Category Archives: Global

South Korea

South Korea has tons of potential but there are risks. Do you have an opinion about the % of market decline attributed to North Korea vs. business risk? I would guess that the majority is geopolitical but that is far from an educated guess.

Regarding the regulatory changes, do you think Japan should be watching this as they too have many “family” conglomerates? The reform will be to the detriment of equity prices in the short term, but “maybe” to the benefit of everyone in the long term.

The global aspects of the equity markets

It is still rather difficult, without the use of ADR’s, to trade in other markets outside the US.  But the good news is that there are ample ADR’s and funds linked to foreign index levels.  So investing overseas is, for the most part, relatively easy.  However, it is not without risk.  There are all of the obvious risks in any equity but international equities add the risks of currency and country. 

41% interest

The currency surely is playing a role in the investors decision making. If Brazil could reduce their interest rates I am sure they would but if investors aren’t interested in 41% interest, why would they be interested in less than that?

 If the government stumbles, default is inevitable.

Lula taking surprising action

The higher credit rating is making life more difficult for Brazillians and our credit worthiness is a significant advantage although it doesn’t extinguish our debt, it increases it. What it extinguishes is our budget deficits by borrowing money to pay for them. Its much easier for us to run a deficit than for Brazil as our credit is of much higher quality.

Lula is taking surprising action. I hope his plans work and he can get through the tough times ahead. It will be interesting to follow.

The thing about herds

Brazil is having a problem with corruption, or to say it in a different way, the markets don’t have confidence that Brazil will do the things needed such as reducing corruption.

The herd at the moment is calm as they are waiting for the next shoe to drop or not as the case may be. But that’s the thing about herds, sometimes they graze and sometimes they stampede. :-))

About Brazil

Brazil has a new President that seems to be caught between a rock and a hard place.  On one hand Brazil is responsible for billions of debt, ($250 billion, or almost 60% of Brazil’s GDP! – most recently a $30 billion IMF bailout personally sold by US Treasury Secretary O’Neil) and on the other hand they have great need for social programs to help the massive amounts of people in poverty.  The new President ran on a leftist Workers party platform that seems to be changing.

Brazil with its new President Lula is having problems dealing with Government debt.  Brazil’s government seems to be permanently in deficit. Current short term interest rates are at 25% to control its inflation currently at 12.5%.  The government also pays benefits, such as lucrative pensions, not to the poor but to wealthy people who have served as senior civil servants. The pensions deficit absorbs about 4 percent of GDP. The government is obliged to issue debt at very high interest.  Interest spreads on government debt, which have climbed to over 20 percent above the rates on U.S. Treasuries in the past but have come down recently.  To pay the interest charges they have to reduce spending or hike taxes.