c1ue
05-09-09, 10:10 PM
I had dinner with a Brazilian customer of mine yesterday.
He was flying through from a several week business trip to Taiwan and China.
The business between us is travel related - one of my hobby side ventures.
In any case, it was very interesting hearing his perspective on the global events of the last year.
His company has exclusive rights to distribute a number of brands of bicycles in Brazil - multiple millions of units a year.
He is a 2nd generation Taiwanese born in Brazil and educated in the US, and has been running this business for over 20 years.
I'm still pondering some of what was discussed, but here are some interesting points:
1) Brazil has had a number of currency crises in the past. However, this one is completely different. For one thing, few businesses of his scale are failing compared to past crises. There have been one or two hurt by badly executed currency trades/hedging, but even those businesses are merely injured and not dead.
2) In the similar vein of 1) - this is the first crisis in 20 years where the Brazilian real has started recovering so quickly. From a peak of 2.4 to the dollar, the worst was around 3.6 and is roughly 3.2/3.3 now. Normally a recovery of that extent takes multiple years.
To put this in perspective - when Lula was elected the real went to 4.0 vs. the dollar on fears of a Chavez-ization in Brazil
3) The massive drop in exchange rates actually doesn't hurt his business much; certainly the US$ equivalent is lower but on the other hand the revenues in reals is going up. The net for his business is perhaps a 10% overall downturn in dollar terms.
4) The effects of exchange rates driving up prices hurts the everyday person far more than the businesses. In fact he has been spending his extra real denominated profits on buying land and stock. Brazil's stock market has gone up something like 50% in the past few months
5) Ironically even with the real's fall in exchange rate vs. the dollar, the prices coming out of China continue to drop. At present he's being quoted prices that are 45% below what they were 1 year ago.
6) Japan on the other hand is a basket case. Although he has product lines - the relative costs have escalated so much that the entire lineup may not be viable.
7) The government has done very well so far in the crisis. Brazil has spent only around $18B of its $200B or so currency reserves - and the spending has been exclusively to help companies get over liquidity issues.
8) On the other hand, government spending outside of the liquidity issues in 7) has otherwise been focused primarily on tax collection. Many examples of investment in software, cameras, etc as opposed to infrastructure.
9) In contrast to Brazil - Shanghai is amazing. However, he does not understand how the working class can possibly survive there. Apparently prices in restaurants has escalated to world class levels - easily comparable to Tokyo.
10) Prices in the US are dirt cheap. His 2 employees who had travelled with him were busy all day shopping. His example was a BMW X5: In the US, perhaps $60K. In Brazil, well over $200K.
11) I asked him about whether he was able to pay a livable wage to his employees. His response was no - because taxes and what not were very high. Although food and housing isn't that bad (or good), the real problem is education. The public schools are so poor that it is imperative to get private education - and that $1200/month/child is well over $2500 in pre tax income.
12) He was very aware of the currency swaps China has executed - and believes Brazil is also trying to get one done.
He was flying through from a several week business trip to Taiwan and China.
The business between us is travel related - one of my hobby side ventures.
In any case, it was very interesting hearing his perspective on the global events of the last year.
His company has exclusive rights to distribute a number of brands of bicycles in Brazil - multiple millions of units a year.
He is a 2nd generation Taiwanese born in Brazil and educated in the US, and has been running this business for over 20 years.
I'm still pondering some of what was discussed, but here are some interesting points:
1) Brazil has had a number of currency crises in the past. However, this one is completely different. For one thing, few businesses of his scale are failing compared to past crises. There have been one or two hurt by badly executed currency trades/hedging, but even those businesses are merely injured and not dead.
2) In the similar vein of 1) - this is the first crisis in 20 years where the Brazilian real has started recovering so quickly. From a peak of 2.4 to the dollar, the worst was around 3.6 and is roughly 3.2/3.3 now. Normally a recovery of that extent takes multiple years.
To put this in perspective - when Lula was elected the real went to 4.0 vs. the dollar on fears of a Chavez-ization in Brazil
3) The massive drop in exchange rates actually doesn't hurt his business much; certainly the US$ equivalent is lower but on the other hand the revenues in reals is going up. The net for his business is perhaps a 10% overall downturn in dollar terms.
4) The effects of exchange rates driving up prices hurts the everyday person far more than the businesses. In fact he has been spending his extra real denominated profits on buying land and stock. Brazil's stock market has gone up something like 50% in the past few months
5) Ironically even with the real's fall in exchange rate vs. the dollar, the prices coming out of China continue to drop. At present he's being quoted prices that are 45% below what they were 1 year ago.
6) Japan on the other hand is a basket case. Although he has product lines - the relative costs have escalated so much that the entire lineup may not be viable.
7) The government has done very well so far in the crisis. Brazil has spent only around $18B of its $200B or so currency reserves - and the spending has been exclusively to help companies get over liquidity issues.
8) On the other hand, government spending outside of the liquidity issues in 7) has otherwise been focused primarily on tax collection. Many examples of investment in software, cameras, etc as opposed to infrastructure.
9) In contrast to Brazil - Shanghai is amazing. However, he does not understand how the working class can possibly survive there. Apparently prices in restaurants has escalated to world class levels - easily comparable to Tokyo.
10) Prices in the US are dirt cheap. His 2 employees who had travelled with him were busy all day shopping. His example was a BMW X5: In the US, perhaps $60K. In Brazil, well over $200K.
11) I asked him about whether he was able to pay a livable wage to his employees. His response was no - because taxes and what not were very high. Although food and housing isn't that bad (or good), the real problem is education. The public schools are so poor that it is imperative to get private education - and that $1200/month/child is well over $2500 in pre tax income.
12) He was very aware of the currency swaps China has executed - and believes Brazil is also trying to get one done.