You’re Just Another BRIC In The Wall

Not everyone understands the acronym BRIC, it was coined by some investment CEO, if I remember correctly, not that is of any relative importance.  It stands for Brazil, Russia, India, and China.  Back in 2006 or 2007 these were the upcoming economies that were changing the world.  They were going to tear up the world in economic growth and put both Europe and the United States to shame.  The name of the new game was ETF or Electronically Traded Fund.  You could buy shares in an ETF that traded in stocks of companies that were based in Brazil or India or any one two or three dozen countries.  Essentially the EFTs held these stocks in a common fund and there performance of these groups of stocks determined the value of the ETF shares.  One could buy ETFs for oil and gas, raw materials, specific countries, general areas, a good many different investment opportunities.  Of course the point was that since these individual country stock markets were often difficult for the foreign investor to buy individual stocks , the ETF could enter into agreements with such countries and thus hold stocks of the various companies as it might choose.  This is different from the ADR or American Depository Receipt where one buys shares on the NYSE or NASDAC for a particular foreign corporation and the shares are actually held in a depository for the buyer.  The foreign company has sent x-number of shares to be traded in these markets just as if that company had registered with the SEC to issue stock in the US.

Why cover this point?  Because you and I cannot buy stocks on India’s stock exchange but if we wanted to invest or speculate in that particular stock market, we could do that through an ETF or ADR.  The idea is that one follows the highest returns.  If one buys IBM or GM and the stock lacks the volatility or price increases, then one looks for a market and particular stocks where price appreciation may be the highest.  Hence, from the late nineties, if one had invested in Brazilian companies who sold raw materials to China and India then the price of such stocks would have risen considerably.  The BRICs were the darlings of the investment community.  But for many of these countries, their increase in wealth tended to reside in the raw commodity market.  If a country was selling iron ore, coal, copper ore or even refined copper to China then all was golden.  China was growing in great strides.  It’s GDP was reported to be doing 8, 9, 10 percent each year or more.  This growth is phenomenal, a country, under normal circumstances is doing good to grow at four percent a year.  Why would that be?  Well, if we factor in inflation, then a growth of 4 percent under a 2 percent inflation rate is really only a two percent growth rate.  In other words, inflation robs growth of its value by the rate of inflation.  Those countries who were identified as members of BRIC had reported really great growth rates and thus the particular company stocks were seen as a good source of income, either through dividends or price appreciation.

Today, only India is seen as the leader in growth.  Yet that comes with a caveat, India’s inflation rate is high, upwards of five of six or even seven percent.  China is about to implode due to the excessive corruption within the country.  Brazil, which had depended most heavily on exports of raw materials to China is now finding out that their market has collapsed.  Russia is having its own problems with its economy and the fact that its oil exports have seen a great decline in prices.  Other’s like Australia, who were never seen as an emerging country in this century or last, is about to burst in a number of asset bubbles.  The Chinese are buying iron and cola along with other raw materials, their housing bubble has reached stupidity through the buying of real estate with no money down and interest only mortgages.  But a property in a large city for an extremely large premium, renovate the property, rent it out and hope it covers the interest only mortgage, then sell to the next greater fool as the price appreciates unreasonably.  Australia is about to implode with all the debt, the excessively high union wages, and the debt leverage up the wazoo.  There will be blood in the streets in the coming year.

Meanwhile Russia is playing a dangerous game with the Ukraine.  Puttin is repeating the urge of the old Czarist empire craze.  It’s not that he is trying to recreate the old USSR but rather wants the imperial dynasty to repeat itself.  He is not only a nationalist but an empiricist and wants the empire to match.  So the west had placed sanctions that may or may not work well but otherwise interfere with the Russian economy.  Actually, there is a possibility of a war with Russia and Western Europe and the United States.  Well, Obama’s foreign policy knows no bounds of stupidity.  Better Kerry as Secretary of State than MS Clinton.  But you get the point.  As for China, stick a fork in them.  You can’t tun a country when all your underlings lie and are corrupt.  It just won’t work.  China is suppose to grow its GDP by seven percent this year.  Yeah, like that will happen.  Their energy use does not match more than four percent this year, if you can trust the numbers.  China will implode economically and then revert to civil warfare within two years.

Meanwhile the black swans are gathering in Europe.  Austria has stated the default and it will continue into Germany, of all places.  When a bank can’t tale a loss of 1.5 percent bad or nonperforming loans without becoming insolvent, that that bank is way over leveraged.  Well, guess what?  Most banks in Europe are overleveraged to the point that small losses will bankrupt them.  The fact is, bank leverage has become such a morass of stupidity and collusion that Europe is already bankrupt and simply waiting for the final events that push everyone into the courts.  Super Mario Dragjhi has only made it worse with his brand of Quantitative Easing.  My god, all this is going to end badly.  Europe is about to become a third world country.  But don’t take my word for it.  Do your due diligence and decide for yourself.  The only country that is relative safe, and that is putting it rather mildly, is the US.  Our economy powers the world.  But the fact is, we manufacture very little of our own needs.  We are finding that it’s not a case of recession knocking on the door, but a full fledged depression.  Retail sales have dropped dramatically, manufacturing is down, inventories are down, asset bubbles are up, debt is up, unemployment is up (don’t listen to the gadflys in the current administration, look at the labor population participation  rate and see that it is the lowest in 38 years).  All is not well, all will get worse.  Student loan debt too high, ok, allow bankruptcy, but remember that a good many pensions depend on students repaying their loans.  My god, the interconnection rate is just too close for comfort.  A default here hurts people there, and severely.  The number of subprime auto loans has grown out of control.  What is the value of an expensive truck or car when you have to repossess it?  I bet it is less than the loan amount.  Yeah, no money down, no skin in the game, no asset value to make up the difference.  Good luck with that.  People, 2015 will see us start that slip into the abyss.  It will happen, make not doubt.

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