Delfim Netto is Brazil's leading economist's, ruled the country for nearly 10 years, and is by far the most knowleadge brazilian by far. He is predicting 4% growth in 2010, and he is know to be a pessimist, as most ex-Minister are.
To understand where we are heading, here are the facts:
1. Brazilian firms have historically low debt to equity ratios because interest rates are high.
2. Massive IPOS at the peak of the market rally has made Brazilian firms and banks SUPER CAPITALIZED.
3. Due to this crisis, real interest rates have plummeted from 8% real to 3% real after tax. Now we are talking. Under-leveraged companies can leverage for the first time in Brazil.
4. Whilst European banks and companies and American banks and companies are over-leveraged, Brazilian companies are under-leveraged, by far.
5. Leverage raises return on equity many fold, and that is what will happen to Brazilian companies. Retained earnings will increase, fueling further growth, and setting a virtuous cycle we have never seen before.
6. Stock holders from now on need not fear being diluted, no more IPOS necessary for a good couple of years.
7. 2,000.000 MBA's and business graduates is what Brazil will have at its disposal in 2010, compared to 300.000 in 1994. They will change the Brazilian mindset even more. Henrique Meirelles is the first MBA to head our Central Bank, and he did wonders using common business sense.
8. Lula is the first President that has actually worked in a company, knows how to read a balance sheet, knows what is necessary to keep a company profitable to be a high wage payer.
9. Single digit interest rates means double digit corporate profit rates, high investment rates and high growth rates.
Four months in a row, and those that have been following Betting In Brazil should be happy with their stockholding results. 40% increase as we have been posting good news after good news to help you make the investment decision I hope you followed.
No need to thank us, just deposit 2% of earnings to the Brazilian Charity of your choice at our web site www.filantropia.org.
In the past two years Brazil has discovered the largest oil deposits in the country's history and the world’s most promising fields since the discoveries made in Kashagan in Kazakhstan in 2000. This has put Brazil well on its way to becoming a major producer in the future, but technological and financial hurdles will have to be overcome first.
Brazil had a perfect leading indicator of future economic activity, which was the number of passengers on the Rio-São Paulo flight, normally businessmen. I suspect the New York - Washington flight used to be a predictor in the 50's.
It is less perfect now that the economy is much more diversified. However, it is still worth looking at such indicator. I have just traveled to Rio to make a Betting On Brazil presentation on a Wednesday, and the flight was 100% full. And Wednesday is a lull day; Monday and Tuesday mornings and Thursday and Friday evenings are peak times -- not Wednesday afternoons.
I'll try to find this February passenger statistics when they come out in March. It will be a delightful surprise.
"Optimism" in Google has risen dramatically in the last few weeks.
So has the optimism of your editor's. Last night talking to 6 businessmen at a cocktail party for the new British Ambassador, Mr. Alan Charlon, all 6 declared they increased sales in February and and had an excellent January, "in spite" of the crisis. One was from a TV which closed advertising at record numbers.
Unfortunately no more details can be given, or else no one will ever talk to me at cocktail parties.
"Mark Hirschey, Professor of Business at the University of Kansas back in November. He called all the dire commentary back then "overblown." Further he confidently stated, "If you look at history as a guide here, it would suggest that sometime between now and the Fourth of July in 2009, you’d expect business to once again turn up."
Part of this growth is a carry over of 2008. GDP growth rates are actually averages, more like comparing July GDP with July of the year before. So the growth in August to December should influence 2009 growth by say 1,5%, even if GDP remains flat in 2009.
So beware of all growth numbers published in 2009. In Brazil's case, this means at least a 2% real growth in 2009, eliminating carry over effects.
Contrary to market opinion, Brazil has a low export to GDP ratio. So the world recession does not affect Brazil as it does China or India. Also contrary to market opinion, Brazil has a low net export ratio for commodities, because it is also a big importer of (now) cheap commodities, but not for long.
As inventory for food reaches bottom, which it will soon, food prices will come back very shortly.