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Don Coxe's Basic Points

The man himself

I've mentioned on this blog previously how much I admire Don Coxe of BMO Nesbitt Burns. I've always desisted from quoting his work here as it is subscription-only. However, I've just been told about a way to catch Coxe's must-read-if-you-can monthly report, Basic Points.

You can find it embedded in the BMO weekly open newsletter once a month. Here's the link to this week's edition, and you can find Basic Points starting on page 15 of the PDF. All legal, decent, honest and truthful.

When it comes to the grand-vision worldview, this is all you need to read. Enjoy.

Mercado Libre (MELI): Reality bites (it took 'em long enough)

Way back in March, your forward-thinking Otto wrote this post about Mercado Libre (MELI), Latin America's answer to eBay (or so we're told by.....errr...Mercado Libre). Since then I've mentioned it again, particularly when its 1q08 results totally sucked and when i shorted it some.

Well, it seems those slowcoaches at Barron's have cottoned on to the fact that MELI is just a hypemachine. Regular reader DH sent me this article that was published in Barron's on the 4th June (thanks DH) that calls into considerable doubt the current valuation of MELI. Go read the Barron's note yourself, but the final paragraph reprinted here just about sums up the feeling:

"..To be sure, Mercado is one of the more attractive high-growth stories in emerging markets, for investors with a stomach for risk. But for those who remember the disappointments of a still-young Internet in the U.S., the stock's lofty price tag begs for caution."

I couldn't agree more with the writer. Or should that be "he couldn't agree more with me", as your autotrumpet-tootin' Otto nailed this view weeks ago? Meanwhile, on the subject of hyped-up technology thingies, have a look at this chart illustrating the now famous "Gartner Hype Cycle" for technology issues.

Named after a dude called Gartner (duh), it shows how new tech ideas get pumped, dumped and then adopted into the mainstream of the business world. Now look at the MELI stock evolution since its IPO last year. Coincidence?

Otto sez: MELI is still somewhat overpriced at U$44 right now, but is a good stock to trade both ways. If it gets oversold to, let's say U$30, go long on it because it's not going Chap11 no way José. On the other hand, anything above U$52 (or maybe U$55...your call is as good as mine on ST stuff) will give you a chance to short it back down, as the pump merchants move in and out of the stock. Right now it holds no value, but it's one to keep an eye on, that's for sure. Just be smarter than the sheep, ok?

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Argentina SoyaWars™: the agro boyz call off the strike

It took a week longer than i expected (the rumour I heard was for this to happen last Monday), but tonight the agro boyz have decided to stop their industrial action as of Monday in order to comply with the gov't wish of "no talking if no working".

Agro is obviously looking for a deal, and in its communique today (linked right here...It's in Spanish) they make special mention of the role the church has played in trying to mediate this week. Expect the following:

1) Bonds move up Monday

2) People call "it's all over" yet again

3) Agro and gov't sit down to talk some time next week.

Those talks will likely be in the presence of the national ombudsman, who has already invited both sides to the table. Tonight agro has accepted the offer, and it remains to be seen whether the gov't will sit down, too. Any normal administration would accept, but the sheer bloody-mindedness of the Klishtinestor regime means that it's no slam dunk. However, there won't be no fat lady singin' until the gov't concede something on the export tax regime. If Klishtina doesn't budge, expect lather-rinse-repeat of the last two weeks.

Peru's falsified poverty stats starting to get noticed by real newspeople....

Alan takes up step aerobics to shed those troublesome pounds

...and not just dumbos with blogs like me.

Today, Reuters has run a story on the lies produced by the Peru stats office (INEI) last week. It covers a lot of the same ground seen before, but interestingly when a newswire service with a worldwide reputation for fair reporting contacted the INEI wanting more information and a quote/statement/whatever from the bare-faced manipulators......

"...INEI declined to comment despite repeated requests...."

Isn't it strange how they were boasting about these figures to the four corners of the earth last week, and you can't get a peep out of 'em now? So far, the Reuters story has been picked up by the arch-handwringers at The Guardian, so more traction is needed to flush these liars out and bring rightful shame upon them all. Where are you, Simon Romero? Andres Oppy, could you possibly write a column about LatAm without obsessing over Chávez for once?

Today, King Alan of Garcia proclaimed that poverty will keep dropping "no matter who it hurts in the process." That's not the point, lardarse. If Peru can't lower its poverty figures with 9% GDP growth on the cards and 7% projected for the future then there's something seriously wrong. Nobody doubts that poverty is dropping; the problem is you asses telling big ones about how wonderfully fast it's dropping when 5.2% per annum is obvious BS.

gold:oil ratio

Here's the chart that matters:

(click to enlarge)

On today's upmove, the ratio stands at a very low 6.57X. We can reasonably assume a return to the 8X level in the weeks to come. This would mean
  • Oil at $120/bbl = gold $960/oz
  • Oil at $130/bbl = gold $1040/oz
  • Oil at $136/bbl (today's quote) = gold $1088/oz
  • Oil at $140/bbl = gold $1120/oz
  • Oil at $150/bbl (morgan stanley's ultra-exposed call for July 4th) = gold $1200/oz
That'll give you something to think about over the weekend, yeah? I'm buying Jaguar Mining (JAG) today, a very nice growing miner in Brazil with "I'm a buyout target" written all over it.

Memo to Chávez: Don't conduct military exercises on live TV

Hit? Miss? Hit? Miss?

Word from Caracas is local ex-pats killing themselves with laughter over this morning's naval exercises. In an obvious attempt to gain a bit of sabre-rattlin' kudos before the deployment of the US fleet in the area, Chávez ordered his navy to shoot, kill, dismember and generally sink the hell outta one of its old tramp ships in a training exercise.

Unfortunately, his navy managed to miss the target with the first of its super duper new missiles, even though waters in the Mar del Caribe are pancake-flat this morning. Worse still, Venezuela decided this was good fodder for live TeeVee. Adding to Hugo's embarrassment are the excited and excitable commentators called the shot a direct hit, even though the target ship is 100km away and there's no way of telling just how crap the shot really was.

The 4th Fleet will be trembling in their boots about this. Not.

Silly faces in Venezuela

News from the Venezuelan oil sector is that the nationalization and expropriation continues unabated, as the demonic despot Chávez kicks out even more gringos from his precious oil patch.

Wait a minute....that's not right. Darnit Oppy, in fact it's the other way round! Venezuela today opened the tendering process for international oil companies in three new blocks of the Orinoco "faja petrolifera" (petroleum band), namely blocks Carabobo 1, Carabobo 2 and Carabobo 3.*

Even though Exxon Mobil (XOM) is unlikely to put in a bid (stifles giggles again), expect the competition to be fierce for the rights to (probably) go into a 40/60 JV with state company PdVSA for the so-called "extra heavy crude". And if you've ever wondered what that means, here's a bucket of the stuff removed from under Venezuela recently.

"Milk and sugar with that, sir?"

Now you know why it needs special treatment before you can put it in your Prius, dude.

*Literally translated, "Carabobo" comes out as "silly face", which explains the title line, dudes. Really it's the name of an historic battle back in the San Martin/Simon Bolivar days, and you'll find the word smattered all across South America.

That crashing sound you hear in the background......

....... is the US dollar.

The jawboning is all very interesting to listen to, and it might bring a bit of temporary relief. But there's nothing behind the dollar to back up any rally. Yesterday, the ECB suggest that euro-interest rates would have to get notched up slightly, and the dollar loses 2% of its global value in less than 24 hours. That's a bigass move, dudes.


Meanwhile, I still have my beady eye on the Colombian Peso; it hit another new all time high yesterday, and the clock is ticking towards the moment the Colombian central bank start intervening. All I'm doing is waiting for that "fish in dry barrel" moment.

Peru pulls its Bolivian ambassador because Alan Garcia is fat

If you recall from a couple of days back, Bolivia's president Evo Morales said this about his Peruvian counterpart, Alan Garcia, at a press conference;

"(in 1989) I was a fan, I was an admirer of Alan Garcia, an excellent speaker, anti-imperialist and very thin. Now I see him very fat and not very anti-imperialist."

Well because of these remarks, Peru has just recalled its ambassador to Bolivia! Seriously! I read the report about it this morning and my coffee went all over my flatscreen. I mean, how petty can you get? Normal countries recall ambassadors when there's been a spying scandal, or when one illegally bombs another, or something of that ilk. Diplomatic recalls do not happen cos of some offhand flippant comment. This just shows how much of a "brotherhood of nations" we have down here. Once again, petty resentments and personal egos come way before the well-being and joint progress of the nation states of South America. Garica is by no means the only guilty one when faced with this kind of charge, but all the same: shame on you, Alan!

Peru is trying to make out the indignation comes from the "anti-imperial" part of the comments...yeah right. Alan's personal trainer will be looking for new clients soon, methinks.

UPDATE: Abiding in Bolivia blog got there first on this story. And with a better photo. And a better story. Not surprising really. Better blog.


The gold/silver ratio doesn't really impress me

Ahhh..2001...memories, yeah?

I'm not technical analysis's (TA) greatest fan, as people who know me will tell you. I'm a fundies dude at heart and can't just buy a chart the same way as others I know. Saying that, there is room in my life for TA, especially when a chart just screams at you. A couple of recent examples I've posted here of screamers include the junior miner/gold ratio and the gold/oil ratio, both at obvious bottoms.

All this preamble leads up to a chart A.N Other (a friend for the last 10 years, as it happens) sent me today. Here it is, and it shows the gold/silver ratio over the last 12 months. My man sent it to argue that silver is getting overbought because today it traded at a 51:1 ratio with gold....

....thus breaking through the 50dma to the downside and offering good value as a trade.

I thought "hmmmmmmmmm" and sent this next chart back, which shows the same ratio but over a longer period.

The point is that a "good value" trade is not what I'm looking for with a pure TA chart. There are at least 6 times over the last four years (arguably a lot more) that the gold/silver ratio has gone out of the "norm" and offered "good value", then continued ignoring the TA players with their moving averages and bollybands and RSI, and ploughed its own way from "good value" to "great value" all the way through to "wow...this sucker is now screaming at me."

And that's the way I like my TA charts. I don't want to peer at my friend's gold/silver ratio for a few minutes and kinda weigh up the probabilities of him making a good call; I need to look at 'em for about a nanosecond with worrying too much about this indicator compared to the relative merits of that signal; I want 'em sitting up and begging, and the bottom line is that the gold/silver ratio does not sit up and beg right now. If it gets to 47/1 of something like that then I'm in, but me no gonna trust this imperfect and illogical world to act the way a chart expects on such a small anomaly.

When that junior miner/gold ratio chart linked above screamed at me, I played it. And as it happened, of the 14 junior miners I listed in that post 10 have rallied nicely. Or to quote Warren Buffett, "I like to go for cinches. I like to shoot fish in a barrel. But I like to do it after the water has run out."

Venezuela finances: Change at the top

Isea caught on camera thinking about his Miami seafront home

News this week is that Venezuela's Finance Minister, Rafael Isea (above) is to step down after becoming the gov't candidate for the Aragua region in the upcoming regional governors election. The first thing to note about this is how regional governor seems to be a higher prize for Isea than Finance Minister. Interesting, no? Imagine Gordon Brown in the 1990's stepping down as chancellor to take up the position of Mayor of London, for example.

So Chavez is going to announce "in the next few days" Isea's replacement at the finance ministry. Whoever gets the job, he (or she) can expect the same amount of interference from the big guys and his advisers. I've heard there's a shortlist of five names for the job, but as I don't really have a clue on 4 of them I'm not going to speculate right now. Whoever gets the nod is likely to be from the same sphere of influence as Moris Beracha and his pal Isea. The hand of shadowy richguy Moris Beracha has certainly been noticed in the last few months. Venezuela has changed tactics according to his whispered instructions to combat inflation and a runaway parallel exchange rate, with Beracha making chest-puffing "I told 'em to do that" noises here and there around the bizchat circuit.

But how has the Venezuelan economy done during Isea's tenure? The answer is "not bad at all". He's been pretty successful in reeling in the parallel exchange rate.....
(click to enlarge)

....and there has even been a modicum of stability in the parallel forex for the last two months. To some extent, inflation problems have been nettle-grasped, with a lot of the fixed prices for goods relaxed in order to allow market profits to run. The immediate effect of removing the price control on milk, eggs etc was to see a jump in monthly inflation (January, February, March numbers were high), but the medium term effects are now kicking in and we should see a slackening off in the rate of inflation.

Importantly, Isea has in conjunction with the "independent" Central Bank (smothers a giggle) managed to crimp the rapid rise in money supply very successfully, too.

The main weapon use has been issuing dollar debt to mop up excess liquidity. Of course, this has just been the jumped on as an "oh-my-god-they're-running-up-massive-debt" story by those who can see no right in the Chavez admin, but while oil remains strong there's nothing to worry about, really. It's real gov't intervention in markets, of course, but perfectly sustainable in the long long as oil stays expensive.

The result can be seen in the flatlining of the international reserves number (read the chart right to left). Note the way reserves have wavered around the U$30Bn mark for quite some time.

We can deduce from this (in very general terms, of course) that the big wave of income from oil has not been tucked away in the bank account, but has been put to work. Frankly, I see no cause for worry with reserves at U$30Bn; it's more than enough for a country the size of Venezuela, and diverting the petrodollars from the savings account and into the economy is akin to running stealth sovereign wealth fund.

But back to the departing Isea; Venezuela bonds drooped on the news that he was leaving the post, which is a sure sign that the market likes the guy. With the parallel rate now under control and the banks playing ball with the gov't, things look more settled in the financial sphere. The acid test will be watching how inflation levels react going forward, and if Chavez can finally get a bit of non-oil local growth underway. That'd be nice............

Dollar index at 74, Copper at $3.58, gold at $866...

Found at a rabid goldbug site..those guys are weird

......and a few metals longs at wits end. Not this one, though.

The subject is, of course, the US dollar more than the metals (and other commods) that have their prices marked up in the currency. Yep I know this is a LatAm blog, but the dollar affects us all (perhaps here more than most regions), and you have to keep it front'n'centre to make sure you've got a clearer picture on the region, so here goes.

I've been talking dollar in with a blog reader and with couple of friends recently. In the short term, this current upmove isn't likely to have much legs. The whole thing is still a case of jawboning the currency stronger, and the only fundamental difference between now and the last time the greenback tried to rally is a Fed which is unlikely to cut (or should that be "be able to cut"?) any further.

However, the US fundamentals give no cause for celebration (the list is long and you've seen it before...not going to repeat it here). This is the financial system proclaimed to be healthy by the same set of people kicking Lehman Bros while it's down? There are signs of a bottom for sure (e.g. export/import ratio is flattening out at last) but we're by no means out of the woods and anticipating a period of growth to come.

So there's still no real reason to buy the dollar except for "they told me to". That doesn't work for me. I'm happily sticking to the plan of adding gold if it goes under $850, and I'll note in passing that Copper $3.58/lb is still snugly inside my 3.5/4 medium term channel.

Steady as she goes, Cap'n.

UPDATE 10:15am: As it happens, the USD index didn't quite make it to 74. Seconds after I hit the publish button the slapdown came, and here we are at 73.17 and dropping. Just goes to show; keep the fundamentals on your side and don't run with the herd, cos they'll just whiplash yer tush, dude.


King Neshtor caught on tape: If you had any doubt about who's the boss in Argentina, read this

"Give that back!"

Critica de la Argentina, the new daily newspaper run by top local investigative journalist Jorge Lanata, has just knocked one straight out of ballpark. Critica has scooped the pot by managing to sneak get one of its journalists in to a meeting between Argentina's "ex" president Nestor Kirchner (speech marks obligatory) and his loyal provincial head honchos. The meeting was all about the agro strike (no surprises), but Neshtor has been caught on tape making some pretty candid remarks about the whole situation. Among the quotes splashed all over the front page of today's Critica (here's the link) under the headline "The Real K" are:
  • "Let us be calm! Zen-like patience! The struggle is a long one; this is merely a season."
  • "If they had bayonets, the agro sector would have made for a coup d'etat."
  • "The Agricultural Federation no longer represent the small producers. They are a new upper-middle feudal class, like the oligarchy."
  • "They have been on strike for 90 days, but they are doing very well. It doesn't look like they have economic problems. Either they've saved a lot or they're not really on strike."
  • (Talking about (in his eyes) renegade PJ governors Schiaretti, Busti and Reutemann, who support the agro fight to varying degrees) "There are Peronists who see two microphones and get all euphoric."
  • "We are not going to be walked on by these people. We are not going to give in. What would happen tomorrow if the industrial sector came to us tomorrow and said they didn't want to pay their income taxes?"
Oh, man, this is going to stir up a whole hornet's nest. Nice job, Jorge!

Better luck next time, boys

I hear that mathematically you've still got a chance in the campeonato. LOL!

Señor Bostero; si te sentis un kacho mal, saca la lengua y diga "33", porfav. JUAAAAAAAAA!!


Minera Andes doing well recently

I like the way Minera Andes ( has traded in the last two weeks.

In the face of weakness in its main product, silver, the stock has traded up since we broke the scuttlebutt about Hochschild wanting to buy Minera's 49% of the JV San José silver/gold mine. Since that post on the stock dated 21st May, is up 10% or so while silver is down 6% represented for convenience sake by SLV on the chart (the accurate-enough-for-our-purposes proxy silver ETF). The word on the deal is still going around and I'm still confident it will go through. The only question left on the table is price, as are reported to want U$300m for its slice of the pie, while HOC.L have offered U$250m. Still a gap to be breeched.

Whatever the final price, the deal makes sense; with the cash injection that adds up to as much as U$1.37 per share, it's obviously interesting for those long It will also give the company plenty of ammunition to further develop its large Los Azules copper project. At the moment, MAI is earning 100% of the property, but if as is likely a final feasibility study shows that the project is good for a 100,000tpd operation (yes, it really is that big), JV partner Xstrata will have the right to buy back 51% of Los Azules.

Even if they finish with only 49% of Los Azules, Minera is a likely big winner by selling its share of San José and rolling it into the bigger project. One for the "buy'n'hold" section of your portfolio.

Trading Post

Covered the Petrobras (PBR) short at $65 and change. $5+ profit in two days...not bad for a quick trade. Thanks AvA!

Sold Grupo Galicia (GGAL) at $5.70 (which could have been today's high...lucky on timing too). Another quick profit, after buying at U$5.39 earlier this week. Word from Argentina is that the strike continues, but both sides seem to be softening their stances just a little bit. The gov't needs to sit down with the agro boyz before anything serious happens, though. Get real, Klishtina!

Gold hanging in there at U$884/oz or so while the world decides whether it likes the dollar or not. I'm long gold, both short and long term. Short term target hasn't changed: $920.

Zinc looks like it's found a bottom at U$0.88/0.89/lb. The key as always is Chinese demand (duh), with most analysts expecting a supply surplus from now until 4q08. Any upsurge in deliveries will shoot Zn back over U$1 quickly. Volcan in the Lima stock exchange (VOLCABC1) is a nice way to play the beaten down Zn/Pb complex.

Crystallex's (KRY) Pres&CEO Thompson resigned yesterday. If I were braver I'd short this sucker from the current $0.75 to $0.15 (its residual value according to a Haywood analyst), but there's just too much hassle and foolish trading around this stock. I'll just watch it wither and die from the sidelines.

On the subject, Venezuela's El Nacional newspaper reported that the country was going to nationalize the gold mining industry. Bloomberg picked the story up, but it all seems rather vague right now. I can't see Hugo stealing the Rusoro (RML.v) assets away from his Russky pals, but if there's truth behind the El Nacional report, Gold Reserve (GRZ) should get compensated for its assets on departure, as Hugo has never expropriated without compensating the gringos he kicks out.

Michiquillay: Anglo gets its deal

In a move that seems to have snatched victory from the jaws of defeat, Anglo American has just announced that it has reached a deal with the local community around the Michiquillay mine in Cajamarca, and will there be allowed to go ahead with its development.

Here's the Reuters report on the deal, and at the moment further details are a bit sketchy. However, this must be good news for all concerned, especially for the avoided embarrassment this would have caused the Garcia gov't as outline in my previous post on the deal that feared the worst. One thing to note is that the gov't ministry stated the deal had been struck between Anglo and "the community of Michiquillay", not the larger Encañada district that has already voted against the project. Time will tell whether this was a back-door deal of some sorts, or whether it is a deal that the whole community has agreed upon.

I will venture to say at this early point that if Anglo hasn't made any significant concessions in the last few days, there would be a fishy smell around the deal. Watch this space.........

¡Buen provecho!

Evo Morales goes for the blindingly obvious when he says that Alan Garcia has been at the pies. Evo sez; "(in 1989) I was a fan, I was an admirer of Alan Garica, an excellent speaker, anti-imperialist and very thin. Now I see him very fat and not very anti-imperialist."

Meanwhile, Evo continues on his plan to fatten up his country's coffers by nationalizing energy infrastructure. Let's be clear that this isn't a bare-faced expropriation, though. The deal was announced a month ago and since that time the two sides have been negotiating. On announcing the deal, evo accused the company of trying to cut a sneaky backdoor deal with the regional gov'ts involved (the Eastern block that are against his gov't), but will still pay U$48 a share to the consortium for its pipeline.

On the subject on Alan and food, he's giving it the Marie Antoinette treatment again. Last year he told his minions to stop eating pasta and eat more potatoes. This time his regal mandate is "let them eat fish", as the complaints of high prices for chicken roll in." Ridiculous, of course. Separating a Peruvian from his 1/4 pollo c/papas, or his arroz c/pollo is like banning the sale of hamburgers in the states.


Peru's statistics office admits it falsified poverty figures

It has taken a week for the whole bundle of lies to start unravelling. Since the announcement on 26th May that poverty levels had dropped from 44.5% in 2006 to 39.3% in 2007, debate has been raging in Peru about the veracity of the figures. Quite right too; cutting poverty by 5.2% in a single year is statistically dubious to say the least, and as I've already pointed out, the figures presented by gov't stats office (INEI) chief Renan Quispe...

Oh shit, they caught me. Now what do I do?

.....have obviously been massaged to suit the occasion.

A lot of the debate has been pretty technical, and heading the critics has been Farid Matuk, the ex head of INEI in the Toledo gov't. Up to now the accusations have been sharp but of the "he-said-she-said" variety. But today the INEI had to come out and admit, for the first time, that they'd actually falsified data. In the words of Quispe, the INEI assigned data on poverty to 773 of the families that did not answer the survey correctly because the person interviewed, "did not understand the question, the surveyor did not explain (the question) well or for whatever other motive. This therefore obliged us to assign a value in function to the home that had similar characteristics."*

Which is Renan's fancy way of saying "we lied through our teeth", and only thanks to the continued pressure of Matuk and others has the INEI admitted they've been telling porkies. This doesn't compare well to the government's week-long defence of the poverty numbers. In the space of the last seven days, minister after minister has been trotted out to defend the indefensible.

Jorge Del Castillo, Peru Prime Minister and cabinet chief: "There is no lack of sceptics, critics or those that simply, without any argument to hand, cast doubt on the results." PANTS ON FIRE, JORGE!

Enrique Cornejo, Minister of Housing, Construction and Sanitation: "(The figures are) serious, transparent and above all independent." FEELING STUPID YET, QUIQUE?

Luis Carranza, Minister of Finance: "All the presented figures are perfectly comparable in historical terms; they are correct". ERRR....WRONG, LUIS.

Susan Pinilla, Minister of Women and Social Development: "These results are absolutely logical." TRUE...A GOV'T LIES TO ITS PEOPLE; MORE LOGICAL IMPOSSIBLE

Plenty more in that list, too. But maybe the most interesting is how President Garcia has managed to sidestep any active defence of the poverty numbers, limiting himself to saying how rumours and gossip are bad for the country and how he's aiming to help reduce poverty to 10% by the year 2015 (which may be a noble thought, but it's about as likely as Alan winning the pole vault at the Lima 2020 Olympics). Did Alan know it was a crock? Pretty likely; the guy may be doing a mediocre job, but he's got plenty of nous and could see that such a jump was statistically improbable.

So now that the lid is off this little Pandora's box, don't expect anything less than continued barraging until Quispe is forced to step down as INEI chief. I also wonder if the World Bank, which supposedly gave technical support to the INEI and supported the results, will be so very keen to continue sponsoring a public office that lies about its numbers. Man, I love it when these arrogant fools get caught in their lies.

* exact words: "no entendió la pregunta, el encuestador no explicó bien o cualquier motivo. Entonces esto obligó a imputar, a asignar un valor en función de un hogar que tuviera las características más similares"

Important Trading Alert! Technical Analysis Emergency! Black Swan Trading Pattern Spotted

The infamous "BLACK SWAN TRADING PATTERN" has been recognized by "NateL", one of the sharpest technical analysts and market watchers I know. If you look carefully you might be able to spot it on the bottom right of this recent S&P index chart. You may need to click to enlarge this chart to be able to see it more clearly.
Thanks for the giggle, Natel. Apparently it's today's in joke on "The Street". Who said technical analysts are a buncha wonks with absolutely no sense of humour? Me? Nooooooooo.... Never...............

Whither the Colombian Peso?

The Colombian Peso looks set as the next gov't-versus-market battleground. Here are two reports from Bloomberg today. This one sets up the gov''t position:

June 3 (Bloomberg) -- Colombian Finance Minister Oscar Ivan Zuluaga said a stronger peso would be ``catastrophic'' for the economy and the government is ready to take measures to stem gains in the currency, La Republica reported.

Zuluaga said in an interview with the newspaper that the peso would continue to float freely against the dollar. He added that a peso that strengthened to 1,500 per dollar from 1,730 per dollar now would be terrible and cause problems in employment, according to the newspaper. (continues)

This one tells you what the Peso has done today, Tuesday 3rd:

June 3 (Bloomberg) -- Colombia's peso jumped to an almost nine-year high after consumer prices rose more than economists expected in May, adding to speculation the central bank will raise interest rates as soon as this month. (continues)

There's gonna be a fight, dudes. In the same way as the Chilean central gov't snapped the rapid appreciation of its currency vs the dollar....
(click to enlarge)

....and the Peru gov't did the same (though using slightly different techniques)....
(I like these little yahoo currency charts)

.....expect the Colombian central bank dudes to put the brakes on its currency appreciation
(neat, simple, and hassle visuals)

...especially considering Colombia is suffering from a worse outbreak of inflation than either Peru or Chile, according to the official figures.

So how to play it? The usual way, via sovereign bonds and the currency. The basic rule applies; when a gov't fights its local market, never bet against the gov't. As a play, it worked for Chile, it worked for Peru and it'll work again for Colombia. Don't pull the trigger yet, but wait for the official gov't announcement of when, how and why they are going to weaken the currency against the dollar.

Consider this post your official headsup.

Petrobras, sheep, shorting (PBR)

"moisture is the essence of wetness"

Why is the average retail investor such a total jerk?

Yesterday on Seeking Alpha, a dude by the name of Alan von Altendorf (crazy name, crazy guy) published a well-researched fundamental analysis arguing that Petrobras (PBR) is a sell at the moment. Here's the link, so go have a look yourself. I happened to get my hands on a copy of the fullreport and can tell you that it's even better, but just by reading the abridged version (though long by SeekingAlpha standards) you can see he knows his bananas.

Now have a look at the comments section underneath. You'll see the average Joe just doesn't want to hear anything about the stock s/he owns except a pom-pom rah-rah band, and anyone with the temerity to question the price of a overhyped, overpumped and OBVIOUSLY overvalued stock needs to be personally insulted. Comment gems such as;
  • "..A really myopic, shallow, argument..."
  • "...You are a complete joke SERIOUSLY..."
  • "...Idiot tout."
  • "...Stay the hell off Alpha jerk ! Nobody knows or cares about you - Moron !..."
  • "... Al is so called managing director of the tiny virtually unknown consultant "firm" CWSX... he had clients in Venezuela (which hates PBR, a big corporate ally of the US and its oil companies)..."
The list goes on and on, and I also note that SeekingAlpha removed some of the more slanderous ad hominem attacks from yesterday (I should have taken a screenshot). No matter that the von Altendorf has 20 years experience in oil+gas, obviously knows what he's talking about, runs his own successful energy analysis business based out of Houston etc etc.....he's got the wrong message. Kill him.

The subject of shorting psychology has, of course, been covered by three zillion words in other places. Here's a good note written by Felix Salmon last month at his "Market Movers" blog ('s on my RSS feed) that tries to sum up the argument. But Salmon and Eisinger (the guy he quotes from) are missing another basic point. The vast majority of retail investors are dickheads; a bunch of sheep that worship the touts, are glued to CNBC and are regularly shorn by those who really understand the game. It certainly explains why so very, very few sellside analyses recommend shorting a stock. It explains why close on 50% of all trades in the stock market are short selling trades, but 95% of retail players only go long a stock.

All that talk about "visceral reactions" to shorting is overestimating your audience, Messrs Salmon and Eisinger. They're often just plain stupid. Nothing else. For anyone with half a brain, shorting a stock should be an integral part of your investment armoury. But "for anyone with half a brain" tends to exclude a significant part of the investment community (including plenty of fund managers, i should add). This should be seen as a glaring advantage for anyone with a full brain.

(click to enlarge)

Thanks to AvA and his headsup, I am short PBR as from the bell today. The 50 day EMA is my first target, with U$65 mentally pencilled in. I made a little money on the short trade last time ($124 to $121 pre-split, to be exact), and I'm already 50c up today. Long may it continue. Thanks retailers....keep bleating, yeah? Baaaaaaaaaaaaaaaaaaaaaaaaaa!


SoyaWars™ : the export ban on grains continues...

...but the agro boys will supply the Buenos Aires meat market as from tomorrow. This is the main point from the agro meeting tonight and announced less than an hour ago. Apparently road blocks are not part of the plan, which will be reviewed again next Monday.

The boyz are also going to put a petition together, looking for one million signatures to pressure Congress into debating the legality of the export tax law.

The ball is now in the gov't's court. Maybe Klishtina has picked up some words of advice from Lula over their little chat in Rome today. After the cute photo, find the agro boyz resolution in full (and in can always runit thru Google if you care more than I do).
(note the masonic handshake)

"Reunidos en la ciudad de Rosario, la Comisión de Enlace de Entidades Agropecuarias analizó esta etapa de la protesta, y resuelve:

"1. Manifestar su repudio a todo tipo de represión, discriminación y judicialización de la protesta que los productores estamos llevando a cabo.

"2. Continuar con la no comercialización de granos con destino a exportación, hasta las 0 hs del lunes 9 de junio próximo.

"3. Atento a la necesidad de mantener abastecidos los mercados para evitar perjuicios a la población, normalizar la comercialización de ganados a partir de las 0 hs. del martes 3 de junio próximo.

"4. Profundizar el plan de movilización a las cabeceras de Partidos, Departamentos y Capitales Provinciales.

"5. Declarar los días jueves 5 y viernes 6 de junio próximos jornadas de recolección de firmas con el objetivo de conseguir que el Congreso de la Nación retome sus facultades constitucionales exclusivas para fijar los impuestos nacionales y los derechos de exportación.

"6. Agradecer a los productores el esfuerzo, compromiso, unidad y disciplina, demostrados a lo largo de estas duras jornadas.

"7. Ratificar la unidad de las entidades integrantes de esta comisión de enlace.

"8. Agradecer también a la población en general por el apoyo manifestado en este día de cese de actividades en adhesión a nuestros reclamos.

"9. Continuar en cesión permanente, ratificando nuestra voluntad de diálogo interrumpida unilateralmente por el gobierno.

"Rosario, Lunes 2 de Junio de 2008."

Ecuador confuses the world

C'mon, Homer...think...think!!

Now, if what we're told by the English-speaking press is true, then Colombia is the country trying to be honest and open about this FARC laptop thingy, and Ecuador is trying to hide behind a wall of denial.

If that's so, then why does Ecuador want the international community to fully examine the contents of the laptop, while Colombia has been so reticent in handing them over to a neutral third party? If you're confused, trying considering that what you've been told so far by Fox News and the Miami Herald ain't necessarily so, Joe.

Hat tip to Borev for getting this story out there and making it more interesting than I can manage.

UPDATE 6PM: It didn't take long for Colombians loyal to Presdent Uribe to add their dos centavos worth to the debate. No, not the Colombian gov't, we're talking about Uribe ultra-loyalist attorney Abelardo de la Espriella, who has demanded that President Correa be tried by the International Penal Court. In the words of this joker. he wants to bang up Correa and...

"....those functionaries that have been found by the (FARC) computers to have participated in the events investigated.........all this is with fundamental proof in the information found in those computers that have already been ratified by Interpol."

Y'see, all this bullshit talk goes down really well for its target audience in Colombia, allowing the gov't ample room to avoid explaining to its people why it has been so reluctant to call an independent investigation into the contents of the FARC hardware. The Uribe lawyer also once again fudges the facts and implies that Interpol investigated the contents of the 6.1 gigabytes of files found on the computers. It didn't. All Interpol did was say that they couldn't totally vouch for the integrity of the files. Don't believe me? Well read the report, not some ass who reports what you want to read about the report.

Trading Post


A block trade of Los Andes Copper (LA.v) knocked it down to 0.52 at the bell. If it starts trading under 0.55 I'm interested in buying a few. Great junior copper prospect in Chile.

Mansfield Minerals (MDR.v) released another good looking PR this morning. The stock is up 5% without me on board, but that's the way things go when you trade things ST. Very good junior miner, worth looking at as a long-term holding.

Gold is looking strong, even with a dollar that refuses to fall. I'm long gold right now.

NETC is under $14 again. Buy here and hold it long-term. No brain winner.

GGAL at U$5.39. That's my trading buy of the day. The right news comes out of the agro meeting this afternoon and this is over $6 before you can say 'index-linked local currency sovereign debt paper'. at 0.82. This is the breakout level again. If we get through this it's off to the races. I'm happily sticking with my call for $1.20 by the end of this year.

Last point. I've mentioned it before, but these short-term trades are a small part of the overall portfolio. The vast majority is long term holdings. I tend not to mention the long term stuff cos nothing changes and the subject gets boring. Trades are fun, but you shouldn't bet the farm.

Argentina, according to an idiot at the London Daily Telegraph

Ambrose Evans-Pritchard is a popular business reporter at the London Daily Telegraph with a penchant for the gloom'n'doom we're-all-gonna-die type of biz story. This goes down well with the crusty xenophobic attitude and readership of the Telegraph, so a match was made in heaven when AEP signed on to write there.

AEP turned his attention to Argentina today, and his note linked right here is pitched to his normal standard, i.e. not very high. The first nine words of his article read "Argentina is defaulting on its sovereign debt yet again...", which is about as stupid a phrase as is possible from someone who considers himself to be smart at biz.

Let's be clear; me not fan of the Klishtina/Nestor gov't either (that's putting it mildly. Errr....just read a few of the previous posts to get the feel), but to point to the obviously massaged inflation numbers and mentally leap to the conclusion that Argentina is defaulting on its debt at any moment is the worst sort of hack journalism.

It's already been shown that AEP has the analytical capacities of a fruitfly. There are many examples of this (and, I should know; I have an e-mail pal who loves AEP) but my favourite so far is how China was just about to flood the world with cheap dollars

AEP got a lot of airtime on his 'China-we're-all-gonna-die' article, and he fact that it was total bullshit has never seemed to bother either him or his circulation-seeking editors. So the formula is now repeated ad-nauseam (quite makes me sick to see this crap in print). Not only is his opinion ridiculous, his fact-checking is pitiful, too. Just a single read through today's 'Argentina we're-all-gonna-die' found these factual errors:
  • Buenos Aires locals are "Porteños", not "Portensos"
  • Central Bank reserves stand at U$49Bn, not "over $50Bn"
  • Argentina is NOT the world's biggest exporter of soybeans, it's number two.
And don't get me started on how he's cherry-picked other facts to back up his preconceived idea. Gimme a break, yeah? I agree that Argentina is being mismanaged, but this type of extreme alarmist pretending to be serious journalism cannot be taken seriously. Neither can Ambrose Evans-Pritchard.

Rant over, thank you for your attention.

Argentina SoyaWars™ : The agro boys are calling off the strike

Word is that the agro boys is about to "modify their actions" and call off the strike. All this to be confirmed at their meeting in Rosario that starts 5pm this afternoon. The new plan is to go back to work without changing any of their claims, and hold another big rally on 20th June.

Time to go long those Argy bonds, people. Check out Grupo Galicia (GGAL) as a good proxy, too.
(click to enlarge)

GGAL is stuffed to the gills with sovereign paper and has been hit hard these last few weeks. I'll be throwing a few trading shekels at it this morning. Those into tA will spot a clear double bottom on rising volumes. Banco Macro (BMA) is another option worth considering.


Peru inflation figures for May won't be fanfared by Alan&Co

Peru's May inflation figures have been released by the INEI statistics office, and show a rise of 0.37% in the CPI for the Lima+Metropolitan region last month. Here's Bloomberg with a short note on it that also notes the number is higher than expected by the majority of analysts polled beforehand. It also has Finance Minister Carranza quoted as saying that inflation will come down to the BCRP's target of between 1% and 3% "in the medium term".

Both the opinions of the analysts and Carranza can be easily ignored. As documented on these pages several times, the jokers who try to guess Peru numbers and actually get paid for it (they call themselves "highly qualified professional analysts") have an abysmal track record in their prognostications. As for Carranza, he's probably paraphrasing JM Keynes with a "In the medium term we're all dead" timeframe in mind.

What's caught Otto's attention, though, is the less reported PPI number. Here's a chart showing the monthly evolution of both CPI and PPI.....
....and from this we can work out the YoY trailing inflation number for consumer prices stands at 5.26%, but wholesale prices are motoring at 8.05% and not helped at all by last month's 1.19% hike. In short, there's no end in sight to inflation, which contradicts everything said about the "short hump" Peru had to go through in February and March, according to the Peru boyz in power. Let's stop short of calling them complete bullshit liars, and just say they might have exaggerated the positive side a teensy weensy leeeetle bit, yeah?

If you know a little bit about the rhythm of Peru, it makes sense that this time of the year wholesale beats out retail, because the potato and other autumn crop harvest means there's less pressure to buy basic goods at supermarket prices. But the underlying trend being set by higher wholesale prices will be cause for concern at gov't level for sure. Don't be surprised to hear nothing about the inflation numbers from Alan&Co this week, as their fave method of "ignore it and it might go away" on anything that might reflect negatively on the country (and therefore themsleves) is put into action.

Ecuador's macro figures about to get a lot, lot better

Correa wears a tie to impress his new masseuse

Ok, this one is funny. This weekend, Studmuffin Correa went back to one of his pet complaints, that of Ecuador's macroeconomic figures and how he thinks those nasty, smelly neoliberals running his central bank (BCE) are skewing the numbers to the downside.

But this time he's doing something about it! Fed up with the lacklustre numbers, Correa has contracted a technical team from Argentina to review the statistics and decide whether there's some skullduggery going on amongst the fat men in suits. In Correa's words;

"If the data presented by the (BCE) technocrats is found to be false, they will be fired"*

Frankly, inviting Argentina to revise your country's macro numbers is like inviting Bill Murray to revise your drinks cabinet. Argentina's macro figures have been firmly fixed in the world of Kafka for at least 18 months, and getting an bunch of liars to check if your boyz are doing their job right is the economics joke of the year. So thanks to Correa picking up a few massage tips from the Argies, expect Ecuador's numbers (e.g. inflation 8.18%, FY08 GDP growth forecast 4.25%, unemployment 7.93%) so get suddenly and suspiciously better as we move towards the big constitutional vote coming at the end of the year.

However, it is interesting to see Correa worried about FDI (foreign direct investment) numbers announced by the BCE. In his words;

"Until November we had double the amount of investment than in 2006, and in December we had investments, according to the BCE, of less than U$300m."

Seems to this Otto that this has much less to do with the BCE cookin' da books, and much more to do with Correa&Co moving the goalposts every five minutes in the key oil and mining sectors. The way he has screwed around with companies exploring the region since the last part of 2007 punches a big hole in the will of other companies with interesting prospects to stump up money for detailed explorations, drilling, hiring new hands, drinking a few beers with other geologists in the evening, hanging out in 5 star hotels etc etc etc ad infinitum.

It's a case of having your cake and eating it, Rafa. You can't screw around serious, responsible investors that you proclaim as wanting to attract to the country and then later moan that investment has dropped away. Stands to reason. The vast majority of miners I know/know of in Ecuador are serious players and good corporate citizens. You tar them with the same brush as the speculative capital movers you despise, and this is what happens. All they want is a level playing field, you know..............

However, I would say that the fact he's caring about the FDI numbers can only be good for companies like my fav Ecuador-exposed stock Aurelian ( going forward...yes, there are plenty of others, too. Time will tell. Have a good Sunday, dudes.

* Exact words in Spanish: "En caso de que no sean ciertos los datos entregados por los tecnócratas, se irán a la calle."