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djemonk (< 20)

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3

Owning physical metals

May 05, 2011 – Comments (2)

If someone were to come into possession of physical metals, what would they do with them?  Do you just put them in a safe deposit box and pay to have them stored?  Do you liquidate them and turn them into dollars and reinvest those dollars?  [more]

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7

How to value gold?

March 12, 2009 – Comments (2)

Other than politics, very few subjects on this site seem to attract as much debate as gold.  I posed the question to TMFSinchiruna of why he expected the price could go as high as $2000 an ounce and his very reasonable answer was that this was roughly equivalent to an inflation-adjusted high in gold prices from around 1980.  I think gold peaked around $1000 an ounce back then and roughly 3% inflation would have that number doubling in 24 years, so if you think that gold will get that "fundamentally strong" again $2000 is a reasonable estimate.  [more]

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13

Why CAPS is good

March 03, 2009 – Comments (0)

This is really a fantastic and diverse community.  CAPS has really helped me refine my thinking, it's expanded the realm of investment ideas that I've been exposed to, and it's challenged me to learn more about investing.  The diversity of this community is, in my opinion, a great strength.  Through this diversity, I've encountered a number of individuals who have challenged my beliefs and, while they might not all have changed those beliefs, they did force me to take a good, long look at what I'm doing and why.

Through this community, I've learned a lot about TA even though I'll never be a trader.  I've learned about gold investing, which I will file away for later.  I've seen that a top-notch group of investment experts like the good folks at TMF are not much different from the rest of us.  They've got the same interests, foibles, prejudices, and talents that the rest of us do, so there's no reason that our investments can't do as well as theirs.  More than any of that, I've gotten a TON of good ideas and I've had a chance to start testing out some of my own ideas through CAPS.

This is a great community, and I'm glad that it's here.  [more]

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7

Investing in Brazil

February 27, 2009 – Comments (10) | RELATED TICKERS: PBR , RIO , ITU

I've been doing some investigating of (and investment in) Brazilian companies.  There are a couple of reasons for this.  The first is Goldman Sach's reports on BRIC nations which projects roughly an 800% growth in the Brazilian economy between now and 2050.  Other countries have much higher projected growth rates, but I'm unable to parse the culture codes of China and India or their governments.  I'm able to follow events in Brazil and I have friends there who can give me a "boots on the ground" perspective, so I am more confident in the chances of my Brazilian investments working out.

The second reason is that the leading indicators are strong for the Brazilian economy. The tech industry in Sao Paolo is hiring, the airline flights are full, domestic production and consumption are both up, imports and exports are reasonably balanced (which allows the Brazilian economy a higher degree of decoupling from the financial crisis), credit is flowing freely and actually increasing, inflation is under control relative to past experiments in floating currencies, and the overall outlook in Brazil is positive.  I believe the Brazilian economy may have already gone through the worst that they are going to experience and they are returning to growth.  Slow growth, but positive growth.

The third reason is that US dollars are unreasonably strong right now, and that strength can't last forever.  I want to use my strong American dollars to buy assets valued in (currently) weak Brazilian Reais and wait for the dollar to weaken vs. the Brazilian Real.

So I have the interest and I see the opportunity.  

I'm starting to put together a list of Brazilian companies to watch.  The first is Petrobras (PBR).  This is the company that put Brazil on the investment map.  For the past year, I've been watching them and they've found billions of barrels of oil offshore so they've got a strong asset base, they've got the technical capability to drill this offshore oil economically, and should be profitable as long as oil stays over about $30 a barrel.  Anecdotally, project managers at Petrobras wind up living in posh apartments in Rio overlooking the bay, so Petrobras has the abililty to attract the best minds in the country.  The risk to Petrobras is that it's in the oil industry, which is subject to nationalization at any time in developing economies.  Outright nationalization is unlikely, as the Brazilian goverment is already the majority stakeholder in Petrobras.  However, the larger risk is that the recent offshore oil finds may cause the government to create a second, fully-government owned oil company and award the offshore oil contracts to that company and not Petrobras.  Still, with oil being cheap Petrobras is cheap and is, in my opinion, worth the risk.  

Vale (RIO) is the 2nd largest mining company in the world.  They are the leading producer of iron ore and are one of the major players in nickle and other industrial metals.  They have an extremely strong balance sheet with very low debt (only BHP Billiton has a lower debt ratio among large diversified miners) and are taking control of their distribution channels.  Vale recently purchased several large tanker ships so that they can transport ore on their own, and Vale owns more railroads in Brazil than any other company.  Mining companies that do not specialize in gold have recently taken a beating due to cratering commodity prices, but Vale is still profitable albeit less profitable than they were a year ago.  The industry of extracting iron ore and nickel is much less sensitive to political pressure than oil, so Vale is, in my opinion, a more conservative play than Petrobras.  

Itau (ITU) is now the largest bank in South America.  They were a large bank in Brazil and were the source of a lot of Brazilian credit cards, but last year they bought Unibanco and the merger produced a banking behemoth.  The Brazilian banking industry, in general, is strong, well capitalized, and flushed with top-notch, highly educated talent.  The technology that supports most Brazilian banks is highly secure, cutting-edge, and very sophisticated and it's run and maintained by people who could fit in among the best and brightest technicians in New York or Silicon Valley.  Financial shares of every flavor have suffered tremendously over the past 12 months and Itau is no exception.  I don't, personally, know how to value a bank but if you assume that bank stocks are oversold then Itau is a good play.  If you know more about valuing banking shares, I'd love to hear from you.  

Other Brazilian companies that I am watching, but have not yet been able to place a value to are Sabespa (SBS), the major water, sewage, and utility company in the state of Sao Paolo, Ambev, the largest Brazilian beverage company, Sadia, a packaged food manufacturer, and Embraer, which makes large airliners.  [more]

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7

Gold or stocks?

February 20, 2009 – Comments (11)

It's easy to see which is the better investment over the past few years.  I, personally, believe gold to be at or near it's peak.  It may spike in the near term, but I stand by my assessment that buying now is buying when gold is expensive.  Buy low, sell high.  [more]

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