Guess there’s no such thing as a little volatility when it comes to the Brazilian real.
In December traders were calling the real the world’s most overvalued currency.
Now the consensus prediction, according to a Bloomberg survey of 19 currency analysts, is that the real will climb by as much as 6% against the dollar by March 31. Yep. Not the end of 2010. But the end of March.
That big a swing in a currency over so short a period of time would seem unlikely except that options traders are reversing short positions against the Brazilian currency at the fastest pace in 10 months, according to Goldman Sachs.
 On Monday, February 1 Goldman said that the real’s slump was over. The currency had dropped almost 8% against the U.S. dollar in January and fell 3.7% in the last week of the month alone.
Why the reversal?
First, traders believe that the big move in such a short time has been overdone leaving the currency oversold and ripe for a bounce back.
Second, the Brazilian central bank, which had been selling the currency in the last months of 2009, seems to have halted that effort. The bank was selling the real in an effort to stop appreciation that had taken the real up 33% in 2009 and was badly hurting Brazilian exports by making them more expensive to global customers.
Third, economic growth in Brazil is holding up better than many had feared. The worry was that efforts by Chinese officials to slow that country’s economy would hurt Brazil. China has recently become the biggest customer for Brazil’s exports. But those worries have receded as traders have decided that domestic economic growth in Brazil is strong enough to keep the economy humming even if China cuts back on buying. The consensus forecast is that Brazil’s economy will grow by 4.8% in 2010.
Both of the Brazil picks in my Jubak’s Picks portfolio, Ambev (ABV) and Market Vectors Small-cap Brazil ETF (BRF), which is added to the portfolio yesterday, are up this morning.
Last week’s “Tech Sector Smackdown” was an excellent example of how illogical the market can be sometimes. The tech sector’s big guns have been reporting some of the best earnings of any sector, yet they took a ton of abuse. The silliest part of it was the tech sector stands to benefit from protracted economic negativity. Companies will be buying more tech to make their current workers more productive, rather than hiring more workers.
Chuckling here…sooo that’s why INTC and MRVL isn’t cooperating yet!!
Patience has to be one of the hardest parts of being an active investor. You buy a stock, thinking it’s cheap at the price. Then you see it go down, and you think, “Don’t these fools realize this stock is cheap at twice this value?!” And then it goes down some more…
Understood…steady as she goes! Patience is a virtue that I’m constantly working on!
Well said Jim!
Seaturtlelady, the part of momentum investing that most new to the discipline miss is learning the indicator for when to sell. Without that part of the process momentum investing becomes a great way to buy high and sell lower.
Run26.2…
I’ve just spent the past 30 min. reading about “momentum” investors! Sounds like a good strategy if you’re trying to make up for loss time or loss money sitting in a 403b plan (like mine), although, this would have to be a riskier move???
No problem Leigh. Always glad to help.
I would agree with EdMcGon on BKS. If you want an entry, I would wait for the takeover rumour to go away, then again, I’m not much of a momentum investor. I didn’t realize they had such a healthy DY, but that still doesn’t get me interested at their post-takevoer rumour price.
Ed, thanks for your perspective on BKS! I’m really appreciative of your willingness to help me understand the market better. You’re a great teacher!
Good morning Leigh.
I’m not a fan of BKS. I think their business model is too outdated. Add in the fact their profit margins are pretty tight, and I don’t see much to like about it.
The latest news of a potential takeover is the best thing that could happen to them.
Morning Guys…just wondering what your thoughts are on BKS (Barnes & Noble) stock?? I noticed that it pays a dividend of 5.62%.
Thanks a bunch!
Leigh
Speaking of BRF, don’t you just hate it when you buy a stock, and then it doesn’t ever come down for you to buy more?
Oh wait, never mind…
Jim:
Would you please comment on GLF and its pending reorganization? Thanks.