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ECON 401: INTERNATIONIAL ECON (Part 2 of 3) Commanding Heights: Agony of Reform. B.R.I.C. Story



May 25, 2008 – Comments (6) | RELATED TICKERS: GLD , IFN , FDX

Part 2. The B.R.I.C story has "legs" it is being repeated over and over again on CNBC. BRIC stocks have gone parabolic in dollar terms. The US has the worlds worst performing currency of 16 traded and has one the worlds worst performing stock markets. In real terms the US stock market is down almost 20% over a 10 year period. As Warren Buffet and other hedge fund managers travel the world looking for investments, it is important for LONG TERM investors to have an idea, what is outside of the US. Why are so many economies attracting capital as the US dollar continues to fall?

Today, we will cover the B.R.I.C. story. Bolivia, Russia, India, Chile, plus Poland and Britian

"WAIT! Abitarecatania! OMG! That is not the B.R.I.C. story I was told, I mean sold on CNBC!" you say.

Lets be honest most fools don't know the difference between India or China.  Bolivia vs Brazil or Chile vs Mexico. Right? You were just following a herd? Hoping things would work out right? Right?

Lets get smart and get some background on the international market.

The Commanding Heights is a FREE video series you can watch thru the internet from PBS. It provides a complete netcast of the six-hour television program as originally broadcast -- in three two-hour episodes. The episodes are subdivided into chapters, captioned, and enhanced with additional interactive content not available on television.

The Series is OUTSTANDING AND FREE!!!!!!!!!!!!!!!! Here

1. Click here 

2. Click  watch episode two

A Capitalist Revolution for the majority of the World. Governments move away from state control to free markets.

Chapter 2 The Ghost of Norilsk [4:27]

Soviet planning Norilsk, a prison camp, slave labor is component of Soviets.

Checking out the wrong book at the library, 10 minute trial = prison camp. 

Chapter 3 Behind the Iron Façade [8:18] 1980s Soviet Union

1. Britain’s Top Spy in Jeopardy – feeding dogs ________ to throw them off scent.

2. West neglected the important factor of __________ in their debrief of defector. Oil prices kept up the Soviet successes.

The people do not want to work, they have no incentives. You can put a gun to his head or provide incentives.

Chapter 4 India’s Permit Raj [3:04] India Permit Raj

Everything requires a permit.  50 Visits and 24 months to buy a $1500 computer

3. India's Hindustan vs Toyota starts same year __000 vs ___ million

Chapter 5 Latin American Dependecia [2:03] Chile 1971

Dependence theory of economic growth, reality is you falling back in long term.

Chapter 6 [3:30] Counterrevolution in Chile

1971 Chile more government, hyper -inflation, then military take over 20% per month inflation

4. "You got ____ hours to come up with a plan to fix economy."

Chapter 7 Chicago Boys and Pinochet [8:16]

Direct challenge to dependence theory, but the Generals prefer to control the economy.

5. The most famous free market economist in the world saves Chile ____________! Wins the Noble Peace prize and has major protestors for talking to Pinochet.

You can/cannot have a repressive government and a free market.

6. ___________ is the first case of a movement from communism to the free market.

Chapter 8 Heresy in the USSR. [8:08]

Questioning the system? Marxism vs Markets? 

We can't solve the problem of womens pantie hose.

My job compared to your job is much easier, if you have a market economy. 

7. ______________ to create an open market. It will take a generation to get going.

8. _________________ and _________________ went on the offensive of freedom and liberty.

Mr Gorbachev tear down this wall! 

Chapter 9 Poland Solidarity [7:32]

Margaret Thatcher helps save Poland! Seriously!

Chapter 10 Bolivia on the Brink [7:07]

189 military take over!

Who is the president this week? What is the inflation this week? \

Inflation 1% every 10 minutes! OMG! Hyper inflation! The government spends 30X what it take in.

Chapter 11 Shock Therapy Applied - Bolivia

Bolivia - Gradual stuff does not work! Curing hyperinflation (pay attention US)

The government will spend only what it gets. No borrowing from central bank. 

Chapter 12 The Miracle Year - Poland 1989 [6:57] My Favorite, I love Poland!!!!

The Poles feared they were descending into starvation. "no milk in the city"

The phone call that ended the cold war! OMG!!!!  

Chapter 13 Poland In Transition [2:39] 

Chapter 14 Gorbachev Tries China [7:17]

Write up a plan for radical economic change! Soviet economy to a market economy.

Chapter 15 Soviet Free Fall [4:52] 1991

Soviet Union will cease to exist in a couple of days.

Chapter 16 Reform Goes Awry [4:26]

Chapter 17 India Escapes Collapse [3:16]

Idea of central planning collapses in India. Planned by bureaucrats cut off from World Trade

Chapter 18 Russia Tries to Privatize [5:33]

Giving away industry.  

Chapter 19 Loan for Shares [6:18]

Red Directors


6 Comments – Post Your Own

#1) On May 25, 2008 at 10:32 PM, abitare (30.07) wrote:

7/2/2007- Peter Schiff On Kudlow & Company, AVOID US Market


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#2) On May 25, 2008 at 10:49 PM, DemonDoug (31.27) wrote:

You know what's real interesting, if you look up the 10 central tenets of Marx's Communist Manifesto, you will find that the USA has incorporated those tenets better than any nation ever has in the history of the world.  Look it up!

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#3) On May 26, 2008 at 7:49 AM, abitare (30.07) wrote:


The US has more central planning then most people know about.  Seriously, people are expecting the government to do everything for them, it is very dangerous. I saw a guy on TV that said "The only communist left are in America, there are none here."

Look at this lawyer/journalist turned stock crier, the govenment does not give him enough inflation and look how he does crazy:


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#4) On May 26, 2008 at 5:35 PM, anchak (99.91) wrote:

Abit...Thanks for the links and your perspective. But like you start with the presumption ignorance .... you should also be fairly open about yours on these countries....PBS is a great source....but you have to take it with a pinch of salt.

Your Top Bear pitch on IFN pretty much summarizes your insight.

The US has a lot of things which are way better but WAY bigger - that's the reason why its difficult to grow. Most of these economies have serious disadvantages - and in this era of global information and proximity - all it takes is a few enterpreneurs to get together - make it better and benefit from it. Bharti Airtel in India is a great example of how to change the game in Telecom. India - probably has one of most advanced wireless networks in the world. Even 20 years back -technological advancement would have had to mean - you had to somehow compress the learning and learn and adapt all the intervening steps. This does not apply to a lot of fields anymore.

AND DOES APPLY to a lot of fields - like basic infrastructure.

I do not know whether the BRIC countries will play well in this environment or not ( I am long BRICs and non-US mostly) - because with all notions of decoupling to the contrary , these markets will follow with major downside volatility with the US. However, if the local ecnomies continue to show signs of strength - then they will come back and very strongly.

 Anyway the real themes behind BRICs in a simple nutshell

(1) Brazil: Commodities
(2) Russia: Commodities and some consumer.

(3) India: Technology, Consumer

(4) China: Manufacturing, Consumer, Commodities- consumption side.

I think South East Asia still has a real estate cycle to go and India has a looming consumer credit cycle.



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#5) On May 26, 2008 at 9:07 PM, abitare (30.07) wrote:


I am bearish on everything, really. Especially the BRIC story. I posted China would fall 40% on 30 Dec 07, it has. India bull market I never bought into. I like Eastern Europe and commodities more then foreign stocks. 

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#6) On May 26, 2008 at 10:56 PM, anchak (99.91) wrote:

I will not debate you on that point .....I think the BRICs will fall this round when the US pulls back as the relaization of the extent of the problems with economy emerge - I do not share the extent of the deep noir that you are painting - just shudder if it came true, unfortunately there is a possibility with non-zreo probability.

Commodities: Did you not exit them due to the recent run? I am bullish long-run also - but closed them ( in real life) and just waiting to get in - lost a good one with AUY at $12.

Hopefully, will get a repeat opportunity. 



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