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The Money Map Advantage
Thursday, January 12, 2006
By Horacio Marquez
25
** Brazil Is Flying and the Market Keeps Hanging On for the Moment
BHP Billiton (NYSE: BHP), as expected, has run into resistance just prior to $37.
BHP needs to make some consolidation at these levels before proceeding to new highs. But good news should come out soon: Iron ore prices are being negotiated for the current year, with Companhia Vale do Rio Doce (CVRD) leading the negotiations with the Japanese steelmakers. Once CVRD announces its new price, the rest of the iron ore producers will typically match. The expectations are for a 5% to 15% increase over last year’s 71% increase, given that shortages persist – and this should be good news for BHP and the other iron ore producers.
Brazil keeps flying high. Last week I said, “this is not all she wrote for Brazil, nor for the market.” The Dow breached 11,000, despite Alcoa and Dupont missing estimates, and the S&P followed suit. This was remarkable, despite the imminent dangers in Iran.
But the fundamentals of the global economy are very positive, with the U.S. expected to achieve a soft landing while Europe, Japan, China, India and Brazil, among others, reaccelerate. And the U.S. soft landing is barely a slowdown to a 3% to 3.5% GDP growth rate for 2006, in which corporate investing and spending will take a front seat to consumer spending.
Remember that about 50% of corporate spending is in technology, and corporations have remained on the sidelines after the overinvestment binge of the “fake Y2K” craze. So I am hard at work trying to find the next “explosive” new company to reap extraordinary profits in this new tech expansion – and the best time to place a trade.
I just checked the activity in Brazil and I found that serious, solid money is going into the country. With international stock funds in the U.S. having received large inflows, Brazil is at or near the top of many a fund manager’s list, and as expected, they’ve put the money to work. Hence, Brazil is seeing a very nice, broad-based rally.
The fundamentals are very solid: strong twin surpluses (primary fiscal and current account), coupled with low inflation and some of the highest real rates in the world. Brazil just posted a 5.89% year-on-year inflation, the lowest in five years. This means that the government will keep easing rates fast, and has ample room to increase spending into this year’s presidential elections in October.
By getting in last year with Petrobras (NYSE: PBR), Banco Bradesco (NYSE: BBD) and the iShares Brazil ETF (AMEX: EWZ) we front-run these mega-investors, as well as the local Brazilian funds, as is the main purpose of this publication.
Similarly, the rest of our holdings are consolidating these levels within the current upward trading channels, backed by new money being put to work. Mitsubishi UFJ (NYSE: MTU) seems almost ready to take off, at the bargain price of $13 and change.
Despite the solid prospects for the global economy, specifically the sectors we’ve identified, the strong performance of our portfolio and the fact both the Bank of England and the European Central Bank decided NOT to increase rates today, I am unwilling to put on more positions right now.
The main reason is the Iran saga. The preposterous actions of Iran in picking a needless fight with the West over an unnecessary enrichment of uranium, coupled with the precarious health of Israeli Prime Minister Ariel Sharon, greatly increase the probabilities of a U.S.-Iran showdown.
Should the UN and diplomatic channels not work to preclude an inadmissible development of nuclear weapons capabilities in a country whose rhetoric has been out of control, the dangers to the market escalate. Petrobras and Tenaris (NYSE: TS) keep being favored by these unwelcome tensions.
In this scenario, prudent risk management dictates that we need to tighten all sell stops to approximately 10% of the maximum level reached for each stock since we have held them.
Action to take: Tighten the sell stops as indicated below.
Enjoy and profit,
Horacio Márquez
Stock
Current Price
Comments
IShares Brazil Fund (Amex: EWZ)
$37.54
Buy. Move sell stop to $33.79.
BHP Billiton (NYSE: BHP)
$35.59
Buy. Move sell stop to $32.70.
Banco Bradesco (NYSE: BBD)
$32.30
Buy. Move sell stop to $29.45.
Petrobras (NYSE: PBR)
$83.85
Buy. Move sell stop to $75.47.
Mitsubishi UFJ Finan. (NYSE: MTU)
$13.32
Buy. Move sell stop to $12.93.
iShares Japan Fund (AMEX: EWJ)
$14.05
Buy. Move sell stop to $12.83.
Tenaris (NYSE: TS)
$126.60
Buy. Move sell stop to $117.27.
MSCI Austria Fund (AMEX: EWO)
$29.17
Buy. Move sell stop to $26.51.
Copyright – 2006 Monument Street Publishing. Monument Street Publishing does not act as an investment advisor or advocate the purchase or sale of any security or investment. Monument Street Publishing expressly forbids its writers from having a financial interest in any security recommended to its readers. All of our employees and agents must wait 24 hours after an Internet publication prior to following an initial recommendation. And for hard-copy-only publications, 72 hours after the publication is mailed. Investments recommended in this letter should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company. Monument Street Publishing provides its members with unique opportunities to build and protect wealth, globally, under all market conditions. The executive staff, research department and editors who contribute to recommendations are proud of the reputation Monument Street Publishing has built since its inception in 1984. We believe the advice presented to its members in our published resources and at our meetings and seminars is the best and most useful available to global investors today. The recommendations and analysis presented to members is for the exclusive use of members. Copying or disseminating any information published by Monument Street Publishing, electronic or otherwise is strictly prohibited. Members should be aware that investment markets have inherent risks and there can be no guarantee of future profits. Likewise, past performance does not assure future results. Recommendations are subject to change at any time.
Market Watch
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