Last year people we're still laughing when i predicted doom clouds over the US (and Europe).
Today things are different. Look at this video capturing the US assistant treasury secretary of economic policy, Philip Swagel doing his monthly economical briefing.
And there you are, China, with your piles of dollar reserves looking at this man...
No, the man doesn't have speech problems. He is stuttering because he is lying, he is stuttering bacause he is scared. True, Bernanke doesn't stutter, he is simply delusional.
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Jul 11 2008
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Jul 10 2008
Mea culpa, it has been too quiet here.
Too compensate I start pointing to the 6 page special on Brazil in the Financial Times of last Tuesday. Start reading the piece of John Rumsey on the interest rates and Jonathan Wheatley who writes on the infrastructure challenge.
Also interesting is this interview with Central Bank President Meirelles. I'm not his biggest friend (although he did a great job the last years), new names like Delfim Netto and Afonso Pastore should now give lectures to Mantega and Meirelles. These are times where brains and vision make all the difference.
But then again, I also believe Ben Bernanke, mervyn King and Jean-Claude Trichet ought to be replaced, because they refuse to see the deflationary hurricanes which will hit the US and the UK. It's truly amazing to see that most are still screaming inflation, stagflation or even hyperinflation simply because food and energy prices are rising. Deflation is here and now nin Europe and the US and there is nothing that can be done about it (Africa, Asia and Latin America are different stories). None of the financial engineering jobs that fueled the credit boom of the last decades will ever come back. SIVs, conduits, toggle bonds.... are all dead for years and decades to come.
There is no source for jobs to replace what has been lost, discretionary spending is dead. The impact of that still has to drip into the economy, once it does its here to stay. The mentality shift in the next generation towards credit will be massive. Our children will never forgive our parents. -
Jun 22 2008
Rumours are that SAA is in takeover talks with three of its competitors (bmi, Emirates or Lufthansa) for it international traffic. I'm crossing thumbs for Emirates who has already routes to Sao Paulo. They would be able to connect the triangle Brazil - South Africa - Europe.
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Jun 14 2008
I don't need to write on the dramatic problems South African's Eskom has providing the country with electricity, that tune has been song countless times before. The country's electricity supply is depending for 90% on... coal. And the dramatic side of the story is that Eskom announced last week that it's coal supply only in it's power stations only accounts for 20 days now (it's winter in South Africa and these months are the peak usage months). Not a susprise that the word is out the load shedding will soon resume.
I noticed myself for the first time a dramatic situation was upcoming when I flew into South Africa in July 2007, the news on Eskom's supply problems was already out in some sources. But many waved my worries away, "Eskom had plans" and would soon control everything again. I couldn't see any concrete signs of new production plans or a vision on energy sourcing. The last year many wild speculations have been out. Some said this was the chance for South Africa to build a 'new green energy supply system'. The reality was and is clear: a massive shift to nuclear backed by some alternative energy sourcing is the only way out of this nightmare.
The government finally has take a decission: it will start a massive nuclear roll-out plan, with in between 24-30 HTR generation4 nuclear reactors. You read that right: 24 to 30 ! Brazil has 2 reactors and after a year of struggling started to build a third and Belgium, not a rooky when it comes to nuclear energy has 7 reactors.
So, South Africa is placing all its bets on sourcing its energy from Generation4 nuclear reactors. A first test reactor would be build in 2010 in Koeberg, 35 miles west from Cape Town and the first commercial plant would be 'commissioned in 2014'.
Now, you must know that these type 4 reactors are still in an experimental phase and every expert in the field will tell you that a commercial model before 2020 is highly unlikeable to become real.
Conclusion: Eskom's way out of the current problems is ... a set of theoretical nuclear reactor designs currently being researched?
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May 24 2008
Last week, Robin bounced me this article excellent article in Venturebeat on Brazil's private equity potential. I fully second the article, Brazil has extremely strong fundaments to grow in the PE space (just look at the tiny fraction of PE/GDP today, which is comparable to the small fraction real estate financing/GDP); plenty of room tro grow.
Many people make the remark that the favorable global conditions of Brazil (higher commodity prices) might come to an end. Morgan Stanlye's Marcelo Carvalho recently voiced in his various notes that Brazil, although better shielded than before, is far from immune from global financial headwinds. I agree with him, Brazil is not for beginners. Now that we are heading for the real economical effects of this financial crisis, things may indeed turn for the worse. However, remember the fundamentes, the global economu is now in a positioin where it needs Brazil with an external deficit much more than it needs a Brazil with a pegging exchange rate amassing and investing reserves.
And the fundaments of Brazil are extremely strong, the mobile services market in Brazil is growing faster than the growth of mobile services in China. And in his post of today, Pablo Bertorello points out that online shopping in Latin America is bigger, at US$ 4 billion, and growing faster than China's. Let's indeed not forget the figures: the good old US represented 20% of global production in 2000, today this dropped to 14,3%.
When I focused in 2003 on Brazil, I didn't see it as an ugly duckling like most did at that time. Which doesn't mean I dismiss the voices of caution; yet I remain positive on behalf of Brazil. Brazil has a huge challenge to submit to the rules of the global economy where money goes for top line yield; but that's the way it has to be and I think Brazil might be better prepared for it than most think.
Which brings me to tyhe top conclusion on Brazil: local talent and entrepeneurship will make or break the country; the country needs no less to make its momentum . -
May 13 2008
I wondered who followed my 2008 predictions and bought on the Bovespa and especially went into Rio Vale Doce and Petrobras. Ratings agency Standard & Poor's upgraded Brazil to investment grade two weeks ago, and Bovespa shares promptly surged thanks to the earlier-than-expected bump. The iShares MSCI Brazil Index, an exchange-traded fund that tracks Brazil's Bovespa index, rallied 8 percent on the day of the announcement and continues to climb this week. Petrobras profit for the last trimester was up 68% totaling a profit of already 6,9 billion R$ for this year.
Slowly and without great fanfare (the Belgian news rarely mentions Brazil at all), Brazil's economy has turned a big corner. Already a global power in agriculture and natural resources, Brazil has added a key ingredient that had long eluded it: a currency with staying power. In turn, that's helping unleash the greatest burst of prosperity the country has witnessed in three decades.
Gross domestic product grew 5.7 percent last year, up from 3.7 percent in 2006, and public debt as a percentage of GDP has been shrinking for five years. Brazilian stocks jumped 70 percent in the past year, while other hot emerging markets like China and India watched equities slump mightily. The Bovespa index is now at 70.000 and I see it further rising to 74.000 end of this year.
Risks remain however. The S&P upgrade will mean the real will even go higher. I'll sum up my expectation for the economies indicators in a next article, but as to the exchange rate, I expect the Real to end at 1,72 by end of 2008 and 1,8 by the end of 2009. Make your own bets how the dollar will behave against the Euro by the end of 2009...
The big question is however how Brazil could derail at the end of the commodity boom and a return to health for the US economy.
First, I don't believe the US is close to a recovery. The US (and many other parts in the world) are in for a huge real estate deflation, like the article in the Economsit states: the housing price-bust has a long way to go.
Secondly, some people claim commodity prices will come down sharply when the US economy starts to recover. This is utopic, commodities will not get back to their pre-2004 levels. At most the growth rythm will be lower or flattened. True, this could impact somewhat the speculations on Brazilian shares, it would however not impact the Brazilian economy. People tend to overestimate the importance of export for Brazil. Brazil is not Belgium, only 15% of the Brazilian GDP is composed of export. Also, analysis of past S&P upgrades shows that shares often fall following an investment-grade bump. Other nations like Mexico and Russia saw declines in the months following their upgrades. Still, Brazil's boost came earlier than expected, and that could help minimize some of the post-party hangover.
What worries me personally most is the exchange rate. FX is a beast, the Yuan is still seriously overvaluated and already since early 2006 I have the fear the Real is a bit overevaluated. My guts proved wrong. The Brazilian central bank has managed for more than 2 years to keep its currency neatly stable. Usually by intervening and buying up dollars (Brazil has now huge dollar reserves and even becaming a net creditor on it's balance sheets, this in sharp contrast to eg. South Africa).
And to keep the growth afloat the senate now has voted a plan to massively stimulate exports through subsidies in various sectors. More than 20 billion dollar will go into these subsidies. I agree with Miriam Leitao however (I'm her biggest fan) that this sector-oriented approach entails some dangers and that a general policy would be more beneficial to the country. -
May 13 2008
Remember my post on Voce Escolhe, the new Brazilian carrier of David Neeleman? The name of the new company has been decided: Azul.
Meanwhile Ocean Air is scrapping the routes of it's 6 Fokkers and putting 600 of its 1700 employees at the door, until they receive their 28 new Airbus planes in 2009. -
May 13 2008
The BRIC countries will use more energy than the developed countries by 2030. Belgium tries to prepare for the future with ridiculous projects like the biodiesel plant in Gent. Everyone knows by know that biodiesel from poppyseed oil is energy negative. Why else would biodiesel in Europe and the US be more expensive than petrol? The US is subsidizing biodiesel production with billions of dollars. Flexengines became a success in Brazil because 'alcool' at the pump is cheaper than 'gasolina'; as simpel as that. No way Europe or the US will be able to compete with the ethanol of Brazil.
Brazil already discovered the force -and challenges- of hydro (nearly all its electricity is coming from hydro), but the true unlocked potential in South Africa and Brazil is solar ! -
May 13 2008
Vincent was right 6 months ago: keep hands of Argentina. In one year from now, when everything is scattered, you can do some cherry picking in the debris.
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May 10 2008
CNBC also did a long coverage on the "potential biggest growth opportunity in the world" and also the Guardian has a long coverage on Brazil in it's edition of today.
Personally I wonder what the interest rates will do. Inflation is currently at 4,7% probably up to 5,1% by the end of this year. The SELIC intrest rate was left unchanged at 11,50% for a long time and was increased to 11,75% last April. A lot of criticism came on this decission of the Central Bank of Brazil. Just like the ECB, they want to keep inflation controlled at all cost. Guido Manteiga, the minister of economy of Brazil would rather see more investments and production capacity as a solution to control inflation. Personally I like the balance between both forces; but eventually interests rates will get down by 2010.
And this is where the potential of Brazil resides: it's enormous output gap. The output gap of Belgium is minimal. Actually I believe it's negative and I'm still stunned seeing no politicians standing up with the question "how should we deal with a longterm future of a negative output gap". The question for Brazil is how fast it can gear up on infrastructure, education and optimising the context for SME to be able to truly unleash this ouput gap that has been building up for the last 26 years?
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