Companhia Sanea (SBS)

[flatlander_60048]

Hi loss slayer

I saw the cup and handle as well and doubled down in the 8's about two months ago. I now see a reverse head and shoulder pattern which could spring SBS to revisit the 2013 high. I found it helpful to review SBS performance on their website in Reals in order to discount the impact of the dollar. I think SBS could be headed from 33 to around 45 real in the next year (the right shoulder breakout). The problem is that I'm uncertain what the dollar will do as the Fed unwinds their balance sheet. QE resulted in the value of almost everything going up including Emerging market equities. As the end of QE approached in 2014 the EM and SBS tanked. They have re-awakened the last year as the dollar weakened slightly.

Conventional wisdom is that the EM will get hurt as the US continues to tighten rates causing the dollar to strengthen. I don't necessarily agree. SBS and others have restructured much of their debt into local currency. Brazilian rates look like they will continue to decline (from around 10%) thus reducing local currency borrowing costs.

Furthermore the U.S. cost of carrying $20 trillion in debt has not really changed much. The 10 year is still +/-2.3%. Several rate hikes would either push up these rates and increase debt servicing costs or could invert the curve and push the US into recession. Given the demographic backdrop of retiring baby boomers, I think we could be at the start of a secular trend where the dollar weakens. I believe this is a decent backdrop for SBS. The end of the drought, and wind down of large capitol construction projects in the next 2-3 years should also be a plus. Organic growth of at least 5% seems like a given just based on population growth. Plenty of room to expand by acquiring municipal water and/or sewer businesses in Sao Paulo. They just need to be strategic in making these acquisitions at reasonable cost.

Long winded I know, but there are very few boards with intelligent life to discuss one of my largest holdings.

Regards FL

[loss_slayer]

Hello, anyone still around. Chart folks? Looks like a massive cup handle formation.

[flatlander_60048]

Sorry about the delay getting back to you. I got an unanticipated update to Windows 10 OS that wiped out saved settings. I've reset my passwords so I'm good now. Would have done it sooner but got busy with work.

I would definitely go back to Praha. Sedlick Ossuary (Aka Bone Church -my son's idea) was macabre but interesting. We were in the Old Town area near the square. Had a lot of fun playing people from all over the US and Europe in Foosball. Great way to meet people while trying out the Czech beers (All Pilsner's that I thought tasted very similar).

I prefer your way of traveling (via Euro-rail). Although, we learned that some of the Czech trains outside the City are prone to mechanical problems. We were keeping everyone in the family happy so we hop scotched around to Amsterdam and Norway) via short flights. As it turned out, Hiking the Fjords of Norway was a welcome reprieve from the heat wave Prague was having at the time.

Looks like I'm going to lose about 10% of my SBS holdings since it is trading well above the July 7.50 calls I sold. I'ts a better strategy when the stock share price was not in such a strong upswing. I thought SBS was due for some sideways action after the quick run up from $3.50 to $7.50. But it appears to be making a strong run to $8.

The rain in June has been a welcome surprise since it is early in the dry season. As I have mentioned before, the supplemental supply from River diversion will go on-line next year. So the water supply crisis appears to be over. While I remain long term bullish, I'm anticipating a summer pullback in SBS and the US market, driven by any number of factors (Fed, Political uncertainty, high valuations, etc.).

Regards
FL

[listner]

Hello Flatlander:
I am back in SBS with more purchases at 7.15. For a long term hold this is a good spot to park. If the dollar gets stronger due to increase in interest rate SBS may suffer a bit more but otherwise good spot. I have always loved being in Pargue. In the past I have taken a train a few times from Linz, Austria to Prague and the train would cross two borders and get to Prague in few hours although the journey could have taken may be only 2 hr or so in today's time. This was when it was Czechoslovakia. Best to you.

[flatlander_60048]

Santorini sounds great. Wanted to go last year but my wife could only get away in August. Way too hot so we opted for Norway and Prague.

Looks like SBS is maintaining the upward momentum. I wrote some July calls that are slipping well out of the money. I still anticipate that the upward momentum will stall for a while but not just yet. April is turning out to be extremely dry in Sao Paulo. I think that there have been some premature prognostications that the drought was over. This may have some bearing on the share price as the dry season rolls on. For now, commodities and emerging markets seem to do well on dollar weakness.

Regards
FL

[listner]

Flatlander: Thanks for your response. I was away in Greece and Santorini for 10 days and just got back. What you are saying makes sense and I am going to buy more and larger position if the stock drops to around 6.25. I have some but I also think that long term it can be $30 in a few years. At the moment USD is holding up and due to political situation in Brazil the Real may weaken and that is when SBS can be bought cheaper but we will see. May be I will have to buy at a higher price or at the current price. I need to wait for another 15 days.
Best,
Listner

[flatlander_60048]

Trading a portion makes sense given the roller coaster you have been on with SBS. All of my shares are well in the green. My long term target is in the $30 range in 2019 or so. However, trading around the core makes it easier for me to tolerate the volatility.

Fortunately, water and sanitation tend to be pretty stable and cannot be replaced by other products. Zika probably provides an incentive for SBS to pick up additional users. Storage of water in cisterns can provide a breeding ground for mosquitoes. Expect public officials to push expanding water pipelines so that fewer sources of standing water exist. However, in the short term, this comes with its own problems, in the way of increased construction costs.

The political situation may also be a positive in that they are also going after the VP Micheal Temer. There seems to be a turn in S. America toward centralist regimes. Witness Mauricio Macri efforts to reform Argentina in the last several months since he took office. Venezuala elected a new party tothe majority in congress in January and they are trying to undo many of the destructive policies of the Chavez regime. These political changes could unlock many of the shackles that have held South America Back. The push to impeach Rouseff is coming primarily from pro-business forces in Sao Paulo. 10 years from now we might point to 2016 as a pivotal time in the history of S. America. That said, this area has always had tremendous potential that they have never been able to realize.

I'm betting that SBS will outperform the US market over the next 3 years. The water supply will be much less drought susceptible by next year since the diversion project will help reduce dependence on rainfall alone to refill the reservoirs. Leakage from pipes will be significantly reduced, and tolerance for deadbeat municipalities seems to be over.

Interesting case of Brazil being a cup half full. As I mentioned before, part of my reason for buying SBS is that it is a play on a potential weakening of the US dollar. I Like this approach better than gold since it is based on a commodity necessary to sustain life, rather than one with a value based largely on perceptions.

Have a good weekend.

FL

[listner]

Flatlander: Thanks for your response. I still have 10K . Just not having 50K anymore. The dollar is getting stronger that is reflected in the price of oil going down (due to glut as well as other currencies are weaker than USD) and price of gold going down as well. When I look at Brazil and what is going on there I am concerned about political stability, Olympics and Zika virus. If anyone of these things will make it look like Brazil has more problems than it can handle, Real may weaken. I am still expecting SBS to be going to $8 but just not sure if this will happen in summer. If I have the opportunity to get in again with larger position at a cheaper price I will get in. Your suggestions and your thinking both are appreciated.
Best,
Listner

[flatlander_60048]

As you can see today's weakness corresponds to a relative dollar strengthening move.

http://finance.yahoo.com/echarts?s=usdbrl=X#{"showSma":true,"smaColors":"#cc0000,#009999","smaPeriods":"50,50","smaWidths":"1,1","smaGhosting":"0,0","range":"5d","allowChartStacking":true}

I can't fault you at all. Trading around a core position is the only strategy that makes sense in this environment. Growth is scarce and valuations of most equities are up against the ceiling of resistance. Buy and hold does not make sense in this environment.

That said, I'm waiting for a clearer sign that the dollar weakening trend is ending before lightening up on SBS. $/Real still looks to be in the channel that has existed since mid January.

Regards FL

[listner]

Flatlander: Your analysis makes sense. Regardless of the justification, in my opinion that SBS had a run up too fast from 3.50 considering macro economics and the market high we are at. I am concerned about the short term movements of the stock and therefore I have reduced my holding considerably. I will add more when and if it is around 5.50 or 6 again. With such consideration I reduced my holding before ex divi date and did not wait for divi to be paid. I may be early in reducing the holding but as they say a lost opportunity is better than lost money. I will keep you posted.
Best,
Listner

[flatlander_60048]

Listner

Be careful attributing too much of SBS' recent share price appreciation to the drought subsiding. While it is an operational tailwind, the share price movement of the ADR (and all of the EEM) is more closely correlated to the weakening dollar. It is no coincidence that SBS's turn-around began in Sept 2015 when the US dollar peaked. Keep your eye on the $-Real relationship. I suspect that SBS is likely to run to $8 by this summer as you have indicated (this would likely be an all time high share price in the low 30's on a Real basis but far from it on the ADRs).

The US election turmoil is a positive in terms of it weakening the dollar. If the Republicans have a brokered convention and change course to an electable fiscal hawk (say Ryan) get out of SBS. Since the dollar will likely strengthen as deficits and debts become part of the general election discussion). Hillary is probably a baseline with continuation of current policies (muddle along scenario). If Sanders strings together more wins and looks like he could challenge Hillary it would bode for a weaker dollar (since he has proposed numerous social programs that would likely increase the deficit), which would be positive for SBS. On the Brazilian front, the impeachment of Dilma with a move to a more centralist government would strengthen the Real and would be positive for SBS.

I know some of this sounds wacko but we are living in a world where relative currency values are driving the macro trends in far flung areas of the world. Emerging markets are especially levered to these factors.

If you are not worried about the short to intermediate term movements (say next 5 years), I still think the long term demographic conditions favor SBS. They are gaining efficiency (plugging leaks, supplementing water supplies with river diversions and negotiating with non-paying municipalities) to improve operations/financial conditions. They have 5% growth pretty much built in due to demographics and expanding the system to new communities. In a world where growth is hard to find this is attractive.

Regards FL

[listner]

Flatlander: Hope you enjoyed skiing. Now that SBS has maintained a few days above 6.5, this makes the path to 8+ in the next few months or sooner. Additionally early April will get you divi just holding the stock. I was and I am convinced that SBS is way undervalued and was punished due to drought situation which seem to have passed.The announced earning results are a turnaround and will continue. In a one year time this stock may double. The best to you and all.

[flatlander_60048]

Sorry about the delay getting back to you. Went Skiing for a weak and missed the post.

Well you are correct, the bonus program has been terminated and SBS is up 5% today. A close above 6.5 would seem to pave the way for a run to $8.12. The water diversion project should be completed next year and enable SBS to put the drought behind them. It will be interesting to see how much the water conservation mindset remains after the bonus program no longer provides the same economic incentives.

Even if use does not return to pre-drought levels, the system as a whole expands by 4-5% per year, so growth will occur due to comparisons to weak prior year results and due to system expansion to new users.

I'm encouraged by the political climate change in South America (Argentina and Venezuela, especially). We will have to see whether Brazil also embraces the shift to the center.

FL

[listner]

Flatlander:
EWZ and other Brazilian stocks are on the move. SBS is on the move and investors are realizing the value in this stock. If they stop the conservation bonus we will see further upward movement. If they will pay any divi in April we are a few weeks away from that announcement. With some resolution of the corruption scandal this stock will be 8 in a few months. Best to you as well.

[flatlander_60048]

Listner

SBS and the other Brazilian stocks I follow are breaking out today. EWZ up almost 7%. If SBS closes above 6 it will be well above the resistance it has been fighting. The fundamentals are improving - the the Cantierera reservoir is at 55% capacity up from 8% in 2014. The Alto Tiete (sp) has a way to go since it is around 35%. SBS should consider stopping the bonus since I have read that it results in water hording in containers that provide a breeding ground for the Zika carrying mosquito.

As I indicated before, my long term targets (5 years out) out are north of 24. The Bovespa is once again at a critical juncture (see chart and article. The 61 % retracement observed earlier this year brought the Bovespa back to the long term trend that extended back to the mid 1990's. I think it is set to rally. It will probably take a little help (clarity on Dilma's situation, a weaker dollar, a successful Olympics would not hurt either).

Good Luck

https://finance.yahoo.com/echarts?s=%5EBVSP#{"showSma":true,"smaColors":"#cc0000,#009999,#ff00ff","smaPeriods":"50,200,20","smaWidths":"1,1,1","smaGhosting":"0,0,0","range":"5y","allowChartStacking":true}

http://jlfmi.tumblr.com/post/140313476675/brazils-bovespa-is-once-againthe-most

[listner]

Flatlander: Thanks for your post. You are and were right about the weakening USD scenario. Yes I am watching and if the USD weakens more we will have a gap opening and will continue to climb up. My expectation is that in two years time it will be over 12. Also the government will have to support this necessary service provided by SBS at the Olympics time. I will continue to hole my large position. Listner.

[flatlander_60048]

Listner

Don't know if you are watching but the US ISM was down today indicating a weakening of the US economy (not just the stock market). The dollar is down and emerging markets and SBS specifically is up 2.5%. This is the scenario that I previously mentioned as one of the reasons I like SBS. If the US $ continues to weaken the SBS ADRs will close some of the gap with the stock in local currency.

FL

[flatlander_60048]

Actually watch the local markets closely, the share price looks to be stalling out at 18.8 Real which is the resistance point that goes back to mid Nov. Needs to break strongly above these levels to get out of the longer term trend that could cary it back into the 3's.

FL

[flatlander_60048]

Expect a strong open on Tuesday if today's strength in Sao Paulo holds. SBS is up more than 5% on this MLK day. More importantly SBS is showing considerable strength on the local exchange the past week (see graph).

http://quotes2.enfoque.com.br/sabesp/flash/pt/index.asp

The ADR weakness looks to be solely a result of currency fluctuations. Given the market weakness in the S&P and the speculation that it is forecasting a recession, potential exists that the dollar may weaken in the near future. If that happens SBS should rally and avoid another visit into the 3's.

FL

[flatlander_60048]

Still think the 3's are a decent probability. I think the dollar strength has to correct before SBS moves convincingly upward. I expect this sometime this year.

As you have pointed out, things are looking up in terms of SBS operations. The bonus looks like it will be phased out, so profitability will improve. The reservoirs are out of the critical zone and the river diversion will come on line next year adding much needed water supply security.

However, as I have opined on several posts, it is apparent that SBS reacts strongly to macro Brazil and currency issues. I suspect the impeachment proceedings will get fairly ugly. So more weakness is not out of the question.

Happy New Year to You too.

FL

[listner]

Flatlander:
Happy New Year. As you indicated before it may now go down and test high 3's. The fundamentals are improving but the stock price is not. Brazilian Real i the dumps and will take time to recover. And the same for me from this stock. GLTA.

[flatlander_60048]

Good news! Relaxation of the bonus structure may be in sight.

http://www.bloomberg.com/news/articles/2015-12-23/sabesp-jumps-on-plans-to-reduce-water-conservation-discounts?cmpid=yhoo.headline

[flatlander_60048]

Listner

Sorry don't mean to get you worked up but my previous analysis is incorrect. I had the 200dma on not the 50d. We are still unresolved on the 50day. we will need to see whether the inflection point is resolved downward or upward in the next couple days.

Regards FL

[flatlander_60048]

Hi listner

I still have a significant position. However, since SBS has not been able to break above the 50 dma I think the technicals suggest that it is quite likely that it will follow the trend line back to the mid or upper 3 range (depending on currency translation). I think it might test again in the 1st quarter before rallying for good next year. I did not not unload everything since I like the long term story (monopoly supplying a necessity in a growing market). My trading around the core position and covered call options will enable me to lower my overall cost basis when the inevitable dips occur. I don't want to exit this position entirely since I can be wrong or market conditions might change quickly. Hell, Sao Paulo might start getting hit by monsoonal rains that quickly relieve the drought concerns. I think SBS could appreciate by 500% by 2020. The tariffs passed this past year maybe maintained long term since the regulators and the populace now understand how precarious the water supply of Sao Paulo is.

Think I'll leave off on that positive note. Have a good weekend.

FL

[listner]

Flatlander:
You must be out of this stock for now because if I remember your average was about 5. I have a long way to wait over 6.5 but we will get there. I am planning to hold it though for the next 2 to 3 years. SBS story is getting better bur the impact of downgrades for other Brazilian stocks in general and economy and scandals in particular will drag down all Brazil equity. What is your take. Thanks.

[flatlander_60048]

Sometimes I like to look at the price chart on the SBS's website, it allows a better idea of historical performance without the currency minipulation noise seen in the ADRs.

http://quotes2.enfoque.com.br/sabesp/flash/pt/index.asp

As you can see we are still in the channel that extends back to January of 2013. Although, SBS is pushing the upper limits of the channel. It will be important to see it break out or else it could go back down into the 3's again. From what I can find in the way of charts this is the longest downturn that SBS has suffered. The +- 50% decrease (in Reals) has been typical of past downturns. It has been worse when the currency weakness is factored in. If SBS breaks out of the channel, I will quit trading around my core position. I did write some Jan $5 calls which might get taken out. However, I'm limited to less than 15% of my overall position. If I can make 6% every few months it helps even out some of the share price volatility.

Based on the September and early November rains and the El Nino playing out, I'm hopeful that alot of the drought pressure is going to come off the table. As you have indicated, I think SBS is just one of those stocks that you need to maintain a long horizon on.

I have had decent luck in the past with ADRs that seemed to trade at a discount to USA peers. Held a lot of NVS but unloaded about 2/3 of my position earlier this year when it broke $100. I still like their leadership position in Biogenerics but the patent cliff on their branded drugs became too much of an anchor. At least with water and sewerage the threat from competition is remote.

Good Luck
FL

[listner]

Flatlander:
The support now is at 5 once it reaches there and stay there for a bit longer. I will hold out for the next two years at a minimum. If you have covered calls written for strike 5, you may be taken out soon. I have much higher cost basis so no point writing covered calls for me. And I am holding a very large position. I also see that a lot of people are moving into Brazil stocks for long haul at this valuation. All the best and thanks always for responding to me.

[flatlander_60048]

If you can hold out into 2017, the water diversion project should be completed. The 5 m3/sec will go along ways toward securing the ability to adequately supply the Canteirra reservoir service area. This should reduce the need to offer the bonuses for curtailing use and should help restore bottom and top line growth.

Sold a few Jan $5 calls but I understand your feeling of capping the upside for a few percent. I'm seeing a lot more respected investors saying that Brazil equities are reaching attractive valuations. A 75% haircut will do that. Based on the long term technical analysis I feel like a solid support exists in the mid $3 range. Hopefully we do not revisit it. From what I can see of the charts this is one of the more lengthy downturns.

Regards FL

[listner]

Flatlander:
I was away but I see that this stock will take time to move up. It looks like it wants to go back to 3's but will hold in 4's. The potential to explode on the upside with 100% gain from here will be in 2016 and 2017. Until that time trade it as you like. I am staying away from trading this stock. I will hold my large position for the next few years. All the best.

[flatlander_60048]

SBS is moving up again this morning and is above short term resistance. Morgan Stanly put out a buy on emerging markets this AM. This could open the door for those who have been to afraid to venture into these markets.

Listner, I'm now in your boat and would just assume that we not revisit the 3's again. I'll need to figure out whether to continue to trade around a core position. I definitely believe in the long term fundamentals and see several positives.

1) stemming leakage/losses by infrastructure improvement and dealing with deadbeat municipal clients. At some point this will benefit the bottom line.

2) Hopefully El Nino addresses drought concerns this rainy season. as it typically results in very prolific rainfall.

3) The diversion project that will prop up Cantareira will be completed in 2017. So one more dry season to contend with before an additional 5m3/s becomes available. This should allow elimination or scale back of the usage restriction bonus program.

Regards FL

FL

[flatlander_60048]

SBS reducing operational losses. Everyone always talks about plugging the leaking pipes but municipalities that do not pay has been a problem that also added to the losses. In the US if you don't pay the service will be shut off. I get the impression that the Brazilians do not escalate as quickly. Either way it is encouraging that SBS is working to improve this key operational metric.

FL


http://finance.yahoo.com/news/sabesp-signs-agreement-municipality-santos-032500953.html

[flatlander_60048]

Today was ugly for the Brazilian Real. The currency has now lost 57% of its value since 2014. If we held SBS in local currency this would not be as painful. My original assumption of 3.8 8 was based on the Feb low adjusted for the currency conversion rate which I think was around 3.75 when I made the estimate. It is now over 4. The company fundamentals have not changed appreciably, in fact you can make the case that the fundamental situation has improved (2nd qtr earnings were better than anticipated, tariff increase, el nino drought relief, etc.).

So SBS is totally a bet an the Real/dollar relationship. The deterioration has accelerated and I think we are approaching a climax within the next month. The emerging market weakness extends beyond SBS. Take a look at the EDIV chart.

https://finance.yahoo.com/echarts?s=EDIV+Interactive#{"allowChartStacking":true}

The Business news is quick to attribute the problems to Emerging market fiscal imprudence or china. However, I think there is another explanation that is even more concerning. Perhaps Ron Paul and Stansbery research are correct and there is a bubble in the dollar. Quite possibly, the emerging markets are the most sensitive indicator of this situation. I'm not hoping that the USD has problems, but if this plays out as a rapid devaluation of the dollar then the emerging markets will be long term beneficiaries. The currency weakness will provide an export tailwind when demand picks up, and their is a lot of room for rate cuts which can be implemented to spur economic growth once the stagflation is under control. The situation looks analogous to the US in the Carter years. No one at the time would have anticipated that a 20 yr bull market was right around the corner.

I realize that none of this helps given the losses on our statements. However, I see this emerging market exposure as a hedge against the strong dollar. I will add a little more SBS (probably in the mid 3's given the currency situation). I'll probably use EDIV to fill out my emerging market exposure. I'm planning on making emerging markets about 20% of my portfolio in the next 6 months (maybe sooner).

Hate to say it, but the currency weakness, potential to decrease rates, the demographics and the debt profile (Brazil is about half the US debt/gdp ratio). All these factors make the emerging markets attractive. However, the transition may very well be a rough shake out. I still like the innovation in the US and will continue to selectively add technology on weakness.

Long Diatribe, but the current market reaction to the FED situation has to make one question all assumptions.

Good Luck

FL

[listner]

Flatlander: I have concluded that this is a bad investment which I should have managed better after such drop and getting to nearly 10 year low. It did not hold at 3.88 or 3.85. Almost 50% drop from May 2015. I cannot take big loss at this time and will hold for 3 to 5 years. I hope you do well. wrong assumptions and hope about this company.All the best.

[flatlander_60048]

El Erian on Emerging Markets. Once in a decade opportunity.

http://www.cnbc.com/2015/09/14/allianzs-el-erian-bumpy-road-ahead-but-will-create-lots-of-attractive-opportunities.html

[flatlander_60048]

This is a pretty screwed up environment. The Fed held off on interest rate increases supposedly due to concerns for the emerging market. Yet the emerging markets are likely to perform worse in the short term if Fama, French, Seymour are correct. The hedge fund managers like Seymour are looking for a signal that conditions are changing that would favor value (i.e., emerging markets) over growth yet the Fed holds off out of concern for these markets. I guess its a question of the underlying economy vs the traders looking for the market signal. However, one might argue that money flowing into the emerging market bond and stock markets would help lift the currency and thus benefit the real economy and not just the market.



FL

[flatlander_60048]

In a perverse way the Fed holding rates may be a short term negative for value stocks including SBS. A couple Nobel Laureate economists from the Univ of Chicago (Fama and French) showed that value stocks (of which SBS is most definitely) perform best when rates begin to rise. Seymour who follows Brazil closely said that the EWZ was likely to see another down leg and bottom in October. He had been looking for it to rally this week if the Fed hiked.


I'll probably use any strength tomorrow (due to temporary dollar weakening or otherwise) to either trade some shares or sell some call contracts. Hate to say it but if they are right we could revisit upper $3 range again in the next few weeks.

Regards

FL

[listner]

Flatlander. I have been traveling so did not see your response earlier. As I predicted the Feds left the rate at zero as anticipated and as witnessed with the rallies in last few days. Market insiders knew it and the noise around the rate hike was just a Charade.The cheap SBS shares have moved up to 4.39 so if there is another drop I may take additional position but at the moment I am staying put and not embarking on a trading strategy considering myself holding it for 3-5 years. Thanks

[flatlander_60048]

http://investorshub.advfn.com/boards/read_msg.aspx?message_id=116964969

[flatlander_60048]

try this link instead.

[flatlander_60048]

Quick link to a SBS post on the Demographic tailwinds board.

http://investorshub.advfn.com/boards/post_reply.aspx?message_id=116875781

I do not have any financial or other interest in IHUB, I just find the format (chronologically listing responses), the ability to attached links and the quality of the posts to be much better than yahoo. I also use investor village, but there wasn't an SBS board there.

FL

[flatlander_60048]

Not sure why the graph dropped SPY from the comparison. I'll try one fore time.

http://finance.yahoo.com/echarts?s=SBS#{"range":"5d","allowChartStacking":true}

[flatlander_60048]

The ability to trade around the core and sell calls has definitely made it emotionally easier to tolerate the volatility. The problem is you need to decide what percentage of you holding that you would be willing to sell which can also feel bad when SBS goes on an extended run (which we both believe it will at some point). I usually find that market volatility gives me enough chances to repurchase if I desire to.

SBS has been firming the last couple of days, and almost looks like it is becoming negatively correlated to the S&P (see chart below). Tue&wed last week and today SBS appears to be moving opposite of the SPY. On flat days not much happens. For me, this would be a positive if it persists, since I still have exposure to the US market. However, a week is to short to read too much into it.


http://finance.yahoo.com/echarts?s=SBS#{"range":"5d","allowChartStacking":true}


Regards FL

[listner]

Flatlander: Thanks for the suggestion. I will muster up some will and cash to buy the cheap shares may be 25% of my position and use as a trading vehicle. I want to see first if it maintains at 3.85 or goes lower. Best to you. Rate increase may no happen in September but can happen in October or most likely i December. The market knows something and the S&P is going up and futures are strong.

[flatlander_60048]

Tim Seymour Fast Money just stated that Brazil and Emerging markets will rally on a Fed rate hike. Said the hike is more than priced in and the uncertainty being lifted will act as a catalyst for these markets. Certainly counterintuitive, but is very similar to what I'm seeing in the currency markets (in terms of the inflection point being near).

Looks like early next week might provide another opportunity to add cheap shares, but if Seymour is right, the market could turn toward the end of the week.

FL

[flatlander_60048]

Watch to see if the support at $3.88 holds. Based on the historical pattern, the down +50% for 2yr pattern is fairly consistent with the long term conditions. So I think we are at or very close to the bottom.

It looks like the bad news (Moody's downgrade, unfavorable comparison to S. Calif) has been priced in already and the news has little additional effect on share price. Knowing your position, I would suggest designating a certain percentage of these low cost shares (say 25 - 50%) trading shares and use them to trade around your core position. Sell them during the run ups like we had earlier this year or sell covered calls out a month or 2. Buy again on the dips. This will help mitigate some of your feelings and make it easier to support the long term core position.

Good Luck

FL

[listner]

Flatlander: I am thinking of adding more to further bring my average down but uncertain at this point. If another agency downgrades the ratings, funds will be forced to sell so I hope they do not for a while. Good luck to you and all longs.I will hold for 3 to 5 years. That's the plan.listner

[flatlander_60048]

Brazil Downgraded to Junk Status

S&P Downgrades Brazil to BB+. Bond auction has been canceled and parliment is openly disregarding Rouseff. Dilma looks to be on the verge of impeachment. Historically credit downgrade to junk has marked the market bottom in Emerging markets. Market is down 59% in local currency and ADRs even further due to currency weakness. UBS is saying there is potentially more downside for Brazil.

I'm continuing to bottom fish Shares of SBS based on the technical support, tariff increases, improving drought outlook, and based on the fact that I do not beleive that SBS debt is as vulnerable as is made out by the credit rating agencies.

FL

[flatlander_60048]

Link to Reservoir Status

http://www2.sabesp.com.br/mananciais/DivulgacaoSiteSabesp.aspx

Cantareira and Alto Tiete stand to benefit from the 5 m3/s diversion from the Iguape River, which should come on line in 2017.

https://en.wikipedia.org/wiki/Water_management_in_the_Metropolitan_Region_of_S%C3%A3o_Paulo

However, in the meantime the reservoir storage levels will be critical. The situation was extremely critical in late may 2014 when only 8.6% of capacity remained. If SBS can build storage over this wet season (which is projected to be very wet since it is an El Nino year), they should be able to negotiate the dry season in 2016 until the improvements are completed that will pave the way for a more reliable system.

SBS indicates that they may operate water and sanitation systems outside of Sao Paulo. Does anyone out there have a sense of how big a growth opportunity this represents. Given that Sao Paulo is the economic center of Brazil and it is not even fully served, new connections to the existing system would appear to be low hanging fruit.

Major infrastructure improvements/expansion will probably wait until borrowing conditions are more favorable.

FL

[flatlander_60048]

Looks like copper may be puting in a bottom. Copper is often considered to be the most economically sensitive of the commodities. Because Brazil is a commodity exporter with its currency tied to strength in the commodity market, this bears watching. Copper could easily drop again to retest its late August low. But if it doesn't it may provide an early indicator that emerging market currencies like Brazil might finally begin to firm up.

FL

[flatlander_60048]

Saw that several of the major reservoirs received about 50mm and are approaching the normal mean rainfall for the entire month of Sept, already. With the El Nino being as strong as it is, I think the next several months will generate above normal precipitation. I look at it as if SBS can generate enough reservoir reserves this rainy season and squeek through next year, the situation should improve in 2017 when the 5m3/s diversion project comes on-line.

I think the currency and drought have created a buying opportunity where the cyclically adjusted PE is 2.5 only 1/10th of the 25 average in the US market.


The bigger influence on SBS share price this morning appears to be the strengthening Real v the dollar (see Chart)

http://www.xe.com/currencycharts/?from=BRL&to=USD&view=1W

The IMF has once again called on the FED to hold off on rate increases. Perhaps that is helping the currency situation.

FL