Brazil, infrastructure, world cup, olympics and finance

A great piece on the FT showcases the construction boom in Brazil... Stadiums, roads, airports, trains... You name it, they will have to build it... All of the above need a lot of metal

A rising tide lifts all boats, shouldn't Vale be an obvious winner?

What is most telling, for me at least, Brazil loses 10 - 15% of GDP yearly because of bottlenecks in its poor infrastructure... If you think this is an exaggeration, think about this; a trucker on his/her way to the port may spend up to 3-4 days waiting to unload its cargo... A railroad, a port, a road in Brazil, privately built can have a great multiplier effect.

Better yet, Brazil's government does not need to spend the money. Private capital will.

Can this be true? Aren't we reminded by our authorities over and over, the US is in great need to upgrade its infrastructure. The choices we are given are taxes or "no" (as in we will just not do it).


With the World Cup (soccer) and the Olympics around the corner, Brazil's needs are so much greater than the problems we face. How will they do it? Rousneff should be jealous of Obama's problems.

Not quite.

Brazilians are much more pragmatic. They have just auctioned the rights to build and operate new "Sao Goncalo do Amarante" airport. A Brazil-Argentine consortium has 3 years to build an airport and then 25 years to operate it. Read article here.

How much will Brazilian tax payers pay for this?
Nothing, the consortium actually paid the government for the rights.

Are Brazilian unique?
Not quite, Argentina and Chile have had privately operated major airports and ports for many years. In Mexico, consortiums that operate roads are publicly traded companies

Who pays? Those who use airports and roads and ports.

Imagine the possibilities.

From exporter to FDI, Mexico moving into the US

A very nice account by Adam Thomson of the Financial Times on how Mexican businesses are overcoming obstacles to establish themselves in the heart of America.

No longer exporting cheap materials alone.

Read and pass along.

Outlook versus attitude

I just returned from a short trip to my natal Chile where I travel quite often.


News are generally good there, for example, since 2009, the peak of the crisis, a new report shows poverty has declined from 15.1 to 14.4%... Surely the levels are nothing to cheer for, but the trend and the timing matter. The best news is that extreme poverty dropped from 3.7% to 2.9%.


Furthermore, construction is up 11% this year alone (April). Recently, Chile was rated by IESE as the best country in Latin America for private equity and venture capital.

Yet, Chilean consumers don't seem to be too optimistic... Go figure

Insatiable

I have been quiet lately. Busying myself with conferences and summer, I think I have recharged my batteries

Here is a great essay by Robert and Edward Skidelsky regarding our insatiable appetite for more.

Enough is enough

On the power of students

I am generally against group decisions... However there is one I always ask my students to do.

In my intro to finance class I like to ask my students to allocate $100,000 to a number of companies.  I do this at the very beginning of the semester, way before we cover anything related to stock valuation. Students generally look at me funny, humor me while thinking there must be something wrong with me.

I aggregate all their responses and create a weighted portfolio. As the semester moves along we begin talking about stocks, risk and portfolios and little by little I show them their own portfolio. They (and me included) marvel at how good a portfolio can be made by people with little or no background.

This year I decided to start sharing these portfolios in this blog and collecting the data in a more formal way.

We opened the portfolio on February22nd 2012. Since then the S&P500 has climbed from 1357.66 to 1395.95 or 2.82%.

My student generated portfolio? --> 4.16%

See the portfolio for yourself sorted by holdings.

Why everyone should be a finance major

This Sunday's edition of the New York Times Magazine has a short but well written article on Dairy Farming. In short, farming is not local anymore. Therefore all forces from global markets are at play. A farmer in the US today faces an environment as complicated as that of Pepsi or Kia Motors or Johnson and Johnson.
An increase in the price of grains or other feed makes cost go up. Political Risks in Middle east can trigger oil prices changes higher increasing costs, a high dollar makes exports less likely. A recession in Europe means less demand. A rapid economic development in China and Brazil means good news and higher prices.

Just as industrial players have, dairy farming has improved its efficiency dramatically, yet ROE is not there for most farmers.

Finance is ready to help the farmer. This is good news. The bad news is that the farmer does not understand how hedging works.

Large corporations have risk management departmets scouting the enviroment for every risk.

My guess is that in the very near future every medium sized business will have to become serious about financial derivatives. This will create tremendous job opportunities and make the difference between companies that thrive and those fighting for survival.

In the article, Bob Fulper, the farmer summarizes it perfectly. In the past it was possible to work your way out of trouble, "stay in the cowshed a little longer, work harder" "Now if you don't use your head, your hands are not going to help you"

Isn't this the what is at the center of the current struggle?

It does not matter if you want a career in marketing, HR, or dairy farming... We are not in Kansas anymore. We must understand risk.

Consider Finance.

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