I have more than a passive interest in North Korea, although my interest is hardly dedicated or a research one. In any event, I have read and watched a few interesting North Korea-related items lately.

The first is Four Seasons of Pyongyang, made in the mid-1980s I suspect. It is a tourist film made by North Korea’s government to tell the world how fantastic Pyongyang, its capital, is. The video is interesting, with several amusing (if you can set aside the tragedy of the entire situation) pieces.

While being amused, you learn interesting facts about North Korea and Pyongyan. First, During winter, and despite the tons of snow on the ground, “Pyongyang is warm and comfortable.” Yes, war is peace.

Second, the city “attracts guests from all over the world” and is an international city. It seems to be a particularly popular spot among East Europeans since all of the whites that were shown seemed to be Poles (that’s a little weird) or Romanian (not weird).

Third, every Friday, office workers go to construction sites and work with construction workers.

Fourth, North Koreans don’t breath through their noses. I learned this through a number of factory scenes, where workers had on face masks to ensure cleanliness of the products, but none of them had their noses covered.

Fifth, despite the large numbers of computers North Korea has (as displayed in the video), they don’t have decent audio editing equipment. The sound was way overdriven and static-y as a result.

If you happen upon the video, watch it. I do not recommend hunting it down or paying for it, though.

The second North Korea item is a documentary about the emerging domestic resistance movements. The documentary, Undercover in the Secret State, is a Channel 4 (UK) production and carried out by Kim Jung Eun. Overall, it’s extremely well done, although it has little new information for those who follow North Korea-related news. Still, the images and interviews are worth watching.

The specific stories in Undercover in the Secret State are intertwined, but can be divided into three sections. The first third or so of the documentary focuses on the recent postings of anti-regime groups in public spaces within North Korea. The group that posted them also filmed their postings and this video, as well as an interview with one of the group’s members, is included.

The second section focuses on the smuggling of goods in and out of North Korea. There’s discussion about two brothers who sneak out of North Korea and into China to beg for food and money for their family. Once they have collected food and money, they sneak back into North Korea. Another interview is with someone who goes in and out of North Korea and smuggles information about individuals or families to loved ones outside. The documentary maker asks one of these people to find information about the current status of one of the two brothers (apparently she is not interested in the other one). The third, and most interesting, focus of the smuggling section is Western and South Korea-made video tapes. There are groups that bring in these tapes to show insiders how the outside world lives. The documentary includes interviews with people who have smuggled in the tapes and someone who has recently defected and is willing to talk about them.

The third focus of the documentary is on an individual who videotapes life in North Korea and smuggles those tapes out so the rest of the world knows what is happening in North Korea. Both these videos and an interview with the videographer are included and make watching the documentary worthwhile, even without the other sections.

I am not sure how this film can be acquired or where it can be viewed, although the Internet usually has answers for such questions.

Last, I read the article on North Korea (“North Korea Flirts With Capitalism”) in the February 2006 issue of Bloomberg Markets. Bloomberg Markets is the “free” magazine that comes with a Bloomberg terminal account; I use a Bloomberg terminal at my job. In general, Bloomberg Markets is a better paperweight than read, but they occasionally have articles worth reading, although these tend to be more out of cynical amusement than genuine interest.

The North Korea article is no exception, as it focuses on Western efforts to invest in North Korea. The author of the article, Bradley K. Martin, notes that:

In September, Anglo-Sino Capital Partners, a London-based fund manager, said it had formed the Chosun Development & Investment Fund, which plans to raise $50 million for investments in North Korea. ‘It’s the last virgin economy,’ says Colin McAskill, 65, a director of Anglo-Sino and chairman of Koryo Asia Ltd., which is investment advisor to the new fund. Besides recent changes in the economic system, a 99 percent literacy rate and a minimum wage for workers in foreign-invested ventures of only $35 a month, McAskill says, he was drawn by North Korea’s rich natural resources–including iron ore, copper, lead, zinc, molybdenum, gold, nickel, manganese, tungsten, anthracite and lignite.”

Set aside any qualms you may have about investing in a non-democratic and non-capitalist system. Now set aside concerns you may have about exploiting people. Last, adopt the perspective of an investor. Okay, we can now continue.

Keeping in mind that $50 million is mere change to these funds, I question this investment decision. First, if your workforce can not be fed and can not have a guaranteed level of security (as is impossible in an authoritarian state), then working conditions seem sub-optimal. Without overgeneralizing anecdotal evidence, look at Russia and the periods of capital flight, especially after the currency crisis and more recent Yukos affair. Big banks and investment dollars flooded the markets, only to leave and stay out for a long time, and Russia is a relatively stable system. Furthermore, I am curious as to how these investment firms intend to be paid, given North Korea’s notoriety for counterfeiting currency to pay for goods and services. Seems like a bad investment decision to me.

Note: I have no idea what a “virgin economy” is. Comment if you do.

But my criticism of this particular fund’s approach does not mean an absence of profitable opportunities in North Korea:

“Richard Savage was looking at least five years into the future in 2001, when he formed a joint venture tree plantation with the Ministry of Foreign Trade. The company, Evergreen Kormax Paulownia Ltd., is 30 percent owned by the government, which has assigned Savage 20,0000 hectares (49,000 acres) on a 50-year lease with an option to extend for 20 more…Savage says he hopes that by the time the paulownia trees mature–they grow as fast as 7 centimeters (2.85 inches) a year after planting–he’ll be able to sell the wood in a unified Korean market.”

Based on the wording of the reporter, it seems that Savage is banking on a North Korea collapse followed by massive South Korean investment in rebuilding North Korea. Based on historical precedent (e.g., East Germany and Iraq), this infrastructure play makes sense.

There are two even better regime-collapse investment plays, though. For a while, I have kept these plans to myself in the hopes of actually carrying them out, but so few people believe in them and my own lack of risk capital has led me to abandon the efforts (unless a fortune drops in my lap someday).

The first is currency speculation. In a stable system, this is a difficult game to play. But in an unstable system, it can be hugely profitable, if you know what you are doing. The key is to find a collapse of a state or government with which the outside world is intensely involved. Think East Germany (and West Germany), Afghanistan (and the US), Iraq (and the US), Cuba (and the US), North Korea (and South Korea).

While the government can collapse and be okay, and even the state can be absorbed into another, none of the outside parties consider it beneficial that the economic system also falls into anarchy. As a result, the outside parties prop up the collapsing system’s economy, often through massive cash infusions, as well as an absurdly favorable exchange rate.

The key to profiting from state and government collapse, therefore, is to find a situation where outside parties will most definitely prop an entire economic system and buy their currency at the outset of collapse. When the collapse beings, the domestic currency will become worthless, in part because commercial relations are put on hold and in part because people revert to a more stable currency (e.g., the dollar).

It’s at that point that the currency is near worthless and should be bought (yes, there is only a small window, usually). As commercial relations return and people realize the crisis does not mean an end to the world, the currency’s value will creep back.

The main profits, however, are found in the second stage of currency appreciation. The interested outside parties always deem the previous currency as unacceptable and impose a new currency. To keep everyone happy and to try to improve the economy, the new currency is injected at an extraordinarily favorable (to the holders of the old currency) exchange rate.

Now, the numbers I am about to throw out are approximations and based on vague memories, so do not hold me to it. In the German case, I think this offered a 300 percent return, even if played in the most conservative way. Afghanistan was a 1,000 percent return and Iraq has been a 10,000 percent return.

Cuba offers a 1,000 percent return opportunity and North Korea, given South Korea’s guaranteed support, is at least a 10,000 percent return opportunity.

The most difficult part is buying the currency during the crisis point. Because of the situation, you need some sort of contact person (if not yourself) on the ground, and this is difficult. Once there, however, buying the currency is easy (just think about the exchange of vodka for vouchers in Russia during privatization); where there’s a 10,000 percent return, there’s a way.

The second investment play for collapsing economic systems is real estate. I was laughed at and made fun of for this during US attacks on Afghanistan, but I have had the last laugh as land in Kabul has gone up more than 1,000 percent since the attacks (this return figure was some time ago, so I do not know what the peak is/was nor do I know what the current value is).

There are two reasons why real estate is a good investment in these situations. The first is similar to the currency rational: During a crisis, people want to cash out because the system’s done for and there is no certainty. With real estate, however, there’s an added benefit. Post-collapse, an enormous number of reconstruction and civil society groups will be present, all of which need immediate housing and land for operations. With their Western dollars comes Western prices and Western profits.

Cuba is definitely ripe for this type of play, given it’s tourism industry and proximity to the US, although it’s questionable as to how well property rights will be respected given claims against Castro’s nationalization of property. North Korea is a better bet if you focus on land near the DMZ and Pyongyang (the wonders of which you can learn about in the first film I mention above).

Happy investing.