Martin Weiss: Like Buying China in 1990

By Travis Johnson, Stock Gumshoe, September 11, 2007

OK, so I’m departing from my typical sleuthing ways on this one a little bit. I spent a little time at an investing conference a few days ago, and many of the newsletter folks that you’ve all heard of were there, making their spiels or just lecturing.

One of them that I happened to hear a talk from was Martin Weiss, and I thought I’d share some of his thoughts with you, since I don’t see email teasers from him … either I”m on the wrong lists, or he’s advertising himself in some other way. He runs a shop that has several different kinds of newsletters, not unlike most of the other folks you get email teasers from every day.

But in this talk he was talking about what he believed would be “The Next China” — and the safe strategies for investing right now.

I think if you talked to Robert Hsu, he’d probably tell you that the next China is going to be … well, China.

And he might be right, but Weiss said that he believes China’s a bit frothy now (not his words), and he’s got a different pick.

Now, he does agree that the US is the wrong place to be right now — he started his talk by essentially telling everyone that they should be completely out of both real estate and financials, and that if you can’t sell those sectors off completely you should be using the PowerShares bear index ETFs for those sectors to protect you on the downside (those indexes use derivatives to return twice the loss of their sector — so if financials go down 10%, the ETF goes up 20%). The tickers are SRS for the REIT bear fund, and SKF for the financials bear fund. In my experience, these are pretty expensive and somewhat risky, but they are certainly viable hedges if you want to play both ends of those sectors or get some downside protection.

He was fairly harsh on our current political and fiscal leadership — saying essentially that both Bush and Bernanke are new at this and they have no idea what to do in the current economic crisis. So he sees the US market remaining near the bottom of the list of international markets, in terms of performance, and he thinks the dollar will fall more and that emerging currencies will continue to surge.

So, lots of gloom to begin, then he gave the two step solution for protecting your portfolio, (which I explained in part above):

1) Sell anything vulnerable. Get out of anything having to do with Real Estate or Financials, and use the bear funds to hedge if you can’t get out for some reason (like , say, stubbornness or an aversion to paying capital gains taxes).

2) Get your money as far away from the United States as you can.

He did note that there’s not necessarily a reason to rush on step 2 — once you’ve gotten rid of your vulnerable assets, you might wait a bit, because he expects that the emerging markets are going to fall in sympathy with the US for a little while.

And then, he got to the more positive part of his talk ….

He said, and this is a quote, that “buying Brazil now is like buying China in 1990.”

Of course, 1990 was probably awfully early to buy China … you would have had a few bleak years there, but you would certainly have gotten some shares on the cheap if you were patient and held through today.

Weiss, who has a second home in Brazil and spent much of his childhood there, and speaks Portuguese (though he didn’t brag about his “boots on the ground” expertise as much as I would have expected), said that before the last couple years he loved Brazil, but didn’t trust the country enough to invest there.

His major concerns were resolved in 2002 — Lula and his government made fundamental changes to the economy, paid off foreign debt, and restored some credibility to the Brazilian currency.

And in 2007, the strongest currency in the world is the Real (I have no idea whether or not that’s actually true, but it certainly has been strong).

Why is this? He credits a few of the Brazilian success stories you’ve probably heard of.

Ethanol — by now, everyone knows about the Brazilian ethanol boom — it had some trouble in the 1990s when oil prices were low, but now the relatively efficient sugar cane ethanol in Brazil is the envy of the world … so much so that the big ethanol and energy companies are dying to do acquisitions there, though they’ve so far mostly been thwarted by the old farming familes and cooperative mills.

Iron ore. Certainly this is partly a China effect, too, at least of late, but Brazil is the largest iron ore producer in the world.

Aircraft — Weiss noted Embraer (and actually pronounced it correctly, something you thankfully can’t hear me attempt … this is why the Gumshoe does not podcast), which is among the leading midsize airplane manufacturers in the world.

But, interestingly enough for a newsletter tout, he didn’t talk about INVESTING in any of those sectors in Brazil, or about ways that he might leverage his expertise in the Brazilian market to pick out the finest Brazilian stocks for you.

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