With the global commodities meltdown, and the news earlier this month of the government’s $152 stimulus package, the word on the street is that Brazil is facing tough times like everyone else these days.

That certainly may be true about most opportunities in Brazil, but one company continues to prosper – making it perhaps one of the great values on both the NYSE and the Brazilian Bovespa exchanges.

The company is Companhia Brasil Ads (NYSE:CBD), and it’s one of the largest grocery chains in the country. CBD manages to capture the synergy of Brazil’s enormous population and agricultural sectors to show a steady stream of positive earnings. Right now, the stock is trading near the bottom of it 52-week range of R$21.26 – 50.50.

CBD is riding a trend of ballooning grocery sales. Brazilian supermarket sales increased in December by 6.1% over December 2007, according to the Brazilian Supermarkets Association.

In 2008, CBD’s French parent, Casino, announced in 2008 expansion plans for the chain. It intends to invest around US$523 million opening 105 new outlets. The breakdown would be 80 convenience stores, 14 cash-and-carry stores, seven supermarkets, three discount stores and one hypermarket.

Market analyst Research and Markets was of the opinion that the supermarket sector could become saturated with major competitors from the U.S. and Europe, the convenience segment was “left open to target high-income shoppers.”

Regardless, CBD seems to be doing things right in terms of market expansion and protecting its home turf.

Sales in 2008 rose 9.0% compared with the year before with the strongest growth seen in the first half of the year.

In its Q3 report issued on Nov. 4, 2008, the company posted gross sales of R$ 5,055.6 million and a net of R$ 4,407.0, with respective year-over-year gains of 22.4% and 26.0%. Same-store gross sales rose by 10.3% and net sales by 13.6% over the same period the year before. And the company posted a Q3 net income of R$ 82.5 million, up a blistering 137.8% over Q3 2007.

Overall, CBD could be one of the best bargains for investors looking for a position in Brazil.

We’ve always relied on the “Cell Phone Indicator” as a forecasting tool for potential economic growth in emerging economies. Now, based on a recent report, it looks like our long-term confidence in these nascent markets will hold fast despite the current malaise that has gripped the world.

Our informal “Cell Phone Indicator” posits that mobile communications have historically signaled the growth of a new economy. In many countries, cell phones are the only form of communications for an individual. Armed with a mobile gateway to the outside world, cell phones are literally the seeds to entrepreneurial growth. Craftsmen, farmers, fishermen, retailers – just about anyone involved in a small business – can order and ship products, and even exchange money, using these wireless, digital devices.

On a grander scale, widespread cell phone adoption indicates significant investments in national infrastructures. Towers, power stations and repeaters are installed to facilitate economic growth. From these, come the roads, harbors and bridges to help carry the goods from these wireless transactions.

Investors who ignore cell phones as an economic indicator do so at their own peril.

Now we have some new numbers just released that forecast explosive cell-phone growth in emerging markets. If these predictions are even remotely accurate, we can expect more rapid growth in many third-world countries that could harkens back to good old boom-town days of the so-called Commodity Supercycle.

According to Informa Telecoms & Media’s Global Mobile Forecasts, annual revenues from the global mobile market will top $1.03 trillion by 2013, when the number of subscriptions worldwide will have risen to more than 5.3 billion. The implications for investors are truly profound.

It took more than 20 years to reach 3 billion subscriptions, says the report, but another 1.9 billion net additions are forecast in just six years, with the global total nudging past the 5-billion by 2011.

Total annual revenues from mobile operators are expected to grow by over 30%, surging from $769 billion in 2007 to $1.03 trillion six years later.

Informa Telecoms & Media forecasts 78% of global net additions between 2007 and 2013 to come from markets in Asia Pacific, Africa and Latin America.

Five markets — India, China, Indonesia, Brazil and Russia – will account for 47% of those 1.9 billion new users.

By contrast, mature markets in North America and Western Europe will contribute just 8% of total global net adds, reflecting the high level of saturation in these markets.

The underlying message here is that we could see a real grass-roots growth in many of these countries – the kind of economic expansion that often slips under the radar of the major news outlets.

This from Today’s Financial News:

Wish you had a time machine? I just might be able to help you out with that!

Back in the early 1980s, International Living recommended buying real estate in northern Costa Rica. Readers who took this advice reaped big rewards.

This part of Costa Rica became the No. 1 destination among foreign retirees and investors who wanted to buy land that would increase dramatically in value. These buyers made very wise decisions, as the prices for beachfront property along the Pacific coast increased six-, eight-, tenfold, and beyond throughout the ’90s.

Your chance may have passed in this part of Costa Rica, but I can tell you where to find another pocket of opportunity… a place where prices have stayed low. Why? The area I’m talking about has been difficult to get to. That’s set to change — giving you the opportunity to position yourself ahead of the Path of Progress.

Some of the most amazing scenery in Costa Rica is in an area that runs south of Quepos on the border with Panama. Landscapes here in Costa Rica’s southern zone are dramatic: panoramic ocean views… lush tropical rainforest… and jungle-clad slopes rising sharply away from pristine stretches of sandy beach.

In a country with an established real estate market like Costa Rica, this sounds like just the type of place that would attract a lot of fervent investors. Difficulty getting there has kept it under the radar in terms of development and kept prices far lower than areas to the north.

The Costanera Highway is unpaved between Quepos and Dominical and the airports are small, local affairs. The airport in Palmar Sur is a one-woman show — she issues tickets, checks baggage, and answers queries, while you sit on a wooden bench overlooking the small strip, alongside your co-passengers… all 11 of them. No duty-free shop or airport food here.

These are exactly the kind conditions I look for when scouting for a good real estate opportunity… especially when plans to improve the infrastructure are in place.

For now, pricing here is among the lowest in Costa Rica. I found 1.25-acre lots close to Ojochal for as little as $65,000. Construction costs are roughly $90 per square foot.

So for $245,000, you can own your own piece of this tranquil setting in a custom-built, 2,000-square-foot house on a large lot.

That really is a good-value buy, considering that in Manuel Antonio, near Quepos a 2,200-square-foot condo averages $595,000 and a 1.25-acre lot is listed at $325,000.

The important news for investors is that road improvements on the Costanera Highway are underway and scheduled for completion next year. This should cut the 90-minute trip from Quepos to Dominical to 25 minutes.

An international airport is planned for Palmar Norte. Due to be completed in 2010 (the government has already allocated funds), the airport is planned to open in stages; the first, in 2010, will allow international flights with a maximum capacity of 50 passengers.

Eventually, the plan is to have a runway capable of accommodating even the world’s largest passenger plane, the Airbus A-380. An airport of this scale needs to be close to a hospital and one opened last year in Cortes, just 10 minutes from the airport.

I have been bullish about the opportunity in Costa Rica’s southern zone for the past six months. Today I got word of a government policy decision that makes this opportunity even more exciting.

The Costa Rican authorities have tightened up the regulations for developing land in this area. They are committed to controlling the pace of change, and prevent destruction of primal rainforest. This limits the number of future projects, and sets out to preserve the raw beauty of the landscape.

That all points to one thing if you get into this market today… the value, like northern Costa Rica in the ’90s, will soar in value.

Source: Another Chance to Make Big Profits in Costa Rica… But You Must Act Now

This from Money Morning:

The second phase of emerging markets expansion is well on its way – a period of self-sustaining growth, driven by consumer growth and infrastructure spending.  And Latin America, following China and other Asian economies, is one of the key global pillars of growth that will save the global economy and the U.S. financial system from total collapse. But not all the countries in Latin America will go on to prosper.  There is a wide gulf in the policies that will continue to separate the winners from the losers.

Let me explain.

In a recent article in our affiliated monthly newsletterThe Money Map Report, Money Morning Investment Director Keith Fitz-Gerald made three important points:

• The emerging markets (of which Latin America is the second-most-important leg) will play a growing role in the continued long-term growth of the world economy.
• The U.S. economy will continue to grow long-term, but its relative importance in the world economy will continue to decline.
• In the near term, the emerging markets could well play a determining role in keeping the overall global economy – and the U.S. financial system – from dropping into a depression-like funk that we won’t be free of for years. Emerging economies in Asia and parts of Latin America have huge cash reserves, much of which will be invested in infrastructure projects over the next 20 years.

In the next three years, China, alone will invest as much as $725 billion in infrastructure, while Brazil will invest $225 billion for the same purpose.
This is important to remember, given that the dramatic sell-off the emerging markets have experienced has many investors doubting the ability of these countries to “decouple” from the global economy.  The reality of the situation is that most investors and pundits are failing to differentiate between economic decoupling and market decoupling.

The Gloomy Present

While growth in emerging economies has dropped slightly, the prices of securities and currencies in emerging markets has fallen drastically.   Many investors think that the U.S. economic crash will lead to a dramatic drop in U.S. orders of emerging-market products, which will cause those economies to drop off. That, in turn, would squeeze the profits and market valuations of the companies that operate in these economies.

But that’s a mistaken assumption. And here’s why.

In Brazil, for instance, exports account for a mere 13% of gross domestic product (GDP). In China, exports are just 10% of GDP. So some contraction in U.S. and European orders can easily be counterbalanced by fiscal and monetary stimulus in these countries.

On Oct. 27, in the depths of a rabid, indiscriminate sell-off, I published an extremely bullish piece on Brazil. Since that article was published, Brazil went on to rally as much as 47%. As of Friday’s close – even after some subsequent profit-taking – the exchange traded fund (ETF) that represents the Brazilian market (NYSE:EWZ) is still up 21% (and has risen as much as 42% since my recommendation).

And most emerging markets economies have plenty of fiscal and monetary maneuvering room. Leading the pack is China, which accounted for some 27% of global growth last year, and which has continued to use both fiscal and monetary tools to keep itself on a solid growth path.

It recently slashed interest rates again, down to 6.66% (a lucky number in the Chinese culture, meaning “things (are) going smoothly”).  With record foreign reserves of $1.9 trillion, China also approved a “fast and heavy-handed” $586 billion stimulus, mainly in housing and infrastructure, to be implemented through 2010.  And the Chinese yuan will drop almost 7% vis-a-vis the U.S. dollar to cushion losses in trade.  It has also lowered taxes on investments in capital goods.  And in a key move that’s been almost totally overlooked by the media, China has made huge market-oriented reforms in agriculture.

China has just allowed its 780 million farmers to rent, transfer or utilize as collateral their rights to their lands and eliminated all taxes on agricultural production and to farmers.  This will allow for a massive increase in the scale of production by consolidating companies.  In this way, China will keep its 120 million hectares dedicated to agriculture exclusively, with no possibility of urbanization, while at the same time allowing the millions of small farmers to sell out, and get capital to move to the cities.  This will not only increase the productivity of Chinese farming dramatically by allowing for economies of scale to work and attracting billions in investments, it also will create a huge incentive for these millions of farmers to move to the cities, boosting housing and infrastructure demand.

Brazil’s plans are very similar to those of China. There’s a:

• Strong fiscal stimulus, allowing a drop in the value of the real currency (a decline that’s already been substantial) in order to cushion exports.
• An easing of capital requirements to Brazil’s strong banking system, which will incentivize housing and car loans.
• Export financing.
• And huge local infrastructure projects.

There is another little-understood phenomenon that cushions the blows for emerging economies: Intra-emerging market trade has become increasingly important.  By now everybody understands that iron ore from Brazil and coal and oil from other emerging markets is flowing into China in order to fuel China’s massive infrastructure buildup and growing consumer demand.

The Breakdown on Brazil

Increasingly, a growing proportion of the infrastructure needs of industrial goods being bought by emerging economies are goods produced by other emerging economies.  Trade between Latin America and China has increased by 13 times since 1995, from $8.4 billion to $100 billion.  And China, now the second-most-important commercial partner to the region after the United States, has finally been accepted as a member of the Inter-American Development Bank, committing itself to contribute $350 million to the bank. As an example of this growth in industrial trade, Argentina just bought 279 subway cars from China’s CITIC Group.

However, not all trade with China has been successful, due to China’s notable deficiencies in quality control, especially in health standards.  For example, Latin American imports of medicines manufactured in China had catastrophic results in Panama two years ago, where more than 100 people died and hundreds more became ill from medications containing toxic Chinese glycerine.  Recently, Panama detected toxic chemicals in imported Chinese sweets and crackers and Argentina’s customs recently seized Chinese 20,000 thermos containers for having elevated content of toxic chemicals.

And all of this means that there is a market disconnect between the prices of Brazilian shares and those elsewhere in Latin American equities and the fundamentals of the underlying companies, that we will see played out in the next and subsequent years.  Why?

Just because huge financial losses by banks precipitated a massive de-leveraging cycle, which means they had to sell their holdings, regardless of merit. And that included big sell-offs in preferred investments, including the hugely promising and profitable Petroleo Brasileiro SA (Petrobras) (ADR:PBR), Vale (ADR:RIO), and many others.

Sign up below… and we’ll send you a new investment report for free: “Credit Crisis Report.”

And what is worse, their sales hit the stop losses of major hedge funds, who were also leveraged in such favorite plays as commodities, steel, coal, agro, emerging markets and even defensive stocks such as the U.S.-based Pepsico Inc. (NYSE:PEP).

When you have the proprietary positions of banks and hedge funds all trying to get out of the same door at the same time because of risk management issues, you get the current disconnect between market fundamentals and pricing.

Another impact that we have to understand is that the ongoing dramatic interest rate drops in all major G7 economies and the more than $3 trillion in G7 fiscal programs will have a marked impact on growth next year, containing what would have been a much nastier economic contraction.  But while G7 countries will barely grow between negative 0.5% and a positive 1% in 2009, with the worst contraction front-loaded and recovering in the second half, emerging economies will grow at a minimum of 4%, and in the case of China maybe as high as 10%.

In my October Brazil analysis, I detailed the massive stress that Brazil came under in 1995 because of another exogenous shock: The Mexican devaluation, the so-called “Tequila effect,” which ricocheted around the world, and which caught Brazil in 1995 in a much weaker position than it is in today. Back then, Brazil had a much higher level of debt, much lower reserves, a fiscal sector that needed huge reform, and a much lower capacity for exports.  Brazil dealt with this massive stress effectively and went on to work at each one of its weaknesses in the next 13 years, getting itself into a position of strength today.

While having the temptation and the perfect excuse for a default right at hand, Brazil proved its seriousness back then by taking the hard, but certain road to progress, keeping its international commitments and gradually affecting strong structural reforms.  Since then, it has become a net creditor to the world; it controlled inflation, and avoided an overheating of its economy with tight fiscal and monetary policies during the recent run-up in commodity prices.

This is paying off strongly today.  The policies, run day to day by a sophisticated technocracy led by top economists and international bankers, many of which held top positions in leading international banks, has allowed Brazil to move forward and to anticipate GDP growth of 4% to 5% for the New Year.
Hence, Brazil is by far my favorite Latin American play for 2009.

Checking Out Chile

Following closely behind, and hindered only by its small size, is the poster child of fiscal and monetary prudence: Chile.

Chile, which came out of its 1970s default by eliminating its foreign debt and successfully restructuring its banking system, has made every effort to maintain very prudent fiscal and monetary policies and to diversify its exports away from copper, which, being the largest exporter of the metal in the world, still accounted for 38% of its GDP.

Today, Chile exports many diversified products, including agricultural products, wine, fertilizers and industrial wares.  And because it’s situated on the Pacific Coast, it is geographically well positioned to trade with the fastest-growing markets in the world – China and the other emerging Asian tigers.

But Chile, in order to minimize the cyclical nature of its economy due to the wide fluctuation in the price of copper, decided years ago to start a “rainy-day” fund, which would accumulate wealth in the good years and be used to soften the blow in the bad ones.  Now, Chile boasts a $28 billion sovereign wealth fund, accumulated almost completely from its copper profits.  That’s almost equal to a staggering 14% of the country’s GDP in cash savings!  This will enable Chile to implement counter-cyclical policies to keep growing at 3.5% to 4% next year – or about the current rate of growth, even with the worldwide meltdown.

Chile already has started to deploy this capital, having passed a $1.15 billion government plan on top of last month’s $850 million to stimulate housing and small-business lending, injecting that capital into a government bank that will make available loans for small businesses.

Avoid Argentina

Chile’s fiscal prudence is in direct contrast to Argentina’s lack of discipline.  Argentina’s Peronist government, which squandered the agricultural commodities bonanza in fiscal spending, is now is trying to use its majority in both houses in Congress to pass the nationalization of the privatized pension funds under the excuse of “protecting them from market volatility.”

These funds, which now have successfully grown to more than $30 billion in size, or 73% of the government’s budget and have returned an average of more than 13% a year since inception will allow the government to cover its fiscal gap and debt maturities next year and to financed public works and consumption projects.  The government, at the same time, is suffering from an important loss of confidence, as evidenced by its need to resort to police controls in order to prevent the illegal purchase of U.S. Dollars.  Argentina might end 2009 with growth of negative 2% and unemployment of 10%.  Stay away.

A “Maybe” for Mexico

Mexico, given its strong links to the United States, is receiving a heavy dose of external shocks on many economic and financial fronts – especially where the United States is concerned: It’s being hit by a drop in exports (the United States is the main component), the drop in oil prices, lower tourism (its largest proportion of travelers is from the United States), falling U.S. investments in Mexico, and reduced remittances from Mexicans working in the United States back to their Mexican relatives.

In addition, many companies suffered strong losses in their derivatives hedges, banks have had to reduce lending due to reduced liquidity and the Mexican peso has lost some 22% of its value against the U.S. dollar.  Mexico’s growth in the New Year may fall to about 1% from 2008’s 2.4% pace, and the country is on its way to approving the first budget with a fiscal deficit in four years.  The government’s target will be negative 1.8% of GDP, in order to stimulate the economy.  Mexico, seeing its oil production declining, is seen moving soon towards opening some oil areas for exploration and development, which some estimate could add another 1% to GDP.

Once the U.S. markets have stabilized, Mexico’s stocks will be an incredible buy once more, since they discount a very bad scenario at these prices.

A Case Against Colombia

Colombia, another country that has merited a lot of attention, given its staunch support of U.S. anti-drug and anti-money-laundering efforts, has seen its free trade agreement with the United States inexplicably delayed.

The country foresees a tightening of credit conditions, so it is moving up its peso-based borrowing to this year.  Next year it will issue only $1 billion in foreign bonds and tap $1.4 billion from multi-lateral lenders.  So the refinancing risk for Colombia is muted, given the small amounts involved, and the country’s economy should expand a minimum of 1% in the New Year, even in the worst economic scenario. However, Colombia could grow as much as 4% under a moderate scenario.

That would represent a big drop from the 8% growth recorded this year.

The story in Colombia has been the curbing of inflation, and how far behind the curve the central bank has been, at least as recently as July, when it boosted rates up to 10% and then kept them there.

These ultra-high interest rates, combined with the global slowdown, have blunted demand for consumer products in Colombia. Since the passage of the trade pact is a situation in flux, I want to wait and see right now.

I will not go into the economies of Venezuela, Bolivia and Ecuador, which, with massive intervention by their governments and advances against property rights, are experiencing severe economic and political stress, and which do not offer the guarantees needed for foreign investment.

Source: Some Latin American Markets Show Profit Potential in the New Year, While Others Pose Risk

[Editor's Note: This is the eighth installment of our “Outlook 2009” series, which looks at the global investing outlook for the New Year.]

If you haven’t got the means to invest in a European stocks, Americans can play this sweet deal with the local pink sheet offering – Barry Callebaut AG R (PINK:BYCBF).

More from Taipan Daily:

I just can’t take it any more.

I have been writing about this collapse in one column or another for years now. At first it was warnings about our profligate ways. Then it was the first few teasing leading indicators.

And for the last year? Nothing but nonstop guts and gore. An endless cadence of corporate losses… falling share prices… bank failures… closing stores… shrinking GDP… failing employment…

Quite frankly, it’s getting on my nerves.

Cold Comfort

Of course, the shorter days and colder weather don’t help much either. The only “top down” driving I can look forward to for the next few months will be on the tractor -clearing snow off a quarter mile of private road.

It’s time for a change of pace.

My wife has a cure for times like these. On a high shelf in the kitchen, far beyond the reach of our children’s sticky little fingers, she keeps a private stash. Too little sunlight, frightening times and too many bills can’t just beat down the buzz… of high-grade Swiss chocolate.

So today, I am going to steal a page out her book.

Time to Change Our Outlook

I am only going to mention “stagnating sales” once more. Because I have uncovered a business that has found a delightful way around the whole issue. In fact, even their product is pleasant. Even tasteful, as it were.

The folks who run the world’s largest bulk chocolate maker, Barry Callebaut AG (SWF:BARN), are also tired of Europe’s stagnating chocolate sales. But rather than wallow in a mawkish funk, they are looking to start up production somehow, someway in Brazil.

Seems that Latin America was the one market they had not thoroughly penetrated. And Brazilians in particular are devils for the stuff lately. Just as consumption in Europe is falling off, Brazilians are craving 15% more (at least as of 2007, anyway, which is the most up-to-date info available from the Brazilian Association of Cacao, Chocolates, Candies and Byproducts Industries).

The Old “Can-Do”

In times like these, you just have to love Barry Callebaut AG CEO Patrick De Maeseneire’s “can do” attitude. When grilled by a reporter from Bloomberg, he responded with perfect self-confidence: “This crisis will be more severe than any I’ve known, and it will take longer to recuperate, but knowing that, you have to prepare yourself for the end of the crisis.”

Now De Maeseneire is no Warren Buffett, mind you. He’s not an investing genius in charge of trillions of dollars worth of floundering U.S. shares. But he does mind his $2.7 billion chocolate empire rather well.

Recent deals with his fellow Swiss outfit, Nestlé SA, local hero Hershey Co. (NYSE:HSY), Unilever (NYSE:UL) and even Kellogg’s (NYSE:K) Keebler elves, have boosted the most recent 12 months’ (July 07 through August 08) profits 66% over the previous twelve months. And while even Barry Callebaut was not immune to the massive global downdraft, shares have been rising steadily since last October.

Sunny, Warm and Cheap

Looking back to Brazil, what attracts De Maeseneire is also what has attracted the attention of my fellow editors, Chris DeHaemer and Justice Litle: not only do they want more “stuff” – cars, houses, food, highways, air conditioners, plumbing, whatever – but it is (still) just so damned cheap to get into these markets.

Barry Callebaut plans to spend some 15 million Swiss francs (that’s $12 million American) to either form an alliance with someone local, acquire or just plain build a plant of their own.

Here in the States, you can’t even bribe a congressman for that – pardon me: “fund a congressperson’s campaign,” let alone break ground on a new factory. And even that presumes you could pry a banker’s cold fingers from around that much cash in the first place.

C’est la Vie

If you are interested in buying into this tale of chocolate-powered optimism, and don’t feel up to wiring Europe for the shares, you could always pick up their local pink sheet offering listed as Barry Callebaut AG R (BYCBF.PK).

As with all pink sheet listings, it behooves you to keep an eye on volume before buying, as too many interested parties on any given day could push the price too high.

I will allow Messr. De Maeseneire to close today’s column: “If everything stops, of course the world will stop. I go out with the assumption that the economy will come back.”

Source:  Wall Street Gore… or Swiss Chocolate? What Are You, Nuts?

This from Taipan’s Emerging Markets blog:

Members of APEC, Asian-Pacific Economic Cooperation, ended their annual summits today in Lima, Peru. One of the main topics, besides the economic crisis, was free trade.

(By the way, APEC consists of member economies like China, Vietnam, the U.S., Canada, Russia, Peru, and Chile, among others.)

Free trade is a hot topic right now, with the dreaded “P” word floating about: protectionism. Protectionism is when governments restrict or restrain international trade. Most times the intent is to protect local markets from competition.

Like if the U.S. government says a tomato farmer in Mexico can no longer export his product to the States because its so much cheaper compared to an American farmer’s product.

The 21 leaders meeting in Lima have agreed to “avoid protectionist measures and keep trade free despite the economic climate,” reports the BBC. The members signed a final declaration backing free trade on Monday.

Free trade is only part of the equation, though, and governments have also agreed to support economic stimulus plans that will boost spending.

In fact, the APEC member governments are spending hundreds of billions of dollars on ways to stop the economic crisis, says the International Herald Tribune. Not all the cards are on the table, though, and there hasn’t been a clear-cut plan held up for the public’s eye. Not yet, anyway.

One thing is for sure… There will be a lot of international cooperation to spur investment and partner economies. For example, 40% of Chile’s exports went to the Asia-Pacific region in 2007. Mostly to China.

It’s no surprise that Chile was the first non-Asian country to sign a free trade agreement with China back in 2005. And China just last week signed an FTA with Peru.

These FTAs allow for easier, cheaper trade, which may ultimately keep some of these countries out of a recession.

By the way, we’ve just gotten a GDP report from Chile’s Central Bank. For the first nine months of 2008, Chile’s GDP growth rate was a brisk 4.2%. Now, that’s down from last year’s figure (at 4.7%), but still pretty darn good.

Next year, the country expects a bit of contraction, and only 2% to 3% growth, but that’s good enough to keep Chile out of a recession next year.

That’s also good enough to keep Chilean businesses fairly healthy.

Source: Investing in Latin America: Global Crisis Buffer

This from The Sovereign Society:

I found this chart online and thought it was such a good representation of what is going on that I just had to share it with you. (Thanks to the folks at http://frigginloon.com/ )

As I’ve written about before, this is really just the beginning of the flood of bad news we’re going to continually hear about over the next few months.

As you look back over this list, you’ll notice that none of the emerging market countries are on there just yet. And when they do appear, I’m afraid there will be more red X’s added to the list.

But now countries like Ukraine, Pakistan and Argentina are proving to be almost as vulnerable as Iceland. They borrowed money without real collateral to back those loans. And the industries responsible for making the payments are collapsing.

It seems as though another country is added to the growing list of nations on the verge of collapse almost daily.

Emerging Market Opportunities?

Having just accepted aid from the IMF, Hungary barely avoided sliding into national bankruptcy. And only a $15.9 billion IMF rescue package – bolstered by billions more from the European Union and the World Bank – prevented it from happening.

Analysts at Morgan Stanley estimate that capital flows to emerging economies could fall to $550 billion in 2009 from around $750 billion in 2007 and 2008. Such a sharp drop would hit economies that rely heavily on foreign finance: more than 80 developing countries are likely to run current-account deficits of more than 5% of GDP this year.

Countries do go bankrupt. Iceland is not the first (and will not be the last). Russia was declared bankrupt in 1998, Argentina in 2001 and Germany has a history of going more than once…

The problem is national bankruptcy would probably lead to massive inflation. This is demonstrated by the central bank of Iceland, which increased its prime rate by six points to 18 percent last week. Venezuela, where inflation is also high, is now offering 20 percent to stimulate interest in its government bonds.

And Argentina – having seized some US$29 Billion in private pension funds – has bond offerings yielding upwards of 30%! It’s worth noting; however, that the last time bond yields were this big in Argentina was in the aftermath of an epic bond default in 2001.

In the coming months, you’ll see more and more countries offering these huge double-digit bond yields. Most of these bonds will be coming from emerging markets that are already in trouble due to stifled capital flow.

Don’t do it!

I know your portfolio is probably looking pretty bad right now but this is not where you need to be investing. There’s just way too much risk in these emerging market bonds right now.

Not to mention that some more-developed countries are offering competitive bond yields as well. Sure they pale in comparison to 30% yields in Argentina, but at least you know you’ll get that money back.

On paper, 20-30% fixed-income returns look great. But I doubt you’ll ever see those returns make it to your bottom line.

Source: Don’t do it…

It’s no secret that China has largely been responsible for the commodity run-up of the past few years. Now the question remains if the latest deal with Cuba could give China a new lost-cost provider of commodities. If so, it could be a bit of bad news for investors looking for a China-driven commodities run-up.

On Tuesday, Chinese president arrived in Cuba as part of a Latin American tour to strengthen ties with the resource-rich region. And his timing was impeccable.

Just weeks after Cuba’s farm sector and overall economy were rocked by three hurricanes which inflicted more than $10 billion, China parachuted in with almost a dozen trade agreements, according to Cuba’s state-run news agency.

In exchange for wider access to Cuba’s natural resources, China will rehabilitate the country’s decrepit infrastructure.

High on China’s Cuban shopping list were nickel, sugar and other agricultural products. By going direct, China is able to bypass the public markets whose fortunes have been riding on its voracious appetite for commodities.

As it now stands, China is Cuba’s second-largest trading partner, with both sides generating $2.7 billion annually – only about 3% of China’s overall trade with Latin America last year. This ranks China as second, after Venezuela, whose trade with Cuba was pegged at $7 billion.

While it may be easy to pooh-pooh Cuba’s contribution as minor, the fact is the Castro brothers are sitting on a bounty of nickel, tobacco, sugar, offshore oil, iron ore and copper. And most of it could conceivably head straight into China, deflecting potential gains from the open markets.

Earlier this month, when China said it would spend an estimated $586 billion over the next two years on a massive national infrastructure build-out, the commodity bulls roared out of the gates – expecting this new initiative to give prices a boost.

At the time, we wrote that the impact of the China plan would be minimal on commodity prices – and now with the Cuban deal we’re sticking to our guns.

But if anyone really wants to know what China’s plans for Cuba really are, just look to Macau.

This from Taipan Daily’s Emerging Markets blog:

Right now, copper spot prices are an anemic $1.65 per pound. That’s an amazing drop from above $4 back in June.

And yet, one Chilean copper mine is actually expanding.

The mine is called Dona Ines de Collahuasi. It’s Chile’s third largest copper mine and is located in an historical copper mining area. Back in 1880, a large, high-grade copper and silver vein was found. It’s one of the world’s largest copper resources.

Right now, the mine produces roughly 440,000 tons of copper a year.

But the mine has just approved a $64 million project that will increase annual output by 30,000 tons. And that’s just the first expansion.

At the end of the first quarter of 2009, a $750 million expansion plan will boost production to 650,000 tons a year. After that expansion is complete, the mine intends to increase production to a full one million tons of copper a year by 2014.

That’s an astounding move.

And one that will need some major financial backers, particularly if copper prices don’t recover. It’s a good thing some big companies own this mine.

I’m talking about Anglo American (Nasdaq:AAUK) and Xstrata (LON:XTA), each with a 44% stake. There’s also a Japan’s Mitsui (Nasdaq:MITSY), owning 12%.

The CEO of the mine, Jon Evans, told the newspaper Diario Financiero, “The mid and long-term plans are the same, therefore our expansion plans are also the same.” Which may pay off in the long run… If it can survive depressed copper prices.

And copper prices have continued to fall, despite a huge cash injection by China to its economy. China is the largest user of many of the industrial metals, like iron ore, aluminum, zinc, and, of course, copper.

So with China’s economy slowing (albeit to 7.5%), the country will use less of those materials.

Now, China’s been part of the reason why copper prices had more than doubled since 2002. If Chinese demand continues to slow, that could mean a long time before we see copper prices begining to climb again.

Which would mean that Anglo American, Xstrata and Mitsui will have to wait for the returns on these major expansion.

But it would also mean that they’d be ahead of the game once things begin to turn around… If they can afford it.

Source:Copper: Chilean Investment Still Expanding

“The misguided macroeconomic and monetary policies, especially the confiscatory tax policy and huge government spending – much of it inefficient – was doomed to catch up with the country someday,” says Horacio Marquez, a Wall Street veteran, emerging markets specialist and editor of two trading services affiliated with Money Morning: The Money Moves Alert and the Shadow Stock Trader services.

Argentina’s act of not-so-petty larceny was launched late last month when the government, in a surprise move, ordered Argentine pension funds to liquidate their foreign holdings, the first step in a plan to transfer that money into the state pension system. Argentine President Cristina Fernández de Kirchner said she abolished the 14-year-old private pension system to protect pension money at a time of global turmoil and denied the government had grabbed the cash to service its crushing debt, which officials told The Financial Times is now about $21 billion.

The reality is, however, that surpluses from the state system – known as “Anses” – already have been a key source of government funding, especially in the past year, after a surge in the number of workers returning to the state plan caused its holdings to surge substantially. Expect the use of those surpluses to continue.

Indeed, the government is clearly hoping that the addition of the assets from the private pension system will create an even-bigger surplus that it can use to service its debt. Otherwise, the government might have to cut back significantly on the spending programs that benefit Argentine citizens. And since 2009 is an election year, such cutbacks aren’t an option.

But the strategy is fraught with peril. First, the decision “effectively killed the primary institutional investor in its emerging capital market,” the World Bank said. “Confidence in this market has predictably suffered from this measure, the latest in a series of government meddlings.”

The move calls to question what the government will do about the $10 billion in private investments, including the shares of both foreign and domestic firms.

That makes Anses the country’s biggest investor in its capital markets, whose liquidity and depth will become greatly reduced, The FT said. And the disappearance of the private pension funds will raise a lot of concerns over how the government will be able to keep a steady supply of credit available to consumers, whose spending drives the economic growth in that country, as it does here in the United States.

The lack of available credit major combined with a downturn in confidence in the Argentine financial system might well be the double-whammy that pushes Argentina into a major downturn, which could easily translate into another debt default.

Haunted by Past Problems

To really understand what happened, we need to turn back the clock to 2001, when Argentina – Latin America’s second-largest economy – found itself on the brink of financial collapse. A loss of confidence in the country and its policies induced a surge in capital flight and a major run on the nation’s banks, as investors and Argentine citizens alike exchanged pesos for U.S. dollars, which they then sent abroad.

Argentina was forced to default on the lion’s share of its public debt, estimated at $93 billion. Even today, however, an estimated 30% of Argentina’s bondholders still refuse to accept the 70% discount the government offered to settle the default.

Even in a world not currently gripped by a global credit crisis, Argentina would likely have found it impossible to obtain the finding needed to finance its government operations. But the financial crisis is a stark reality, meaning that the few sources of funding that remain available in the world markets are not open to Argentina.

And with Argentina’s agriculture-heavy domestic economy slumping badly – and now certain to feel the sting of the plunge in food-and-commodity prices – the central government is left with a possible debt-payment shortfall of as much as $10 billion for next year.

“With the abrupt drop in commodity prices, it left Argentina’s ‘cleptocratic’ government little room other than to confiscate private savings in order to reduce its chances of defaulting again in 2009,” says Marquez.

Default Déjà Vu?

There are some disturbing similarities between Argentina’s current economic crisis and the economic malfeasance that led the country to default on its debt in 2001.

Then, as now, the government faced accusations of corruption and mismanagement of debts. Argentina’s current president, Cristina Fernández de Kirchner, succeeded her husband, former President Néstor Kirchner, in December 2007. Like her husband, President Kirchner has been accused of employing dubious accounting tactics.

It is widely believed that the current president Kirchner has underreported Argentina’s inflation situation by replacing members of the state statistical office with handpicked analysts “friendlier” to the administration’s view.

During Kirchner’s husband’s administration, which ran from 2003-2007, several industries were nationalized. Despite having campaigned on a socialist platform of “returning to a republic of equals,” he nevertheless oversaw the state takeover of the postal system, water works and railways.

The pattern of the Argentine government’s failure to acknowledge economic reality continues.

The legislature recently passed the budget for 2009, that bases its financial assumptions on 4.0% economic growth (as measured by gross domestic product growth), 8.0% inflation, and a currency valued at 3.19 pesos for each U.S. dollar (despite the fact that it currently takes 3.33 pesos to buy one U.S. dollar), MercoPress reported.

Many economists feel Argentina’s economic growth is likely to be much lower. JPMorgan Chase & Co. (NYSE:JPM) predicts just 1.0% GDP growth for 2009. And some economists have predicted inflation as high as 20%.

Current President Kirchner has chosen to blame the global financial crisis for the government’s need to grab of private sector assets – without acknowledging the role that her administration, and the domestic economy, have played in the current economic crisis.

“There was a [private] system that spectacularly collapsed. This was a policy of looting,” Kirchner said in an attempt to justify the nationalization, the AFP reported.

“It is evident that when nobody regulates the market, nobody controls it and it is allowed to do what it wants, we wind up with a financial disaster like the one the global economy faces,” she added.

But it’s widely acknowledged that without the projected $4.5 billion to $5.0 billion in worker inflows to the private pension system next year, coupled with the current $24 billion in deposits, the Argentine government would find itself dangerously close to another default.

Despite all of the similarities between Argentina’s past and current economic troubles, there’s one important difference for global investors.

During Argentina’s prior collapse, Mexico and Brazil – large Latin American economies and important Argentine trading partners – were faced with their own economic crises. It cast a pall over Latin American investing for emerging markets and international investors. But that’s not the case this time around.

“Argentina, unlike Mexico, China and Brazil, is a fairly closed economy,” says Shadow Stock Trader editor Marquez. “Therefore, the impact to other economies from the Argentine pension nationalization is almost negligible.”

Argentina’s Economic Isolation

Even with its strong average economic growth of 9% for the past several years, Argentina hasn’t been a smart place to park investments since the 2001 crisis.

During the prior economic collapse, large numbers of business owners and foreign investors alike yanked all of their cash out of the Argentine economy and sent it to safer havens aboard. Needless to say, this caused a capital squeeze, and many businesses of all sizes failed, causing unemployment to soar, and government receipts to plummet. With no sources of income, many struck out on their own, without the presence of the owners and their capital, as self-managed “cooperatives.” This helped create some economic and job growth where there was none, and eventually the economy started to rebound.

Although GDP has grown consistently and quickly since 2003, it was only in late 2004 that it reached the levels of 1998 – the last year of growth prior to the recession. Other macroeconomic indicators have have shown a similar rebound pattern.

Strong commodity prices fueled an economy that counts soy as its biggest export, but government mismanagement and questionable economic policies continue to make Argentina a poor investment.

Standard & Poor’s Inc. recently downgraded the country’s credit rating to B-, well below investment grade.

“It’s a textbook definition of an economic disaster,” Nick Chamie, head of emerging-market research at RBC Capital Markets Corp. (RY) in Toronto, told Bloomberg News. The S&P ratings reduction “confirms what the rest of the market knows – that Argentina is close to default and that risk is very high.”

But the good news for global investors is that Argentina’s problems are unlikely to spill over into the economies of its healthier Latin American neighbors.

Even Brazil, Argentina’s largest trading partner, is likely to be unaffected by its Latin American neighbor’s current economic trouble. Argentina accounts for only 9% of Brazil’s exports. And the planned liquidation of foreign assets in Argentina’s pension funds will amount to just $540 million worth of in Brazilian equities – too little to have much of an impact on the Brazilian market.

“Argentina’s government does not pass the first ‘C’ of credit analysis: character,” says Money Morning’s Marquez. “It is not only the ability to pay [its debt-service payments], but the willingness to do it and the track record in doing this that matters.”

Compared to the fiscal responsibility of neighbors Brazil and Chile, Argentina’s history of borrowing and default make it a bad bet.

Latin America still hosts several choice investment opportunities, but you won’t find them in Argentina.

“The nationalization of pensions in Argentina shows the escalation of confiscatory government policies,” says Marquez. “In this environment, where flagrant violations of property rights are escalating, Argentina is no place to invest.”

Source: With its Pension Fund Grab, is it ‘Déjà Vu All Over Again’ For Argentina?