Monday, 2 March 2009

Buffett Says U.S. Economy ''In Shambles.´´ He Says Recovery May Take Longer Than Expected

Click here for the link to Bloomberg News' story on Warren Buffett's annual letter to shareholders. Good news is that he sees good opportunities in the market -- and he will buy. Markets unfortunately didn't react to his overly-optimistic message: The Dow Jones Industrials fell below 7,000 for the first time since 1997 today. Please see the graph above -- spooky!

Bancolombia Expects to Conclude Subordinated Bond Placement This Week as Colombian Corporate Bond Sales Thrive Amidst Crisis

Bancolombia, Colombia's largest bank, said its board approved the sale of up to 1 trillion pesos (about $440 million) in peso-denominated subordinated notes. Proceeds from the sale will be used for general corporate purposes. The bonds might have maturities between four to 15 years, we heard from a market participant who deals with corporate issuances. We believe this is a sale aimed at bolstering capital (we were just told the placement will likely be a sale of Tier 2 bonds. its first-ever.) The sale should be concluded this week, the source told us.

Although the bank seems to be well capitalised, it ramped up provisioning of bad loans in the second half as the quality of loan portfolios deteriorated across the board. The company said on its full year earnings report courtesy of PRNewswire that ''during 2008, allowances for loan losses increased to 2.13 trillion pesos (4.8 percent of gross loans and financial leases), maintaining the level of coverage, measured by the ratio of allowances to past due loans, close to 135 percent.´´ The number is considerably high but good, giving Bancolombia a good coverage in case delinquencies spike. ''The delinquencies ratio -- loans overdue more than 30 days -- increased slightly to 3.6 percent by the end of the quarter ended December 31, 2008 from 3.5 percent the previous quarter.´´ This might mean that either they turned more stringent in their credit policies or are only catering to the most creditworthy consumers and companies.
Results for the foruth quarter were also affected by the higher level of provision charges -- net provisions totaled 474.7 billion pesos in the three months ended in Dec. 31, marking an increase of 95 percent fromt he third quarter of 2008 and and a 125 percent jump from the last quarter of 2007.

Click here on this link for the release of full-year results.

In a recent posting (click on this link to read it,) we highlighted the growing activity in the domestic corporate debt market. Although the economy seems rather battered by the impact of the global downturn and the decline in demand for commodity exports, the corporate debt market looks increasingly resilient. Food companies such as Alpina have made their debut in the local markets. In contrast, Brazil has only seen one significant debt sale. In other countries like Mexico, the sale are most focused on commercial paper -- a market for debt with maturities of less than a year.

Why Don't You Just Shut Up Once and For All? Chavez May Lose Voice Due to Long Speeches

A doctor did what Spain's King couldn't: tell Hugo Chávez to stop talking. Click here to read a Reuters report on this.

Digicel Plans to Sell $435 Million of 2014 Senior Notes: New Issuances

Digicel, the Bermuda-based telecommunications company that provides wireless phone services in the Caribbean and Central America, plans to sell senior unsecured notes in international markets. The sale may take place as early as March 4. The relevant info follows (the numbers come from people involved in the sale:)







We Recommend Shunning Shares of Ingrid Betancourt. The Revelations of the Three Americans Finally Break an Absurd Code of Silence

Ingrid Betancourt was the symbol of Colombia's cruel war for years. The former senator was abducted by the FARC guerrillas for about seven years, kept in captivity under miserable conditions. Her release took place last July, in a successful counter-intelligence operation launched by the government of President Alvaro Uribe. Her release was nothing but spectacular and fanned optimism over the decay of the FARC and the possibility that Colombia would someday finally be in peace.

That infamous symbol is over, thank God!

On Friday, three U.S. contractors who were also retained by the FARC for 1,976 days after their plane was shut down by the guerrillas (they refuse to be called spies but they probably were spying on the FARC's drug operations) released a book in which they thrash Mrs. Colombia War Symbol, a.k.a. Ingrid, accusing her of hoarding and stealing food, complain about her attitude to her peers in the camp and tell a tale of cruelty, envy and arrogance. As AP Bogotá-based writer Frank Bajak said in his story, the Americans revealed that ''she was haughty and self-absorbed, stole food and hoarded books, and even put their lives in danger by telling rebel guards they were CIA agents.´´ What a national heroine we have in this country!

But here comes the funny thing. As if it were a sort of an offense against Colombian sovereignty, politicians, clerics, children, the poor and the rich -- everyone -- came to the attack of the three Americans (as if they hadn't been kidnapped and put under the same suffering of the national heroine for long years) to defend our brave former senator. Colombians alleged that the Americans had broken a slient, tacit, Biblic-if-you-fancy code that states ''kidnapping jungle experiences die in the jungle.´´ Pure BS. It seems that Colombians are afraid of the revelations about their lives in the jungle -- I don't know what kind of secret code was that or where it did come from.

The truth is, that code exists no more, thanks to the bravery of these three spies who seem freer and less inclined to worshipping false idols like Betancourt than 44 million people. Looks like life in a FARC camp is pretty much a season of ''Big Brother,´´ that horrendous reality show were contestants love stabbing one another in their backs, cheating their couples outside the house where the show is filmed, intriguing for and against others ... well, I can only say I laughed when I read the news.

Since we write about markets here, I will put this on market terms: Colombians, please sell your holdings of Ingrid Betancourt shares sooner than later. I urge the rest of the world to do the same. Stop believing in her. If you once were sympathetic to her mother, the former beauty queen and
pedantic longstanding member of Bogotá's oligarchy, Mrs. Yolanda Pulecio, shun her stock quickly too, before they tank like Citigroup Inc.'s stock. Those two are the reflex of a fetid Colombia -- and I don't mean their suffering should be overlooked, but carefully assessed, put into perspective. Truth is, Ingrid Betancourt's irresponsible attitude during the aftermath of the breakdown of peace negotiations in Feb. 2002 led to her abduction. Her irresponsible attitude put the country and then-President Andrés Pastrana at a crossroads.

Betancourt would do something good to the world by sending back that prize she won, the Príncipe de Asturias. She should renounce to a nomination for the Nobel Peace Prize. That would be a shame for the country she says she loves so much -- but put on dire straits the day she decided she had to be kidnapped by the FARC to make a point.

''I watched her try to take over the camp with an arrogance that was out of control," Keith Stansell, one of the contractors, told AP before the book was published. "Some of the guards treated us better than she did.´´

Betancourt didn't respond to calls made by this blog seeking comment. She was in the Seychelles again, one associate of hers told us, helping her mother cope with the inexorable test of age and bitterness.

''Que viva Ingrid ... pero bien lejos,´´ one upset Colombian boy responded to me while I was sadly though firmly writing these lines against Colombia's sovereignty.

We won't advise you, dear reader, to buy shares of Northrop Grumman (the employer of the spies) nor laud the contractors' attitudes. Probably the book they wrote is worth only for their bitter criticism of Betancourt. But one things is for sure -- the tacit code of secrecy invented by some stupid Colombian person not interested in letting the rest of the world learn about the atrocities of life in a kidnapping camp is over.

Brazil Fiscal Policy Shows Signs of Slippage; Debt/GDP Ratio Up, Primary Surplus Down. Will Lula's Counter Cyclical Policy Efforts Pay Off?

The Banco Central do Brasil Friday unveiled its monthly fiscal report, and numbers were horrible -- worst than most market participants actually expected. The consolidated public sector posted a 5.2 billion real primary surplus (the difference between revenues and expenses without including debt payments. The number provides investors with a gauge of the country's willingness to accumulate long-term cash to reduce debts.) The number came below most market forecasts -- and was way smaller than the surplus posted in Jan. 2007 -- Goldman Sachs Group Inc. estimated the year-on-year decline at $13.5 billion!

The decline in the primary surplus reflects, according to the central bank report, a dramatic drop in government revenues (tax collections, tax breaks, lower royalty incomes, etc.) and a 16 percent jump in spending. We have extensively covered this issue in MM; we have also lashed out at the evident excesses of the economic salvage package. The primary surplus for the 12 months ended in January tumbled to 3.6 percent of gross domestic product -- below the 3.8 percent target for 2009. On the other hand, the consolidated nominal fiscal deficit (which includes interest payments -- yes Brazil runs a huge deficit!!!) widened to 2 percent of GDP from 1.5 percent in December. Just in one month an increase of half a point of GDP is at the very least quite worrisome.

Public debt jumped to 36.6 percent of GDP at the end of January from 36 percent of GDP in December. The government, with its push to avoid the inevitable through the irresponsible use of fiscal policy instruments, is undoing the good things it did for six years. We insist that from now on investors will be more stringent in their assessment of countries' fiscal situation. Brazil has a serious structural fiscal problem -- the government seemed to have forgotten that -- especially Finance Minister Guido Mantega, whose dream has always been the resurrection of Keynesian-like economics in a country where the state, given its huge size, crowds out the private sector in the competition for funding, tries to intervene in every single aspect of the private economy and, to add insult to injury, charges the highest tax rates in the hemisphere. We work four and half months of the year for only to pay the government our tax bill.

So we reiterate this, once again: The number and the policies are negative for the country, both short- and long-term. The data is reinstilling concern that the fiscal policy framework will undergo a serious test of faith along 2009. That markets have been misreading this or overlooking the date is a problem, but a change in their stance towards a more stringent one is a matter of time. Goldman Sachs is forecasting a drop in the primary surplus to 2.7 percent of GDP this year! Oh! Minister Mantega, a.k.a Criswell: Rating agencies will have an eye on these very ... awful numbers.