Brazil Is Already a Winner Prior to the Olympics

What a great score for Brazil; they now have the 2014 World Cup and 2016 Summer Olympics back to back. If I have any Brazilian readers, I'd like to visit summer 2014.

Stocks were rallying in kind, up 1.5% Friday - certainly there will be some long term benefits to the country's infrastructure from these huge events. This is the first time the Olympics will be held in a South American country. All this with a "socialist" at the head of the country. Apparently Chicago (and Tokyo) were ousted in round 1. Madrid and Rio de Janeiro were the finalists.

You can almost feel the global sands shifting below our toes.

• [Sep 23, 2009: Brazil's Credit Rating Raised to Investment Grade]
• [Aug 11, 2009: BW - Brazil's Coming Rebound]
• [May 16, 2008: Brazil is Sexy]

Via Bloomberg

• Brazil’s Bovespa stock index rallied, the only major equity measure in the world to rise today, and the currency gained after Rio de Janeiro was awarded the 2016 Summer Games, luring investment to the country.
• The Bovespa climbed 1.5 percent to 61,332.97 at 12:52 p.m. New York time; the real, the best-performing emerging-market currency against the dollar this year, gained 0.4 percent to 1.7795.
• “The combination of the Olympics Games and the World Soccer Cup will be a very powerful force,” said Bill Rudman, who helps manage $1.5 billion in emerging-market stocks at Blackfriars Asset Management, in a telephone interview from London.
• The games would help sustain Brazil’s economic growth by injecting $51.1 billion into Latin America’s largest economy through 2027 and add 120,000 jobs annually through 2016, according to studies by a Sao Paulo business school for the Ministry of Sports. (who knows how accurate that is, but of course it is a plus)
• Brazil plans $11 billion of investments as host, more than any other of the bidding cities.
• “The infrastructure will be gigantic,” Kang said in a phone interview from New York. “Luckily for Brazil they have all the commodities to deal with massive infrastructure projects.”

Via Reuters

• Rio de Janeiro's successful bid to host the Olympics in 2016 culminates Brazil's remarkable rise over the past decade from a near basket case to an economic and diplomatic heavyweight.
• Just as the Beijing Olympics of 2008 marked China's revival as a world power, Rio 2016 may be seen as a stamp of approval on the South American giant's coming of age. (I agree - the timing will be perfect)
• After decades of underachievement, Latin America's largest country in recent years has finally made good on the immense promise of its abundant natural resources, vibrant democracy and vast consumer market of 190 million people.
• Rio's Olympics victory may be the most spectacular sign of Brazil's surging profile under President Luiz Inacio Lula da Silva, the country's first working-class leader who nurtured an economic boom that has lifted millions of people out of poverty and made him one of the world's most popular leaders.
• Brazil's revival has translated into a path out of poverty for about 20 million people, many of whom have benefited from Lula's generous welfare programs.
• A run of luck also has worked in Brazil's favor, from the commodities price boom that boosted its exports of raw materials such as iron ore and soybeans to one of the world's largest recent oil finds off Rio's coast in 2007. (very true - being so commodity rich is just the luck of the draw)
• Lula's appeal for South America's first Olympics followed a similar line -- that rich countries have enjoyed more than their fair share of the Games' spectacle and prestige.
• .... Brazil still has plenty of challenges to tackle before it joins the elite club of developed nations. The education system suffers from chronic underinvestment and Brazil has no world-class universities, leaving business leaders worried about a lack of qualified labor. Its creaking infrastructure also threatens to cramp its growth.

Now if someone could go into Argentina and fix that basketcase you'd have a great 1-2 combo in South America.

Comments

[John Galt:]

> Just as the Beijing Olympics of 2008 marked China's revival as a world power, Rio 2016 may be seen as a stamp of approval on the South American giant's coming of age. (I agree - the timing will be perfect)

I was thinking the same thing, but some of the Brazilians themselves say, "Brazil will always be the next great country of the future".

I know you like Lula because he generous with the welfare, but Brazil has plenty of problems. Many Americans that work there have drivers or personal body guards. There are more armored cars in Rio than any other city in the world.

Brazil actually has a lot riding on China. If China isn't building real estate, then Brazil isn't exporting Iron Ore to them.

Oct 05 08:53 AM

[nova:]

Just 15-20 years ago, the world has been very different. China, India, Brazil, etc., were economically nobody. The USA was an indisputable superpower.

Now, things are a lot different. As the US economy is falling apart, its military will follow a downslope.

Yes indeed, the world in just 5-10 years well be again very different from today. New barbarians are at the gate preparing to take the American Empire down.

It is just incredible Americans do believe in their own BS and lies!

Oct 05 10:06 AM

[isaac the t...:]

Chile too- EWH etf

Oct 05 11:20 AM

[manya05:]

Agree with isaac above that Chile is the other economy in South America that is run very efficiently. However, the ETF symbol is wrong: ECH (EWH is Hong Kong).

As for the question about Argentina, it is a basketcase and I think it will always be. There are humongous cultural differences between Brazil and Argentina that explain why one country is taking off, while the other is perpetually falling and getting up. Plus, Brazil got lucky with Lula.

As an investor, I would worry about life after Lula. There is no tradition of democracy in Brazil, and no strong party system to pick a successor, Lula's finger is probably the best route. Depending on how that transition is managed, Brazil can continue on a path of stability and growth, or go back a few years very quickly. Lulas are not born everyday.

Oct 05 12:38 PM

[TraderMark:]

I'm all for a system that works for the masses - you know like the US in the 50s and 60s.

The US system now is like most 2nd world South American countries - sort of funny to watch it all reverse.

Brazil has many challenges, but I'd argue far more people are better off there than they were 10 years ago as % of population than here. Obviously in relative levels the US is far better off but the commentary is directional - who is moving in the right direction and who is busy spending our children's wealth to make sure bankers live the good life.


On Oct 05 08:53 AM John Galt wrote:

> > Just as the Beijing Olympics of 2008 marked China's revival as
> a world power, Rio 2016 may be seen as a stamp of approval on the
> South American giant's coming of age. (I agree - the timing will
> be perfect)
>
> I was thinking the same thing, but some of the Brazilians themselves
> say, "Brazil will always be the next great country of the future".
>
>
> I know you like Lula because he generous with the welfare, but Brazil
> has plenty of problems. Many Americans that work there have drivers
> or personal body guards. There are more armored cars in Rio than
> any other city in the world.
>
> Brazil actually has a lot riding on China. If China isn't building
> real estate, then Brazil isn't exporting Iron Ore to them.

Oct 05 01:29 PM

[TraderMark:]

I wrote about Chile here

they are very reliant on copper but I was VERY impressed with the LONG TERM PLANNING of their financial heads - very impressed. Complete 180 from US policies of kick the can down the road and sacrifice the long term for the near.

It is amazing how bad our leadership is.

Prudent Chile Thrives Amid Downturn

www.fundmymutualfund.c...

We have far more resources here but we're just throwing down into a black hole.


On Oct 05 11:20 AM isaac the terrible wrote:

> Chile too- EWH etf

Oct 05 01:33 PM

[TraderMark:]

I'd love to hear about the cultural differences btw Argentina and Brazil if you come back to this post that explain the discrepency. Can't one argue that Brazil was not much different than Argentina for many years until Lula came to town? And Brazil has more natural resources.

Argentina has a large European influence so its surprising the lack of stability compared to European nations. But maybe you can shed some light.

And yes, it will be interesting to see what comes after Lula. But some of the socialists tendencies in regard to PBR and VALE of late bode well for the people perhaps but not necessarily some of the stockholders. i.e. "oil is for all the people of Brazil"


On Oct 05 12:38 PM manya05 wrote:

> Agree with isaac above that Chile is the other economy in South America
> that is run very efficiently. However, the ETF symbol is wrong: ECH
> (EWH is Hong Kong).
>
> As for the question about Argentina, it is a basketcase and I think
> it will always be. There are humongous cultural differences between
> Brazil and Argentina that explain why one country is taking off,
> while the other is perpetually falling and getting up. Plus, Brazil
> got lucky with Lula.
>
> As an investor, I would worry about life after Lula. There is no
> tradition of democracy in Brazil, and no strong party system to pick
> a successor, Lula's finger is probably the best route. Depending
> on how that transition is managed, Brazil can continue on a path
> of stability and growth, or go back a few years very quickly. Lulas
> are not born everyday.

Oct 05 01:35 PM

[manya05:]

TraderMark,

You cannot simplify the differences on a few sentences, but let me give you two examples.

You say Argentina has a European influence as if that were an asset. First, most European immigration came from the bottom of the socioeconomic spectrum. To the US too, but they were easily absorbed and diluted as they were small numbers compared to what was there already. In Argentina these Italian immigrants MADE the country. So think the worst of the worst of Naples and build a nation on that...now you know where the corruption comes from.

These Europeans that went to Argentina spent a lifetime of nostalgia remembering Europe and not being able to go back. The result is a very sad and nostalgic culture (think tango), everything is gray, everything is bad...so is the country, why bother, the future is bleak...a very pathological attitude. On the other hand, Brazilians are the happiest and most optimistic people on Earth (maybe the African influence?). To Brazilians every day is sunny and beautiful, and the future is always a positive. This difference affects the economies.

Another factor (related to the above) is the disposition of human capital, which in these countries is a HUGE asset and I think the key to the future. Argentina has been traditionally better educated and with a larger middle class than Brazil. So, the educated middle class in Argentina would emigrate, and because of the European tradition would have it easy at integrating and staying in their new countries (Europe or US). So Argentina has been hit hard by the brain drain. Brazilians, on the other hand, cannot contemplate the idea of being away from Brazil (it is the best country in the world! in their mind). So, they go out, get a top-notch education and go back to Brazil (can't stay away from that Sun and the beaches!). As a result, Brazil has benefited from an educated class that returned (Argentina did not).

I travel a lot and interact a lot with people in the engineering field, and I can assure you the human capital that Embraer has, for instance, is as good or better than what Boeing or Airbus have.

So, the secret to Brazil's success is a strong emphasis to educating their people (both within Brazil and overseas), and then retaining these people for the construction of tomorrow. I think that barring a catastrophe, the future of Brazil is bright, very bright. If Argentina ever shapes up, it will be by hitching its wagon to Brazil (something that culturally will be very hard to do as there is a lot of animosity there).

I hope this was helpful.

Oct 05 01:57 PM

[TraderMark:]

Good points thanks! re: "which Europeans" came over - never thought about it like that. Thanks for filling that in - enlightening - while aware of the Brazilian culture simply because I'm a huge futbol fan, the Argentinian situation always puzzled me. Now it makes more sense. Good points about as Brazilians upgrade education, intellectual capital they will stay home since they love their country versus situation in Argentina.

Oct 05 02:56 PM

[John Franklin:]

The Olympics just might mean rebooting the economy in Rio, not to mention cleaning up gang activity. I found a video with some really good pics too.
www.newsy.com/videos/r...

Oct 05 04:11 PM

[Alan Young:]

In support of your comment, Mark, but with an eye for historical accuracy: the term you intended is "third world." The terminology comes from around 1960, when the two primary "worlds" were the US-dominated market economies and the Communist bloc. The emergence of new countries which were not completely dominated by one or the other gave rise to the term "third world," and the term still evokes underdevelopment, dire poverty, and economic isolation—one feature of which, typically, was a tiny elite ruling over the impoverished masses, with substantially no middle class.

And now that I've got you in the semantic spotlight, what exactly do you mean by "funny"? It makes me feel kind of sick.

On Oct 05 01:29 PM TraderMark wrote:

> The US system now is like most 2nd world South American countries
> - sort of funny to watch it all reverse.

Oct 05 06:25 PM

[TraderMark:]

Hi Alan,

Can't consider America 3rd world :) people can still make a decent living and such but we're working our way there. A true 3rd world is when all the power and concentration of wealth is in just a small sliver of society...

.... hey wait a minute here.

Oct 05 07:13 PM

[Shocksink:]

Brazil was already in the world´s fast track to economic growth. World Cup and the Olympics just added steroids to the economy. Real estate in Brazil is forming a huge bubble (even with a relative high annual interest rate of 8,75%) that won´t burst so soon, so there´s a lot of room for speculation. Brazil´s big mistake is the concentration of its exports on commodities instead of manafactured goods which could distribute the wealth more evenly.

Oct 10 08:40 AM