Well, we are officially in the Bizarro World. Notice I didn't write "we just entered the Bizarro World'' because it has been that way for more than a year. Stocks are easy to follow, and now that smartphones are ubiquitous, it is actually difficult NOT to know the near-term performance of stocks, especially Mega caps. Don't ask questions, don't analyze valuations, just put your faith in Janet and Jerome. It's just a complete lack of thinking. Welcome to 2021.
The bond market should be much more interesting than the on-cruise-control equity markets, and if you take the time to dig - I use Bloomberg Rates and bonds page often - you will see that they are. In some places, anyway.
After a quick check of that global Bloomberg page, I notice the amazing fact (from a historical parece, certainly not a recent one) that of the 20 countries listed by Bloomberg, 17 of them, including the U.S., of course, have 10-year government bond yields of under 1.9%. Sheer madness. That in no way, shape, or form reflects the rampant inflation that is evident in so many sectors and geographies.
Why are rates so low? Because the very organizations that issue them are selling them to central banks in the same countries that issue them. Janet meet Jerome. Jerome meet Janet. Complementary actions from complementary folks. That is how bubbles are inflated.
The only 3 countries that have 10-year government bond rates above 1.9% are Mexico (7.23%), India (6.03%), and coming in in first place - or last place, depending on your perspective - is Brazil, with a Battle of Hastings-like 10-year bond yield of 10.66%.
Guess where I am?
Even though it is an absolutely perfect winter day here in São Paulo, current temp of 85 degrees, that's not why I am here.
I seek the truth. I seek real returns for myself and my clients' accounts. I seek yield.
Brazil is so incredibly blessed with natural resources and uniquely blessed with a central bank that actually wants to quench the fire of inflation, not stoke it.
If you don't believe me, check out this passage from an article published this week (in English, thankfully) in the always excellent Brazilian Report.
The economy is flat-out rocking here. Of course the economic counterpart to roaring growth is often inflation. Brazil's central bank recently hiked its benchmark short-term interest rate, the SELIC, to 5.25% with several Brazilian central bank governors guiding toward a SELIC of 7% by mid-2022.
The contrast is so clear. Here we see roaring growth - taking into account, obviously, the base effect from comparison with the COVID-ravaged world economy of 2020 - driven by production of natural resources. Note that is not just oil and iron ore - Petrobras (PBR) and Vale (VALE) can be quite dysfunctional at times - but I own the stocks for long-term returns - but also returns for "new energy" materials that power lithium-ion batteries (nickel, copper, etc.).
But Lithium-ion is not the only game in town. Elon Musk might think the four-day long fire that broke out this month at his Tesla (TSLA) Megapack facility in Victoria, Australia was "cool," but I am sure the neighbors did not. Management at Largo Resources (LGO) , one of the companies that I will be following for OHM Research in São Paulo, will tell you that the Vanadium that it mines, refines and from which it produces complete Vanadium Redox Flow Batteries (VRFB), is vastly superior to Lithium-ion in terms of control of thermal runaway.
According to www.etf.com, Brazil has eight U.S.-listed ETFs, the largest, by far, being iShares MSCI Brazil ETF (EWZ) . Year-to-date, EWZ has fallen 1.48%, while (SPY) has risen 19.55%. Therein lies the opportunity. There is such a thing as value investing.
But, in a market like Brazil, an investor really needs to find a vehicle that will capture the value from long-and short term interest rates and protect from currency exposure - the Real has been solid of late at 5.39 to the dollar after a dip in March to 5.88/1.
The ticker symbol for such a Brazil ETF is: THEREISNONE.
But I have got to get my hands on that 10.66% rate. I want that yield!
OHM Research recently announced an investment from XP Investimentos, the red-hot Brazilian investment firm that seems to be the destination of choice for the "cool kids" in the Sao Paulo investment community. There are so many opportunities here.
Stay tuned for more news from me on that front, and buy a little EWZ to have exposure to Brazil in your portfolio. Your can buy into Janet, Jerome and Joe, or you can buy into the materials that run your car (oil), heat your home (natural gas), provide the raw materials for China's growth boom (iron ore and coal are the main materials in steel production) and those materials that will make up cathode side of the batteries in the electric cars that your kids will one day drive (nickel, copper, niobium and many others.)
It's your choice.