Romantic Brazil…

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HOME TO THE OLYMPICS, RAMPANT CORRUPTION, A RECESSION & MAYBE THE BEST OPPORTUNITY THIS YEAR

The Olympic Games are close. Brazil and the rest of the world are getting excited. The country has poured billions of dollars into getting ready. It’s sure to be a beautiful event. And, seemingly from Mount Olympus, a lightning bolt has struck Brazilian politics and economics.

They’re experiencing a 5-quarter recession…so far. The government is so crooked that 6 of 10 Congress members are facing corruption charges. The stock market is in the dumps.

SEEING THROUGH THE SMOKE

My favorite investing quote and strategy is to “buy when there’s blood in the street.” Very graphic but very helpful. We want opportunities that are cheap and beat-up. We want discounted assets.

The way I look at Brazil is the country is trading at 2005 prices. At that time, their economy was at about $882 billion. The 2016 estimate is for them to hit $1.53 trillion. That’s an increase of 73 percent! We’re buying a much bigger economy at half the price….

PLAYING THIS OLYMPIC-SIZED TRAGEDY

The largest ETF for Brazilian stocks is the iShares MSCI Brazil Fund ($28.15; symbol: EWZ). It has a 12-month yield of 3.3 percent and a low expense of 0.62 percent per year. The fund has over 60 different investments and over $3 billion in assets.

A warning: the top two stocks make up over 20 percent of the portfolio. So it’s both a concentrated and diverse fund. Yep. Sounds strange but they’ve achieved it. This can be good if you want exposure to Brazil and you have faith in these two companies.

The largest is Itau Unibanco. According to Wikipedia, it’s “the largest financial conglomerate in the Southern Hemisphere.” That’s usually a great way to get exposure to an economy. Banks lend the growth money, profit from upswings and are a good representation of the overall market. Buying a bank is like buying the lifeblood of a nation.

The second-largest holding is Ambev SA. They’re based in Sao Paulo and controlled by Anheuser-Busch InBev. This parent company is the maker of Budweiser, Corona, Stella Artois and over 200 brands. It’s also the world’s largest brewer.

These two concentrated positions look pretty stable and may juice-up the portfolio volatility. Both upward and downward. Yet the downward movement may have largely already happened.

To learn how to add international exposure to your portfolio: request a free copy my report, “Producing Large Portfolio Income.” Visit RetireIQ.com to request your report, giving you ideas on how to generate 5-7% annual portfolio income.

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Gold Holding Its Own…Or is It?

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Gold has sunk quite a bit since I heard prognosticators expecting $5,000 per ounce prices a few years back. Remember the times? You couldn’t pick up a paper, read a magazine or website, watch a TV show, drive down the street or listen to the radio without hearing the virtues of this shiny metal. It reminded me of the fervor of the dot-com days of the late ’90s.

Recently, Bloomberg.com had an article about gold holding steady. It’s not that steady considering that this glimmering Siren was at over $1,800 an ounce a few years back. That’s a drop of about 33 percent.

I have a client whom I recommended selling his physical gold right about at this top. He chose to invest it in a diversified portfolio with me. His account was up a little over 50 percent. Adding the avoidance of gold’s drop (about 33%) with his gain (over 50%) gives him a relative out-performance of over 80 percent compared to a gold investment.

Is gold holding steady?

A lot of folks mistakenly think that gold tracks, or even hedges against, inflation. The first link I’m sharing with you is some personal research I did several years back. The research only goes to 2010 but the point remains the same: gold does not track inflation.

I was fed up of hearing this nonsense over and over so, on that arbitrary day, I decided to make a few charts. The first one shows the rate of inflation compared to the price performance of gold, on that random day I started my homework. I tried to get as near to that day as possible in each individual year but weekends and holidays threw me off a little. Still, it’s unbiased research. I was just seeking the answer to that question: Does gold track inflation?

I heard a good answer, too: “Gold tracks the expectation of inflation.” Good answer. Big difference.

Gold Tracks Inflation? Not really…

Gold reached a top near the middle of 2011. If you look at the second link you’ll see the downward price trend since this top. If you look at even longer gold charts you’ll see that the “miracle” metal has had flat price trends that last about two decades! That’s a long time for an investor who buys at the top and wants to hold on to their position. Besides losing opportunity to other growing sectors this investor receives zero income. This would result in a net loss when you consider the ravages of inflation.

Courtesy of BigCharts.com, take a look at the SPDR Gold Trust ETF. This is an exchange-traded fund that tracks, almost exactly, one-tenth the price of gold. To get the approximate spot price of gold you just multiply this investment times ten. The symbol of the fund is “GLD”.

Gold Mutual Fund Price Trend

Bonus link: I just can’t say it better than this…

Why Warren Buffet Hates Gold