Turning Chaos into Cash
James Davidson on Dec 02 2009 at 4:53 pm | Filed under: Uncategorized
Lord Rees-Mogg and I called our first book Blood in the Streets. Its subtitle was “Investment Profits in a World Gone Mad.” A lot of people thought we were overdoing it just a bit.
But consider the forecasts we made that came true:
- The Crash of 1987.
- The crash in Tokyo stocks and real estate, with losses in the trillions. (Our readers tripled their money on the fall in Japanese stocks… with a low-risk investment you could buy from any U.S. broker.)
- The end of the Soviet Union and the Cold War
- The fall of the Berlin Wall and German reunification
And more recently:
- The credit crisis
- The collapse of the U.S. housing market
- The recent government bailouts and the nationalization of U.S. banks
All this is history now. And we are now faced with far more treacherous economic times than ever before.
Our objective at Strategic Investmentis to protect you from the bad news and to help you actually grow wealthy from it.
Following are three investments. They are my short list of ideal money-makers during the coming bad years. (They are yours along with many more in your monthly issue of Strategic Investment, should you decide to take me up on my no-risk introductory offer. Scroll down to the bottom of this letter and click the link to get your complimentary report right away.)
1. Low-risk and High Returns from this Giant Emerging Market Bank
Brazil’s banking system is solvent. It has no problem with non-performing subprime loans.
That is one of the reasons that I recommend Banco Itau (NYSE:ITUB), the largest bank in the southern hemisphere. ITU was also the most profitable bank in the world a few years ago.
Buying ITUB is a bet that a crisis in the US and Europe is no longer an occasion to deleverage credit in the BRIC economies.
The 80% rally of the Bovespa from the bottom in Q4 2008 suggests that the local market is convinced that Brazil is prepared to find a way forward, even if the US and other major northern hemisphere economies remain stalled out in the aftermath of the credit crisis.
Two key advantages will help Brazil on its way: its large currency reserves and that its main trading partner is now China.
ITUB has averaged a 26.8% return on equity over the past three years. And unlike the large US banks, it’s well-funded and doesn’t have a balance sheet riddled with toxic assets.
Credit card loans, for instance, only make up 8% of their loan portfolio. The bulk of their loans, 38%, has been issued to corporations expanding rapidly within Brazil.
In addition to being the largest bank in Brazil, ITU has significant presence in 11 other countries. If Brazil motors forward to become the next economic superpower, as I expect, ITUB will continue to post stellar results.
2. Your Road to a 50% Return on Investment
Another bet on future growth in Brazil is CCR Rodovias-ON NM (Bovespa: Sao Paulo: CCRO3)
CCR Rodovias is the largest operator of toll roads in Brazil. Unlike the US, Brazil has made a policy commitment to privatize the operation of its highways. This means major roadways are being auctioned on a regular basis. The return on investment has been stellar – as high 50%.
As Brazil’s largest toll road operator, CCR Rodovias, is a proxy for the growth of Brazil’s middle class. I expect the number of automobiles in Brazil to continue growing as incomes rise and the middle class becomes more vibrant.
This is already happening as witnessed by CCR’s net revenue, which increased by 15.7% in the first quarter of this year alone.
And that’s just part of the story. You see, CCR is allowed to raise its toll rates alongside inflation. This has had the effect of allowing CCR to have high profit margins. Margins before interest and taxes totaled 50.7%. That means for every $100 that comes in, $50.70 is all profit. Most companies in America would be envious.
There are still fewer than 200 passenger cars for every 1,000 people in Brazil; unlike in the US, where the car market is saturated, Brazil’s car market has a lot of “open road” in front of it.
The result is that traffic has gone up 16.3% since the fourth quarter of 2008.
Brazilians tend to prefer to live in gated communities as they reach higher levels of prosperity. This implies a surge in growth in commuter communities – and more traffic on the toll roads to fill the coffers of CCR Rodovia.
3. Make $20,000 a Year from Brazilian Bonds
One of the best plays on Brazil is to buy Brazilian government bonds, if you can afford to trade in the large denominations normally required.
I first recommended these bonds in January and we have already realized a gain of almost 29% in just five months.
You have accrued interest in Brazilian real at 12.9%. It won’t be paid until July; but your accrued interest of 53.9 real also includes a currency gain of 11.46%. This adds another $29.14 in value and brings your total gain on the Brazilian we government bonds we recommended to 28.8%. For every $1,000 you invested, you now have $1,288.67.
You can see why there has been a big appetite for Brazilian bonds lately… and why aggressive investors have been borrowing in dollars and buying Brazilian government bonds yielding 10% to 11%.
I still think these bonds are a great bargain.
In the special report Turning Chaos into Cash: Three Slam-Dunk Investments for 2009 I give the details of how to use leverage to buy these bonds and net upwards of $20,000 (maybe much more) per year.
I’ve chosen to focus on Brazil in this report because Brazil has thrived as a deleveraged economy.
Punishingly high real interest rates in the recent past have kept credit out of Brazil.
As of June 30 2002, Brazilian government loans yielded 17.7%. Business loans yielded an average of 38.28%. And the average annual yield to banks on consumer loans was 60.57%.
That’s why Brazil will continue to boom and make some investors very rich.