Archive for October 12th, 2012
Brazil: Infrastructure Push Creating Business Opportunities (Thomas White)
Friday, October 12th, 2012
Brazil: Infrastructure push creating business opportunities
Only 14% of Brazil’s roads are paved. Journalists write stingingly of how motorways in the country are more suited to horse carts than vehicles.
Those doing business in Brazil will be familiar with the “Brazil Cost.” It’s a disparaging pointer to the extra expenses investors inevitably incur in the country due to its befuddling bureaucracy, high taxes, and most of all, creaking infrastructure.
Indeed, only 14% of Brazil’s roads are paved. Journalists write stingingly of how motorways in the country are more suited to horse carts than vehicles. When exhausted truck drivers arrive at Santos, Brazil’s biggest port, they are prepared to wait 3-4 days to unload their cargo. The Economist says this August, the port cleared a massive pile of debris — it was the wreckage of a chemicals-carrying ship that exploded in the 1970s!
No wonder a World Economic Forum survey on the quality of infrastructure in 142 countries has ranked Brazil a lowly 104. Its rail and road networks are so poor that many large Brazilian firms operate their own private facilities. In fact, it is believed that infrastructure bottlenecks shave off 10%-15% of the nation’s GDP every year.
But change is around the bend. Now, Brazil is intensifying preparations to host the 2014 Soccer World Cup and 2016 Summer Olympics.
The Dilma Rousseff administration recently announced that more than $60 billion would be poured into rebuilding the country’s roads and railways over the next 25 years. And, nearly half of this money is set to be invested by 2017. The government plans to construct 10,000 kilometers of railroads and 8,000 kilometers of roads as well as attract foreign investments for rundown ports and airports. Undoubtedly, this program is a big boost to the flagging Brazilian economy. But more significantly for North America, several American and Canadian firms have begun to sniff opportunities this infrastructure thrust has created.
For instance, the U.S.-based design and engineering firm AECOM has capitalized on its role in the London Olympics to bag a major contract for Rio 2016. NYSE-listed Brookfield Infrastructure Partners has formed a $1.7-billion joint venture with a Spanish firm to buy a giant Brazilian highway toll operator. Global engineering firm Arup and technology solutions giant Oracle already have a foothold in the country.
While Arup has been engaged in highway and metro rail work, Oracle has been selling its Primavera project management software to infrastructure-based ventures. Moving forward, both are eyeing new opportunities. As well, Canadian builder of portable shelters, Weatherhaven, has expanded into Brazil to take advantage of the demand for its products at construction sites.
Not just businesses, economists have also hailed the infrastructure stimulus, having always advised Brazil to improve its roads and unclog its ports in order to remove the structural hurdles on its growth path. What’s more, as a Reuters report says, economists are happy that compared to the government’s recent endeavors to boost consumer spending as a solution for stalling growth, “infrastructure projects will do far more long-term good.”
Brazil’s government is leaving no stone unturned to clear the way for such projects. A state-run company is being set up to manage infrastructure planning in the future, while the country’s government-controlled development bank, BNDES, has been instructed to provide subsidized loans for infrastructure ventures. President Rousseff has declared these measures will give Brazil “infrastructure compatible with its size.” In fact, the government is expecting the stimulus to jump-start the emerging economy, which has lost some shine lately amid falling global demand for its mineral exports.
Media reports quote top government officials as saying that since most of the investments have been planned over a five-year period, the impact of the stimulus will be felt sooner rather than later. Moreover, the government appears to have changed its approach to infrastructure building. As a Wharton University article says, in the past, the government directly awarded contracts and kept a hawk’s eye on projects, but this time “the focus is on private investment through concessions and deeper public-private partnerships.”
Certainly, the foundation has been laid to erect a spanking new infrastructure in Latin America’s largest economy. But only time will tell if the government and investors will see the “Brazil Cost” translating into profits.
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Image Credit: eugeni_dodonov’s photostream on Flickr under a Creative Commons License
Copyright © Thomas White International
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Bart Melek: The Allure of Gold and Outlook
Friday, October 12th, 2012
Gold has rallied for many reasons in recent years, including safe-haven flows, a desire for wealth preservation, concerns over currency debasement, an inflation hedge, and in response to the liquidity injected by global central banks into the financial system. Despite the sharp rise in the price of gold, why is the demand for the yellow metal so strong and what is the outlook? Bart Melek, Head of Commodity Strategy, TD Securities discusses his views and outlook for gold.
During the interview, Bart Melek addresses the following:
- Is QE3 affecting the price of Gold?
- What is driving demand?
- What factors are affecting the supply side of the equation?
- What is your price target for gold?
- Gold bullion, ETFs, Stocks; which do you like?
Click here, or on the image to view:
Monetary Mystification (Stiglitz)
Friday, October 12th, 2012
by Joseph Stiglitz, via Project Syndicate
October 2012
NEW YORK – Central banks on both sides of the Atlantic took extraordinary monetary-policy measures in September: the long awaited “QE3” (the third dose of quantitative easing by the United States Federal Reserve), and the European Central Bank’s announcement that it will purchase unlimited volumes of troubled eurozone members’ government bonds. Markets responded euphorically, with stock prices in the US, for example, reaching post-recession highs. Others, especially on the political right, worried that the latest monetary measures would fuel future inflation and encourage unbridled government spending.
In fact, both the critics’ fears and the optimists’ euphoria are unwarranted. With so much underutilized productive capacity today, and with immediate economic prospects so dismal, the risk of serious inflation is minimal. Nonetheless, the Fed and ECB actions sent three messages that should have given the markets pause. First, they were saying that previous actions have not worked; indeed, the major central banks deserve much of the blame for the crisis. But their ability to undo their mistakes is limited. Second, the Fed’s announcement that it will keep interest rates at extraordinarily low levels through mid-2015 implied that it does not expect recovery anytime soon. That should be a warning for Europe, whose economy is now far weaker than America’s.
Finally, the Fed and the ECB were saying that markets will not quickly restore full employment on their own. A stimulus is needed. That should serve as a rejoinder to those in Europe and America who are calling for just the opposite – further austerity. But the stimulus that is needed – on both sides of the Atlantic – is a fiscal stimulus. Monetary policy has proven ineffective, and more of it is unlikely to return the economy to sustainable growth.
Copyright © Project Syndicate
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An Embarrasing Piece of Video
Friday, October 12th, 2012
This is an amazing piece of video:
CNBC on-air editor Rick Santelli flies into a rage when asked to defend his cooked books conspiracy.
(h/t: Barry Ritholtz, The Big Picture)
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Be Careful Uncle
Friday, October 12th, 2012
by Steve Visscher, Mawer Investment Management
My uncle is a great guy. He had a successful career and is now enjoying his retirement. At a recent family function he shared his investment strategy with me. Before I could respond, we were interrupted by a rendition of happy birthday and then pulled aside to mingle with other relatives. We never concluded our conversation. But since his strategy is common among do-it-yourself investors, I’ve decided to post my comments publicly. Sorry uncle. Your strategy might have more flaws than you think.
So what is my uncle’s strategy? It’s very simple – only invest in companies that you know. No more getting burned with a bad stock tip. No more investing in complicated companies that are hard to understand. No more overpriced mutual funds. Just invest in companies you know well.
This had me concerned. I fully agreed with the notion of understanding the companies that you invest in, but reducing investing to such a simple rule ignores other important factors. Can I acquire this business at an attractive valuation? How effective is the management team? How strong is the balance sheet? Even if his philosophy did address these matters, I had even greater concerns about the practicality of his approach. How could my uncle actually execute this strategy, amidst his various retirement pursuits?
So I asked what type of companies he owned now. He started by naming the who’s who of Canada’s energy sector – not surprising given my uncle’s long career in this industry. I would imagine that if his background was in technology that he would have named several technology companies. If he had worked in engineering or construction, firms in those sectors would have made the grade. He then continued with examples like CIBC, Telus, Tim Hortons, McDonalds, and Apple. Did my uncle perform extensive research to “know” these companies, or is it more likely that he was a long-time, satisfied customer of these businesses? Given his busy schedule with grandkids and cruises, my hunch was that his time researching these companies was minimal.
My uncle isn’t alone. I’ve seen other investors who have followed the philosophy of “investing in what you know” and they inevitably build similar portfolios – typically concentrated in their industry of employment, along with some of the more recognizable companies that they regularly use or interact with.
But is that knowledge or familiarity enough to invest in these businesses? At Mawer, we research a company extensively before we invest in it. We try to meet with the CEO or management team to gain more understanding of their vision and philosophy for running the business. We fly all over the world visiting companies – not just in the boardroom, but often the factory floor. We gain insight from speaking with customers, suppliers, and competitors. It would be impossible for my uncle, or any single individual, to gain this level of understanding on hundreds of businesses of all shapes and sizes located all over the world. That’s the advantage of having a larger team doing this work day after day.
I know my uncle took comfort from owning a portfolio of companies that he “knows” well. But I believe this approach is flawed. It not only lacks discipline around valuation and potential balance sheet risks, but it’s simply not practical for any single individual to execute alone. That limits the number of companies one can truly “know” and as we’ve often witnessed, it results in portfolios too heavily concentrated in companies simply due to familiarity – whether it’s the industry one works in, or the companies one interacts with. Hiring a larger team broadens the universe of opportunities and unlocks many attractive investments that one otherwise might never hear of. Be careful uncle. You don’t need to do this alone.
Steven Visscher
Copyright © Mawer Investment Management
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Ten Things I Know About Doctors Now, and other Weekend Reads
Friday, October 12th, 2012
Here are this week’s reading diversions for your personal enlightenment. Have a fanciful weekend!
Canada Workplace Depression: Over 1 In 5 Employees Report Current Depression
The mental health of Canada’s workforce is in need of a close look. Twenty-two per cent of Canadian employees say they currently suffer from depression, according to an Ipsos Reid survey. Another 16 per cent, meanwhile, say they have experienced depression in the past.
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20 Things to Start Doing in Your Relationships
Family isn’t always blood. They’re the people in your life who appreciate having you in theirs – the ones who encourage you to improve in healthy and exciting ways, and who not only embrace who you are now, but also embrace and embody who you want to be. These people – your real family – are the ones who truly matter.
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Breast Cancer Prevention Foods: What Can You Eat To Reduce Your Chances?
So this Breast Cancer Awareness Month, take a moment to evaluate how well your diet is working for your future health. Need some tips on what to eat? Try these superfoods, all considered possibly preventive by nutritionists with expertise in cancer. And if you’re a breast cancer survivor already, don’t forget to check out HuffPost Healthy Living blogger Dr. Nalini Chilkov ‘s review of diet advice for survivors.
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Health Tip: Coping With Early-Onset Alzheimer’s – MedicineNet
Alzheimer’s disease, although typically associated with people 65 and older, also can affect younger people.
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20 Fascinating Facts About Natural Healing Power of Bananas
Here is a story that even a monkey would go ape about. A professor at CCNY for a physiological psych class told his class about bananas. He said the expression ‘going bananas’ is from the effects of bananas on the brain. When compared to an apple, it has four times the protein, twice the carbohydrate, three times the phosphorus, five times the vitamin A and iron, and twice the other vitamins and minerals. It is also rich in potassium and is one of the best value foods around. No wonder monkeys are so happy all the time!
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Kate Gale: The List of Things You Will Miss When Your Kids Move Out Starts With String Cheese
People talk about the “empty nest syndrome.” Seriously? They lie. When the first kid moves out, you think, “No!” When the second kid moves out, you say, “Okay.” When the third kid moves out? You get the party started. At Thanksgiving, after the last of the kids had moved out, our son asked, “What do you do now that we’ve moved out?” We looked at each other. “Well, do you want to know?” They shook their heads. They covered their ears.
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10 Things I Know About Doctors Now That I’m In My 60s
Perhaps I’ve inherited her healthy skepticism about medical practitioners. Through the years, I have encountered some wonderful doctors (like those who repaired my husband’s heart) and some not-so-wonderful ones (like those who overlooked the conditions that led to his heart attack in the first place). I’ve been misdiagnosed, had procedures and tests I believe were unnecessary, and every time I look in the medicine cabinet, I see prescriptions that proved to me that the cure is sometimes worse than the disease.
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Frank Fitzpatrick: Why Music, Part Two: Music and the Brain
Music is like a mega-vitamin for the brain. Music can increase receptivity and retention of information, aid in the cognitive development of our children, shift our perceptions and emotional states, and inspire creativity and innovative thinking.[1] Playing music, which we will cover in our next chapter, simultaneously engages more areas of the human brain than any other known activity. How do we tap into this wealth of neural activation? Let’s start with what I call “active listening.”
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Tags: Canadian, Canadian Market
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JPM Doubles Exposure to European Periphery in One Quarter
Friday, October 12th, 2012
The last time a Primary Dealer decided to go all in on the Italian “recovery”, MF Global went bankrupt. This time around the bank that apparently can’t get enough of Italy (and to a smaller extent Spain) and its glorious taxpayer funded, bailed out future is none other than JPM, which according to its earnings presentation has seen its net exposure to Europe double from $6,3 billion to $11.7 billion, following a surge in Italian trading exposure. Surely this will end very well for the bank that only 5 months ago had to reshuffle every executive in its internal $300 billion hedge fund for massive IG9 CDX losses.
Q3 Net European Exposure driven by a surge in Trading securities in Italy and Spain to a total of $14.4 billion: (source)
Q2 Net European Exposure – Italy and Spain trading exposure was just $10.2 billion: (source)
Keep in mind, the Spanish and Italian sovereign bond market is extremely illiquid and a buyer of $5 billion in bonds in these two countries could alone be responsible for a major portion of the P&L move. Which is preicsely what JPM enjoys doing: finding an illiquid product which it can monopolize (ahem IG9) and then becoming the market.
Keep a close eye on this product because when the latest European bailout fizzles, JPM will be the one way train leaving Europe and crushing all the piggy backing hedge funds in its wake.
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Key ‘Make or Break’ Point for Bonds, and Market
Friday, October 12th, 2012
by Mark Hanna, Market Montage
The last time the market sold off in late September, bonds rallied right into resistance and were turned back. That led to a modest 5-6 day rally in the indexes. As you can see from the chart below, a very similar position in the widely followed chart of the TLT ETF has presented itself. The next day or two should be telling – we have this key ETF at major resistance; a puncture over and above would be bearish for the market as a whole. A rejection would be net bullish.
Meanwhile the action in the equity markets has degraded substantially from even late September. Maybe the hero worship of the cult of Jamie Dimon tomorrow morning provides a better result than today’s action. Thus far it has been an uninspired oversold bounce with very random action and a lot of stocks outside of the “resource” names giving back much or all of their morning gains.
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