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Brazil in the news (or in the FT)

IP — Thu, 28 Jul 2011 18:33:09 +0000

Brazil keeps making the news pages everywhere, nowhere more than in the Financial Times – sometimes the extra attention doesn’t translate into quality reporting. That’s not the case with this pondered July 26th article (an earlier version of which is shorter), and it continues in yesterday’s piece on further macro-prudential measures taken by Brazil’s Finance minister. Even before yesterday, the impact was felt in the IPO markets, as seen in this July 24th piece. That said, the strong Real makes these types of acquisitions possible.

Well written as they might be, it’s all about things one can’t predict, control or truly get to know. So perhaps the most interesting of the recent FT stories on “Brazil”, so to speak, was this Business Diary: Nizan Guanaes piece highlighting one of our true geniuses in advertising.

Brazil in the news

IP — Thu, 07 Jul 2011 21:38:18 +0000

It’s been interesting to read the coverage of Brazilian “boom or bust” stories. Some of it is well written – that’s the few we have linked to here, and even so we still have minor issues with the stories. While it’s obvious that not even local writers get everything right, in some other articles it seems like getting better sources or digging deeper would have really made those stories better or more balanced. As one of the writers below says, there are many new “experts” in Brazil – and some haven’t done the homework. We have been around for a while and we still don’t pretend to know which precise direction Brazil is taking at any point in time. We seek to assess major risks and find that, most of the time, conservatism is best served by knowing very well the companies that go through our filters and patiently waiting for opportunities. The value of cash as a strategic asset is way underrated. Links inside.

LINKS:

Long-term funding holds key to Brazil’s future economic stability – The Banker (login required, but free for 5 articles) – An example of a good, well-researched story. It depicts Brazil’s growth in light of the kind of credit we have a lot of – consumer – and the kind we don’t have enough: long-term funding, mortgages and such. And it does so by interviewing the main players in Brazil’s banking industry. This March 2011 piece on whether or not there’s a credit bubble in Brazil was also well-written.

Is Brazil’s economic boom ready to bust? – BBC News – This one doesn’t “take sides”, which is smart given the “too-hard” category of the subject.

Brazil’s giddy convergence – New York Times – Roger Cohen writes a tale of how far Brazil has come since he lived here, and how far it still has to go. He’s surprised at how many people now claim to be “pros” in Brazil, and concludes: “I’m bullish on Brazil, but some of the new “pros” are going to get burned. (…) Convergence will continue — and in time separate the real pros from the amateurs in the new global economy.”

RELATED BUYSIDERS.COM STORIES:

Brazil #1 in AT Kearney report – June 12th, 2011

Noise and irrational behavior – May 4th, 2011

Brazil credit boom in the Financial Times – Feb. 24th, 2011 – by the way Paul Marshall has written an update a few days ago.

Brazil in the press – September 2010

After LinkedIn, is Zynga next?

IP — Mon, 23 May 2011 15:00:52 +0000

We wrote last Thursday about LinkedIn’s IPO, which closed the first day of trading up almost 110% with some “interesting” valuation metrics. While there’s talk of other Web 2.0/ Socialmedia companies IPOing, Vanity Fair had a recent profile on Zynga – a “Web 3.0″ company, certainly a buzzword we’ll hear a lot in the next few months. We wrote about Zynga before, the first time in December 2009, and we remain interested in the business models arising from social media (if not in the valuations surrounding the sector). In August 2010 we came back to the subject of Zynga, and in January 2011 we commented on Facebook’s then-impressive US$ 50bi valuation. After LinkedIn’s IPO, the “whispered number” has been at least doubled, and tripled depending on the source.

Cautious about Asia

IP — Thu, 19 May 2011 00:32:45 +0000

Two stories reached us almost simultaneously: One was Jim Chanos’ latest interview discussing his bearish themes in China. The CNBC “forum” isn’t the best for something so complicated, so we try to provide more background inside. Another was a story found in the NY Times called “What Asian Century?” that calls for emerging Asian countries to get their act together before they can follow Japan and South Korea’s route. Interestingly, even though Brazil has some clear positives compared to this part of the world, it also shares some of the problems and doesn’t share some of the pluses (such as a strong focus on higher education and technology investments).

The video of the May 18th interview at CNBC (11:25):

It’s interesting to note parts of his analytical framework in the video above. There are hints of “field investigation”, sure, but the gross of what he discusses seems to be a bit more “big-picture”. It’s probably due, not in a small part, to a problem with the forum.

OTHER HIGHLIGHTS:

The Asia Development Bank seems to agree with the “What Asian Century” article’s main theme: one teaser for its “Asia 2050: Realizing the Asian Century” report was called “Asia’s Rise is Probable but Not Preordained”, and a video discussing the report was called “3 billion people could enter the ranks of the affluent if formidable challenges are addressed”. Here’s a link straight to the roughly 140-page PDF.

A classic November 2010 article at Fortune: “Chanos vs. China”. It includes two “supplements”, one on why he should be worried and another on Xi Jinping, a potential sucessor to Hu Jintao. It also includes the video below (3:48):

A 55 minute, low-quality video with the bulk of his arguments about the “China bubble”.

He also spent 29 minutes with Charlie Rose in April 2010 – we couldn’t find the embed link.

ALSO INTERESTING (and some opposing opinions):

Jim Chanos is wrong – Jan 10th 2010 – Forbes.com – It wouldn’t be Buysiders.com if we didn’t seek opposing opinions.

In fact, and also back in January 2010, Tom Friedman wrote an Op-Ed in the NY Times called “Is China the Next Enron?” – essentially arguing that Mr. Chanos should be cautious of the “unintended consequences” of all this Chinese investment in higher education, infrastructure and technology. His question is: who knows what kinds of innovations, connections, collaborations and productivity improvements could be generated by these investments? He thinks that there’s potential for growth that Jim Chanos is maybe not taking into account.

April 2011 interview at CNBC with both Jim Chanos and Mohamed El-Erian of PIMCO, who has a less pessimistic view than Jim’s.

April 2011 debate between Jim Chanos and Stephen Roach (22:02), on different sides of the issue. It includes foul language, but thankfully it’s just a joke…

Feb. 2011 interview with John Authers of the Financial Times (5:26) – FT.com doesn’t provide an embed link either.

Satellite images of China’s ghost cities by Business Insider.com – how eerily similar to the debate between David Einhorn and Bruce Berkowitz regarding St. Joe’s… (Dec. 2010)

Ski lifts in Rio

IP — Mon, 16 May 2011 21:44:47 +0000

That’s the title of a video (embedded inside) about a Rio slums transportation system that’s actually, well, a ski lift. But it’s a smaller part of a larger article on Brazil’s middle class shopping till they drop – not yet, but… It’s another one in a long line of similar articles, some of which we’ve posted here. We repeat a line from our December 2010 report: “As good Brazilians, we are rooting for this to happen. However, we do not like the idea of paying for it”.

Video: Ski lifts in Brazil (2:41)

Noise and irrational behavior

IP — Wed, 04 May 2011 14:42:47 +0000

A Bloomberg news story on Buffett’s “interest” in Brazil has the local markets reacting today. Explaining: Bloomberg compiled a list of 27 companies in Brazil and China that “fulfill Buffett’s criteria” as explained in his Owner’s Manual (PDF). While Buffett’s criteria are qualitative and, as written, more subjective, Bloomberg had to put numbers to Buffett’s qualitative descriptions, so it’s an interesting exercise but little more than guesswork (details below). Good companies with great business models such as Odontoprev and Marcopolo made the Bloomberg list and the market reacted as if Buffett himself was issuing buy orders… Again, we could easily see Buffett warming up to Odontoprev or Marcopolo, but it still wasn’t this time around.

Bloomberg’s criteria:

“There are 27 companies from Brazil and China with market values from $1 billion to $15 billion that have capital expenses accounting for at least 5 percent of their net fixed assets; a return on equity exceeding 10 percent; profit growth in the past five years that ranked in the top 50 percent; and an average price-earnings ratio in that span that was less than the average company in the MSCI Emerging Markets Index, according to data compiled by Bloomberg.”

The US, Brazil and Carl Icahn

IP — Mon, 18 Apr 2011 20:31:36 +0000

Tow quick notes: ONE – Today the credit rating agency Standard & Poor’s issued a negative outlook on the long-term US credit rating – here’s the press release – sending the US market indexes down. No surprises there, but it’s ironic how the Brazilian index is sharply down as well – in a day with two stories on Brazil’s attractiveness to the financial markets. Of course, we’re being unfair since the Bovespa index is being dragged down by the 15-16% drop in OGX and a 3-4% drop in Petrobras… The stories: One discusses Brazil overtaking China as the favorite market for Private Equity in the next few years (here’s the survey in PDF). Another describes J.P. Morgan’s hiring binge in Brazil over the last 14 months – not including the Gávea Investimentos deal – and highlights that it isn’t done hiring and that other foreign institutions are also hiring by the hundreds.

Alternative link to the Private Equity story: Wall Street Journal’s Private Equity Beat blog.

TWO: the NYT profile on Carl Icahn at 75 is another reminder of the often troublesome succession issues so common to companies with charismatic leaders (“key-man risk”).

We’ve posted before as Carl Icahn returned all outside money in his hedge fund. We had also posted on PE (and hedge funds) in Brazil.

Tax department as profit center

IP — Fri, 25 Mar 2011 15:11:53 +0000

We have had for years a section in our Intranet on Tax legislation and another on interesting corporate structures that save money in any way – operationally, fiscally, etc. The overall idea is to study the state-of-the-art in all espects of corporate life – it’s useful to understand companies’ performances/ strategies/ cultural aspects, and if it’s good it can eventually be shown to companies we invest in. Of course, in the case of tax practices there’s a thin line between aggressiveness and innovation and falling into regulatory traps… Reading this NYT article out today, we still have no idea where GE fits in this range, but it’s safe to say that they’re certainly innovative in the tax department.

Here’s a series of charts by the New York Times showing how GE works its magic:

NYT charts on GE's tax "voodoo"

As the NYT said:

“Some comparable data is not available before 2004 because of the changes in G.E.’s regulatory filings.

Source: General Electric’s financial statements”

Goldman Sachs’ new “code of conduct”

IP — Mon, 17 Jan 2011 22:28:57 +0000

Goldman Sachs spent considerable resources and 8 months in an internal review of its business standards and practices, and this culminated in a 63-page report released on January 11th. In it, it highlights areas for improvements and lists some of the 39 recommendations that were approved and are being implemented. Leaving aside the obvious quip about their motivation for releasing this 63-page report (trying to stop the unending flak from the general opinion, politicians and even some customers since the crisis in 2008), we seldom see documents like these. This article on NYT’s Economix blog highlights what the report doesn’t say about systemic risk, and we comment on a few of the report’s items.

The report starts with the 14 Goldman Sachs Business Principles, which compared to reality paint an interesting picture. On the “walk the talk” part, there are items about doing the most to attract and retain top-notch people, of which they expect intense dedication and quality of work, and that employee stock ownership is vital. That much can’t be argued much in relative terms: Goldman does still have the clout of old days. Other items, however, read like a wish list – at best. While there’s a degree of goal-setting in all companies’ “mission” and “vision” documents, the 2008 crisis is all too recent and it’s no surprise that the report got skeptic reviews. Actually, reading the line that says “Our clients’ interests always comes first” in a Goldman Sachs report should not be any more irritating than reading it in any other company’s report – we should all know better, since the actual incentive systems of most companies are not tilted towards making that sentence come true.

By far the most interesting recommendation and mea culpa of sorts regards the businesses and products Goldman considers entering into – and their suitability to different customers. First, Goldman employees must now ask themselves “should we?” other than just “can we?” when designing new products or entering new businesses. Then they should ask themselves whether the customer should be delving into that product line. That can only work with the right incentives in place, which would have to accept some trade-off between the speed and quality of growth, and even so it requires a level of patience, excellence and relentlessness in oversight that should be hard to implement. When the next financial instrument bubble comes, will Goldman’s top people be happy to sit in the sidelines for a while (years in the housing/ credit boom’s case) while competitors make tons of money while the party doesn’t implode? Easier said than done.

Another set of interesting recommendations regards enhanced transparency and disclosure, which led to the reinstatement of Goldman’s Q3 2010 earnings in light of the new recommendations. That was a little disappointing, because it was ultimately a “reallocation of revenues” while the Q4’10 report promises a more complete overhaul.

Goldman Sachs may or may not be able to pull this one off, but the future of the industry seems to be heavier regulation internally and externally, with fewer profitable opportunities and more bureaucracy, as this LEX column argues. Heaven forbid an entire generation of bankers becoming asset managers…

LINKS:

Goldman’s self-improvement plan is likely to falter – FT.com

Finnish lessons on principles for Goldman – FT.com’s Lucy Kellaway compares a finnish retailer’s principles to Goldman’s.

Report of the Goldman Sachs Business Standards Committee

The “truth” is not what it used to be

IP — Wed, 12 Jan 2011 19:23:42 +0000

Two articles about the same subject: even scientific “truth” has been called into question. The New Yorker piece is more eloquent and, as usual, they do a fantastic job of creating a certain tension and drama regarding even the most mundane or technical subjects. The NY Times article is a bit more technical (despite the ESP attention-grabbing headline). One doesn’t need to get too philosophical to say that “truth”, or at least the one found via the scientific method, is often in the eye of the beholder – ie., subject to the same randomness, bias, incentives, mishaps and flaws that define human nature.