Firstly, the election is not even news there. It’s almost as if everyone, especially the markets, know Dilma is going to win and a little drama keeps the notion of a healthy democracy alive. I couldn’t find a single person who was passionate about it. The consensus from cabbies and bankers was, “If it ain’t broken, don’t fix it.” The cabbies all suspected Lula is Dilma’s man and the bankers don’t care as long as the band keeps playing. Prices were high. The currency is shockingly strong. The general vibe is upbeat and optimistic. Unemployment is around 7%, a historic low. Capital inflows are increasing every month. Brazil is bullish.

Who would have imagined that these are the kind of “worries” Brazil has now, the economy is so hot they have to keep money out to tame inflation or asset bubbles and are afraid of “overheating.”  How the world has changed!  Brazil’s economy may overheat as too much foreign investment flows into the country, said Luciano Coutinho, president of state development bank BNDES.  “We are worried about excessive inflow or excessive growth this year,” Coutinho said during an interview at Bloomberg’s London office yesterday. He added that the government is seeking economic growth of 5 percent to 5.5 percent in 2010.  Foreign investors are piling money into Latin America’s largest economy as the country builds houses, roads and stadiums for the 2014 World Cup soccer tournament and 2016 Olympic Games in Rio de Janeiro. Gross domestic product has tripled since President Luiz Inacio Lula da Silva came to power in 2003.  Foreign direct investment will jump 47 percent this year to $38 billion, according to the median forecast of about 100 economists in a central bank survey published this week. International investors added 20.5 billion reais ($11.4 billion) to their stock holdings last year, the most since records began in 1994, as the benchmark Bovespa Index gained 83 percent. (Bloomberg)

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Private Banking

Well, when the Economist has on their cover an article announcing the advent of a nation state then you know it is happening. Insiders are all predicting the perfect storm for the growth prospects of Brazil. Our strongest picks are Banco Itau Unibanco, Banco Bradesco, Petrobras and VALE. They are Brazilian companies.

I just watched this FT interview with President Lula and he makes a convincing case about the payoff of the investment portion of the economic formula. Again, we want our investors to be at the center of this rising tide. I don’t get tired of the message: Brazil, Brazil, Brazil. Brazil means Vale, Itau, Bradesco, Petrobras.  Take a look.

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Offshore Banking

http://www.ft.com/cms/4fe40d1a-07b4-11dd-a922-0000779fd2ac.html?_i_referralObject=11304702&fromSearch=n

As the Economist poignantly just reported,
A couple of months ago it looked as if the election would be a straight fight between Ms Rousseff and José Serra, the governor of São Paulo, of the opposition Party of Brazilian Social Democracy. In addition to Ms Silva, the list of possible candidates has expanded to include Heloísa Helena, who leads an earlier leftist split from the PT, and Ciro Gomes, a populist former minister in Lula’s government.

The splintering of Lula’s political base ought to be good news for Mr Serra. Hugely experienced but lacking a popular touch, Mr Serra commands a consistent 40% or so in pre-election polls, 20 points ahead of Ms Rousseff. He has recently spent time in the poorer north-east. And he has started revealing mundane aspects of his life on Twitter. João Augusto de Castro Neves, a political consultant, reckons that Mr Serra will wait for as long as possible before declaring his candidacy to avoid the sort of attacks that Ms Rousseff is now attracting. Being the front-runner is not easy and the race, which suddenly seems to have begun, is far from decided.

Our assessment is that Mr. Serra, a conservative, is indeed hugely experienced and Ms Dilma will continue the existing administration´s status quo….either way the status que from an investors standpoint is the same. Good news for investors,in other words.

Not a Shoe In After All

http://www.economist.com/world/americas/displaystory.cfm?story_id=14313751

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Family Office

Since we have been mostly based between Argentina and Brazil, I’ve had a chance to get a real hands on sensing of the “Zeitgeist” of these countries and their economic potential. Brazil feels like the United States in 1982. The market is quickly expanding in every way imaginable and on a development model very similiar to the United States. It is also very big (200 million people with a 2 trillion dollar economy).The Brazilian capital markets and banking system are well development and Sao Paulo is an economic powerhouse. There is also a “wild, wild west” feeling about the consumer market potential. The nation has a strong sense of identity and a relatively homogenous culture, which is good news for smooth expansion. Folks have similiarcultural and consumer “sensibilities” in my estimation. It will be the 10th largest economy in ten years. The Brazilian dilemna revolves around the public security crisis and stamping out corruption. It will happen in time. The forces of reform are too strong and the stability of the Lula administration (after Cardoso’s stable government) have put the momentum on the side of legitimacy. I am a believer in the future of Brazil and I think the big economic stakeholders will prosper over the next decades. This is a growth country! There will be a lot of “millionaires next door” popping up as a result of successful small businesses. Brazilians are patriotic, creative and innovative people. They are also, yes, very hard working and just know how to have fun.

Not Exactly Like the USA in 1982

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