Petrobras's Tantalizing Growth Comes With Baggage [View article]
In a recent interview with Folha de São Paulo, Graça Foster, the newly appointed president of Petrobras, stated in no uncertain terms that shareholders should not expect much in the way of returns prior to 2014. Buy the dips and accumulate, settle in for the long run, whatever you want to call it. Petro, admittedly a disappointment as of late, WILL bring "alegria" to shareholders in the not so distant future...
Good morning Bill; "Brasil - o país do futuro" (the country of the future). Jorge Amado, a brazilian author, made this reference as far back as the 1930's. It is (almost) a joke down here. Like, will the future ever get here? One thing I think you need to bear in mind is that we are still about 50 years behind the US in terms of our "industrial revolution". Ours came in the 1950's, so we are still playing a bit of catch-up. Draconian taxes, widespread corruption, lame education, overpopulated and crime-ridden mega-cities like São Paulo and Rio, politicians on the take, etc. All this and more have held Brasil back from being the superpower that by all rights they should be. However, when was the last time Brazil was involved in a military conflict? Natural disasters? Mudslides are about it. We are about 500% self-sufficient in terms of agriculture and have 50% of the world's fresh water. Not sure if the "future" will EVER arrive here in Brazil, but as a transplanted american, with over 15 years invested (AND investing) in this marvelous country, I shudder to think of what might have been for me, personally, had I remained in the US. My passport still has the eagle on the cover, and I love to travel to the states and leave some coin in the local coffers, but when the wheels touch down in Guarulhos, São Paulo, I love the chaos to which I am returning... Abraços from Brasil
DAG, kinda like India? They lose 40%, yup FORTY PERCENT of the food they grow due to crappy logistics. Lack of refrigeration, warehouse space, incredibly antiquated highways, transport modes constantly breaking down, etc. India is about where Brazil was 40-50 years ago. Bear in mind that 50% of the women (300 million) are also illiterate. Those are third world, "developing nation" numbers that you just don't see down here. We have our problems and concerns here in Brazil, but if you have ever been to or traveled in both countries, you know that we are light-years ahead of our Indian brethren... Abraços from Brasil
Well, actually the Olympics were held in Athens in 2004, but no biggie, I get your point. However, I do believe you are comparing apples to oranges. Currently, Brazil has the 6th largest economy in the world, we recently passed the UK and France is in the crosshairs. I would be willing to be that when Greece was gearing up for the 2004 games, they weren't even in the top 30 or so in GDP. They had no business financing, or even hosting those games. I was recently in Athens and the Olympic village looks like a ghost town. In addition, what in the world does Greece produce? Nada, zilch, zero. Heck, even Zorba the Greek was imported! All they have to offer is a handful of shipping magnates and some gorgeous tourism. But that will never support the aging population and lack of resources. Brazil on the other hand has a much larger (and younger) population, more natural resources and agricultural production than almost any other country in the world, and 50% of the worlds potable water supply. Not to mention 300+ days of sunshine. Finally, a ton of the development leading up to 2014 World Cup and 2016 Olympics is being funded by the private sector. Yeah, the govt. is shelling out big bucks as well, but foreign investors flock to Brazil to buy the BBB+ rated govt. bonds at hugely attractive interest rates. Detail, the rates the govt. offers foreign investors is lower than the rates at which they loan money, so its a win-win situation. To top it all off, Brazil is no longer a debtor nation, and holds well over US$350B (that's B as in BILLION) in reserves. And just to add the icing on the cake, Brazil comes in at a respectable 75th in the world in terms of corruption, better than countries like Italy, China etc. So that "government corruption" dog don't hunt as much as it used to. So Bret, while we have our problems, concerns, etc. down here, no doubt, I personally wouldn't be betting against Brazil...
As anyone who has seen my prior posts here on SA know, I am an american, living in São Paulo for the past 15 years, working as an independent investment consultant. I have over 400 clients, and manage a vast array of individual and group portfolios of varying sizes and risk profiles. I don't know, Bret. While I agree with some of your points, I think you missed the boat on most. Unemployment, I can assure you, is NOT a problem here. Nearly ANYONE who wants a job can get one. And while they might not pay the types of salaries that a person can earn in "developed" countries, you can get by. The widely reported growth of our local middle class attests to that. Consumption is growing in leaps and bounds, and anyone not in that sector is missing out on the dance. In addition, if you were a portfolio manager here, looking to put together a well balanced blend, you would need to have some exposure to the banking sector, no? Where would you suggest, if not ItaúUnibanco or Bradesco? Banco do Brasil? Govt. puppet? Santander? NOT! I personally recommend the two former banks, although I like BB as well. Stay away from any second or third tier local banks. Petrobras is a tough call, I'll give you that. Most, if not all portfolios here have some position in Petro, mostly to insure liquidity. But there is no denying that as a long-term (5-10 years out) play, Petro has one of the highest potentials in the world energy sector. They have suffered mightily in the past 24 months due to changes in upper-level management and the capitalization project last year. Foreign investors fled in droves. But I would expect them to flock back as soon as the pre-sal exploration starts to pump out the barrels. It's a case of "temos que ver, para crer" (we need to see to believe). Graça Foster, the newly appointed president of Petro claimed in an interview published this weekend in Folha de São Paulo, that shareholders should not expect much beyond flat results prior to 2014. Buy the dips and accumulate, that's what I'm telling my clients... You also mention the Latin Americans buying up property in Miami, which was one of only three somewhat positive results on the S&P/Case-Shiller housing report released yesterday. I think I can offer up some insight into that as well. Miami is only up thanks to foreign buyers. These aren't locals buying property in SoFla. Tons of people here in Brasil have bought in Miami over the past year or two. To give you an idea, a small house on a nice beach on the north coast of São Paulo will run you AT LEAST US$1M. For that coin, I can buy a 2000+ sq. ft. condo in Miami, with a 28' boat in the marina, a BMW in the garage and round trip business class airfares for the rest of my life. No joke... It's about an 8 hour direct flight from SP to Miami. On busy holiday weekends, it can take you 5+ hours to DRIVE the 200 or so kilometers to your beach house here. Plus then you get to deal with water shortages, grocery stores with empty shelves, 2 hour waits in restaurants, packed beaches, etc. BTW, Brazilians now spend more than ANY other nation per capita in the US. Learn Portuguese if you do business in SoFla.
Petrobras Now Represents A Solid Value Investment [View article]
Well, I have lived here in São Paulo for the past 15 years, and am in fact a local investment consultant with over 400 clients. I work as an independent agent for a local investment bank, and manage portolios for a vast array of investment risk profiles. Typically, Petrobras, along with Vale, is the cornerstone of nearly every portfolio. If for nothing else, to lend liquidity to your investments. And lately, that's been about it. This has been a very speculative asset over the past 12-24 months, what with the changes in leadership, both at the company and national political level (two women in charge now, Graça at Petro and Dilma in Brasilia, who'da thunk it?) as well as last years capitalization project which was a total fiasco and embarassment on an intl. scale. Foreign investors fled Petrobras in droves, driving the price on our local market below R$18,00 (about US$10/share). Now let me fill you in on a little something that maybe only a local would realize.... Brent crude can go all the way to US$150.00/barrel, and we will still pay exactly the same price at the pump here in Brazil. I track retail gasoline prices religiously, and even during the crisis of 2008-9, when crude prices were in the tank, I was paying around R$2,70/liter for gasoline here at the local BR gas station (Petrobras retail distribution). Just filled my tank yesterday, and guess what I paid? R$2,69/liter. Pure manipulation. Now was I paying too much in 2008, or I am paying too little now? It matters not, the govt. mandates at what price the distributors can sell their gasoline. In addition, the author doesn't even touch on the fact that the vast majority of our automobiles are flex-fueled down here; they run on either ethanol, gasoline, or any combination of the two. That should increase competition between the two products, and to a certain extent, does. But it doesn't effect the price of gasoline at the pump. Why? Because last year we suffered 7+% inflation, well above the govts. 4.5% target. However, had the price of gas fluctuated accordingly, our inflation would have probably been quite a bit higher, perhaps even double-digit. That's a no-no for Brasilia... The new president of Petrobras, Graça Foster, granted an extensive interview to one of the local São Paulo rags this weekend, and she stated that: 1. The price of gasoline "has room" to move. Does that mean it will? Remains to be seen. 2. Shareholders should not expect much "alegria" (joy) prior to around 2014. Until then, expect flat results and performance. This from the president of the company. For a longer term investor, I would recommend, after hearing that, to buy any dips and hold on for the long run. The "pre-sal" question is still unsolved. Will Petro really be able to harvest? Will they go it alone? Sell off vast reserves and let someone else reap? All important, and as of right now, unsolved mysteries. When you buy Petro, you have to be ready to accept a certain amount of string-pulling from the govt. In my opinion, this puppet master policy equates to about a 10-20% discount on competition. In other words, if XOM is trading at 10x forward earnings, I would say Petro is fairly priced at 8x forward earnings. More than that I would say you are overpaying, simply because of potential meddling in Brasilia. Finally, while we are talking PURE SPECULATION, I like OGX Petroleo. This is a publically traded company, sans govt. intervention, majority owned by Eike Batista, a controversial Brazilian entrepreneur. They are ramped up to start decent production this year. Zero profits as of right now, but as long as we are taking on risk, I like this play, ALOT. And I have a feeling that foreign investors, when looking to make a play on the vast reserves Brazil controls, will look to OGX and Eike. Simply because they don't have to worry about politicians dictating direction...
Preferreds More Preferred Than Treasuries [View article]
I would agree with your stance on EM bonds. Here in Brazil, with interest rates at 9.5% (after a 75 bp cut last week) I can make at least 9% in my sleep. And that's on A+ rated debt. Even if you want to toss in inflation, which should come in at about 5% this year, I still come out with 4+%, without the risk of a falling asset class (stocks). That said, you have to bear in mind that you buy this debt at local currency levels, currently BR$1,80 to the US$. I can live with that level, but if the Real starts to devaluate a bit, your gains in US$ get even bigger. I would expect the local Real to fluctuate between 1,70 and 2,00 for the foreseeable future, depending on govt. intervention and foreign inflow. That's assuming no intl. meltdowns... Abraços from Brasil
Valid points, jedku. I didn't realize the spread was that wide between the ADR's and the locally traded shares. I'm surprised there isn't more arbitrage with that kind of gap. Especially with such liquidity. As I mentioned in a different thread, it's tough for me to comment much on overseas assets, in that 100% of my money and my clients money is local, here in Brasil. Therefore all of the due diligence I perform is on local asset classes (ocasionally in comparison with overseas traded shares of local companies, for comparitive purposes). Thanks for the comments, and I look forward to further dialogue in the future.
Matt; It's tough for clients here to invest in US companies. The brokerage I work with doesn't offer "offshore" accounts. That said, there are about 30 large-cap US companies offered on our local exchange in the form of BDR's, Brazilian Depository Receipts. Coca-Cola, McDonalds, IBM, Apple, Google, etc. However, these asset classes are only open to "qualified investors" (those with more than R$300.000,00) and only through a handful of local banks and brokerages. In addition, the liquidity of these shares is very low. Local investors prefer to stick with what they know; local companies. Finally, any shares purchased abroad, with US$ would be subject to currency fluctuations, taxes imposed on bank transfers, and income taxes, making it a "rich man's game".
jedku; I can safely say that currency fluctuations certainly affect price. Let's use VALE as an example. Every ADR share of VALE on the NYSE is in fact ONE ordinary share of the locally BOVESPA traded share, VALE3 (we also have VALE5, which are preferential shares, no voting rights; for some reason most that operate on the NYSE like the ON, or ordinary shares, with voting rights, but here in Brasil, investors typically opt for the PN, preferential shares. Much better liquidity). Anyway, let's use nice round even numbers for the sake of argument. If one VALE3 share is trading for R$50,00 here in Brazil, and the exchange rate is R$2,00 per US$1.00, then a share on the NYSE should cost US$25.00, correct? Now let's say the share does not move a penny, either here or in the states, but our currency devaluates 1% in a day. 1% fluctuations in currency are quite common here in Brasil, either up or down, typically depending on how the local central bank is buying or selling US$. So let's assume that now it costs me R$2.02 to buy US$1.00. You SHOULD now be able to buy a share of VALE on the NYSE for US$24.75, right? This is where arbitrage comes into play, not only between the ON and PN shares, but between the US$ and the BR$. Lots of investors like to play the currency game via foreign shares, using what they feel are over, or undervalued currencies. Any investor thinking of getting into ADR's better perform his or her due diligence not only on the asset, but on the currency. Hope this helps.
Investing In Small Cap Emerging Market Growth [View article]
Um, many erroneous facts that should have been checked prior to posting this...especially regarding Brasil. In fact, when you combine the weight of PETR3, PETR4, VALE3 and VALE5, the four available shares on our local IBOVESPA here in São Paulo, the weight comes out to right around 22%, heavy no doubt, but significantly lower than your claim of 30%. In addition, you state that 2 of the other top five are AmBev (AMBV4) and Bradesco (BBDC4), when in fact they are not in the top five weighted shares. Number three, behind Vale and Petro, is in fact OGX Petroleo (OGXP3) with a 5,632% weighting. Number four is ItauUnibanco (ITUB4, I assume you aren't simply including the holding Itausa, ITSA4, it is a completely different asset) with a 4,350 weighting, and number five is in fact BMF/Bovespa (BVMF3) with a 3,347% weight. Add up the TOP FIVE and you are just above 30%. Almost 40% less than the 48% you cite in your post. In addition, AmBev doesn't even make the top ten. Banco do Brasil (BBAS3), which considering the "government slant" of your article, should have been included, has a 3,190% weight. In principle, I understand your point. But when you throw out numbers, especially when trying to stress a certain claim, you better have them right... Feel free to confirm all numbers I am citing here on the following Bovespa web-site: http://bit.ly/AgGkQ6 In the future, don't do us readers the disservice of not checking your facts, please.
Gol Linhas: A Great Way To Play Brazil [View article]
I operate locally in São Paulo, Brasil as a investment advisor/broker with a local investment bank. I have been watching GOLL4 (on the local ticker) for some time now. Got in at a good entry point (R$12,46) on Feb. 10, bought 10,000 shares for a portfolio I manage. Sold half of it exactly one week later, on Feb. 17 @ R$14,96. A nice little 20% profit for my clients. That said, I still hold 5000 shares. It is currently climbing 3.7% today @ R$14,89 locally. If it drops back down below R$13,50, I would probably jump back in. You have to be careful with these airline stocks down here, they are quite volatile and at the mercy of fuel prices. Another point worth noting, that the author might have missed, is that as of August 12, 2012, the reciprocal mileage program between AA and GOL will end. All in all, an interesting and well informed post. I look forward to your further opinions re. the Brazilian market. Abraços from Brasil
My dear Drs. Barclay and V; First and foremost I would like to apologize if I offended any of the participants on this thread. That was not my intent, nor do I ever intend to "detract from the sense of decorum" here or elsewhere. I merely enjoy the banter and exchange, and when I read something that is contrary to my personal belief, I feel obliged to voice my opinion. If at times I come off too strongly, again, my apolgies. Secondy, I have been (and am) an active investor and in fact investment advisor (with over 400 faithful clients). Unfortunately, I am NOT a young man, and have over 33 years of experience in equites trading, including over 15 years here in Brasil. This experience, in my humble opinion, qualifies me to comment on the state of affairs here. I would never even attempt to opine about markets elsewhere, as I have done zero due diligence, nor do I religiously follow other overseas markets, as I do our local Brazilian market. That said, it irks me to no end when people who have little or no experience living, eating and breathing this unique culture (a two week trip to the Amazon, Foz do Iguaçu, Rio or Salvador hardly provides a complete picture of this complex society) feel qualified to comment on a plethora of social, economic, polital or otherwise subjects. One or two business contracts, perhaps gone awry because of insufficient knowledge about "how to do business in Brasil" (we call it the "jeitinho" down here), or a lack of a local "fixer" working with and for you, are not indicative of 99% of business that takes place here every day without a hitch. They are isolated incidents, and definitely not the "norm", this I can assure you. Yes, bribes take place. Yes, there is corruption. Yes, politicians and power-mongers at times will require payoffs to grease the wheels. Show me a country where this doesn't happen. In it's annual report on corruption, Transparancy International rates over 180 countries on a scale of 1-10, 10 being the best. Brasil typically comes in around nº 70, or somewhere in the top 1/3. Better than Italy, China and other countries where intl. investors wouldn't hesitate to send their money or their business. Not perfect, I'll give you that, but far from the cesspool that so many media outlets would lead you to believe. I am in the trenches my friends. I see and LIVE Brasil every day, and will continue to do so for the foreseeable future. My career just happens to be as an investment advisor. I love it here, and couldn't imagine living elsewhere, and yes, will defend the way of life we have in this beautiful country. Again, it is not a panacea, but where is? I am long Brasil. The opportunities that this country has provided me and my family are tremendous. Had I opted to remain in the States 15 years ago, I cringe to think of where I might be now. Probably upside down in a house and unhappy in an unsatisfying job. Who knows? To each his own. Kinda like investing, to each his own! If the propaganda, or a bad experience on a tour are enough to keep you from sending your money our way, that's the beauty. It's your money to do with as you please. FYI - The police strike in Salvador ended several days ago. Carnaval will proceed as planned...
Can Bank Of England Turn U.K. Equities Into Leaders Again? [View article]
You've been a busy man over the past few days, Mr. Gayed.
I was recently in England visiting a friend, and all the talk there is of the latest isolation of Cameron in Europe. Problem is, regardless of what the British do, none of this fixes the underlying problems with the Euro and the sovereign debt problems. I'm no expert but don't see why England should just sign away more of their sovereignty to save a currency that they do not want. Cameron wants to protect The City and why not? The British financial industry is no angel but it employs a million people and generates £60 billion in tax revenue annually. The French and the Germans would LOVE to have a financial sector like that and want the same in their capitals. Europe wants to hamstring the financial sector with more tax and mad regulation. I think better regulation may be needed, but if you tax and regulate too much it will just up sticks and go - and it will not stay in Europe, I think it'll go east (where they are really good at Math!!).
Would the White House/FED consider the like? Would the provincial US government be happy to let a bunch of non-Americans (who haven't managed their economies or social policies very well or have tried twice in the last century to enslave your country or collaborate with those who would do so) make legislation and frame policies in the US?
I realize I am wandering off track here, and my rantings have little or nothing to do with your thread, but I would be interested in your opinion.
Petrobras's Tantalizing Growth Comes With Baggage [View article]
Buy the dips and accumulate, settle in for the long run, whatever you want to call it.
Petro, admittedly a disappointment as of late, WILL bring "alegria" to shareholders in the not so distant future...
Abraços from Brasil
Beware The Bubble In Brazil [View article]
"Brasil - o país do futuro" (the country of the future). Jorge Amado, a brazilian author, made this reference as far back as the 1930's. It is (almost) a joke down here. Like, will the future ever get here? One thing I think you need to bear in mind is that we are still about 50 years behind the US in terms of our "industrial revolution". Ours came in the 1950's, so we are still playing a bit of catch-up. Draconian taxes, widespread corruption, lame education, overpopulated and crime-ridden mega-cities like São Paulo and Rio, politicians on the take, etc. All this and more have held Brasil back from being the superpower that by all rights they should be. However, when was the last time Brazil was involved in a military conflict? Natural disasters? Mudslides are about it. We are about 500% self-sufficient in terms of agriculture and have 50% of the world's fresh water.
Not sure if the "future" will EVER arrive here in Brazil, but as a transplanted american, with over 15 years invested (AND investing) in this marvelous country, I shudder to think of what might have been for me, personally, had I remained in the US.
My passport still has the eagle on the cover, and I love to travel to the states and leave some coin in the local coffers, but when the wheels touch down in Guarulhos, São Paulo, I love the chaos to which I am returning...
Abraços from Brasil
Beware The Bubble In Brazil [View article]
India is about where Brazil was 40-50 years ago. Bear in mind that 50% of the women (300 million) are also illiterate. Those are third world, "developing nation" numbers that you just don't see down here.
We have our problems and concerns here in Brazil, but if you have ever been to or traveled in both countries, you know that we are light-years ahead of our Indian brethren...
Abraços from Brasil
Beware The Bubble In Brazil [View article]
In addition, what in the world does Greece produce? Nada, zilch, zero. Heck, even Zorba the Greek was imported! All they have to offer is a handful of shipping magnates and some gorgeous tourism. But that will never support the aging population and lack of resources.
Brazil on the other hand has a much larger (and younger) population, more natural resources and agricultural production than almost any other country in the world, and 50% of the worlds potable water supply. Not to mention 300+ days of sunshine.
Finally, a ton of the development leading up to 2014 World Cup and 2016 Olympics is being funded by the private sector. Yeah, the govt. is shelling out big bucks as well, but foreign investors flock to Brazil to buy the BBB+ rated govt. bonds at hugely attractive interest rates. Detail, the rates the govt. offers foreign investors is lower than the rates at which they loan money, so its a win-win situation.
To top it all off, Brazil is no longer a debtor nation, and holds well over US$350B (that's B as in BILLION) in reserves.
And just to add the icing on the cake, Brazil comes in at a respectable 75th in the world in terms of corruption, better than countries like Italy, China etc. So that "government corruption" dog don't hunt as much as it used to.
So Bret, while we have our problems, concerns, etc. down here, no doubt, I personally wouldn't be betting against Brazil...
Abraços from Brasil
Beware The Bubble In Brazil [View article]
I don't know, Bret. While I agree with some of your points, I think you missed the boat on most. Unemployment, I can assure you, is NOT a problem here. Nearly ANYONE who wants a job can get one. And while they might not pay the types of salaries that a person can earn in "developed" countries, you can get by. The widely reported growth of our local middle class attests to that. Consumption is growing in leaps and bounds, and anyone not in that sector is missing out on the dance.
In addition, if you were a portfolio manager here, looking to put together a well balanced blend, you would need to have some exposure to the banking sector, no? Where would you suggest, if not ItaúUnibanco or Bradesco? Banco do Brasil? Govt. puppet? Santander? NOT! I personally recommend the two former banks, although I like BB as well. Stay away from any second or third tier local banks.
Petrobras is a tough call, I'll give you that. Most, if not all portfolios here have some position in Petro, mostly to insure liquidity. But there is no denying that as a long-term (5-10 years out) play, Petro has one of the highest potentials in the world energy sector. They have suffered mightily in the past 24 months due to changes in upper-level management and the capitalization project last year. Foreign investors fled in droves. But I would expect them to flock back as soon as the pre-sal exploration starts to pump out the barrels. It's a case of "temos que ver, para crer" (we need to see to believe). Graça Foster, the newly appointed president of Petro claimed in an interview published this weekend in Folha de São Paulo, that shareholders should not expect much beyond flat results prior to 2014. Buy the dips and accumulate, that's what I'm telling my clients...
You also mention the Latin Americans buying up property in Miami, which was one of only three somewhat positive results on the S&P/Case-Shiller housing report released yesterday. I think I can offer up some insight into that as well. Miami is only up thanks to foreign buyers. These aren't locals buying property in SoFla.
Tons of people here in Brasil have bought in Miami over the past year or two. To give you an idea, a small house on a nice beach on the north coast of São Paulo will run you AT LEAST US$1M. For that coin, I can buy a 2000+ sq. ft. condo in Miami, with a 28' boat in the marina, a BMW in the garage and round trip business class airfares for the rest of my life. No joke... It's about an 8 hour direct flight from SP to Miami. On busy holiday weekends, it can take you 5+ hours to DRIVE the 200 or so kilometers to your beach house here. Plus then you get to deal with water shortages, grocery stores with empty shelves, 2 hour waits in restaurants, packed beaches, etc. BTW, Brazilians now spend more than ANY other nation per capita in the US.
Learn Portuguese if you do business in SoFla.
Abraços from Brasil
Beware The Bubble In Brazil [View article]
Petrobras Now Represents A Solid Value Investment [View article]
Now let me fill you in on a little something that maybe only a local would realize.... Brent crude can go all the way to US$150.00/barrel, and we will still pay exactly the same price at the pump here in Brazil. I track retail gasoline prices religiously, and even during the crisis of 2008-9, when crude prices were in the tank, I was paying around R$2,70/liter for gasoline here at the local BR gas station (Petrobras retail distribution). Just filled my tank yesterday, and guess what I paid? R$2,69/liter. Pure manipulation. Now was I paying too much in 2008, or I am paying too little now? It matters not, the govt. mandates at what price the distributors can sell their gasoline. In addition, the author doesn't even touch on the fact that the vast majority of our automobiles are flex-fueled down here; they run on either ethanol, gasoline, or any combination of the two. That should increase competition between the two products, and to a certain extent, does. But it doesn't effect the price of gasoline at the pump. Why? Because last year we suffered 7+% inflation, well above the govts. 4.5% target. However, had the price of gas fluctuated accordingly, our inflation would have probably been quite a bit higher, perhaps even double-digit. That's a no-no for Brasilia...
The new president of Petrobras, Graça Foster, granted an extensive interview to one of the local São Paulo rags this weekend, and she stated that:
1. The price of gasoline "has room" to move. Does that mean it will? Remains to be seen.
2. Shareholders should not expect much "alegria" (joy) prior to around 2014. Until then, expect flat results and performance. This from the president of the company. For a longer term investor, I would recommend, after hearing that, to buy any dips and hold on for the long run.
The "pre-sal" question is still unsolved. Will Petro really be able to harvest? Will they go it alone? Sell off vast reserves and let someone else reap? All important, and as of right now, unsolved mysteries.
When you buy Petro, you have to be ready to accept a certain amount of string-pulling from the govt. In my opinion, this puppet master policy equates to about a 10-20% discount on competition. In other words, if XOM is trading at 10x forward earnings, I would say Petro is fairly priced at 8x forward earnings. More than that I would say you are overpaying, simply because of potential meddling in Brasilia.
Finally, while we are talking PURE SPECULATION, I like OGX Petroleo. This is a publically traded company, sans govt. intervention, majority owned by Eike Batista, a controversial Brazilian entrepreneur. They are ramped up to start decent production this year. Zero profits as of right now, but as long as we are taking on risk, I like this play, ALOT. And I have a feeling that foreign investors, when looking to make a play on the vast reserves Brazil controls, will look to OGX and Eike. Simply because they don't have to worry about politicians dictating direction...
Happy investing, and abraços from Brasil...
Preferreds More Preferred Than Treasuries [View article]
Abraços from Brasil
Why I Chose BHP Billiton Over Vale [View article]
Thanks for the comments, and I look forward to further dialogue in the future.
Abraços from Brasil
Why I Chose BHP Billiton Over Vale [View article]
It's tough for clients here to invest in US companies. The brokerage I work with doesn't offer "offshore" accounts. That said, there are about 30 large-cap US companies offered on our local exchange in the form of BDR's, Brazilian Depository Receipts. Coca-Cola, McDonalds, IBM, Apple, Google, etc. However, these asset classes are only open to "qualified investors" (those with more than R$300.000,00) and only through a handful of local banks and brokerages. In addition, the liquidity of these shares is very low. Local investors prefer to stick with what they know; local companies. Finally, any shares purchased abroad, with US$ would be subject to currency fluctuations, taxes imposed on bank transfers, and income taxes, making it a "rich man's game".
Abraços from Brasil
Why I Chose BHP Billiton Over Vale [View article]
I can safely say that currency fluctuations certainly affect price. Let's use VALE as an example. Every ADR share of VALE on the NYSE is in fact ONE ordinary share of the locally BOVESPA traded share, VALE3 (we also have VALE5, which are preferential shares, no voting rights; for some reason most that operate on the NYSE like the ON, or ordinary shares, with voting rights, but here in Brasil, investors typically opt for the PN, preferential shares. Much better liquidity). Anyway, let's use nice round even numbers for the sake of argument.
If one VALE3 share is trading for R$50,00 here in Brazil, and the exchange rate is R$2,00 per US$1.00, then a share on the NYSE should cost US$25.00, correct? Now let's say the share does not move a penny, either here or in the states, but our currency devaluates 1% in a day. 1% fluctuations in currency are quite common here in Brasil, either up or down, typically depending on how the local central bank is buying or selling US$. So let's assume that now it costs me R$2.02 to buy US$1.00. You SHOULD now be able to buy a share of VALE on the NYSE for US$24.75, right?
This is where arbitrage comes into play, not only between the ON and PN shares, but between the US$ and the BR$. Lots of investors like to play the currency game via foreign shares, using what they feel are over, or undervalued currencies.
Any investor thinking of getting into ADR's better perform his or her due diligence not only on the asset, but on the currency.
Hope this helps.
Abraços from Brasil
Investing In Small Cap Emerging Market Growth [View article]
In fact, when you combine the weight of PETR3, PETR4, VALE3 and VALE5, the four available shares on our local IBOVESPA here in São Paulo, the weight comes out to right around 22%, heavy no doubt, but significantly lower than your claim of 30%. In addition, you state that 2 of the other top five are AmBev (AMBV4) and Bradesco (BBDC4), when in fact they are not in the top five weighted shares. Number three, behind Vale and Petro, is in fact OGX Petroleo (OGXP3) with a 5,632% weighting. Number four is ItauUnibanco (ITUB4, I assume you aren't simply including the holding Itausa, ITSA4, it is a completely different asset) with a 4,350 weighting, and number five is in fact BMF/Bovespa (BVMF3) with a 3,347% weight. Add up the TOP FIVE and you are just above 30%. Almost 40% less than the 48% you cite in your post. In addition, AmBev doesn't even make the top ten. Banco do Brasil (BBAS3), which considering the "government slant" of your article, should have been included, has a 3,190% weight.
In principle, I understand your point. But when you throw out numbers, especially when trying to stress a certain claim, you better have them right...
Feel free to confirm all numbers I am citing here on the following Bovespa web-site: http://bit.ly/AgGkQ6
In the future, don't do us readers the disservice of not checking your facts, please.
Abraços from Brasil
Gol Linhas: A Great Way To Play Brazil [View article]
You have to be careful with these airline stocks down here, they are quite volatile and at the mercy of fuel prices. Another point worth noting, that the author might have missed, is that as of August 12, 2012, the reciprocal mileage program between AA and GOL will end.
All in all, an interesting and well informed post. I look forward to your further opinions re. the Brazilian market.
Abraços from Brasil
A Buy Signal For Petrobras? [View article]
First and foremost I would like to apologize if I offended any of the participants on this thread. That was not my intent, nor do I ever intend to "detract from the sense of decorum" here or elsewhere. I merely enjoy the banter and exchange, and when I read something that is contrary to my personal belief, I feel obliged to voice my opinion. If at times I come off too strongly, again, my apolgies.
Secondy, I have been (and am) an active investor and in fact investment advisor (with over 400 faithful clients). Unfortunately, I am NOT a young man, and have over 33 years of experience in equites trading, including over 15 years here in Brasil. This experience, in my humble opinion, qualifies me to comment on the state of affairs here. I would never even attempt to opine about markets elsewhere, as I have done zero due diligence, nor do I religiously follow other overseas markets, as I do our local Brazilian market.
That said, it irks me to no end when people who have little or no experience living, eating and breathing this unique culture (a two week trip to the Amazon, Foz do Iguaçu, Rio or Salvador hardly provides a complete picture of this complex society) feel qualified to comment on a plethora of social, economic, polital or otherwise subjects. One or two business contracts, perhaps gone awry because of insufficient knowledge about "how to do business in Brasil" (we call it the "jeitinho" down here), or a lack of a local "fixer" working with and for you, are not indicative of 99% of business that takes place here every day without a hitch. They are isolated incidents, and definitely not the "norm", this I can assure you.
Yes, bribes take place. Yes, there is corruption. Yes, politicians and power-mongers at times will require payoffs to grease the wheels. Show me a country where this doesn't happen. In it's annual report on corruption, Transparancy International rates over 180 countries on a scale of 1-10, 10 being the best. Brasil typically comes in around nº 70, or somewhere in the top 1/3. Better than Italy, China and other countries where intl. investors wouldn't hesitate to send their money or their business. Not perfect, I'll give you that, but far from the cesspool that so many media outlets would lead you to believe.
I am in the trenches my friends. I see and LIVE Brasil every day, and will continue to do so for the foreseeable future. My career just happens to be as an investment advisor. I love it here, and couldn't imagine living elsewhere, and yes, will defend the way of life we have in this beautiful country. Again, it is not a panacea, but where is?
I am long Brasil. The opportunities that this country has provided me and my family are tremendous. Had I opted to remain in the States 15 years ago, I cringe to think of where I might be now. Probably upside down in a house and unhappy in an unsatisfying job. Who knows? To each his own.
Kinda like investing, to each his own! If the propaganda, or a bad experience on a tour are enough to keep you from sending your money our way, that's the beauty. It's your money to do with as you please.
FYI - The police strike in Salvador ended several days ago. Carnaval will proceed as planned...
Abraços from Brasil!
Can Bank Of England Turn U.K. Equities Into Leaders Again? [View article]
I was recently in England visiting a friend, and all the talk there is of the latest isolation of Cameron in Europe. Problem is, regardless of what the British do, none of this fixes the underlying problems with the Euro and the sovereign debt problems. I'm no expert but don't see why England should just sign away more of their sovereignty to save a currency that they do not want. Cameron wants to protect The City and why not? The British financial industry is no angel but it employs a million people and generates £60 billion in tax revenue annually. The French and the Germans would LOVE to have a financial sector like that and want the same in their capitals. Europe wants to hamstring the financial sector with more tax and mad regulation. I think better regulation may be needed, but if you tax and regulate too much it will just up sticks and go - and it will not stay in Europe, I think it'll go east (where they are really good at Math!!).
Would the White House/FED consider the like? Would the provincial US government be happy to let a bunch of non-Americans (who haven't managed their economies or social policies very well or have tried twice in the last century to enslave your country or collaborate with those who would do so) make legislation and frame policies in the US?
I realize I am wandering off track here, and my rantings have little or nothing to do with your thread, but I would be interested in your opinion.
Abraços from Brasil