Tuesday, December 1, 2009

Trimming Banco Bradesco

I started trimming my Banco Bradesco (BBD) position today. This is a strategic decision: I decided to sell this position. Of course, I'm doing it in stages.

This was an attempt to make money on one of BRICs.

The main reason I'm selling this position: political situation in Brazil. Bad (for business) news are coming from there. Government more and more interferes with business decision. Last news: government tries to increase share of state banks in financial sector. Other news include plans to direct banks to increase lending. Brazil government more often finds itself in agreement with government of Venezuela, which is even more worrisome. I don't know if Lula wants to be Chavez, but you I can't completely ignore such possibility.

Another reason: Brazil economy is in situation of investment bubble. Real (local currency) appreciated a lot since beginning of year. Government even tries to slow down foreign investments: Brazil nuts? The country’s new capital control.

Third reason: Brazil economy mostly depends on export of raw materials and food. So far commodity prices are growing this year. But I have my doubts, especially because one of main export materials, iron ore, is in a bubble by itself. So much bubble, that China, main importer, uses less ore than it imports, stockpiling a lot of ore in ports (look here).

These factors make Brazil stocks way too risky for my taste. I will continue cutting down this position.

Full disclosure: at the time of publication author had a long position in BBD. Positions can change any time.

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Homer II said...


be patient. dont write off Brazil yet.
1st, Brazil does NOT export just raw commodity products; they have a balanced export economy including many finished products including steel, automobiles, aircraft, as well as iron, beef, soy, other ags.
2nd, LDS (Lula) may "look" like he is consorting with Chavez, but don't kid yourself. That is just mainly for show and manipulation. They have Oil in common. But there is no comparison between LDS and Hugo: Lula is an intelligent politician and understands economics, whereas Chavez is simply a brute who rules by fear, but had zero education and understanding of little else (note his purchase of an old battleship from Russia: not clever)

Brazil has a great future and they are on path to grow and prosper with Oil, iron and other mineral wealth, Ag products, manufactured goods. They have their finances in order, unlike Chavez who has run off all the economists in Venezuela. The banks will be leading the way in that prosperity going forward. Itau and Bradesco are strong investments for the next decade. As are Gerdau, and Petrobras. Hold on.

Anonymous said...

I agree with Homer. Brazil is the U.S. in the 1950s, just starting a a cycle of economic prosperity. Not to mention that they will have the World Cup in 2014, and the Olympics in 2016. There is going to be a lot of development over the next six to 10 years, and a bank like BBD is going to be sitting in a great position. GFA will also do well with this development cycle as their becomes a larger middle class with more home owners.