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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
The extreme US$ strength was the primary reason I was touting SBS last Aug-Sept. The ADRs have done very well while the dollar has weakened. I expect that this mean reversion correction might continue while the Brazilians move toward impeachment of Rousseff and the US primaries continue with no candidate seriously addressing the debt to GDP ratio or the entitlement overhang/demographic issues. If the Republican convention results in a Ryan nomination (after many ballots) I'd sell SBS since he will be viewed as a fiscal hawk, resulting in likely dollar strength. On the other hand I believe Sanders would result in accelerated dollar weakness, since the funding to support the expansion of social programs is not apparent.
On the other side of the coin, the Brazilians are also moving to get rid of the VP as well as Rousseff. If this process shifts to the right towards a centralist as Argentina has done, it will be viewed as a positive, internationally. Interest rates appear to be peaking and political reforms with the combination of interest rate cuts could provide a long lasting tailwind. This is occurring at a time when a considerable portion of the developed world central banks have empty tool boxes resulting in experimentation in negative rates. This is not meant to suggest that Brazil does not have lots of problems. They definitely do, however their problems (primarily stagflation and graft) have been seen relatively recently and the Volker playbook has been proven to be an effective strategy to dealing with stagflation. The graft issue will take a political reformist.
The weak Real will help correct some of the trade issues. The Baltic Dry index is up strongly in the past two weeks. Brazil is likely to be a strong beneficiary of this move. I think Rousseffs foes realize that trade deficit improvement might help Rousseff, so I expect them to press the impeachment hard now while the discontent fires are burning.
http://www.bloomberg.com/quote/BDIY:IND
Regards FL
Disclosure - I consider myself to be a political independent and don't mean to stoke any political discussions. We are in a very currency driven market, so I just want to try to discuss some factors that might influence the direction of this emerging market.
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
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
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
2016 Sugar forecast
Provides yet another reason to invest in Brazil, at least for sugar. Dilma impeachment looks even more likely today.
FL
http://ec.europa.eu/agriculture/sugar/presentations/market-situation_en.pdf
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
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
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
Brazil and Zika Virus
As if Brazil did not have enough problems, with negative GDP, currency freefall, high central bank rates, Dilma impeachment proceedings, hosting a summer Olympics that by all accounts they are unprepared for, now you can add Zika virus to the list. I think you will hear that the drought of the last 2 years has contributed to this problem. It is common for residents who have experienced low water pressure and periodic service interruptions to fill containers with tap or rainwater. This has likely provided a good breeding ground for mosquito's during the dry season.
The most critical of the reservoirs is now nearly 44% filled (up from a low of 8%) so hopefully some of the concerns will be alleviated to stop the water storage that might be contributing to the problem.
FL
I noticed the high costs of conventional US, as well. I think the problem is that it averages a multitude of different non -shale basins. The overall average is probably driven higher by the deepwater Gulf of Mexico which has a lot of post Macondo regulatory requirements that have driven up the costs. If it was just the Permian Basin I suspect the conventional oil would be half that shown.
FL
Oil -Cost of Production Graph
Anyone have any thoughts on the relative accuracy of this graph? The industry has become pretty adept at cost cutting so I'm sure the actual numbers probably change. I know the there are a lot of country specific factors that affect the degree that they are willing to subsidize to remain in the survivor pool.
FL
https://gailtheactuary.files.wordpress.com/2016/01/global-breakeven-prices-vs-daily-global-production.png
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
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
As a geologist SWC is intriguing since palladium is the principal auto catalyst for gasoline engines. There are a lot of gasoline powered vehicles in emerging markets and I don't think they want to deal with the air quality problems similar to China. It appears that clean diesel is a myth, so palladium should be better situated than platinum. The other thing I like is that palladium and platinum are relatively less abundant than gold as a 5 of the earths crust. Yet they trade at a substantial discount. They are often used for jewelry so they cannot be written off as strictly an industrial metals.
The problem with palladium is that the supply side is extremely opaque. Russia does not publish the size of their stockpile. South African mines are being propped up by the government so it is unclear if any players (outside of North American Palladium) will shut down. SWC has rightsized its cost structure, so I think they are a survivor.
However, in this environment, it is anyone's guess how much lower it will go.
I'm a definite buyer of SWC if it drops into the 3's (cash on the balance sheet). Until then, I'll watch and wait for signs of capitulation. Mining, emerging markets, crude oil are seeing their share of blood in the streets.
Regards
FL
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
Mining meltdown.
FCX -19%, CLF -12%, SWC -12%
Looks like the market is thinking the whole mining complex will go the way of Arch Coal. Thought of buying into some that are likely to survive (Maybe SWC) but the volumes do not look like capitulation.
Any thoughts.
FL
The U.S. Concerns you have mentioned have developed or become magnified over the last several presidencies including W. So there is plenty of blame for both parties. The ticking time bomb is the demographic headwind the U.S. will face in 10 to 20 years when the Baby Boomers hit nursing home age. GNW the largest LTC insurer is in dire straits and several other insurers have already abandoned this line of insurance. So who is likely to be the largest insurer? Medicaid. Start calculating the costs, they're not pretty. The debt markets may not be willing to allow the government to continue to borrow at attractive rates when the magnitude of these costs become apparent.
This is not just a US problem (most developed counties have similar demographics and debt to gdp profiles. We better hope all those millennials currently living in basements are up to the task of shouldering the tax burden that comes with these demographic conditions.
FL
Costa Rica is practicing Ecological Branding. Anyone who has visited and experienced "La Vida Pura" can see that eco-tourism is big business in Costa Rica. I don't think they could claim to be green without having a very high % of renewable energy.
It is a very interesting place. The Manuel Antonio National Park near Quepos had a plant that would play dead (shrivel up and wilt) when the slightest vibrations disturbed it. Very Cool.
Happy New Year!
FL
We probably should not read a lot into crude exports. At this point the US as a whole is unlikely to be a low cost producer able to compete in a world markets awash in crude. What we are likely to see is export as a balancing mechanism for refining. The US has more refineries set up to handle sour crude so it may make some sense to send sweet crude to areas where it can be most economically refined.
Alaska may be a broader exception, it is probably cheaper to get crude oil to Korea, China or Japan than to the refineries in the lower 48. The environmental shipping restrictions also favor the Far East. However, the trans Alaskan pipeline is running at a fraction of the capacity of 20 to 30 years ago. There is a minimum flow rate necessary to keep the pipeline running. So new sources of oil in the North Slope area will be necessary. I think this was part of the reason the Obama administration was open to arctic offshore leasing to Shell. However, Shell failed in their attempt to find offshore oil and the macroeconomic conditions appear to put future efforts on hold for years. So I don't know if much oil will even be exported anytime soon out of Alaska.
Merry Christmas
FL
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
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
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
IBB re-balancing seems to have be lit a fire under GHDX today up 8%.
Regards FL
The article you posted about declining wind power costs has some interesting international ramifications. Many wind farms were constructed throughout the Midwest in the last 15 years. The majority of these wind farms received sizable fed and state subsidies at the time they were constructed. There are now so many of them in the wind corridor areas that the rate paid for power generation during peak windy supply periods is now $0. This has been a problem for nuclear plants that can not easily shut down and start up depending on these supply demand dynamics.
In Illinois EXC is threatening to shut down three of its reactors unless it gets relief from State legislature (these facilities are huge job producers in depressed downstate regions). Furthermore, it is doubtful that Illinois could meet its 2025 low carbon goals if these facilities that provide baseline power close. Finally nuclear power was of critical importance in meeting power demand during the 2014 polar vortex periods, when other power was incapable of meeting base load demand.
It will be interesting to see if EXC gets the requested relief, or whether they will follow thru with shutting down non-economical facilities if the State calls their possible bluff and does not move by providing relief.
The ramifications to other countries, is to what extent they financially incentivize renewables at the possible expense of other power providers.
Regards FL
Both factors are certainly influencing conditions in Brazil. Australia, Canada, S. Africa, etc. are all feeling the brunt of the commodity crash. However, Brazil and much of S. America were using the windfall from the trade surpluses to prop up social programs to a greater extent than others. Those programs are crashing and the socialists are being voted out or impeached. Great programs as long as there is money to pay for them. Look what happens when the money runs out.
FL
Venezuela legislature swings from socialist control
It is interesting to see country after country in S. America voting to reject socialism. First Argentina, now Venezuela, Brazil impeaching its socialist president. It is apparent that S. America's inflation and unemployment conditions are creating a backlash against those in power. It will be interesting to see if they continue to reject socialism and whether they have the stomach to institute the necessary reforms.
As I have pointed out several times with the right reforms, S. America and specifically Brazil have several potential tailwinds (age/demographics, debt to GDP ratios relative to Developed nations, currency tailwinds, potential to lower rates to spur economies, etc.) Many of these are long term tailwinds that could last for a decade or more. However, the reforms to throw off corruption and graft will be needed before most investors will consider allocating any money in these countries. Additionally, Venezuela will need to do a lot to convince investors that the rule of law exists and that additional repatriations will not occur.
FL
What better way to take some of the heat off than go after a wildly unpopular president with single digit approval ratings.
Either way I'm hoping that Opposition leader Aecio Neves comes out of this with increased strength.
FL
While KMI is not operated as an MLP it certainly trades like one. The majority of the MLPs appear to be testing the Sept 29 lows. See if that bottom holds. I think it will hold but would wait for confirmation.
FL
Brazil - Rousseff Impeachment proceedings begin
http://www.cnbc.com/2015/12/03/brazils-congress-opens-impeachment-proceedings-against-president.html
Perhaps an opportunity for Brazil to follow Argentina in a move toward fiscal reforms.
FL
I've probably been a little jaded as well. Several of the names listed are the result of Financial Engineering, it remains to be seen whether the acquirers (3G, Buffett, etc.) will be successful in maintaining the brand while downsizing what they believe to be a bloated corporate structure.
That said I do believe that the increasing middle class in emerging markets is likely to be a future growth story. We are just living thru the one of those worldwide deflationary cycles that come about once or twice a century. These conditions exist due to a combination of demographics and debt. Due to these conditions I'd rather buy stock in companies that will remain necessary and integral to their respective economy at Wilbur Ross type levels of distress.
I think a very investible theme is governments, businesses etc trying to meet the needs of aging baby boomers while not bankrupting the taxpayers. I think genetic testing, bio-similar drugs fit this motif.
I Still find this one of the more informative boards everything just needs to be considered in terms of the economic/global context.
FL
Wow
Yeah I noticed the radar images indicated heavy rain.
http://www.accuweather.com/en/br/sao-paulo/45881/satellite/45881
So far the El Nino is playing out true to form with heavy rain in SE Brazil. However, some of the reservoirs do not have much of a drainage basin, so they appear to fill slowly. The SBS website provides a link to the reservoir levels. Next year will still be a big construction year as the river diversion water supply for Cantareira is not slated to be completed until 2017.
I was a little early in starting to establishing my positions, but all of my shares have now broke into the green. If you bought in hopefully you were able to pick up some shares in the 3's. I consider it a long term hold since the cyclical PE was below 3. The dividend should return to more normal levels when they can reduce the drought related financial incentive program. SBS tends to be pretty volatile, so I periodically sell covered calls. However, I'll wait for sideways movement before re-initiating the calls.
With regards to the Real, I believe that currency devaluation will become self correcting and it will revert to the mean. Dilma vetoed the excessive spending in the recent budget and is now trying to appear to be a fiscal hawk. This has helped the Real. The suspicions part of me thinks this is political theater or perhaps Financial minister Levy's threats of resignation are temporarily reigning Rousseff in. Perhaps the Argentine shift will envelope Brazil as well to provide broad based S. American political reforms.
Regards
FL
Burma or Myamar Elections
Jim Rogers has over the past few years indicated that Burma was one of the brightest emerging markets in the world. He indicates that in the 1960's before the Military junta that the country had one of the most vibrant economies in Asia. With the recent election embracing Democracy/economic reforms, does anyone have any thoughts on viable ways to invest in this market? The existing regime has promised peaceful transition.
Given the horrible performance of just about all commodities, it appears that the demographic tailwind is barely blowing. Perhaps a catalyst might help get the winds blowing at least in some local markets.
FL
You are correct. It doesn't look like treasury bond issuance increased as a result of the Fed bond buying, so the increased US debt levels since QE began are primarily a function of reduced tax income as a result of the economic downturn and spending imbalances. However, I believe QE still pulls investment forward in time by maintaining interest rates artificially low. It also encourages misallocation of resources. If it was the answer to all ill's why stop? The past history of money printing has not been good.
Regards FL
I believe the downside of QE is primarily an opportunity cost. The balance sheet becomes levered in an attempt to prop up financial assets (stocks, bonds, mortgage backed securities etc.) while investments in the real economy (infrastructure, retraining programs are lacking). I think the same opportunity costs losses happen at the corporate level. A company like IBM is too focused on meeting quarterly earnings using buybacks at the expense of making investments to secure long term growth.
I don't disagree, that there are times that share buybacks are a prudent use of capitol. Primarily, when better investments in future growth of the business are lacking. I think recent history is showing that way too many companies are using it as a means to prop up the share price. In many cases they are going to the debt markets to get the funds to buy back the shares. The ratings companies look at overall serviceable debt as part of the equation to determine credit worthiness. Thus, future growth can be slowed by the amount of debt taken on to fund buybacks. If the funds come out of free cash flow this issue does not exist.
To some extent the same thing happens in the Public sector. Wasn't the US debt downgraded in 2011 when members of the House refused to pass a budget due to escalating debts and deficits. Because the US downgrade was only a notch it did not have much of an impact. If it was to fall a couple more notches, foreign buyers of bonds would begin to think twice. This would certainly steal future growth if the demand for US bond falls flat.
Regards FL
Look at the chart on the company's web page. it is still in a downward trend that goes back to early 2013. The run up the last two months have taken it to up to the point where it is testing the upper channel resistance. I would only buy under two scenarios, It breaks out above the resistance (I think about 18 Real, or it breaks down and tests the long term bottom about $3.5 or 13 Real.
The Rain in Sept and early November have been good Oct was average. January and February tend to be the wettest periods. If the reservoirs fill to 50% or so they might ease some of the conservation bonuses which could set the stage for a huge increase in earnings. For all the crap Brazil gets, I think they have demonstrated a very market based approach to dealing with the drought (i.e., provided users financial incentives to reduce consumption). I think they should have also taken the other side of that carrot and stick approach and levied fines or fees against the users that increased usage or exceeded normal water usage.
Regards FL
Wow
I tend to be somewhat Bearish as well. Less so because of Obamacare than just the debt overhang that all Developed countries seem to have. I think QE and the debt overhang steals future growth of an economy the same way taking on debt to buy shares in order to financially engineer earnings takes away from a companies future growth. I'd rather see a business with good Ideas investing in R&D even if the pay-off takes 10 years.
I'm still in a balanced portfolio position but tend to like companies that meet some or all of the following criteria:
1) have a monopoly
2) provide necessity that cannot be replaced by another product
3) have product(s) result in large future cost savings for companies or cash strapped governments.
4) have share prices that are temporarily depressed with improving future prospects.
A few of my holdings include:
EXC - The auctions are tending to award a higher value for nuclear generated electricity than past years since it was demonstrated to be less impacted during the polar vortex periods;
SBS - Water and sewerage monopoly in Sao Paulo with the potential that the ADRs could appreciate if the dollar loses value or normalizes ala the Ron Paul scenarios.
DGI - just bought it on a little over a week ago when the earnings tanked. The company has a near monopoly in satellite imagery. However, the share price has been crushed by the slowdown in its private sector clients (mining, oil, large civil projects etc,). However, the defense market/homeland security has stayed strong and they are growing the top and bottom lines. I don't think they have even scraped the surface of the potential of multi-spectral imagery. This has a lot of applications to agriculture to identify nutrient deficiencies in crops, pests,etc. DGI would make an interesting acquisition for a big data company (IBM could definitely use something). I'm holding longer term despite the run its had the last week.
GHDX - Play on obamacare, NICE etc having to figure out ways to reduce costs of over treatment of certain diseases (Breast and Prostate Cancer, DCIS). They are on the cusp of profitability and just received medicare approval for the prostate test.
NVS- Still have about 25% of my original position. Still holding NVS mostly because Sandoz is a demonstrated leader in Biogenerics. The Branded Pharma pipeline is coming up against stiff competition in many areas but they compete well. They overpaid for Alcon and are trying to figure out how to reinvigorate growth of its vision care business.
Just a few of the larger positions. I'd be interested in some of the holdings of others on this board.
Regards FL
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
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
Wow
I think investors have long considered part of Brazil's potential based on the assumption that the productivity gains achieved in other emerging markets would eventually arrive in Brazil. As pointed out by your article, they have largely eluded the country. Brazil has a lot of positives (bountiful natural resources, relatively young population, leadership position in Latin America, etc.). However, they have largely elected politicians that lavished rewards in the form of early pensions to secure the elections. In other words they have functioned in a manner similar to the politicians in Illinois, the State I now reside in.
Things have reached a new low for Rousseff, Eduardo Cunha is introducing the impeachment resolution to the lower house. Part of the allegations are that she misrepresented economic conditions during the 2014 election. Don't all politicians spin the economic conditions? One outcome would create a path for Aecio Neves from the reform party. I believe this would be very positive for the economy. However, even if the impeachment resolution gets no traction in the lower house, I still believe there are many parts of the Brazilian market that are bargains (i.e., trading at a fraction of book value and solidly profitable). I'm seeing a lot of press that indicates others are also wading in.
http://www.bloomberg.com/news/articles/2015-10-23/brazil-of-all-places-is-now-a-hot-spot-for-many-stock-pickers
I'm just a lot more comfortable buying stocks beaten down than a market like ours that is rallying 2 to 3% on news that conditions in Europe are so bad that they will do another round of QE. There is very little in the way of top line growth in the world. Emerging markets like Brazil offer huge potential gains if they just revert to the mean.
My approach is not to try to pick out businesses that compete head to head in the global market (largely for the reasons your article identify's - not as innovative). Rather I've focused on suppliers of basic necessities consumed by the local population that have monopolies. I've learned that the downside is that part of the "water losses" that SBS was seeking to reduce (i thought this meant leaking pipes) was actually municipalities that either did not pay or paid less than what was owed. The encouraging part is that they are reaching settlements to clear up these past bills and hopefully improving business practices. I think a drought in Brazil has a way of driving home the fact that humans cannot live without water and a business cannot continue to serve clients that are reluctant to pay for a finite resource.
Have a good weekend Flatlander.