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Which will be worth more at end 2015?

3/29/08

sneakydeaky quiztime (III)

Oh deary me.....it's that moment again. Lock up your daughters and splice the mainbrace, it's.......

SNEAKYDEAKY QUIZTIME (III)

Yes yes yes yes yes....that moment when I, your loyal Otto, spends 45 minutes racking my brains trying to think of some decent questions and you don't bother writing in with your wild guesses because of the shame you feel in knowing NOTHING about Latin America (or translated into Spanish, Latinoamerica).

So I'm going to make it a touch easier this week; we're going for a multiple choice format. You'll get ten (YES TEN!) questions and four (YES FOUR!) alternative answers for under each one. Just pick the letter you think is right, and when you've got 'em all pop your answers on a postcard and send them to:

Otto Rock
3rd Cubicle on the Left,

St Paul International Airport,

Minneapolis,

USA


Or alternatively, use the old e-mail to otto.rock1 (AT) gmail (DOT) com. The answers will be published here on Wednesday 2nd April 2008, so you have until then to cogitate and cud-chew over it all. And the prize? Oh my stars we got a good one for you this week, cos first prize is a night out with Andres Oppenheimer, where you get the chance to hear what he thinks about Hugo Chávez, and Hugo Chávez, and Hugo Chávez and ...well.....like...errr......more Chávez.......and more Chávez.....and like...errr...more Chávez.....dude.Wowsers! Six op-ed pieces on Chávez in March either means that there's absolutely nothing else going on in the whole of Latin America or that Oppy dude is getting a serious mancrush on for the Caracas boy. YOU BE THE JUDGE.

Ok Ok, no more flimflam and on with the show. ¡Buena suerte!

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1) Which of these Latin American heads of state has NOT spent time in jail?
a) Rafael Correa
b) Michelle Bachelet
c) Lula da Silva
d) Evo Morales

2) In which country is Latin America's biggest gold mine?
a) Mexico
b) Ecuador
c) Brazil
d) Peru

3) Which country has the biggest single iron ore deposit in Latin America?
a) Bolivia
b) Brazil
c) Peru
d) Mexico

4) How many people were killed in road traffic accidents in Argentina in the four weeks March 1st to March 28th 2008?
a) 170
b) 68
c) 155
d) 225


5) What percentage of Peru's population is below the poverty line, according to official gov't figures?
a) 42%
b) 35%
c) 32%
d) 26%

6) What approximate percentage of Venezuela's GDP comes directly from oil?
a) 30%
b) 40%
c) 50%
d) 60%

7) This chart (click to enlarge)......

......shows the EMBI+ sovereign rating for three Latin American countries. Which of the follow is not one of the countries in the chart?
a) Ecuador
b) Colombia
c) Argentina
d) Venezuela

8) Who is the worst Finance Minister in Latin America*?
a) Martin Lousteau
b) Martin Lousteau
c) Martin Lousteau
d) Martin Lousteau

9) Which country's coat of arms does NOT include a condor?
a) Chile
b) Peru
c) Ecuador
d) Colombia

10) Approximately what percentage of Chile's total electricity supply (industrial, domestic, the whole works) does state copper company CODELCO use?
a) 7%
b) 12%
c) 15%
d)22%

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I'll be scouring my inbox every day til Wednesday, eager for your replies. Toodle pip!

*I'm assuming the word "is" will still apply when the answers are published Wednesday

3/28/08

understanding the stock market: lesson II

Once upon a time, a young country boy named Ken bought a donkey from an old farmer for $100. The farmer agreed to deliver the donkey the next day.

The next day the farmer drove up and said, "Sorry son, but I have some bad news, the donkey died."
Kenny replied, "Well then, just give me my money back."
The farmer said, "Can't do that. I went and spent it already."
Kenny said, "OK then, just unload the donkey."
The farmer asked, "What ya gonna do with him?"
Kenny, "I'm going to raffle him off."
Farmer, " You can't raffle off a dead donkey!"
Kenny, "Sure I can. Watch me. I just won't tell anybody he is dead."

A month later the farmer met Kenny and asked, "What happened with that dead donkey?"
Kenny, "I raffled him off. I sold 500 tickets at two dollars a piece and made a profit of $800."
Farmer, "Didn't anyone complain?"
Kenny, "Just the guy who won. So I gave him a hundred dollars instead."

Kenny grew up and became the chairman of Enron.

Bunge (BG) and luck of the markets

geddit?...oh, never mind....


As published here, a short on BG Wednesday morning was the near-term trade. It's doing very nicely as you can see...
....but although the Argentine agro strike has been temporarily suspended after Klishtina went all soft and said "please come and talk about it guys", the market gods dropped this in my lap.

Yesterday, the CBOT changed the rules on margin requirements and the short-term longs have been scared away. Plenty of soft commods contracts are down 3% or 3.5% on the day as a result.
Just goes to show that a good call is a good call but a slice of luck always comes in handy. Thanks, market-God-dudes..owe ya one.

PS. Otto sez: Cover 50% today....no greediness please.

PdVSA 2007 results

On this link, you'll find the Petróleos de Venezuela, SA (PdVSA) press release of yesterday with its 2007 preliminary earnings report (the final audited report comes out mid-yearish, but to disappoint some of you the numbers never change much).

When it opens, your first reaction as a numbers guy might well be "OHMYGOD! How can they only make U$6.27Bn profit from revenues of over U$96Bn?" This will then allow you to rail against Hugo Chávez and his commie pals. Your second reaction may be, "OHMYGOD! They produced less oil in 2007 than in 2006!" Those commie eejits couldn't pump up da volume. Well don't bother with either of those ohmygods, cos you'll be able to read that stupid crap in the English-speaking press as of tomorrow and save your breath.

Let's deal with the production numbers first. They were down for two reasons:

1) OPEC cut Venezuela's oil quota
2) Venezuela cut production due to OPEC quota cut.

That was difficult, wasn't it? Remember back in late 2006 and February 2007 when OPEC shaved a total of 195,000bpd from VZ's quota? Well I do, but you can bet your lilly trasero that the Miami Herald conveniently forgets this plain and simple fact when reporting the numbers. Oh, and I don't mean to pick on the Miami Herald*, cos I could have chosen at least a dozen other news outlet who'll tell you half truths about PdVSA results at some point in the next week or so.

So with that all cleared up, let's move on to the moolah. The thing is, PdVSA is a nationalized industry and isn't out to make a hatful of bottom line profits to wow shareholders and pay fat dividends. Don't work like dat, dude. PdVSA pays out to its only shareholder, the VZ people (via its gov't of course) all the way down its earnings sheet.

Take a closer look and you'll see PdVSA paid the VZ govt the following during 2007:

U$21.98Bn in royalties and taxes (from costs section)
U$14.10Bn in social development spending
U$5.02Bn in income taxes
U$6.17Bn in net profits (cos after all, the profits are state property, too)

In other words, from a total gross revenue of U$96.24Bn in 2007, PdVSA contributed U$47.27Bn to Venezuela in one way or another. That's 49.1% of oil revenues for the country. Or if you like, that's U$1,816 for every man, woman and child in Venezuela. Or if you like, five dollars per person per day. And hey, five bucks a day keeps the wolf from the door down here, believe me.

Also worth a quick line; in 2006, the total paid out was U$41.68Bn, which means PdVSA brought home U$5.59Bn more YoY.

So all in all, another good year for PdVSA. Remember that when you get to read the disastrous year that was for PdVSA in an English media near you soon.

* Well I do actually.

3/27/08

understanding the stock market: lesson I

Once upon a time in a faraway jungle village, a man appeared and announced to the villagers that he would buy monkeys for $1 each. The villagers, seeing that there were many monkeys around, went out to the forest and started catching them. True to his word, the man bought them all at $1. But then supply started to diminish and the villagers stopped looking. So the man said that he would now buy at $2. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. After the offer increased to $3 each, monkeys became so few and far between that it was an effort to even see one, let alone catch one.

The man now announced that he would buy monkeys at $5. However, since he had to go to the city on some business his assistant would now buy on behalf of him. In the absence of the man, the assistant told the villagers, "Look at all these monkeys in the big cage that the man has collected. I will sell them to you at $3 and when the man returns from the city, you can sell them to him for $5 each."

The villagers rounded up all their savings and bought all the monkeys. The assistant disappeared and the they never saw the man nor his assistant again. Only monkeys.....lots of monkeys.


Martin Lousteau: J'accuse

Argentine finance Minister Lousteau, you have sold your soul.


Behind the protracted and now polemic agro strike in Argentina, away from all the he-said-she-said, the pickets the anti-pickets, the posturing the speeches and what have you, the Cristina Admin wants to raise export duties on cereal products with the headline number the rise in soybean duty from 35% to 44.1%. Her gov't says it is to better distribute the profits coming from world soft commodity prices, but the latest round of export tax hikes have been met with unexpected resistance by those who plough the fields and scatter. Why is this so, when previous tax increases were met with low-key grumbling at best?

The gov't line is that the agro sector is coining it in and farmers can afford to pay more. For sure, soybeans have suddenly become wildly profitable with prices up 90% in the last 12 months (from already profitable levels, it should be pointed out). But there is a big, big difference in what soya sells for in the Chicago pits and the varied profits out in the Argentine pampa, and tarring all with the same brush is not realistic. To give an idea of some of the variables involved:

1) Large soybean farmers enjoy impressive economies of scale.

2) The most fertile pampa regions yield around three times more soybean per hectare than the northern 'Chaco' region that has only recently joined the soybean production regions.

3) Those that rent land from landowners pay rent for use of the land, normally "15 quintiles" or about an eighth of a tonne per hectare and the fertile regions. This is around U$65 per hectare at today's spot prices, and is a sizeable amount of gross margin.

4) Although farmers large and small have been hit by the big hike in fertilizer prices amongst other capital costs, the large farmer often enjoys a big discount to ticket prices and long-term deals with agrochems like Monsanto, whereas the small and medium scale farmer has no choice in the matter.

These are just four examples of dozens, but it serves to illustrate the differences in circumstances that can be found. So, on to a chart or two. What I've done here is to show how different farmers with different costs and margins will be affected differently by the export tax hike that the gov't wants to impose. So on with the show:

The first graph shows what kind of tax money we're talking about.

This model presumes the USDA forecast of 47MT soybeans will be harvested in Argentina this year is accurate, and that as per normal 95% of the crop is exported. At today's price of around U$515/MT soybean, govt' revenues add up to U$8048.2Bn at 35% retention and U$10,140.7Bn at 44.1% retention, a difference of U$2,092.5Bn. That's serious moolah, dude.*

Moving on, it's time to see if el campo really is able to swallow the tax hike as the gov't insists. We're going to look at four hypothetical situations. In the first, we're looking at a bigboy farmer with serious economies of scale and all things in favour. Let's assume the gross margin he has on soybeans is a very sexy 70%.

We can see he's going to make less money, but still brings in over U$130/MT net profit at today's spot price of U$515/MT. And hey...if you got 200,000MT of soybean to sell to the world you won't be first in line shouting about poverty and freedom and justice and liberty and...errrr....stuff...dude. He'll be fine.

Next on, another farmer who runs a gross margin of 60%. A little over U$80/MT net profit is still a pretty cool profit no doubts, and with decent absolute volumes this farmer will be making enough to buy his new SUV later this year, I reckon.

But if we start racking up costs and lowering the gross margins, things start to get tighter. Smaller farms run lower margins, what with higher labour costs, hiring large machinery instead of buying, etc etc. The problem is that they still have to give 44.1% of their gross to the government, then only after that chunk has left start paying the costs of production

At 50% gross margins (above), these people are by certainly not in line for their first million. The model has this person making a touch over U$30/MT net profit under the new tax regime, which is a long long way from the current Chicago spot. The absolute size of the harvest will likely be smaller, too. Beginning to get the point?

Now the farmer with just 40% gross margin, and the problem is manifest. We can imagine this farmer having to pay rent to a landowner, having a lower yield soil and other disadvantages to their peers, all this after paying the same gross % tribute as the guy running a high margin operation. Before Lousteau hiked the tax this little guy was getting by. Now, he's staring at a net loss for his hard work.

I'm the first to admit that these charts are pretty basic but they do illustrate a pretty basic point: The big farmer will continue to make money under this new tax code, but the smaller farmer will be put at a distinct disadvantage. And guess which sector of the Argentine agro sector is up in arms about all this? You got it, Sherlock......

Not everyone with influence is so blind, however. Take for example Carlos Reutemann, the ex-governor of Santa Fe province (and previously the famous F-1 driver) who is now a cereals farmer himself. He said today that "it's not as it seems, and not everyone is making so much money" in the agro sector, and asked the President to cool her jets and be willing to sit down and talk with agro representatives. Unfortunately, his more measured words coming from a wealth of practical experience are drowned out by the polemic views of today's gov't.

I know the above charts are simple modelling, but the thing is that if lil ol' me can put this together on my lil ol' PC with a dose of Excel, then do you really think it hasn't occurred to a finance minister with a whole office building full of qualified lads'n'lassies to help him think about deeper economic issues?

This is the point. Martin Lousteau is not a powerful minister; he's the new kid in town, and he's being used as a lackey by the real power in the gov't, namely the Kirchner crew of Julio de Vido, Guillermo Moreno and friends surrounding, as well as the real centre of the 21st century Argy universe, Neshtor himshelf. BUT, even though Lousteau himself tries to deny it, he is an economist with a Master's from LSE and everything; he knows what the grass roots effects of this measure will be very well....all too well. However he sticks to his line of "the farmers raking are all it in" and "things are worse in Brazil" and "all these people really want is to pay zero tax" and "there is no room for negotiation".

Listen up Lousteau, this is not some theoretical exercise you have to do for homework at the London School of Economics. This measure you've been told to defend screws over real people, with real families who work real hard. Small farmers will be put out of business by this measure, of that there is no doubt. The same small farmers that took the last tax hike to 35% in their stride, with minimal complaints, because they knew they could still make a living. But now they are rebelling because they've been screwed once too often.

However, you've turned your back on them all. Here comes the next chapter in the famous Argentine I'm-all-right-Jack life-after-ministry tango. A few months as minister, then resign or the boot, then juicy state pension for life and make it really rich with your own consultancy firm. Meanwhile, the laws you push through screw the small producer into the ground at the very same time grains are fetching all-time high prices at market. And for what? So your boss can buy her new train set.**

And you know all this, don't you Lousteau? You must do, else all that high-powered numerical education would have been for nought. And you have the temerity to defend this intellectually bankrupt demagoguery that's been handed to you to announce. You say you admire JK Galbraith, but he'd hate you for what you are doing to your own people. If you had any self-respect you would have resigned already. How do you sleep at night, Lousteau? How do you sleep at night?




* and **: Two years of U$2Bn is enough to fund Klishtina's grande oeuvre of a bullet train running between Buenos Aires and Rosario, priced today at U$3.7Bn. That project was signed into play last night, by the way....by Martin Lousteau, by the way....funny old world, innit?)

you guys should be paying more attention

This from yesterday's Argentine agro strike post:

"......The final words are for all you capitalists out there. Goldman Sachs pointed out the weakness in a note yesterday morning, and today soybeans traded limit up on the CBOT. this might sound big, but the limit is 50c on a U$13 contract, so you can bet your sweet bippy there's more upside to come. Another idea would be to short Bunge (BG), the grain processor with Argentine soybean exposure via its Ramallo processing plant, reportedly out of stock. A similar play (which might be used as a trade-off arbitrage with a BG short) would be a long on Archer Daniel Midland (ADM) as less local exposure allows it more leverage to any gain in soybean prices. Selling Argentine sovereign bonds may also work as a trade, as might shorting local agro play Cresud (CRESY) which is an investor-unfriendly beast even at the best of times...."

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Today we have:

Soybeans in Chicago Advance by Daily Limit on Argentina Protest

By Aya Takada and Marianne Stigset

March 26 (Bloomberg) -- Soybeans in Chicago soared by the daily limit on concern that supplies from Argentina may be curbed after farmers blocked ports and threatened to plant fewer crops in protest at a rise in export taxes............

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We also have:

CHICAGO, March 26 (Reuters) - Bunge Ltd (BG.N: Quote, Profile, Research), the world's largest oilseed processor, said on Wednesday it has declared force majeure on shipments from Argentina due to a farmer strike that has entered its second week.

"We have had to declare force majeure on certain contracts, but because we have a global asset network, we are working to serve customers with supply from our operations in other major origins," said Bunge spokesman Stewart Lindsay. (Reporting by Lisa Shumaker)

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What about that ADM vs BG arbitrage play?

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And also:

"....The yield premium investors demand to own Argentine bonds over Treasuries widened 18 basis points, the most in emerging markets, to 5.53 percentage points in New York, according to JPMorgan Chase & Co.'s EMBI Plus index. A basis point equals 0.01 percentage point.

The risk of owning Argentine bonds also surged today, according to Bloomberg data. Five-year credit default swaps based on the country's debt climbed 23 basis points, the most since Feb. 8, to 556 basis points. That means it costs $556,000 to protect $10 million of the country's debt from default...."

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In fact, of all the possible trades mentioned, the only theoretical loser was CRESY that finished 18c up at U$15.73. You might have had problems getting in on the soybean trade at it just limited up on us , but there was plenty of coin available in all the other outlined trades.

And I said this wouldn't be a stockpicking site....hmmmmm. Thank me later.




3/26/08

I got me a cellular and I knows how ta use it, Jethro

SoyaWars! has gone 21st century, and the dudes in the Argentine gov't are crying foul. According to Klishtina's henchmen it just isn't jolly well fair, cos those striking country folk have been cheating by "organizing" themselves via websites, blogs and text messages.

True for the capital too, as text messages calling for another "cacerolazo" tonight (y'know, go out on your balcony and bang your mother's best pot with a spoon for a few minutes) have been doing the rounds, like this one...
...which gives you a chance to practice your Spanish, dude. One of the main government spokesmen today complained that the protests weren't spontaneous. Sheeyit dude, don't this democracy thing suck, huh?

The mad mad world of 21st century protest Argy-style has thrown up a bit of cyberirony too...

...as some bright spark has put Martin Lousteau up for sale on the local internet auction site mercadolibre. Click on the photo above or see the full page here (until the killjoys pull it, of course) under the title "puppet minister soon to be unemployed". According to the description, for five pesos you get a... "Minister of the Economy, almost without use, including operating instructions and spare strings in case the ones currently used to operate him break. Also included at no extra charge his instruction book that says (export) taxes will have to be 8%. He'll soon be unemployed, so you will have him at your home to sort out your personal finances, a real bargain, almost unused, nearly new with less than six months' use.." All good, clean fun. Fact that it's true is really unimportant. A friend phoned me today to say he thought Lousteau would get through this mess just fine. After my first 2 minutes of non-stop laughter he began to get offended.

But this isn't all sweetness and light, y'know. There's also a Word doc going round that is organizing the farm strikers (and there are lots of them) for a march on Buenos Aires this Friday, 28th March. I've pasted it in below in its straight form, but to sum it up in a few words it explains to all the protesters how to get to the Capital, where to meet up on the way, what time to move in and where the main march will concentrate (the Plaza de Mayo, surprise surprise). The organizers are expecting around 25,000 to join the caravan, so this isn't something that either side will be taking lightly.

So why is this a little worrying? Well last night the Kirchner heavy mob, led by a really nasty shit named Luis D'Elia, converged on the peaceful and (true to say in this case) spontaneous protest against Klishtina's inflammatory speech last night outside the Presidential palace. This is D'Elia in the black shirt (oops...visual irony!) explaining to a member of last night's protest in his own special way what he thinks of anyone who doesn't like his masters.

Cute dude, isn't he? So with Kirchner's rabid animals on the loose, this Otto is a little bit more than slightly worried about what kind of reception committee will be waiting for the striking agro people on Friday in the centre of town and how it might all play out (cos those Argentine gaucho guys are no softies, either). There are plenty of chapters left to be written in SoyaWars!, to be sure.

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MARCHA FEDERAL DEL CAMPO PLAN ESQUEMATICO DE MOVILIZACION A CAPITAL FEDERAL
FECHA: VIERNES 28 de MARZO de 2008
Objetivo:
1. Lograr la presencia masiva de productores agropecuarios en el centro del poder "Plaza de Mayo" y que la situación sea el eje central de la información a través de todos los medios de comunicación de todo el país.
2. Generar la sensación publica del poder de los productores rurales quienes se mueven fundamentalmente por la Dignidad del Campo.
3. Demostrar que al gobierno le llego su limite de atropello , patoterismo y prepotencia a un sector importante de la sociedad.
Medios:
· Movilización de productores de todo el país sobre las grandes rutas nacionales
· Bloqueo de la totalidad de las rutas nacionales y provinciales convergentes a CF
· Difusión permanente sobre todos los medios demostrando el poder del campo sobre el atropello gubernamental
Organización:

o Los grupos denominados como "auto convocados" que responden al accionar de las instituciones del campo en sus diferentes formas según el territorio, bloquean las rutas nacionales y convergentes según detalle en anexo I el día jueves 27 a 18.00 hs.

o Permanecerán el lugar un grupo de 30 productores bloqueando el "centro" y el resto avanzará hacia el PUNTO DE CONVERGENCIA a marcha lenta (30/40 Km /h).

o PUNTOS DE CONVERGENCIA: recibirán a las columnas, se procederá al reaprovisionamiento de combustibles y alimentación y descanso de las diferentes columnas.

o REINICIO DE LA MARCHA TRAMO FINAL A BUE: a partir de la hora indicada según cada caso en el ANEXO II a marcha lenta ( 40 Km. / h) por la ruta designada,. En todos los casos al paso de los peajes, en caso de no ser levantadas la barreras según lo convenido con las empresas, se abonará el peaje a cargo de cada vehículo

o En los PUNTOS DE CONVERGENCIA FINAL según anexo, se hará un alto a fin de tomar contacto con el resto de las coordinaciones de columnas donde se decidirá el destino y forma del tramo final a PLAZA DE MAYO. En este punto de parada se deberá bloquear 100% el transito a CF.

o En caso de ordenarse el acceso final cada columna tendrá un punto de estacionamiento y bloqueo en CF a poca distancia de la Plaza de Mayo según detalle en Anexo III

o La coordinación en Área GBA y CF se hará mediante uso de celulares sobre líneas que se informaran en forma reservada en las ultimas 3 hs previendo bloqueo por parte de servicios de inteligencia; se usaran frecuencias alternativas de NEXTEL según detalle RESERRVADO que será distribuido personalmente entre los coordinadores.

ANEXO I
DEL PLAN ESQUEMATICO DE MOVILIZACION A CAPITAL FEDERAL –MARCHA FEDERAL DEL CAMPO
Columnas de covergencia sobre CF
RN 12/14: recibe la confluencia de productores de Misiones, Corrientes y Entre Ríos;
PUNTO DE REUNION: Ceibas ER
Estimado 550 vehículos
RN 9, RN 34 y RN 11 y RP 33: recibe la confluencia de productores de Formosa, Chaco, Santiago del Estero, Santa Fe Norte, Centro y Sur y Oeste de la Prov de Entre Ríos, Centro y Norte de Córdoba, Tucumán , Salta y Jujuy
PUNTO DE REUNION: Roldan SF
Estimado 1100 vehículos
RN8: recibe la confluencia de productores de San Luis, sur de Córdoba, sur de Santa Fe y Noroeste de Bs.As
PUNTO DE REUNION: San Antonio de Areco Cruce RP 41 y RN 8
Estimado 1500 vehículos
RN7: recibe la confluencia de productores de Noroeste de Bs.As, sur de Santa fe, Sur de Córdoba, Norte de La Pampa, San Luisa, San Juan y Mendoza
PUNTO DE REUNION: San Andrés de Giles RP 41 y RN 7
Estimado 1000 vehículos
RN5: recibe la confluencia de productores de Oeste de Bs.As, La Pampa, Neuquén
PUNTO DE REUNION: Lujan Acc Oeste y RP 6
Estimado 1600 vehículos
RN 205: recibe la confluencia de productores del centro de la Prov de Bs.As y sur de La Pampa
PUNTO
DE REUNION: Cañuelas RP 6 y RN 205

Estimado 500 vehículos
RN3: recibe la confluencia de productores del cetro y sur de Bs.As, Río Negro, Chubut, Santa Cruz
PUNTO DE REUNION: Cañuelas RN 3 y RP 6 y se suman a columna RN 205
Estimado 800 vehículos
RP 29: recibe la confluencia de productores del centro este de la Prov de Bs.As y mar y sierras
PUNTO DE REUNION: Brandzen RP 29 y RP 215
Estimado: 800 vehículos
RN 2: recibe la confluencia de productores de la zona atlántica de Necochea al Nor este
PUNTO DE REUNION: Cruce Etcheverry RP 215 y RN 2
Estimado 720 vehículos
RP 36: recibe la confluencia de productores de la zona abasto La Plata, Magdalena, Punta de indio, Partidos de la Costa, Tordillo y Madariaga
PUNTO DE REUNION: Cruce RP 36 y Autovia Mar del Plata
Estimado 200 vehículos
Total estimado de vehículos participantes: 8.770
Total estimado de personas participantes del interior: 25.000
ANEXO II
MARCHA DE LAS COLUMNAS Y HORARIOS
COLUMNA RN 9, RN 34 y RN 11 y RP 33:
Partirán desde ROLDAN (SF) por periférico Rosario a RN 9.
En Autopista BUE/ROS a nivel curva Zarate Campana se unen a la columna proveniente de la mesopotamia por Puente Zarate Brazo Largo
Partirán para BUE a las 08.00
Deberán cubrir el tramo Zarate – Av. Grl Paz en 4 horas previendo estar en Av. Grl Paz a las 12.00
En empalme Ramal Pilar y Ramal Campana se les une la columna proveniente de RN 8
COLUMNA RN 12/14
Partirán desde Ceibas (ER) por el complejo Zarate Brazo Largo a RN9 Autopista Bs.As/ROS y se unen a columna RN 9, RN 34 y RN 11 y RP 33 en curva Zarate Campana, partiendo desde allí a las 08.00.
COLUMNA RN8: partirán a las 08.00 desde San Antonio de Areco por RN 8 hasta Pilar, tomando por Ramal Pilar de la Autopista del Sol a BUE uniéndose a las columnas RN 9 y RN 12/14 en Acceso Norte Panamericana y Grl Paz a las 12.00
COLUMNA RN7: partirán desde San Andrés de Giles a las 09.00 continuando por RN 7, tomando Acceso Oeste a nivel Cortinez Lujan uniéndose con columna RN5 en cruce RP6 y Acc OESTE
COLUMNA RN5: partirán desde Acc Oeste y RP 6 a las 09.00 para llegar a Acc Oeste y Grl Paz a las 12.00
COLUMNA RN 205: partirán conjuntamente con columna RN 3 desde RP 6 y RN 205 por autopista Cañuelas a las 09.00 para llegar a Au Ricchieri y Grl Paz a las 12.00,
COLUMNA RP 29 : partirán desde Brandzen a las 08.30 para sumarse a columna RN 2 en Cruce Etcheverry
COLUMNA RN 2: Partirán conjuntamente con columna RP29 desde Cruce Etcheverry a las 09.00 para continuar por Autovía Mar del Plata y Autopista La Plata /BUE. En Cruce con RP 36 se suma columna RP36. Deberán llegar a Peaje Dock Sud a las 12.00
Anexo III
PUNTOS DE CONCENTRACION EN CF POR COLUMNAS
SE INFORMARA POSTERIORMENTE



sneakydeaky quiztime (II): the answers

click to enlarge: it's worth it

It's the moment one squillionth of the POPULATION OF THE WHOLE WORLD has been waiting for all week. It's answer time to sneakdeaky quiz (II)

So here we go; you'll see the ten questions and the answers under each one.

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1) Name the President who once said of Brazil, "It is not a serious country."

That was Charles de Gaulle of France, back in the late 60's. He said it at a press conference just after getting off his plane from Brazil. He didn't say it in English, mind.....

2) Which two South American countries publish macroeconomic statistics that can be trusted?

That's Chile and Brazil. The rest are at best "need to check carefully" and at worst "oh, these guys make me laugh".

3) Which Latin American country's cocaine production was estimated to have risen by the greatest amount in the view of the world's most respected sector study, published this week?

Nobody got this one....and my brother even guessed Colombia then change his mind to Bolivia. The answer is Peru, and the ICG report is a real eye-opener in more ways than one. Although Colombia is still the world's biggest cocaine producer yields have reportedly dropped in the last few years, but Peru's production is up significantly, due to more intense farming techniques and new growing areas. Recommended reading for LatAm wonks like me (the full report is right here).

4) Name the son of a famous Latin American author whose idea of promoting intellectual debate on the region is the automatic knee-jerk rejection of anything that doesn't agree with his political point of view and asking voters to spoil ballot cards rather than elect a president.

The answer is Alvaro Vargas Llosa, author of crap books and even worse op-eds on the region. Y'know, if it weren't for the haircut and the tacky dress sense I might even feel sorry for the guy, cos it must be tough to make your living at writing what you think is important stuff but at all times live in the shadow of a father who whips your lilly ass at writing. The call for anarchy? That was back in 2004 when Vargas Llosa shamefully called on Peruvians to boycott their own presidential elections.

5) Which South American country is about to hold a presidential election and which candidate is currently favourite to win according to opinion polls?

The answer is Paraguay, and an ex-priest named Fernando Lugo is currently leading the polls, running on a social inclusion ticket. But this is Paraguay, and anything could happen to those ballot papers on the big day.

6) Which Latin American country recorded the lowest official inflation rate in the 2007 period?

The answer: Ecuador at 3.32%. Mexico came in second at 3.76%. But you'd never guess it in Peru, where the gov't tells everyone they have the lowest inflation in LatAm. What do you call bare-faced lying these days? Oh yeah..."mis-speaking". Cool.

7) Which regional president's nickname is "squid"?

Luis Inácio da Silva. The word "lula" is squid in Portuguese. Nuff said.

8) Which famous South American soccer player is the owner of a restaurant/nightclub that was closed in 2007 for racial discrimination when it was found it barred dark-skinned people from entering?

That's Claudio Pizarro, who did OK at Bayern Munich but has been royally sucking at Chelsea (maybe he doesn't like the idea of passing the ball to Didier Drogba).

9) Which country is now witnessing the eighth consecutive day of industrial strike action in its most important export sector?

Errr....make that 14 days. The answer is Argentina, and I spent enough time writing on the whole quilombo yesterday. Here's the link.

10) Which local currency has lost 4.65% of its value against the US Dollar since last Tuesday?

The Chilean Peso. It moved from under 430 to the dollar to over 450. And I called the move, dude.....yeah...like....money.

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Top score was 4 correct answers (my brother totally sucked with 2 1/2 right, by the way), and nobody wins the prize. To the dude who wrote in with "can you make the questions a bit easier?", I suggest this. So watch out for the next installment of sneakydeaky quiz. If I don't have too much of a hangover, it'll be posted this weekend. Toodle pip!

3/25/08

Big mistake, Klishtina

You don't like my speech? Hah! Karate Chop for you!

Well, I was going to write about the ongoing agro strike as part of the answer sheet for last week's quiz, but events have just run away from me. The Argentine agro stoppage has moved from a secondary issue to a main issue to the biggest story in Latin America in the space of a few hours. Expect to hear more about it.

Firstly a bit of background. The whole bust-up started when Martin Lousteau, the soon-to-be former Finance Minister, announced early March that the gov't was raising export duties on soybeans from 35% to 44.1%, as well as similar hikes for other grains and derivative products. The agro sector went haywire and roads began to be blocked. The strike has picked up momentum in the last week or so, and it has gradually taken the front page in all local news media that don't care about oversized breasts or glutens.

Cristina Fernandez de Kirchner (CFK to her sycophants, or Klishtina to those who have picked up on that speechy thing she doesh..sorry, does) had been getting flak for not commenting on the strike, now in its 13th day. So she stood up in front of a roomful of her party faithful this afternoon and came out blazing, both barrels hot. The speech was half an hour long, but some of the phrases worth translating include calling the strikers , "the pickets of abundance", people from "sectors who neither think, nor change nor understand", "violent picketers from the most profitable sector of the last 4 1/2 years", and the money line that's already making early headlines, "I won't allow myself to be extorted". All this was greeted with cheers and applause from the roomful of faithful, and Klishtina must have felt that her strongwoman approach would make the strikers think twice. Big mistake. Big big BIG mistake. Like really big, dudette.

Not only did her speech go down like lobster thermidor at a Bar Mitzvah with the agro-workers, but the city Buenos Aires has also shouted her down tonight even though they are the very people facing supermarket shelves empty of meat, dairy and cereals in the next few days due to the roadblocks out in the sticks.

Taken today at Buenos Aires provincial town of Pergamino (click to enlarge)

Tonight, a reported 10,000 porteños have descended on the Plaza de Mayo, the scene of famous crowd gatherings at historical moments*, to protest against what they heard from their Prez. Cacerolazos (people banging on kitchen pots with spoons...don't worry 'bout it...it was fashionable in 2001) were heard even in the most uptown of city neighbourhoods (Imagine a anti-war march in The Hamptons...that's where we're at here).

Source: La Nacion, 25th March 2008 (click to enlarge)

The Cristina administration has already tried to blame the protests on the same old bunch of anarchists and subversives, but take a look at the above photo of the protests published by La Nacion tonight and smell the BS. I don't see many ski-masks or stone-throwers in that lot.

At the same time as the Prez was speechifying today, Finance Minister Lousteau (he of the 44.1% tax idea) came out with his own version of events after his own long period of roaring silence. His part of the doubleteam act was to say "There is no plan B" and that Argentina's soybean sector is 15% more profitable than that of Brazil's, and that the famers were acting like spoiled brats, and they were making loads of money etc etc. This, he reasoned, because the government protects its currency with a weak Peso policy while Brazil has been naive enough to let its currency float to R$1.75 vs the greenback. Well, as I wrote here, the arch-idiots are the Argentines when it comes to monetary policy, not the Brazilians. Let the currency float, you mop-headed ass!

As for all these profits, the land owners are doing just fine, but most farmers rent the land from owners, then work the land and pay a certain amount of the crop as rent. Then these guys have to give 44.1% of their production straight to the state. Then they have to pay for expensive machinery, fertilizers that have doubled or tripled in price, labour costs that have risen approx 20% in one year, and so on and so forth. Agro unions estimate there are 200,000 farmer workers and family living on the edge of poverty in rural Argentina. There's more to it than this potted resumé, of course, but the 9.1% the gov't has slapped (or at least tried to slap) on their goods is the straw that broke the camel's back.

As it turns out, it may even be that this tax hike is against the Argentine constitution and will get thrown out by the courts, because of clauses in the local magna carta about anti-gov't abuse and how single taxes can't go over one third of gross revenues in the country. If that happens, this Lousteau dude is buttered toast, marmalade and edges cut off and everything.

Back to the strikers, and now they have the clear support and sympathy of the general population they are playing a very strong hand (tonight, I've seen three of those unscientific newspaper internet straw polls that count 80% of people saying "Cristina wrong"....16,000 voters and counting, by the way). They've already made it clear they're going to stay out until the tax is revoked, and I'd bet my C-note to your Washington that the government backs down.

So from here we'll have a weakened President, a Finance Minister who'll be counting his tenure in days, not years (one must always have a sacrificial lamb to make headway in Argentine politics), and a government that'll have to think of a different way to raise funds to keep the economic expansion going. It's all getting rather messy.

The final words are for all you capitalists out there. Goldman Sachs pointed out the weakness in a note yesterday morning, and today soybeans traded limit up on the CBOT. this might sound big, but the limit is 50c on a U$13 contract, so you can bet your sweet bippy there's more upside to come. Another idea would be to short Bunge (BG), the grain processor with Argentine soybean exposure via its Ramallo processing plant, reportedly out of stock. A similar play (which might be used as a trade-off arbitrage with a BG short) would be a long on Archer Daniel Midland (ADM) as less local exposure allows it more leverage to any gain in soybean prices. Selling Argentine sovereign bonds may also work as a trade, as might shorting local agro play Cresud (CRESY) which is an investor-unfriendly beast even at the best of times.


*Examples: Perón and Evita victories, bombings from gov't jets that kill hundreds, Falklands war jingoism, Argentina wins World Cup, Argentina overthrows yet another government, etc

well worth a look

No time or money to visit Machu Picchu? Never mind, here's the link to an award-winning 3D virtual visit of the famous temple. The instructions are in Spanish, but all you need to do is let the 3D thing load, then drag, point, click on the eye icons, then drag your mouse across the photos that pop up to get the full 360º.

Very good website, and highly recommended..here is it again in longhand (just in case). Enjoy.

http://blogs.elcomercio.com.pe/infografia/

So how are we doing?

Two weeks into the blog, and although this isn't a stockpicking site as such I have highlighted a few stocks and other things you can trade. So let's have a look at what's happened to the ideas since posting.

1) In this post dated 11th March there weren't any specific stocks mentioned, but four sectors I like right now. I know which stocks I was thinking about of course (and you don't...ha!), but so far the stocks that fall under these headings have mostly been flat to slightly negative. Worst sector is the services (que sorpresa, huh?) and the best has been agro (one of my recos popped a sexy 15% last week, but I'm not telling you what it is...so tough).

2) In this post dated 12th March I talked about how to filter junior miners in the hope of finding an undiscovered gem. I used Nilam Resources (NILR.ob) as the example. Since then, NILR.ob has gone to U$2.25 and back to the U$2.15 starting point, but one thing to note is how it's been promoted in a paid newsletter service twice since the 12th. Be careful out there dudes, and don't swallow the hype. (Read the note to see what I think about NILR.ob).

3) In this post dated 13th March, the subject was the raw deal Venezuela gets from the financial press (and before you start we're talking economics here, not politics. Now feel free to climb back down from that soapbox, yeah?). Since then the Venezuelan currency has traded flat (as predicted). Mind you, there's not much chance of trading the VEF unless you live in Venezuela, so this one is kinda academic.

4) In this post dated 14th March the reco was a short on ECH, the Chilean ETF. Since then it's gone from U$51.34 to U$50.47 at time of writing, a drop of 1.7%. Not spectacular, but it's on the right side of the trade. Volume has been thin. The reco hasn't changed since then, and I still think it's worth shorting. The Chilean peso has been pretty weak since this note and the currency arbitrage says that ECH will drop compared to the local market prices.

5) In this note dated 18th March, the reco was "buy PCU". Pretty cool so far, as it was U$102.20 and it's now U$105.54, that's a 3.3% profit and a good start*. But as I said before, micromanaging this one is not worth your time. Buy it...hold it...retire with it.

6) In this note dated 19th March, I said Ecuador's bonds were cheap and a good buy. And hot damn!, since then the bighitting raters at Fitch agreed and hiked Ecuador's sovereign rating two notches. That's a seriously good call, and I'm tooting my horn on this one, ok?

7) In this note dated 20th March, I told you how stoooooooopid the copper and commods sell-off was and how copper and friends would rebound. And then in this note I showed you how ignorant the "professionals" are about the whole subject. Since then copper's up 3.3%. Nuff said.

So far so good, then. The call on Ecuador bonds couldn't have been timed better with a Rolex, and PCU is looking strong. Shorting ECH is at worst a good hedge in a regional portfolio and at best a killer play to clean up with on any energy shortage issues in April. Copper has bounced and confused the fruit fly analysts.

* Dude, I'll take 3.3% a week for the rest of my life without batting an eyelid

3/24/08

REVEALED! The next step in Peru's inflation blame game ("Shucks...it was nothing", Otto says modestly)

"...Can't we get you on Mastermind, Sybil? Next contestant - Sybil Fawlty from Torquay, special subject the bleedin' obvious..."
Fawlty Towers, Basil The Rat, 1979.


Well, so far in Alan's game of blame-it-on-anyone-but-me we've had:
Peru complains about inflation = government says there's no inflation. Then....
Peru complains about inflation = government says there is a bit of inflation but it's really not that bad...honest. Then....
Peru complains about inflation = government says the inflation is imported and nothing to do with them. Then....
Peru complains about inflation = government blames the mudslides and roadblocks from angry farmers (who were protesting about?...yep you got it....the price rises). Then....
Peru complains about inflation = government blames wholesalers and 'speculators' adding extortionate margins on food. And now we have......
Peru complains about inflation = government blames the press for scaring people.

The studious reader might notice the parts of those sentences that are invariable (Peru got inflation) and variable (gov't got excuses) . So tonight's game is "guess what they gonna say next?", and if you take more than two minutes out to think the answer is obvious:

THE CHILEANS

Yes indeedy, when Peru has nowhere to run and nowhere to hide, there's always the "blame Chile" tactic to fall back on. Can't be bothered to sell Pisco to the world? Blame Chile. No foreign investment for 15 years? Blame Chile. Soccer team is crap and won't make it to the World Cup finals before I retire? Blame Chile. I mean, two of Peru's greatest military heroes made their name by LOSING to Chile. So how is this latest Chilebashing episode likely to play out? Well...easy, really.

1. Chile owns all the major department stores and most of the supermarkets in Peru. The department store segment is a two-horse carve up between Falabella and Ripley (both of which Chilean money). The supermarkets segment is around 76% Chilean (Tottus, Wong et al) with a minority 24% held by Peruvian money (Plaza Vea et al).

2. This report is now a year old, but it's still good background on the breakdown in Peru's retail sector. The majority of food is still bought at markets, but those darned Chileans are growing in power and it shows how supermarkets are claiming more market share in Peru's rapidly growing retail sector. .

3. Chile and Peru are once again locking horns over claims for the maritime border between the two countries. Chile says "the line goes thisaway", and Peru says "no no no, it goes thataway" and now the whole thing is in front of the megabeaks at The Hague.*

So, guessed how all this fits together yet? Well, Peru hasn't cottoned on to this one yet, but Otto got a great idea for their next excuse. Alan's next visit to the spin doctor** is gonna go something like this:

"Errr...Alan.....them nasty retailers are screwing us with their price-hikes."
"Errr...like, Alan....like loads of those retailers are Chilean."
"Errrr...Alan dude....we ...errr...we don't like Chileans much, right? And the population didn't like it when the Chileans bought 60% of our supermarkets late last year, did they?"

"Hey Alan!!! I GOT IT!!! BLAME CHILE! BLAME CHILE! BLAME CHILE! BLAME CHILE!"

Does this seem far fetched to you? Not to me, cos anyone who watches Alan for a few years knows that his BS knows no bounds. Otto sez: Cries of 'Chile Out!' coming to a TV screen near Lima in about a week's time, I reckon.



* By the way, it's more than just symbolic....lotsa fish in the disputed area.

** Note to Alan: If your 'political advisors' do not suggest this line, sack them and hire me. You know it makes sense.

3/23/08

Trust him, he works for the guys with this as a one year chart

If you are a customer of the Royal Bank of Scotland (RBS)* you need to be clear about what's going on in commodities, cos your financial advisers don't have a clue and you need to be protected from their outright ignorance. I was sent the link to a 2 page report from the Royal Bank of Scotland written by one of their economics dudes. It's worth a look because

1) it's only two pages long.
2) it shows you how little these so-called professionals understand about what's going on.

The report reasons that commodities are in a bubble scenario and that bubble is about to burst. The note touches a few bases, but the key part is this;

"...The commodity cycle used to lead the economic cycle. In the past, with improving expectations for economic growth, expectations for commodity demand also increased. Since the supply side usually responds with a time lag, commodity prices tended to move up sharply. Following the same rationale, weaker demand prospects would weigh on prices in times of anticipated slowing economic growth. Not this time. At the start of the latest economic expansion, commodities followed the usual script. But now that many economic and financial markets indicators (bond and equity prices) point to a sharp slowdown in economic activity, commodities are defying gravity..."

This RBS dude is saying to us that what commodities are doing is somehow miraculously defying their historical pattern because demand is dropping, and he knows it's dropping because bonds and equities prices are telling him that.

He's wrong. The only thing he does nail is the "this time it's different" idea, but he's applied it to the wrong criterion. He thinks it's different this time because demand is drying up in the face of economic weakness. Well....if you use Wall St. USA as your benchmark then you'd quickly say things are weak, but out in the real world real people are really buying real commodities and they don't care about the crap going down in the Kafkaesque world of JP Morgan and its U$90 trillion derivative contracts position. Really.

That real world is called China. That real world explains why there's no copper left at the LME.

That real world knows why re-bar prices are going up 30% while those stuck in the past scratch their heads and say "that can't be right". The real world knows why soybeans have done this...

....while the Dow has done this.

There's a whole school of argument out there saying commods are suddenly expensive and the "massive drop" in everything last week is "proof" that Bennyboy's slashing and burning has worked. Total crap. The price rises have been going on the months...for years, in fact. It's just that all of a sudden raw materials prices have become inconvenient. That other commodity called "your house" has dropped, so it's only fair that copper drops too...right? Well aside the fact that "your house" was made with U$50k of building materials, a U$20k plot of land, U$30k worth of man hours and sold to you for U$300,000 on a no-downpayment mortgage, the fact is that nobody wants to buy your house at the price you're asking but there's a country with 1.3 billion people desperate to buy their copper cathode at the price they're asking.

Get it straight. Once upon a time when I was a boy and when my dad was a boy and when his dad was a boy, if the US had an economic hiccup demand for raw materials immediately slumped. This was because the US were the dudes using the raw materials. This is how many experts still see today's world, and it's the big, fat hole in their argument. "This time it's different" is badly used by RBS, but it works just fine for the demise of the USA as the world's commodities end user, even though it remains numero uno in financial circles. For every tonne of copper unsold in the US this year China will buy two tonnes**, and what happens at Bear Stearns is not going to affect that by an ounce.

And when the US finally gets itself together, stops foreclosing its houses and finds a bottom to its own economic mess, all those dollars that Greenspan printed will still be hanging around. And this points to the biggest mistake made by that RBS dude in his note. He blames commodity inflation on commodity demand and expects prices to return to his median once demand slacks, but INFLATION IS A MONETARY EFFECT, and this so-called professional financial adviser is putting a very large cart before a very large horse. That's a subject for another day, however. Today, you only need to remember one thing. I'm right and he's wrong.

*Ok so I'm picking on RBS, but it could have been any one of a hundred banks, really.
** In the period 2005 to 2007, US copper demand dropped 2MT per annum avg. while China demand grew 4.7MT per annum avg.

Mercado Libre (MELI). Hype is no help

Is it possible to talk a bit of sense about Mercado Libre (MELI)? Here are the rules of the game:

UNO: Stop listening to the inane chatter.
DOS: Stop reading the pumps.

TRES: Find the facts.

So, rule 1). Forget the shills and pump merchants (yeah, you know who they are) who scream “buy BUY BUY! just cos it’s internet, it’s growth, it has eBay (EBAY) as a minority shareholder and it kinda-but-doesn’t-quite remind you of Baidu (BIDU). The day that you stop believing the TV-sponsored constant hype is the same day you’ll turn into a better investor who isn’t chasing the crowd, chasing the market or wondering why they aren’t making the money they were told they’d make.

But wait up, rule 1) also means you shouldn’t give any time to the automatic knee-jerkers who oppose a stock and then find a few after-the-fact reasons. In MELI’s case, the bashers just go “yeah well, it’s Latin America, isn’t it dude?” and trot out some BS about Hugo Chávez or inflation or cyclical growth or how ‘they don’t even have color TV down there’ yet without knowing what the hell they’re talking about.

As for rule 2), here’s just one example another type of pumping going on round this stock. I read a piece on MELI in Forbes magazine last week, which typifies the second kind of trap to avoid. Now, cos it’s in Forbes you’d expect it to be well written, and of course all the facts and figures are correct, but I couldn’t help noticing how the figures have been cherry-picked to suit the occasion. Then I noticed the author Sramana Mitra saying “One that has really caught my eye is MercadoLibre as if it was something new, then a little further on disclosing she was invited by MELI to do some consulting and advisory work for them last year (presumably remunerated). So two minutes worth of Googling later, it turns out that Ms Mitra has written four different articles on MELI since late November. Well, I suppose it ‘caught her eye’ four times……….

Anyway, let’s leave the people with pre-set agendas to one side, find some facts about MELI and see for ourselves if it’s any good. The place to go is the SEC filings of course, and then you can whack a few charts together if you feel that way inclined. Then once you see how the company has been stacking up you can forecast how things will go in the future. First thing to note is that MELI is a growth play and net revenues are the beginning and the end of the story; if sales don’t keep growing at a good clip, this stock is toast. So here’s a chart mapping out what a decent sales growth should look like from here.

It shows how revenues grew as a percentage of the previous quarter in 2007, and then projects into the future what I think MELI has to do to keep up the good work. So from that we can do this chart, and break down the three main components of net revenues, costs and the resulting gross profit per quarter. Again, the projections are the important thing here, cos if you don’t have a good idea of how MELI is going to perform in the future you are investing on a hunch. So note a couple of things here:

a) I’m assuming net revenues grow pretty well in the quarters to come.

b) BUT watch out, cos costs are also forecast to grow. This is because of how things are in the real world. Once other companies recognize that MELI is the centre of a growth sector, it won’t take long for the competition to hot up and the market leader (MELI) will have to spend more (advertising, offers, higher salaries for key personnel etc) to stay top dog. And despite what the hype merchants have told you, there is already plenty of competition trying to eat into MELI’s sector lead in LatAm. If you don’t believe, plug www.deremate.com into alexa and see how many hits that site is getting.

c) This costs growth is inevitable, and even if I haven’t hit the exact numbers on the head here it’s foolish to think it won’t happen. This will therefore eat into gross profits. From there we can put together this next chart…

…which looks at how the quarterly net profit line develops. This is a statistic that the shills and pump-artists will often headline without mentioning EPS. But real analysis cares much more about the EPS than the absolute profit in dollars, because from there we can do a chart like this to see how the Price/Earnings ratio pans out: And that looks pretty darn promising to me. If we presume MELI stays at U$38 per share until late 2009 (it’s U$36.35 right now), the PE ratio drops to a little over 20X. But the whole point of owning a growth stock like MELI is the growth in revenues driving the stock price higher (witness any of the hot tech stocks and how they have higher PE ratios than established industries). So as the earnings grow, we can presume the stock will go up. This final chart shows the previous static-price PE ratio in red, and then another PE curve in blue that assumes the stock will grow steadily to a price of U$75 by 4q09 (represented by the dotted black line). So what this suggests is that if revenues grow as forecast and the stock more or less doubles in the next two years, you’ll be looking at a trailing PE of around 45X at the end of the period.

For a growth stock like MELI, a projected 45X PE sounds about right to me. There’s a balance to be found between the continued growth at the company (which looks promising), the company maturing its PE from today’s very high levels (trailing PE is 173X right now), plus the greater risk of operating in Latin America rather than the USA or Europe. A company like EBAY can demand a higher PE than MELI because of the lower risk and more mature market in which it operates, but the MELI investor has to be taking a greater chance that the growth won’t suddenly dry up due to bigger issues like a sudden regional growth halt, a big jump in regional inflation, some kind of politically destabilizing event, etc.

To bottom line all this, if you’re long MELI you have to watch that net revenues number develop and continue its growth. If the company manages to grow quarterly revenues by around 17% quarter-on-quarter and costs grow but don’t suddenly rocket, then hold and look for a double in two years. But the moment revenues growth weakens you should get the hell outta Dodge and not look back.

My personal recommendation on MELI right now is neutral. I’d say there are worse places for the speculative part of your portfolio, but there are better too (but hey!..that’s just me). If you buy MELI, you’re betting that the whole region keeps growing the way it did in 2007, and you’re betting that MELI keeps up its good 2007 too. Neither of these things is the slam dunk that both the subtle and not-so-subtle pump artists would have you believe. So make your own choice, but block out the hype. It won’t do you any good in the long run.