The Money Map Advantage
Thursday, April 6, 2006
By Horacio Marquez
Email – #37
** Our Bullishness is Validated – Stay Long Commodities, Brazil and Emerging Markets
In our last communication, I alerted you to the coming rally in Brazil’s stock market. The rally is here. Confirming our view that Finance Minister Mantega’s replacement of Palocci would not be a departure from the current exemplary fiscal and monetary discipline that has propelled Brazil’s success, the government continued moving in the right direction.
The replacement of Palocci and some key advisors who left with him reads like a “Who’s Who” of top Brazilian economists with pristine international markets credentials: Carlos Kawall, former chief economist for Citigroup, as second in command at the Treasury; Paulo Viera de Cunha, formerly with Lehman Brothers and HSBC; Mario Mesquita, chief economist of ABN Amro in Brazil, and many others.
(I personally have known Carlos Kawall for many years, since I ran emerging markets research efforts at Merrill Lynch Asset Management and at Swiss Bank. He used to take our weekly calls when he was at Citibank covering emerging market economics. He is solid as a rock, enjoys major credibility with international and Brazilian institutional investors, and – along with President Lula – has gone to great lengths to assure international and local investors of the continuity of successful Brazilian policies.)
In addition to the government’s inspired key appointments, Brazilian inflation came out very low, encouraging market participants to start considering that the Central Bank has additional room in its next meeting on April 18 and 19 to reduce rates more than the 0.75% than it has been implementing and that the market had been expecting. Again, right in line with our expectations.
With all these positive developments, our posture has been validated for keeping our positions for those who were already long, and adding the three Brazilian names (EWZ, BBD and UBB). Adding to this positive sentiment, the head of the Kansas City Fed, Thomas Hoenig, stated that “we are very close to where we need to be,” referring to the level of the Fed funds, and that the benchmark rate was “at the upper end” of a neutral rate.
Precisely our view: The Fed will be done raising rates in the next meeting, and U.S. long-term rates have almost maxed-out for the moment. In anticipation of the coming rally in the long bond, and of the beginning of “the great-orderly dollar weakness” (my view), market participants are building positions up in commodities and in emerging markets, global stocks and U.S. exporters, and industrial goods manufacturers.
Consistent with this, both the European Central Bank and Bank of England let the occasion pass to raise their rates one more notch, adding to market bullishness. And if tomorrow’s payroll numbers do not blow out expectations and show the same brisk, but non-inflationary growth that they have been showing, the market will be free to keep rallying strongly into May.
In this regard, Treasury Secretary Snow – who, with his Ph.D. in economics and vast business experience, understands markets thoroughly – mentioned that the number would be good. If by “good” he meant strong but not strong enough to cause fears of the Fed having to keep raising rates, we will be happy. I will wait to see the number tomorrow before adding new positions. Today’s weakness is simply very short-term-oriented traders taking profits ahead of the numbers. This is an opportunity the long-term investors are using to add to positions.
Changing topics, Tenaris (TS) is holding its annual investors’ meeting today in New York, and is trading at all-time highs on the heels of oil and commodity strength and its 5-to-1 stock split announcement.
Banco Bradesco is buying American Express’ Brazilian credit card unit and its insurance and travel agency arms, adding greatly to its leading card operations, which will boost Amex card use in Brazil and create synergies between both companies.
Mitsubishi UFJ (MTU), which has also broken out of its recent range to new highs, announced intentions to start buying positions in two Chinese banks, in order to enter the Chinese retail-banking environment. We need to get in ahead of them. I will keep you posted as to how and when we are going to do this.
Enjoy and profit,
Horacio Márquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com, or contact Pillar One Advisor Rick Pfiefer at 800.438.3040 or 407.667.4729.
Stock & Symbol
Current Price
Comments
Unibanco (NYSE: UBB)
$78.21
Buy. Sell stop is $59.58.
Peabody Energy (NYSE: BTU)
$52.08
Buy. Sell stop is $35.
IShares Brazil Fund (Amex: EWZ)
$41.82
Buy. Sell stop is $33.79.
BHP Billiton (NYSE: BHP)
$43.06
Buy. Sell stop is $32.70.
Banco Bradesco (NYSE: BBD)
$37.40
Buy. Sell stop is $29.45.
Petrobras (NYSE: PBR)
$90.43
Buy. Sell stop is $75.47.
Mitsubishi UFJ Finan. (NYSE: MTU)
$16.04
Buy. Sell stop is $12.93.
iShares Japan Fund (AMEX: EWJ)
$14.76
Buy. Sell stop is $12.83.
Tenaris (NYSE: TS)
$203.25
Buy. Sell stop is $117.27.
MSCI Austria Fund (AMEX: EWO)
$31.61
Buy. Sell stop is $26.51.
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:12AM 3/26/2009
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