Mikulcik
April 1, 2008 1:42 pm

I need some real good advise. My condition could be reversed through this operation. I’m only 40. I would like a 2nd chance at life. But I don’t know where to invest my money that is not tied up in American Funds and CD’s sure won’t double my money.

Wayne
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Wayne
April 1, 2008 2:43 pm
Lory, there is no easy way to make money quickly. There are some rules and bench marks. Waren Buffet has two rules: 1. Never lose money. 2. re-read rule #1. Bench marks: Total cost of advise, commisions, other fees or costs per year must not exceed 2% of the total you are investing that year. My own approach- I now have 2 years in the market and almost enough to buy a new nice small sedan. Most of that is money I earned down at the salt mine with my sledge hammer and shovel. The percentage return on my money… Read more »
Judy
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Judy
April 2, 2008 9:19 am
Lori, I hope you can find a solution to your need for money for your operation. Stock investing and trading is probably not going to help very fast. I am new too and am being very cautious. Due to a late start in life, I am struggling to add money to my portfolio for retirement and will be opening an account with a discout broker soon, but have not invested yet because I feel the need to learn a lot first. Thanks, Wayne, for your email. Your advice can help in finding sources. Lori, there is a lot of bad… Read more »
HXH
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HXH
April 2, 2008 9:33 pm

Thanx Wayne

Janet
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Janet
April 9, 2008 1:20 pm

I’m trying to do my own research so I can invest wisely. I really appreciate all the info you guys provide. My question is, can I buy these without a broker involved?

Gravity Switch
Admin
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April 9, 2008 1:33 pm

Not to my knowledge, Janet. ADRs are traded as stocks on the major exchanges or the pink sheets and thus have to be bought and sold like stocks, which for practical purposes means using a broker. I don’t know of any foreign companies that offer direct purchase plans direct from the company without brokerage involvement, though there may well be some. If your intention is to avoid brokerage charges, those should be minimal for most brokers, and certainly no different for an ADR than they are for any stock traded on the US exchanges.

Woman with Portfolio
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April 9, 2008 3:14 pm
Here’s a pointer that follows another of Warren Buffett’s advice nuggets: “KISS.” (Keep it simple, stupid.) A very simple way to find the best ADRs is to go to a site that lists the top performing ADRs. Here is one I use: http://160.254.123.37/dr_performance.jsp?performers=2. I’ve found some of my best stocks this way, and you can catch them on the way up before someone like Robert Hsu teases them. Be sure to do your DD (due diligence), but this will give you a nice headstart in locating fast growing foreign companies. It also lets you see what sectors have been performing… Read more »
Paul
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April 21, 2008 7:07 am

I’ve read and read and read again about investing in ADR’s. The truth is that I don’t have the time to investigate and constantly watch the market. I’m a engineer and have a full time position not to mention household responsibitlities. I have limit funds to invest and I really would like to put them into ADR’s and monitor them from time to time, weekly prehaps. Where can I view say the top 10 pick from them and monitor them on occation? What is the best way to purchase ADR’s

Thank you.

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