Triclosan
Kyrgyzstan
A Great Growth Stock
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A news item last week said the U.S. Food and Drug Administration was conducting a safety review of triclosan, a widely used antibacterial chemical that can be found in many consumer products from soap and toothpaste to toys.
Interesting to me was this part. " ... the FDA, which oversees [triclosan’s] use in personal-care products, medical devices and products that come into contact with food, has been working for 38 years to establish the rules for the use of triclosan but has not completed that task. ... The FDA is committed to issuing the rules quickly ... “
I’m not holding my breath.
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What I found interesting last week was the messy little coup in Kyrgyzstan, because it gave me a chance to learn something new.
Kyrgyzstan has been called “the Switzerland of Central Asia,” though there’s only one ski area. Mountains cover more than 80% of the country with the remainder made up of valleys and basins. Neighboring countries are Kazakhstan, China, Tajikistan and Uzbekistan.
Kyrgyzstan has a population of 5.5 million, roughly the same as Maryland, spread out over an area of 77,181 square miles, roughly the same as South Dakota.
But a country is characterized above all by the people who live there, and the Kyrgyz have a colorful history.
They were descended from Siberian people, and they’ve been in the area for perhaps 40,000 years. By some estimates, the civilization peaked when the Kyrzyg defeated the Uyghur in 840 AD. In the 12th century however, the Kyrzyg suffered from the expansion of the Mongol empire, losing both their territory and their written language. Kyrgyzstan became an important link in the Silk Road connecting Europe with China, but its people remained ruled by others, including the Golden Horde, Chagatai Khanate, the Oirats, Dzungars, Manchus and Uzbeks.
The most recent oppressors were the Russians, who formally annexed the territory in 1876. The ensuing oppression caused many Kyrgyz to flee to Afghanistan or China. In 1916, almost one-sixth the Kyrgyz population was killed in a failed revolution. In 1936, the Kyrgyz Soviet Socialist Republic became official.
The upside of Russian control was that money flowed in. Literacy increased. A standard written language was introduced, first (in 1924) using an Arabic alphabet, then (in 1928) a Latin script, and finally (in 1941) a Cyrillic script.
The downside was that Russian culture diminished the already fragmented Kyrgyz culture, particularly in major cities, where government policy favored new settlers from Russia. According to the last Soviet census in 1989, ethnic Kyrgyz made up some 22% of the residents of the capital city Frunze (now Bishkek), while more than 60% were Russians, Ukrainians, and people from other Slavic nations. Additionally, Kyrgyzstan was the most Russified republic in the Soviet Union, according to the census, as more than 36% of all Kyrgyz citizens said Russian was their first language.
But then the Berlin wall tumbled. The Soviet Union dissolved. Government-supported factories and state farms collapsed. And Kyrgyzstan’s economic performance in the early 1990s was worse than any other former Soviet republic except war-torn Armenia, Azerbaijan and Tajikistan.
Overseeing the first phase of independence was Askar Akayev, a Gorbachev loyalist who was president of the Kyrgyz Academy of Sciences, and was elected to the presidency in October 1990.
In 1995, Akayev was reelected with 75% of vote, after using government resources and state-owned media to carry out his campaign. Five years later he repeated the feat, though complaints about election fraud grew.
But after the 2005 election, the complaints grew louder still; eventually protesters seized the main government building in what was dubbed the Tulip Revolution. Akayev fled the country, first to neighboring Kazakhstan and then to Moscow, and eventually resigned.
Replacing him was former prime minister Kurmanbek Bakiyev, who promised to do better. But he didn’t. The economy still stinks; per capita GDP is $518 per year. Russians are leaving the country, which reduces productivity though it pleases nationalistic Kyrzgyzs. Everyone except insiders is suspicious of nepotism and corruption in the government. So last week’s big protest was no surprise. What was surprising was that it turned violent, and that roughly 80 protestors were killed by the military.
And then there’s the airport.
Just north of Bishkek, it was built in 1974 with Soviet money, and was a commercial airport from day one. The first plane to land carried Premier Alexey Kosygin. More important, the runway is a very impressive 13,780 feet; long enough to land any plane on earth.
But after the fall of the Soviet Union in 1990, maintenance was deferred, and by the turn of the millennia, the place was falling apart. Luckily, in 2001, along came the U.S. dollars behind Operation Enduring Freedom, which used the airport as a military base and transit point on the way to Afghanistan. Business boomed.
And the base has been a strategic waystation for U.S, and allied forces ever since. Today, the airport serves about a dozen commercial airlines ... and the U.S. military.
Yet Russia still exerts the biggest influence on the country. In fact, Russia and China have been pushing for the closure of the base since 2005, and at one point it looked like they would succeed. Last year, Kyrgyzstan and Russia agreed on an aid package that included roughly $2 billion in investment loans--primarily for a long-delayed hydropower plant. Experts concluded that might be enough to persuade Kyrgyzstan to close the U.S. military base. But soon after, closed-door negotiations between Kyrgyzstan and the U.S. saw the annual rent for the airbase rise from $17.4 million to $60 million... and the U.S. was allowed to stay.
The final piece of the puzzle is Maxsim, the 32-year-old son of President Bakiyev. It appears that companies controlled by Maxsim have the contracts to supply jet fuel to the U.S. base! While this was clearly a conflict of interest for the President, it wasn’t original. His predecessor Akayev, benefited from a similar arrangement for the jet fuel.
And now it’s all falling apart, just as it did for Akayev.
And the cost is not just the roughly 80 protestors killed in last week’s riots.
The cost is loss of economic productivity, loss of confidence, and loss of reputation for the people of a long-oppressed country struggling to do the right thing. Also blackened should be the U.S. government, who certainly knew where the dollars buying that jet fuel were going, but rationalized its actions by concluding that the war in Afghanistan was worth it.
It’s a story worth keeping an eye on.
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As to the stock market, the bull market continues, and one of the hottest sectors is technology, thanks in part to companies like Apple (AAPL), Netflix (NFLX) and Priceline.com (PCLN).
They’re all high-profile companies that serve the digitally connected U.S. consumer and they’ve all been great investments this year.
But even more exciting to me is a little company that most consumers don’t recognize. The reason they don’t know its name is that its products are LEDs (light-emitting diodes) and these products are INSIDE our electronic devices, usually powering displays of some sort. But this company’s growth potential is even larger, because it is still small, and because its lights, which are both small and energy-efficient, are so universally useful.
The stock was recommended to readers of Cabot Market Letter just last month, as it was building a base (a high-probability technical formation) at 70. Well, last Monday, the stock blasted out of that base on three times normal volume, after receiving an upgrade from an analyst.
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Yours in pursuit of wisdom and wealth,
Timothy Lutts
Publisher
Cabot Wealth Advisory
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