Brazil, Commodities Bull Market, Are You Missing The Boat?
Stock-Markets / Investing 2010 Sep 27, 2010 - 08:04 AM GMTBy: Larry_Edelson
If you haven’t been investing in the gold market, like I’ve been telling you to do, then not only are you missing the boat …
… but the boat you are in, whatever it may be, is most likely sinking — weighed down by the effects of all the Fed’s money printing, which will continue as far as the eye can see.
Just last week for instance …
The Federal Reserve bought a record $5.19 BILLION in U.S. Treasury bonds and Federal Agency mortgages, effectively printing more money than it did in any other week this year.
Equally important …
The Fed also announced that it will essentially stop at nothing to turn the economy around … that it stands ready to print money whenever it feels it needs to … and that it wants to spark inflation.
Haven’t I been telling you all along that this was going to happen?
That the Fed would stop at nothing to ignite inflation … print money like crazy — and that deflation had little chance of taking root in anything other than real estate or perhaps the latest tech product to come to market?
Meanwhile, GOLD is now hitting one record high after another, soaring to $1,301.60 an ounce as I pen this issue … and firmly on its way to its next pit stop at the $1,375 level!
Your average gold share is also soaring, up more than 6% since the first of this month … and more than 18% since the end of July.
And it’s not just gold that’s flying …
The price of almost every commodity on the planet is skyrocketing!
Sugar, up more than 50% in only three months. Cotton, up more than 40% since July 20.
Soybeans, up more than 20% since the beginning of June. Oats, up more than 60%. Corn, jumping more than 48% just since the beginning of July!
Palladium up 20% since early June. Copper up 26%.
The Fed’s money-printing and dollar devaluation is the chief reason we’re seeing these massive price gains in natural resources, tangible assets.
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But it’s not the only reason. There’s also huge, non-investment related, consumer and industrial demand for natural resources — emanating primarily from Asia’s still hotly growing economies, especially China.
So where are all the supplies for these commodities coming from? I’ll tell you more about that in a minute.
First, let’s look at some facts on how rapidly China is growing, even while the U.S. and European economies remain stuck in the mud …
China’s factory output soared nearly 14% in August, year-over-year.
China’s retail sales surged almost 19% in August.
Through August, China’s capital spending soared 24.8%.
Last month, China sold 1.322 million autos, fully 32% more autos than were sold in the U.S.
As China goes, so goes pretty much the rest of Asia!
So what countries will benefit most from the Fed’s weak dollar policy … soaring commodity prices … and by meeting Asia’s burgeoning appetite for natural resources?
Well, of course, there are Australia and Canada. But lest you think those are the only two major country plays in natural resources, think again!
There’s another corner of the globe that is rocking now — Latin America!
My colleague, Rudy Martin, is a leading Latin American expert. He’s got some great insights to what’s happening in this often overlooked, but rapidly growing part of the world.
You won’t want to miss the boat on this market. So I’ve invited Rudy to give occasional comments on Latin America and its emerging economies.
This week, Rudy focuses on Brazil. Check out his comments below.
Best, Larry
Thanks Larry!
Latin America is certainly benefiting from China’s growing need to import food and natural resources, especially Brazil, whose main index, the Bovespa, has nearly doubled since its March 2009 low.
Nonetheless, I’m still finding undervalued situations in Brazil, for five major reasons, in addition to its abundant natural resources …
1. Underpriced stocks: A composite of 164 Brazilian stocks I track sells at just 11.2 times next year’s earnings, or 12% less than U.S. stocks.
Meanwhile, Brazilian companies’ earnings are growing at annual rates of 28%-30% — almost double the earnings growth of Dow Industrials stocks.
2. The solid Brazilian real: The Brazilian real currency rallied by 32% in 2009, the biggest advance among the world’s 16 major currencies.
And while Brazil’s government is getting a bit concerned the real is appreciating too rapidly, with the U.S. dollar so weak, I have no doubts the real will continue to remain a strong currency with upside potential.
3. Interest rates and inflation: Brazil’s central bank benchmark interest rate is 10.75%, while inflation is running at 5%. That gives Brazil’s rates a net real interest rate of 5%, after inflation.
4. A massive emerging consumer market: The average Brazilian earns $10,500 of income annually, versus $14,000 for Argentines and Chileans.
And yet, in many ways, the Brazilian economy is much more developed and less regulated than both.
Moreover, Brazil is a young economy: 70% of its population is between the ages of 14 and 65 — meaning there’s a huge emerging consumer market there, and less of the population dependent upon either their family or the government.
Bottom line: If you’re serious about geographically diversifying your portfolio, consider, at least for starters, a nice position in Brazil. You don’t even have to leave home to do so, or open a brokerage account there.
I believe the best all-around way is to stake out a position in the iShares MSCI Brazil Index Fund (EWZ). — Rudy
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