Saturday, 3 January 2009

Follow Them ... And Lose Your Shirt (Part 2)

Drake Bennett at The Boston Globe writes:

''THE DEEPENING ECONOMIC downturn has been hard on a lot of people, but it has been hard in a particular way for economists. For most of us, pain and apprehension have been mixed with a sense of grim amazement at the complexity of what has unfolded: the dense, invisible lattice connecting house prices to insurance companies to job losses to car sales, the inscrutability of the financial instruments that helped to spread the poison, the sense that the ratings agencies and regulatory bodies were overmatched by events, the wild gyrations of the stock market in the past few months. It's hard enough to understand what's happening, and it seems absurd to think we could have seen it coming beforehand. The vast majority of us, after all, are not experts ...

But academic economists are. And with very few exceptions, they did not predict the crisis, either.´´

here to read the entire article. Very good.

Follow Them ... And Lose Your Shirt

I was reading O Estado de S. Paulo last night and stumbled across this story. One friend of mine told me New Year´s Eve that my blog was missing the point because I was lashing out at the way reporters wrote their stories. BBRRRR!!!! Wrong, wrong! She is the one missing the point. The real purpose of this blog is to tell people who have little or no idea how markets work how the media reports market events. And how bad or good (in my opinion) they do that.

Well, the same specialists that have for years (and only shifted direction until after the global credit crisis messed things up in Brazil) defended long-term investment in stocks, no fundamental analysis required, because Brazil was headed for years of grandeur are now backing off and praising fixed-income as an alternative to navigate through this difficult moment. Funny. According to Bloomberg, half a hundred out of 7,000 Brazil-based funds it tracks posted returns above the benchmark interbank rate (CDI) this year. Sad. Awful. Bad. Crap! These are the same guys who told millions of Brazilians to put their money in stocks, promising returns will come magnificent, quick, regardless of the crisis. The country´s president, the finance minister and the capital markets community told Brazilians that ''the crisis wouldn´t reach the shores of Copacabana´´ (this was literally said by Finance Minister Guido Mantega in Feb. 2008. I was there, covering him at the Copacabana Palace. By his side were Deutsche Bank CEO Josef Ackermann, Itau CEO Roberto Setubal and a number of financial industry heavyweights.)

Brazilians have short memory. I don´t. (And by the way, Mantega should win the Banana Prize for the worst, most pedant, most unimaginative and politically-irrelevant emerging-market finance minister.) Bloggers should unite and create prizes for the worst government officials, the most embarrassing CEOs for shareholders and all that.

Then I read these two professors saying that the dollar and the euro will be volatile, that no possible price range for stocks is easy to forecast (and they are sure that for fixed-income the reality is different,) that it might be time to buy stocks because prices have reached a ''tempting´´ level. I wonder whether these people are really taking into account fundamentals analysis, whether they are discriminating stocks by industry, sector, financial position, degree of insertion into the global economy, regulatory aspects, etc. Is Cia. Vale do Rio Doce stock cheap, compared to ... uhhmm, let's say, GP Investimentos? Both companies are great, well managed, but mining is going through a crisis of its own, and private equity is a sector that may have to rethink itself to survive. Are these analysts telling their investors that type of thing? These two in the Estado story are surely not.

Read the last paragraph: recommended investments are CDI-linked funds, term deposits and fixed-income, plain vanilla instruments if possible. ''When the facts change, I change my opinion, what do you do, Sir?,´´ the famous quotation by John Maynard Keynes (Mantega's darling economist, photo) has become the favourite sentence of all these economy gurus. My question for them is, ''If the facts were changing more than a year ago, why didn´t you warn the public about that?´´

Why Are These Guys Talking About a Legacy Here?

Very typical American media profile. Skeptical, full of anecdotes and detail but, as often, lacking focus.

The WSJ published a profile of Colombian President Alvaro Uribe. F-Ury-bists may complain this piece was not very indulgent to their caudillo, whom they credit for having saved the country from the ferocious assassins called FARC guerrillas. The same supporters who for years have tacitly, or sometimes openly, have shown sympathy for illegal paramilitary groups. Uribe´s opponents may say it´s too soft on him. I say, it misses the real story. The WSJ says that an attempt by Uribe to seek another re-election (Is he trying to act like his Venezuelan counterpart? or is it my impression?) may put at jeopardy his legacy (as if his two terms were the only result of his democratic security strategy and not the consequence -- partly -- of years of exorbitantly-high commodity prices and irrational exuberance.)

Well, read this and reach your own conclusions. Legacy ... legacy ... what type of legacy can have a president who is responsible for the falsos positivos scandal, or the failed regulatory controls on the pyramids schemes that defrauded more than 300,000 citizens, or has most his supporters in Congress under investigation or in jail for involvement with illegal paramilitary groups? You got to give the guy credit for lots of things, but he is far from being a hero. At least, when it comes to ethics.