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From a Debtor Nation to a Creditor Nation...
in Less Than a Decade
Right now, the Brazilian economy is hitting on all cylinders. That's a huge turnaround for this country. Just a short decade ago, Brazil couldn't even pay its debts and ended up defaulting on them.
Roll the clock forward to today. Not only has Brazil gone back and paid all their debts but they're actually a creditor nation now! That's right - they take in more than they spend (which is more than the U.S. can say).
So how did this happen? Well, a lot has changed in Brazil in the last 10 years. For starters, the commodities boom has been kind to Brazil. This country produces sugar, soybeans, ethanol, and these days...oil.
In case you didn't hear, Brazil just struck it rich in oil. They just found a new oil field and it's estimated that it's the biggest oil find in the Western hemisphere since 1976. Needless to say, discovering the biggest "oil find" in over 30 years is a big deal for this economy.
At the moment, Petrobras, Brazil's state owned oil company, isn't at the stage where they're pumping it out of the ground yet. But they say this field will be pumping an initial 10,000 to 20,000 barrels a day by March of 2009. So it will be here before you know it.
But hey, that's just the start. There are at least eight billion more barrels where that came from. Some say the surrounding area my hold as much as 50 billion barrels of oil. Also, by 2011 they will be up to 50,000 to 100,000 barrels per day and "full field development" should be in play by 2013.
By the way, Petrobras is now the world's 6th largest company - larger than Microsoft, Wal-Mart and AT&T. Hard to believe, huh? But it's true.
All the sudden, Brazil is not so "exotic" anymore are they? This alone gives Brazil a very bright future for a long time. However, it doesn't end there.
Brazil - The Lender, Not the Borrower Anymore!
In the last 50 years or so, we've gotten used to the U.S. bailing out entire countries and foreign companies. Now the tables have turned. Brazil's National Development Bank just gave Ford Motor Company, yes that's right...the U.S. auto maker... a 78 million (U.S. $49 million) reais (reais is the plural of real) loan for their three plants in Brazil. That's just a start. In fact, they may lend the auto industry up to 1 billion reais before the end of 2008 (according to an email from the bank).
Think this is all a short-term fad or fluke? Think again. In fact, just this past April, Standard & Poor's granted an "investment grade" rating to the nation of Brazil.
The following month, Fitch did the same thing. When a single ratings agency gives a country their "investment grade" seal of approval, it allows many hedge funds and pension funds to invest in that region. However, when a second ratings agency chimes in with their investment grade, it opens the floodgates to all investors - particularly pension funds, hedge funds and mutual funds.
So this party is just getting started.
Where does Brazil stand now? For starters, the country has a trade surplus. They took in US$2.7 billion in June and they have a 12 month trade surplus of US$30 billion.
That's something the U.S. hasn't been able to boast in decades. We have a huge trade deficit here.
On top of this, Brazil's unemployment rate has dropped 7.9% recently from 8.5% in April. So as the jobless rate continues to fall and the rate of inflation continues to rise, the central bank gets the green light to hike rates further.
See the problem in America is that the inflation rate is heading higher but so is our unemployment rate. See the differences? Brazil has everything going for it, while America has everything against it right now.
Exotic or Not, Well-Managed Countries
Are Ripe for Investment
Back to Warren Buffett...he loves well managed companies. So it stands to reason that he loves well-managed countries as well. I think now you can see why he loves the Brazilian real and why I do too.
In fact, it's difficult to think of the Brazilian real as "exotic" or "emerging" anymore.
Sean Hyman, Currency Analyst
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