India's Treasures: What to Buy

Hundreds of years ago, pirates sought out India for centuries searching for treasures: spices…gemstones…gold. Today, India holds a different kind of treasure: It is home to one of the fastest growing economies in the world. Chris Mayer explores…

It was perhaps the greatest treasure ever to fall into the hands of pirates…

In the spring of 1721, a French corsair named Olivier Levasseur beat a retreat from the Malabar Coast of India and sailed west to Madagascar. Levasseur was known as “La Buse” or “the Buzzard.” He actually wore a patch to hide a mutilated eye.

In any event, he was wreaking havoc on the Malabar Coast when, finally, the British East India Co. decided it had had enough of La Buse and sent the entire Bombay fleet to hunt him down.

The Malabar Coast is one of my favorite places in India. The Western Ghats run the length of Malabar’s eastern edge. The monsoons run in from the sea and slam up against the mountain range, depositing heavy rains on the coastal lowlands. This produces the lush green tropical environment so different from the interior of India.

During my trip to India, we visited some of the coastal towns. We also took a houseboat and lazily made our way inland on one of the sleepy rivers. The food here was also very good — fresh fish, sweet bananas and coconuts.

Since medieval times, the maritime towns that grew up along the Malabar Coast have been known for trading rice, coconuts, gemstones, indigo and other dyes. Malabar is also rich in pepper, which became its cash crop in overseas trade. The dense forests on the slopes of the Ghats provide the only woodland around the rim of the Arabian Sea. So Malabar also exported teakwood, and its boats were also made of twine and teakwood.

As you can imagine, Malabar provided lots of good targets for a pirate. But things got too hot for La Buse with the Brits on his tail. He took off for Madagascar. Along the way, he decided to stop off in Reunion (then known as Ile de Bourbon) because his ship was low on water. Reunion is a little mountainous island east of Madagascar.

There he sailed into the harbor at St. Paul only to discover the Portuguese man-of-war Nostra Senhora de Cabo mooring there. Of course, La Buse could not resist. His ship fired a full broadside on the surprised Portuguese ship. His pirates then boarded it virtually without resistance.

And then, La Buse captured his greatest prize.

The ship was laden with gold and gemstones belonging to the viceroy of Goa, on India’s Malabar Coast. The ship had been on its way home to Lisbon when La Buse caught it unawares. The total haul was worth over $1.5 million, maybe the biggest prize a pirate ever snatched.

But all did not end well for La Buse. In 1730, nine years after his big haul, a slave-trading bounty hunter captured him. Fittingly, La Buse would hang in Reunion. But he did not leave this world without putting on a little drama at the end.

At the gallows, the old pirate threw out a set of maps on parchment that supposedly revealed the location of where he buried the treasures of Nostra Senhora de Cabo . They were in code, and he told the crowd that whoever cracked the code would find the treasure.

To this day, no one has found La Buse’s treasures. Many adventurers have tried.

William Dalrymple tells this tale in his book The Age of Kali, a collection of essays on India and Pakistan. It’s a great tale and somehow appropriate for investors in India today. India still is home to great treasures of a different sort: It is home to one of the fastest growing economies in the world. It’s also an extremely volatile market full of pitfalls. While I was there, the market was going crazy in a steep run-up to all-time highs.

I had some ideas I liked. There were a few stocks I wanted to own. I even wrote up a special report. But I withheld it, because the market just ran too far, too fast. Recently, the Indian market reached a point where it had dropped more than 20% from top to bottom.

I think now is the time to start looking again at building a position in India.

Regards,

Chris Mayer
for The Daily Reckoning
February 20, 2008

P.S. The market may go even lower. No one can say for sure. But in the past, buying India after dips of 20-30% have paid off big in later years. So I released my India special report this week, after the market took another pounding and dropped 4% in a day.

For those who can stomach it, I think the ultimate rewards from these positions will be large over the long haul. Though there are plenty of risks, I think we’ll make out better than old La Buse ultimately did from his India adventures…

Chris Mayer is a veteran of the banking industry, specifically in the area of corporate lending. A financial writer since 1998, Mr. Mayer’s essays have appeared in a wide variety of publications, from the Mises.org Daily Article series to here in The Daily Reckoning. He is the editor of Mayer’s Special Situations and Capital and Crisis – formerly the Fleet Street Letter.

Chris also recently wrote a book: Invest Like a Dealmaker: Secrets from a Former Banking Insider.

Big news: oil closed over $100 for the first time ever yesterday.

Gold rose too – $27, to $929. Platinum shot up $89 to $2153. And the commodity index, the CRB, hit a new record of 535.17.

Stocks, meanwhile, held steady. The Dow fell 4 points.

What is happening?

Let’s begin at the end. “Buy gold on dips…sell stocks on rallies.” This has been our Trade of the Decade…and our advice since 2000