This is another in the series of pre-Fed postings, while we wait for some discussionable (is that a word?) news.
Last night, while cleaning up, I was flipping around the channels and I came across Jim Cramer and his Mad Money show. He was pounding the table, in a less-than-usual animated fashion, on Brazil, and specifically Banco Bradesco (BBD). He rattled off a whole host of reasons why you should buy Brazil, all of them valid. He stressed buying the ADRs, rather than the local (ordinary) shares, also sound advice, for the most part. He even admonished himself for a Brazilian pick earlier in the year, Bradesco vs. Itau.
What Cramer neglected is the history of investing in Brazil. Investors with little experience in Brazil and elsewhere in emerging markets don't realize how fast money can exit these markets. To be fair, I don't know what Mr. Cramer's experience is relative to Brazil. I do, however, know mine. I know that a good chunk of the gain is currency-related (Yes, ADRs have currency risk. You are buying a dollar-denominated proxy for the local shares. Even if the underlying shares don't move in price, the ADR value will fluctuate with change in value of the US dollar relative to the local currency) The BRL is up a ton this year vs. the USD; that probably won't happen again, at least to the same degree. It wasn't that long ago that the BRL was devalued in order to bail out the economy. This, among other things, helped push Argentina over the edge into bankruptcy, as they are large trading partners. Finally, Brazil is one of the most opaque markets in the world. The rules of normal business practice and laws to protect investors are nowhere near the level of transparency that you would find in a developed market. Locals control much of the business and information flow in Brazil, and that isn't going to change anytime soon. The bottom line here is also the title line: Caveat Emptor.
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7 comments:
Gee do Yankee pfds and USD-denominated sovereign bonds have tehsame risk? ;)
Herr Hilter:
I am precluded by written agreement from making an adequate response to your post
You can. No names need to be mentioned, no matter how clueless the parties may be.
I won't do it. I'm all about looking forward and not burning bridges these days. A couple of months out from under will do that to you.
All I can say about Brazil is: Be-bop-a-Lula, he's my maybe. Ah, they are all nuts in Brazil.
Relax. I am not asking you to burn anything. I am just having fun. If I wanted you to get in trouble I would ask you to comment on the structural relationship between the brokers and the products areas and the lack of leadership to proctect the franchise. :o
I definately won't comment on that, but in the interest of furthering First Amendment rights, I will publish it. As far as Brazil nuts go, they are not all that way, just the ones in the business. It can't be all bad; Brazil is the world's leading producer of supermodels
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