Companhia Sanea (SBS)

[flatlander_60048]

Hi listner

Sorry about bailing on Yahoo. I got pretty frustrated that they would not even allow me to cut and paste information from another site. I accepted the fact that they would not allow links but I thought they were making it impossible to support any statements.

I'm also pretty frustrated with the SBS share price drop. My average is around $5 but I've been averaging down today. My thesis is that the Brazilian Market and pretty much all other emerging markets are being hurt by 1) Quantitative Easing and 2) to a lesser extent the slowdown in China. However, the currency generally bends until it hits a breaking point, then rally's strongly. The attached chart shows the long term Real vs the $US dollar. The Real lows in 1998, late 2002, late 2008 and right now correspond to strong inflection points in the price of SBS (see Chart - unfortunately I could not find an index that allowed me to overlay the two). The ADRS for SBS are even worse since they are priced in dollars and the full brunt of the currency devaluation is apparent.

While I hate being down on this position, I'm comfortable adding for the following reasons: 1)it has a monopoly, 2) its procucts cannot be replaced, 3) it is getting tariff increases to recoup construction costs of dealing with the drought, 4) it's debt is denominated primarily in the Real and the Yen (both of which have been devalued extensively), therefore its operations are pretty immune from the currency weakness. 5) Most of SBS's debt does not come due until 2020 (see Morningstar). 6) Demographis support future growth - see Water Word Article about # of hook ups, and 7) Some very smart people are shareholders Baily and Grantham.

All that said the Fed, and Central bankers can extend this game longer than the average investor can hold out. Unfortunately the QE cycle is largely an attempt by older developed countries in the US, Europe and Japan to avoid sliding into a deflationary spiral. The problem is the debt in the developed world. The next step is likely to be even more weakening of the China currency. Eventually this race to the bottom will revive China's ability to export and Brazil'a ability to sell its commodities. If you beleive Ron Paul and his buddies at Stansberry Reseach, it will result in pronounced weakening of the $dollar. I'm not commenting on that, but I do beleive in the idea of reversion to the mean (both for share price and for currency) and I beleive that SBS will benefit from mean reversion. Whether this is the Dollar crisis that Paul predicts or just normal market fundementals, does not matter.

The market is trecherous everywhere right now. This is apparent since the stock market drop the last several weeks has not been accompanied by a corresponding flight to $US treasury bonds, probably indicating that China is selling treasuries. So for the time being the only place to hide out appears to be cash. If the dollar crisis plays out in the future, this will not be a good place to be.

What is interesting from the attached charts is the rate that SBS has pulled out of past recessionary periods. I'd encourage you to compare it to the SPY or the QQQ's to SBS. In an up period it will fly and might be hard to catch. I know my nature, and I hate buying stocks after a 20% up day. So I could see it geting away from me, since I'm afraid to chase. The long term trend line suggests a low just under $4.00. For these reasons, I've decided to ride it out and add to my position.

Good Luck

FL

PS- Welcome to IHUB, I posted a few times on the Natural resources- Global demographic tailwind board.

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


http://www.google.com/finance?q=CURRENCY:BRL