Brazil's Economy Continues to Falter: Inflation Soars, Currency Plunges

After the ongoing negative economic news associated with Brazil, it could be thought the worst is over and the country is close to a rebound. That's not the case though, as the vast majority of data concerning the country remains bad, or is getting worse.

The major concern for some time has been the probable loss of its investment grade rating, which when coupled with numerous other weaknesses, such as the plunge in value of the real versus the U.S. dollar (now at a 12-year low) and the increase in costs of public transportation and utilities, creates a scenario for country that will weigh on much of its economy, market and companies with exposure there.

The lending rate in the country stands at 14.25 percent, the result of efforts to rein in inflation.

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China's Communist Leaders Can't Manipulate or Save Its Stock Market

With confidence in its Communist leadership waning in regard to its ability to manage its economy and the value of its stock market, Chinese leaders have been attempting a plethora of steps to stem the plunge in its stock market. None of them have worked, and neither will the latest move to limit those shorting the market.

Effective immediately, the new rules, initiated by the Shanghai and Shenzhen exchanges, ban traders from shorting stocks on the same day. That of course increases the risk for those shorting the market, which will theoretically decrease pressure on it.

Why this won't work is the issue isn't what the short sellers are doing, it's the reason they are able to do it profitably in the first place, which is the Chinese market hasn't been able to justify it valuation, which is why it has plunged almost 30 percent since June.

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Declining Consumer Spending Pushing China Back To Infrastructure Boondoggles

Even though the official numbers from China's National Bureau of Statistics suggest consumption is moving steadily along, accounting for 51.2 percent of GDP, and following on the heels of the 12 percent boost in retail sales in 2014, there are questions these numbers may not reflect the reality on the ground.

It has been pointed out that "private surveys and results from consumer product companies" paint a different picture; one that draws the conclusion that consumer spending has been level or contracting.

Other data contributing to this as being the likely scenario are the PPI in April dropped for the 37th month in a row, and manufacturing in China, with a 49.2 reading in May (-4.6%, missing analysts expectations of -4.4%), confirms it is contracting faster than believed.

The point is the decisions and proposed spending actions and focus of Chinese economic leadership reinforces the strong probability China is struggling to not only grow its economy, but to keep it from contracting.

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Britain Says No More Indian Aid

Britain announced it'll be stopping financial aid to India by the year 2015, as British domestic opposition has grown in light of economic struggles at home, while India continues to grow rapidly.

British International Development Secretary Justine Greening said this, "It's time to recognise India's changing place in the world."

Savings by the cut off date will amount to about GBP 200 million. At that time Britain will no longer make any financial commitments to India.

When taking into account the fact that India has offered a credit line of $5 billion to Africa, it does make one wonder why Britain continues to put aid into the country, especially when its contribution is so small.

This is of course a political decision, one that British officials should have made once the economy started to come under stress several years ago. But since there were some existing promises and obligations, the country did have to work through them before shutting aid off completely.

Interestingly, India is now the third-largest investor in Britain, confirming the fact that economic aid to them from the British is the product of a day long gone.

Boeing (BA) Sees Indian Plane Traffic Market with Highest Passenger Growth

Boeing (NYSE:BA) said it sees India being the fastest growing market for airline passenger traffic growth over the next two decades, as measured by percentages, outgrowing even China in that regard.

Including all of South Asia, which entails India, Boeing estimates growth to be at an 8.4 percent annual clip. China is expected to grow at a rate of 7 percent during the next 20 years.

As for the number of aircraft expected to be acquired by India, Boeing sees them needing about 1,450 new planes to serve the growing market by 2031. That could generate $175 billion in sales.

Even though time frames are difficult to project into, as the Indian air traffic market has shown over the last year, where it dropped by 1.1 percent in July from 2011, in general these numbers should hold pretty well, although it's certainly possible a couple of years could be slashed or added as to when the planes will be acquired.

Other questions have also arisen over the competitiveness and management of Indian airlines, as strong competition has resulted in prices being slashed, which has led to low margins. Also a factor is the rising cost of jet fuel and the outrageous taxes imposed by the government of India.

India's other major problem is its anti-business stance which makes it extremely difficult for companies to successfully do business with the country.

Boeing has yet to deliver the first of its 27 Dreamliners ordered by Air India, which is owned by the government, as an ongoing dispute over compensation Boeing should pay from production delays which resulted in the delivery schedule being altered weighs on the deal.

Also of note is makers of planes have been battling fiercely for market share, which has resulted in them cutting prices up to 50 percent for some plane models in order to win business.

Airbus recently won a major $7 billion deal from Philippine Airlines Inc, leaving Boeing with nothing to show for intense lobbying by the United States on behalf of the company.

Watch for BRICs to Bottom Out

The BRICs are in a unique position at this time, as the economies of the countries are looking for bottoms whereby to build back up from.

While it's definitely not time to buy as of this writing, as a provable uptrend hasn't been engaged yet, it's important to have your investment money in the sector ready, as it appears there are attempts at a bottom forming, and you want to get in close to when that happens.

It's not good to try to find the absolute bottom, but it is good to watch and wait to see that it has sustainably bounced off their bottom and are on an upward trend.

The BRICs are wildly out of favor at this time, and justifiably so. But there is always lag time from the time an uptrend begins and traders catch on, and that's when you want to invest in the sector. If you get in too early you risk a lot of time, while if you get in too late you're always trying to chase the numbers and you'll have to pay a premium for whatever companies or funds in the sector you're looking to invest in.

The best strategy is to wait until the uptrend is ensured, but before most investors catch on.

There is no doubt about the BRICs' growth in the future, with India probably being the weakest of the bunch because of draconian regulations and laws, but overall, this group of countries are where the majority of future economic growth will be, and those getting in at the right time again will reap significant financial rewards.

Other than specific funds, it's best to look at quality blue chips companies based in China, India, Brazil and Russia, as they still have a lot of room to grow, and are almost ensured of lasting for a long time into the future.

China to Build 45 New Airports on Travel Demand

China plans to build at least 45 new airports in the next five years to serve booming travel, the top industry regulator said Thursday.

The plans call for spending 1.5 trillion yuan ($230 billion) to expand air travel, said Li Jiaxiang, administrator of the Civil Aviation Administration of China.

Some 130 of China's 175 existing airports lost money last year but Beijing will support them to boost local economic growth, Li said at a news conference.

He said incomes in farming areas have risen when airports open nearby, allowing their fruit and vegetables to be flown to more prosperous major cities.

China's fast-growing air travel market is expected to pass North America as the world's biggest in coming decades.






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BRIC's Battle For African Assets

China is all over Africa--with its massive aid packages, loans, investments, and thousands of Chinese construction workers. But Brazil is set on making its mark, too, and it's hiring locally to get on the good side of Africans who want jobs and whose resentment toward the Chinese is reportedly increasing.

China's presence in Africa is suspect--while often in the name of aid, its rather sweeping investment and interest in the continent's vast natural resources is clear, as Fast Company detailed in an extensive series on China in Africa. Not surprisingly, relationships with locals are strained--Chinese workers are more often than not the ones gaining employment from Chinese contracts in Africa and tensions have exploded in some instances, leading to shootings and other stand-offs. And all of this makes it easier for Brazil to enter, as the country can learn from China's mistakes.

A railway in Liberia, for example, is being renovated in the hopes of boosting the country's economy, which has largely been stagnant due to decades of civil war. The Brazilian engineering firm, Odebrecht, hired locals to get the job done and have found smooth, successful relations as a result. "It worked perfectly," project manager Pedro Paulo Tosca told Reuters. "The majority of the heavy work was activities that we could perform with local manpower instead of bringing sophisticated equipment to the site."





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Baidu (Nasdaq:BIDU) Beats Estimates as Google (NYSE:GOOG) Falters

In a censorship battle that Google (NYSE:GOOG) lost to China, Baidu (Nasdaq:BIDU) took advantage of the misguided actions of Google to seize even more share in China and revenue growth to go with it.

Baidu Chief Executive Officer Robin Li said, “We have been gaining traffic share gradually.”

Guidance from Baidu were for revenue in the third quarter to increase 77 percent to $333 million, as it increased customers over the last three months in record numbers.

Earnings for the quarter ending June 30 increased to 837.4 million yuan, or 2.40 yuan for each American depositary receipt. That was up from 383.3 million yuan, or 1.10 yuan for each ADR receipt during the same quarter last year. Analysts had been looking for 710.4 million yuan on average.

Revenue for the quarter stood at 1.9 billion yuan, a big increase over the 1.1 billion yuan in the second quarter of 2009.

Li says the company has over 250,000 customers now, adding 33,000 more in the latest quarter.

Russia in Major Deals with Germany's Siemans

In a move to modernize the Russian economy, President Dmitry Medvedev is looking to German engineering giant Siemens.

Partnering with Siemens will be Russian Railways, which they'll work together on 22 railway switching yards throughout the country, and together produce 240 regional trains.

Siemens also landed a wind power deal where they'll install wind turbines in Russia as well.

Most products will be manufactured in Russia, Siemens said.

The deals for Siemens are reportedly worth about $2.8 billion.

OGX Petroleo and Gas Participacoes (PK:OGXPY) Hits First Dry Well

It finally had to happen for OGX Petroleo & Gas Participacoes (PK:OGXPY), and it has, as the exploration company hit its first dry oil well, after a string of 14 straight successes.

The company, while finding plenty of commercially viable oil, has yet to produce any, and while having a market value of $32.9 billion, is considered a very speculative company.

OGX primarily explores in the Campos Basin, although the miss came in the Santos Basin. The Santos basis in more difficult to read because of the heavy salts on the ocean floor, even though technology has improved a lot in that area, which has contributed to other major oil finds in the region.

The Tupi field, worked by Petrobras, is the largest oil discovery in the Americas in 34 years, and has an estimated 8 billion barrels of oil in it.

According to the company web site of OGX, they will drill a total of 27 wells in 2010, with plans for 79 through 2013.

Ford (NYSE:F) Moving 4,000 Figo's This Month

With demand growing for the Figo, Ford India (NYSE:F) said their current backlog of 4,000 units will be moved within a month from its Chennai factory.

Since the small automobile was launched in March 2010, the company has received 25,000 orders for units. These 4,000 are the last of those orders to be cleared.

Ford India President and Managing Director Michael Boneham said, "Reaching the 25,000 sales booking milestone in close to 100 days continues the Figo's remarkable rise in popularity among Indian consumers."

Ford India will start a second shift at the plant in response to the surprising popularity, along with hiring another 1,000 workers by the end of 2010.

Other cars they compete with in the segment are Volkswagen's Polo, Maruti Swift, and Hyundai i20.

Wheat Prices Up on Russian Drought Concerns

Wheat prices continue to rise on concerns over the Russian drought, and the weather in the Midwest which may hammer corn and soybeans to the point of causing significant supply problems.

This has to play out yet, and for now it's just concerns, but if the weather indeed continues as it is, it could cause prices to continue to rise.

Wheat has been pummeled for years because so many nations have been growing their own, and prices have remained down for some time.

Russia said the grain harvest this year will probably be 20 percent less than it was in 2009, declining to 77 million metric tons.

Wheat futures for September delivery grew 29 cents, or 5.2 percent, to $5.88 a bushel at a little after 10:00 AM CDT on the Chicago Board of Trade, after reaching as high as $5.985, the highest price for a most-active contract since the latter part of November 2009.

Mark Mobius Likes Chinese Equities

Mark Mobius recently said he continues to like Chinese equities, and even if the renminbi goes up some, he doesn't expect it to shoot up quickly, so it shouldn't have a negative impact on Chinese stocks.

Part of the reason is the $800 billion the Chinese government holds in US Treasuries.

"A sharp movement in the renminbi's value in either direction could potentially hurt either party, foreign or Chinese. Domestically, I think the Chinese authorities realise that," Mobius says.

He doesn't think this will be allowed to happen, so maintains his bullish outlook for Chinese stocks.

China Could Double GDP in Next Decade

Some China economic watchers are projecting China's economy to reach $7.5 trillion over the next decade, which would effectively double the size of the middle kingdom in that short period of time.

If this estimate is accurate, China's growth would be larger in GDP than the United States, combined with China's three BRIC counterparts.

There can be no doubt that China will be the economic story of the 21st century, and even with their measures to slow down their urban property markets, they will still grow at a solid pace, one that is much more healthy than it was before.

Now what is waited for is for China to successfully navigate from being primarily an export economy to one balanced with domestic growth and demand as well.

Assuming they do it correctly, they will be poised to extraordinary growth in the years ahead, which will continue to dominate the global economic growth other countries are increasingly relying on.

Caterpillar (NYSE:CAT) Investing Big in China, Brazil

China and Brazil have been the recipients of major investments by Caterpillar (NYSE:CAT) in their respective countries, as the giant builder of mining and construction equipment is expanding in major ways in the two countries.

Caterpillar will build a new plant in Brazil, while expanding at a location in China in order to build large excavators.

After focusing on emerging markets at their chief growth regions, Caterpillar is strongly positioned to run with that as departing CEO Jim Owens, who built the foundation in emerging markets slowly and steadily, will hand over the reins of the company to Doug Oberhelman, who will take over on July 1.

Oberhelman looks ready to ramp things up and build upon that foundation much quicker, now that Owens has put it in place.

Brazil Economy Smokin', Says Morgan Stanley (NYSE:MS)

Morgan Stanley's (NYSE:MS) chief economist in Sao Paulo, Marcelo Carvalho, said the Brazilian economy is growing at a quicker pace than originally anticipated, and has changed the rate from 6.8 percent to a heftier 7.9 percent.

Now that China has started to cool off their economy, especially their urban property markets, the two countries will probably continue to grow at very similar rates, which in the case of China should be more sustainable and healthy for them.

Carvalho said, the Brazil "economy is booming."

For Brazil, this is probably a sign that some commodities are increasing in demand, although that wasn't specifically pointed out.

Morgan Stanley (NYSE:MS) CEO Sees Fast Continuing BRIC Growth

Morgan Stanley (NYSE:MS) CEO John Mack said he sees continual growth for BRIC countries in 2010, unsurprisingly, led by China and India.

Concerning the weakest link of the four countries, Russia, Mack said, "Russia still has a very strong balance sheet and low overall leverage, which remain key advantages for the country. However, it continues to lag in investment due to the volatile macro environment and weak property rights."

Even though growth around the world will probably slow down because of China's fight with inflation from their hot urban property market, no growth in the U.S., and the European sovereign debt crisis.

Regardless of what the growth rates end up being, Mack stated that "Our expectation is that the fastest rates of economic growth this year are expected to be in China, India, Brazil and Russia."

Mark Mobius Continues Buying BRIC

Mark Mobius, manager of Templeton Asset Management Ltd., says he has continued buying stocks in Brazil, Russia, India and China (BRIC) over the last 30 days, and considers the drop in the market a correction, in what he believes is an ongoing bull market.

Mobius said about BRICs, “Despite the fact that a lot of people think that we are entering into a bear market, we don’t believe so. This is a correction in an ongoing bull market.”

From its April 15 high, the MSCI Emerging Markets Index has plunged 14 percent, the reason many have been running from them.

The European sovereign debt crisis and the challenge China faces with inflation has driven down the emerging markets, and other markets as well, which has in turn cut demand for raw materials, which is what these countries have a huge exposure to.

BRIC Currency Trade Strategy

BRIC Currency Strategy

With confidence in the U.S. dollar waining among a number of countries, Brazil, Russia, India and China, or the BRIC countries are looking for way to increase trade using their own currencies rather than the dollar.

The strategy is to decrease dependence on the U.S. dollar, which is extremely flawed and has a dismal future because of the Federal Reserve and monetary policy of the U.S., which makes it hard to have much confidence in the greenback in the years ahead.

Russia has suggested using a mix of regional currencies as a way to protect against the U.S. dollar and reduce risk in relationship to the volatility of the dollar.

China has experimented with allowing companies located in the Guangdong province to do business using the reminbi with members of the Association of Southeast Asian Nations, Macau and Hong Kong.