Friday, December 21, 2012

Hundreds plunder supermarkets and face the police in Bariloche - Terra Brazil

Hundreds plunder supermarkets and face the police in Bariloche - Terra Brazil

Brasilian Company Wins The Right To Use The IPhone Name

Brazilian company wins right to use iPhone name

It's not your Apple's iPhone.
A Brazilian company has begun selling smartphones in Brazil with the iPhone brand after winning the legal right to use the name in Latin America's biggest country.
Adding insult to Apple Inc.'s injury, the phone runs on the Android operating system from archrival Google Inc.
Gradiente SA said in a statement that it filed its request to use the iPhone brand in 2000 when it realised “there would be a technological revolution in the world of cellphones with the convergence of voice and data transmission and reception via mobile Internet.”
In 2008 Brazil's government gave Gradiente the right to use the brand on its cellphones.
Brazilian trademark office spokeswoman Maratan Marques said Gradiente requested permission to use the brand before Apple did and has the exclusive right to use it through 2018.
Brazil Apple spokeswoman Maria Parra Rodriguez said the company had no immediate comment. Phone calls and emails to Apple Inc.'s headquarters in California went unanswered.
Gradiente said on its website that it started selling its iPhone on Tuesday for 600 reals ($300).
It runs the relatively old 2.3 version of Android and its features include a 3.7-inch touch-sensitive screen, Bluetooth, dual chip capability, 3G, Wi-Fi and camera. Its appearance is similar to that of Apple's iPhone.
The Brazilian company said it did not use the iPhone name until now because its “priority was to conclude a corporate restructuring process that ended earlier this year.”
“In Brazil, Gradiente has the exclusive right to use the iPhone brand,” the statement said. “This company will adopt all the measures used by companies around the world to preserve its intellectual property rights.”
A company official said Apple had not contacted Gradiente and she didn't know of any attempt by Apple to contest Gradiente's use of the iPhone name.
The executive, who insisted on speaking anonymously because she was not authorised to speak to the press, added that she did not know if Gradiente would try to stop Apple iPhone sales in Brazil.
Major cellphone operators and retail outlets advertised Apple iPhones on their websites Wednesday. - Sapa-AP 

Saturday, November 10, 2012

Hola De Buenos Aires

12:34 PM (5 hours ago)
to dchapman
November 10, 2012
Buenos Aries, Argentina              

Hola from Buenos Aries. Well this is it. The last leg of the trip. Be home on Tuesday. It has been a great experience. This is truly a beautiful country. And we didn’t have time to see Patagonia. Another trip?

Buenos Aries is rated as one of the 20 largest cities in the world. The city itself is listed as an autonomous city meaning it doesn’t answer to a higher authority such as the province or the national government (Toronto, eat your heart out). It is known as the Paris of South America or the Tango capital of the world. The city dates from 1536 although more properly it dates from 1580. So it is also one of the oldest cities (post Columbian) in the Americas. The country ranks high on the Human Development Index (HDI) but also ranks high on the Gini Coefficient a measure of wealth disparity (At between 45-46 Argentina’s Gini is about on par with the USA – the higher the Gini the wider the wealth disparity).

Our boutique hotel is situated in the middle of a huge theatre district. This is a district that includes the Teatro Colon a truly astounding building and rated as one of the 5 best concert venues in the world. The city center is dominated by huge plazas and parks and the Avendida 9 de Julio one of the widest avenues in the world. The Avendida de Mayo rivals comparable streets in Madrid, Paris and Barcelona for its architecture. There are numerous landmark buildings.

The city has its upscale neighbourhoods of Recoleta, Palmero and Belgrano but the city can also be grimy, polluted, and noisy and it has its share of favelas as we witnessed when coming in from the airport. The city can be dangerous as it is noted for violent crime and as a tourist be careful with your camera or it can quickly be gone. Those guys on the motorbikes are quick. Traffic can be awful, noisy and polluting. At times I think New York in the 70’s but then you see the architecture and the parks and avendidas and you think Paris, Rome, Madrid.

Something I posed at the beginning of the trip is given Argentina’s natural beauty, its abundance of resources and European population why isn’t the country on the scale of North America or Europe? It has had a history of problems. The country while a republic style democracy similar to the USA is basically ruled by an elite who appear to run it for themselves while counting their money in Swiss banks. The elite remain in power thanks to vote buying and a very fractured opposition. But protests erupt. On November 8 we got swept up in a huge protest that occupied Avendida 9 de Julio and many surrounding streets. The protest was estimated at over million people according to reports. The populace is quite upset with attempts by President Christine Kirchner trying to change the constitution so she can rule for another term. They are also upset over large underemployment, lack of ability to advance, currency controls, and attempts to limit freedom of the press as well as others. The good news was the protest while loud with considerable banging of pots (apparently a tradition) it was not violent. The police stood by and directed traffic away. Thank goodness or our getting somewhat swept up by the protest could have turned nasty (we were on our way to a restaurant).

Anyway this is a fabulous beautiful country to visit with warm friendly people. Worth putting on your holiday wish list. But if you do, take a few weeks. It is worth it.

Now onto the markets……

The Stock Markets

The big story of the week was the election along with the aftermath of Hurricane Sandy. Obama was elected for another 4 year term and the reaction in the markets was swift. It went down. The S&P 500 lost 2.4% on the week and it might have been more if it hadn’t been for the head fake bounce on Tuesday the day of the election. It was a classic misleading signal. So is this the start of the liquidation that I (and others) had surmised that if Obama was re-elected the markets would fall? It appears it might be so.

It is not going to be an easy 4 years for Obama. He faces the impending so called fiscal cliff and from all appearances at first blush compromise of any sort with the Republican controlled Congress appears remote. While Republican House Leader Boehner was talking somewhat conciliatory the right wing that backed Romney was already raising the rhetoric. If one thought the personal attacks against Obama were bad before the election it has the potential to get worse, even violent such is their unwillingness to compromise and hate for Obama from many quarters. Failure to find a compromise, however, could lead the US off the cliff into another recession or worse. As well the debt ceiling limits are fast approaching. What could quickly change the scenario? A war of course.

Nonetheless from a technical standpoint the S&P 500 broke down under 1390 one of our important support points. The market is currently finding support at the 200 day MA (1382). A breakdown under 1355 a low seen back in early August could send the market to its next support zone from 1320 to 1340. The intermediate trend has turned neutral from up and another sharp down week could turn it down. The weekly MACD indicator has turned down with negative divergences seen at the top. Short term indicators are, however, oversold so a short term bounce could develop here. Resistance is at 1400 to 1410 and the market would need to regain above 1430 to turn positive again.

The sense here is that a top is in and possibly a major top. Oh the market is going to have rebounds but the result should be the classic series of lower highs and lower lows as the market stair steps down. A breakdown under 1265 would confirm that a major top is in. Potential targets for the first wave down of what could be a two year bear market is around 1170 to 1210. A break under 1170 would be more serious and odds would then favour that the 2011 lows at 1075 could fall. Seasonally the stock market is entering a traditionally strong period. Could it go counter to that this year? As noted regaining above 1430 would change the tone and suggest that the market could indeed go higher.

A top may be in on the TSX Composite as well. It fell 1.5% this past week and was held in check by a strong gold market. Materials was only under sub index with gains on the week. The TSX Composite is holding just above support down to 12,100 but under that level further declines should be seen. Under 11,500 the market could confirm that a top is in. The TSX Composite needs to regain back above 12,500 to suggest that a run to the previous highs is possible.

Note that bonds rallied this past week and it is possible that new highs (prices) could be seen. If that were to happen the negative divergences on bonds would be quite pronounced. It could also be a classic three thrusts to highs before a bond collapse gets underway.


If it was a bad week for the markets it was a good week for the gold market. Gold gained 3.3% this past week while silver was up 5.7%. Gold and silver were reacting positively to 4 more years of Obama, gridlock with an intransigent Congress, more QE (despite positive economic signs) and the potential for more deficits. Gold was up on the week despite a 0.5% gain for the US$ Index that closed over 81. The US$ Index is threatening to turn higher and if gold rises despite the US$ it would be a negative sign that trust in all currencies is weakening. Gold is on the verge of making new highs in Euro terms. The US$ is not rising because of it is strong it is more like relative weakness and the perception (as well as numbers) suggests that the Eurozone is weaker. China is also slowing and going through some political difficulties. The Europeans are fighting amongst themselves and the US could be soon fighting amongst themselves as well. Meanwhile the Syrian war continues and it still threatens to spread. Iran almost seems in the background right now but come back to the forefront quickly. Netanyahu is in a tricky place because he so strongly backed Romney to win the Presidency. Now he has to deal once again with Obama with whom he has had a very difficult relationship.

Gold is turning up from strong support levels between $1650 to $1675. Silver is turning up from near $30. Gold has resistance at $1740 but above $1775 odds favour new highs over $1800. Silver has resistance between $33 and $35 but once through $35 again silver could run to $40. Objectives for gold once it is through $1800 is from $2100 to $2500. Strong seasonals are present from now until year end and again in February/March. Last year I believe was an anomaly.

The commercial COT for gold improved again this week rising to 29% from 28%. Short open interest fell 15,000 contracts suggesting that more short covering was taking place. The silver commercial COT also improved to 30% from 29% as long open interest rose 2,000 contracts and short open interest fell 2,000 contracts. The commercial COT is positive for both gold and silver.

The signs were good this past week for both gold and silver given the strong rise for both and going counter to the stock market. The gold stocks also enjoyed an up week as the Gold Bugs Index (HUI) was up 1.4% and the TSX Gold Index (TGD) gained 3%. The TGD was trying to take out resistance at 340 while the HUI has resistance up to 500. Above 350 for the TGD and above 510 for the HUI could send both these indices higher. Preference would have been that the gold stocks led this past week but the stocks may have been held back by the weakness in the broader market.


If it was a good week for gold it was at best a mediocre week for oil. Oil was up 1.4% proving once again that the $85 zone may be a strong support point. But the energy stocks did not fare well and they fell with the market with the AMEX Oil & Gas Index (XOI) losing 2% and breaking important support at around 1225 and the TSX Energy Index (TEN) was off 3.4% and also fell through important support.

Oddly enough oil was helped by a jump in Consumer Confidence to a 5 year high. I guess they aren’t paying much attention to the misery in New York and New Jersey on the coast from effects of Hurricane Sandy. Tens of thousands of people and businesses remain without power and it could stay that way for a lot longer. Many are in shelters or homeless and living in what can only be described as third world conditions. Gasoline is being rationed in New York. Not a pretty situation.

The scares for oil all seem to be in the background as Iran remains under wraps at least for the moment.

Oil appears to be continuing to find support in the $85 area. Resistance would be up to $90. Over $90 the next area of resistance is at $95. Oil still appears to be forming what appears to be a huge multiyear bottom but in order to realize it oil must get back over $100 and over $108 to project up to potential at $146. Only a war involving Iran could do that. Otherwise oil still appears to have solid support at least down to $80 and even $75. The expectation here is that the zone could be tested it shouldn’t really fall below that. The only thing that could change that scenario is no war and the US falling into a more serious recession because of the failure to resolve the impending fiscal cliff.


Next weekend we hope to put out a full report. Irrespective there would at least be a shortened commentary with charts.

Tuesday, November 6, 2012

Politics Is The Dirtiest Business There Is!

My late father was first sent to the Pacific to fight the Japanese. After recovering from a bout with malaria he was sent to General Patton's Third Army and fought in France, Germany, and all the way to what was then Czechoslovakia where his unit linked up with Soviet troops. My dad saw many people die and even toured a German death camp with General Patton. He gave me the following pearl of wisdom: "Son war is not the dirtiest business there is; politics is the dirtiest business there is." He was right!!!

Monday, November 5, 2012

Hola From Puerto Iguazu

Puerto Iguazu, Argentina
November 5, 2012

We finally arrived in Puerto Iguazu home to Iguazu Falls one of the natural wonders of the world. But before we fully explored Iguazu Falls we took off for 4 days to an overlooked natural wonder – The Esteros of Iberia. As we left we were fascinated with the images, stories and destruction of Hurricane Sandy. To Argentinians though it was a curiosity before back to soccer.

The Esteros of Iberia is one of the world’s largest wetlands. It covers some 1.2 million hectares or 13,000 sq. km. which constitutes some 14% of the province of Corrientes in Argentina’s north. Climate and local wise it is probably comparable with Florida. The Esteros, however, is huge compared to the Florida Everglades. The wetlands receive most of its water from the 1,200 to 2,300 mm of rainfall it receives every year. It supports incredible biodiversity of over 300 species of birds, plus numerous mammals, amphibians, reptiles plus flora and fauna. The Esteros once came under threat because of the desire for feathers, leather from the caiman and other demands of the fashion industry. But since 1982 it has been protected as park and nature reserves and many of its animals have come back from endangerment. To the local indigenous people the Guarani the Esteros is known as “glittering waters”.

Getting there was half the fun. We left Puerto Iguazu at about 9:30am in order to reach a transfer point at a town called Virasoro by 3 in the afternoon. We spent the day driving in and out of torrential rains. We arrived right around 3pm in Virasoro to hook up with our transfer driver Jose. We soon learned why we needed a transfer driver. The roads to Carlos Pelligrini where our Posada was were impassable to our little Chevy. The roads were dirt and in the torrential rains they turned to mud and ruts. 150 km and 4 and half hours later in the dark we finally reached our Posada. Our bums were killing us. LOL. But what a drive where we saw the pampas grass plus crossed paths with numerous birds and animals including fox, hare, armadillo, herons and many more. At times the road resembled a river rather than a road but except for one incident where Jose was too close to the edge and he became stuck for a short while (with a worried look on his face I might add). But we kept up constant chatter about the Esteros the wildlife Argentina and we told him about Canada’s wild. Jose who spoke quite good English (he was trained as an engineer but said doing this pays better) was grateful for the constant talk as it kept him alert. He told us that many of his transfer rides are in silence and he admitted to finding that hard to stay alert. Yes good thing he spoke pretty decent English as our limited Spanish can only be described as pitiful or he might have endured another long ride in silence. We also learned about his partner and his 3 year old boy both of whom he would miss that night as he would pass the night at Carlos Pelligrini.

Our next few of days were spent on excursions provided by our Posada into the Esteros. Here we came across plenty of Caiman and Capybaras the former a large alligator like reptile the latter the world’s largest rodent. The two of them coexisted often in quite close quarters. Seems the Caiman doesn’t eat the baby Capybaras as I guess he doesn’t want to mess with the large adult rodents. The Capybaras themselves are quite docile and socialable just standing or lazing around munching on grass and other vegetation. Think of them as big, really big, Guinea Pigs. As to the Caimans well they just lie still in the water or at the water’s edge waiting for some unsuspecting dinner to walk by. We got a thrill as one Caiman was in the rather slow process of engorging a snake. 

But we suppose the real thrill was the birds. They were everywhere morning, afternoon and night. If you couldn’t see them you could always hear them and the variety was astounding as well as their colours and size ranging from hummingbirds to giant storks, egrets and herons.

After the dry mountains and deserts of the wet and the jungles of the Northeast were quite a dramatic change.

There was no internet at the Esteros so I eagerly looked forward to returning to some Wi-Fi so I could find out how the week went. But that wouldn’t happen until another ride back with Jose to retrieve our car. Thank goodness the torrential rains stopped so the roads have dried up and while many of the ruts remain the road is smooth enough so rather than a 4 ½ hour drive it was only a 3 hour drive. And that was enough to treat us to another show of the area’s wildlife with numerous hawks perched on fence posts like sentinels or flying in the air, egrets and herons in wet pampas fields and a herd of rheas scampering onto the pampas.

We stopped on the way back to Puerto Iguazu at San Ignacio for the night in order to see the best preserved of the Jesuit missions. Alas no internet again so will have to await Puerto Iguazu on Sunday night. But the San Ignacio mission proved to be an interesting stop but no we didn’t see Robert de Niro or Jeremy Irons both of who starred in Roland Joffe’s 1986 film “The Mission”. But yes the film was made in and around Iguazu Falls at least for the falls scenes. The film was really about the local indigenous people the Guarani. Oddly they didn’t use them and instead used a tribe up in Colombia where they filmed a lot of the film. Oh well that’s Hollywood for you.  

Now onto the markets…..

The Markets…

Well finally got internet again but it certainly took a while to catch up on what was going on over the past week. I suppose it was no surprise that the markets did very little this past week. With the US markets shut down because of Hurricane Sandy for the first time because of the weather since the late 1800’s and an election tomorrow the tiny gain of 0.16% for the S&P 500 was probably about what to expect. At least it was a gain. And the TSX Composite was up as well gaining 0.65% despite gold and materials being off on the week.

Tuesday is the election and who knows the outcome. Irrespective one thing is for sure. America is a very divided polarized nation and no matter who wins will face extreme opposition from the other side. The right wing is totally irrational (my opinion) in their attacks on Obama much of which is personal. And if Romney wins one of the very rich elite will take charge where he proposes more tax cuts for the rich and even a tax hike for the rest.
The middle class in the US is being squeezed and statistics show it is actually contracting. Meanwhile the wealth divide gets worse. Few democracies can survive an extreme divide in wealth. Usually they become dictatorships of some sort with the rich running the country for the benefit of themselves.

Hurricane Sandy is probably an economic blip despite the $50 billion price tag (and probably even more). Thousands remain without heat or light and their homes are gone. Welcome to the third world in America. This could persist for a while longer and even a year from now thousands will probably be homeless.

The jobs numbers were a surprise. But it is deceptive at best. The actual nonfarm payroll was 171 thousand when they expected 135 thousand. Previous months were revised upward. A cynic of course will say that helps Obama. The headline unemployment rate blipped upward to 7.9% from 7.8% but that’s because more people are now looking thinking they might stand a chance of finding a job. The BLS U6 number did fall to 14.6% from 14.7% but Shadow Stats unemployment number rose to 22.9% from 22.8%. Nothing in fact has really changed much at all. Other numbers such as the ISM manufacturing and other economic numbers are not supporting these numbers. Shadow Stats believes there has been a statistical shift in underreporting in the early part of the year and shifting it to the latter part of the year for the election. In other words manipulation. Other Presidents have accomplished that as well. Yes numbers are approved by the White House. They shouldn’t be of course.

But has the market topped? That has yet to be determined.

1390 remains as support. And so does 1350. If they break then odds favour that a major top is in. The top remains at 1474.51 seen on September 14, 2012. A small series of lower tops and lower lows has been forming. In other words the classic definition of a downtrend developing. Our intermediate trend, however, remains up even as the short term trend is down. So it is possible a lot hinges on the election tomorrow. A Romney win I still believe brings a rally that could last into January. Upside objectives remain at 1525, 1550 and even 1600. An Obama election could on the other hand bring liquidation. At least that is what many are writing.

Technically right now it is too close to call. I could argue either way. Final confirmation that a bear is underway is a breakdown under 1265. However, if the market recovers above 1450 then odds favour those upside objectives.

The TSX remains in a quandary as well. The past 7 weeks has basically been a flat. That is usually good for an upside break. The TSX also remains in an intermediate uptrend and so does the short term trend. With both in an uptrend odds favour a break to the upside. Above 12,500 would confirm the upside break and potential objectives up towards 13,000 resistance. A break under 12100 would not be good. And under 12000 would suggest the market could break down. Confirmation, however, would not come until the market broke down under 11500.


So why is that the market holds up while gold gets clobbered? Gold fell this past week by 2.2%. Silver lost even more down 3.7%. Both were bouncing today albeit small. QE is still in play no matter who wins tomorrow and despite those so called rosy job numbers last week.

The drop in gold has been odd to say the least as I have reported numerous times there is no sign in the physical market. It is the paper market where gold is being hit.

Gold fell into my worst case scenario dropping to about $1670 this past week. The major support zone is $1650 to $1675. So what did the commercial COT do? Well they didn’t cover any more shorts on the last report but they added 8,000 new longs so the commercial COT rose to 28% from 27%. The silver commercial COT was also up to 29% from 28% as 3000 new longs were added and 1000 shorts covered. The commercial COT is indicating to me that this market should soon shift to the upside.

Course the gold stocks were clobbered this past week. The Gold Bugs Index (HUI) dropped 3.4% while the TSX Gold Index (TGD) fell 3.5%. There is considerable support for the HUI in the 460/470 zone which I suspect should hold. For the TGD the big support is in the 310/320 zone.

Despite the drop this past week gold remains in an intermediate uptrend as does the HUI. Silver and the TGD’s weekly uptrend have weakened into neutral territory. The weekly MACD’s have turned down slightly but the fast MACD has not crossed the slow moving MACD which is now pointed up. This is a pattern I have seen many times and as long as the fast moving MACD does not break down under the slow moving MACD (it can touch it or go under very slightly) the pattern in the past as resulted in an explosive move to the upside once this downside correction is complete. There were significant weekly positive divergences on the MACD and other indicators at the lows.

Gold’s seasonals turn positive again in November. As I have stated before the big lows seen last December 2011 and again in May through July appear to be the 34 month cycle low and the 4.5 year cycle low. In looking at past history of gold I had never seen both occur together. Usually it is one or the other but not both. This suggests to me that the next move could well be an explosive move to the upside with potential objectives to at least $2100 and even $2500 for gold and $50 or higher for silver.

Naturally I don’t want to see gold fall under $1650 nor silver under $30 or we would be forced to reassess. But I don’t believe it will happen.


Oil fell 1.7% this past week and closed slightly under $85 support. I had noted the drops a few weeks ago were very suspicious. Others noted it as well. Was oil manipulated down for the election? Anything is possible. Iran is on the backburner and rumours keep popping up that resolutions will be found. Syria is still a mess and Lebanon is being slowly dragged in. The Kurds are restless in Northern Syria, Northern Iraq and in Turkey. Turkey has it hands full with Kurdish uprisings. Iraq appears to be falling into civil war once again and Israel still wants to bomb Iran back to the dark ages for their alleged nuclear weapon program (ignoring the fact that Israel has 100-300 nuclear weapons, has had them secretly for years, but remain unpunished and never signed the nuclear proliferation treaty (NPT) along with other nuclear powers India and Pakistan).   

Hurricane Sandy did not impact the Gulf of Mexico although east coast refineries were forced to close resulting in gasoline shortages. The closing of the refineries was temporary and they are returning to normal so that should soon no longer be an issue. Oil actually fell this past week as it was rumoured that Sandy might actually bolster oil supplies in the US. No sign of that as last week the EIA reported that oil supplies fell 2 million barrels but are 33.6 million barrels above last year’s levels. Doesn’t appear to be any supply shortage.

Technically oil appears to be once again testing that 4 year MA which it tested at lows in June 2012 and last October 2011. Both time the 4 year MA held (even if it dipped under briefly). This should continue to act as major support.

Resistance is at $90 and $95 and again at $98 to $100. As each resistance zone is taken out to the upside the next one should be tested and eventually broken. Oil still appears to be making a large bottom pattern that could explode to the upside in 2013. The major line is still around $108 and if broke suggests potential objectives up to around $146. The only event that would appear to be capable of that is an attack on Iran. The amount of armory in the Persian Gulf, the Straits of Hormuz and the Eastern Mediterranean is large. And on the other side the Russians are there as well. There remains the risk of an accident.

Oil should be at support here. But if it keeps closing under $85 then a drop to $80 and a test of the June lows near $78 is then possible. I don’t believe it will happen but if it does it would just seem to help the huge bottoming pattern that appears to be forming.


Saturday, October 27, 2012

A Visit To The John F. Kennedy Presidential Libary

More On David Chapman's Adventures In Argentina

October 27, 2012
Salta, Argentina               

Hola from Salta. Well maybe it was inevitable. My netbook was knocked onto the floor and while initially nothing appeared to be amiss my wireless is acting up. It comes and goes and right now working… But!!!  Anyway we will see going forward as to how things work and whether I can get another one out.

The Salta region was everything it was supposed to be. Before Salta we spent 3 nights in Cordoba, Argentina’s second largest city. Attractive clean city. We were in a place out in the burbs so we had interesting jostling rides downtown by bus. Salta, however, is something else again. Beautiful old colonial town dating from 1582 (slightly younger than Cordoba). But unlike Cordoba its feel and look is more like colonial towns in Mexico like Merida in the Yucatan. Possibly it is the presence of a strong Amerindian population. The Amerindian natives of Argentina are in the Northwest and the Northeast. To the south – they were wiped out by the Spanish. Nothing new there.

Salta also has wineries but they are not as well-known as the Mendoza region. They should be. Many are down near the town of Cafayate where we passed a couple of nights in a posada run by a Frenchman. Our hostess in Salta was German. Indeed it has been an interesting variety of hosts. In Montevideo our hostess was Welsh. All were married to Argentinians or Uruguayans.  Our hosts in Cordoba and Mendoza were Argentinians all of who spoke pretty decent English.

Driving in the cities remains an adventure. Streets corners with no discernible street signs so one doesn’t know where he is. But that is nothing compared to street corners with no stop lights, no stop signs or anything. It is just everyman for himself. The traffic can sometimes be considerable. Yet oddly it seems to work even if a bit on a first come basis. Have yet to see any accidents. Driving in Argentina is definitely an adventure.

Driving through the countryside especially here in the Northwest when one is in the mountains (which seems to be constantly) can only be described as breathtaking. It is an arid world punctuated with rock formations some of which appear to be from another world. It is a hard world where plants, animals and humans eke out survival. In driving we have seen Llamas, foxes and other smaller critters near the road or crossing it. Birds are a constant and seem to thrive the best in this world. When one stops all one hears is the birds. Hawks swirl overhead. But the real prize was coming on a group of vultures in a leafless tree staring off into the distant aridness. Humans have goats, sheep and occasionally cows all of which wander free range. We have also seen horses and donkeys seemingly wild. Donkeys wandered down the streets of Cafayate just like deer might in Waterton, Alberta. In the plazas of the towns and cities dogs are everywhere seemingly with no owners. Gets interesting when they sit by your outdoor table while dining begging for a scrap. They are though very polite. LOL.

Now onto the markets.

The Stock Markets…

The S&P 500 lost 1.5% this past week while the TSX Composite was off 0.9%. The intermediate trends for the two stock markets is weakening but remains up. The S&P 500 short term trend is down while the TSX Composite short term trend is neutral.

For all the October correction continues but the correction still appears to be shallow. Both continue to trace out what could be a significant top so investors cannot be complacent at this stage. But the patterns are ambiguous enough that they could also be tracing out a consolidation pattern.

The S&P 500 broke its first area of support at 1,420. This suggests a potential decline to objectives near 1,370. 1,395 is the next important support zone and if that goes a decline to 1,370 becomes very likely. If 1,370 fails to hold then under 1,350 probably means a test of the last significant weekly lows at 1,267. Under 1,267 and a bear market decline is most likely confirmed. A break under 1,370 would most likely for sure turn the intermediate trend to the downside as well.

The TSX Composite has support at 12,120 but under that level it would break down. Potential objectives are down to 11,700. That would break the last significant weekly low seen in August 2012 near 11,870. These weekly lows are very important and if they are broken a new bear market would be confirmed to be underway.

The S&P 500 needs to regain above 1,440 to demonstrate that it may have more staying power. The upcoming election could still be key. A Romney win could trigger a repeat of 1972 and see the S&P 500 run to 1,525, 1,550 and even 1,600. QE appears to be helping the banks the most and they remain key for the market. Of late the banks have been outperforming everything else in the S&P 500. If the banks breakdown then odds are a bear is underway. Many believe that an Obama re-election would trigger liquidation before Christmas. It does, however, seem simplistic that Romney wins stocks go up, Obama wins and stocks go down.

For either it doesn’t matter. The first year of the Presidential cycle is invariably the weakest and many other cycles are pointing to a potentially very weak 2013. It is possible that the October 2011 low was an early 3-5 year cycle low. It did occur at the front end that cycle. The weak rise since has been consistent with a bear market rally and while new highs were seen on this rise no one should pretend that the market has been strong despite what many pundits might be saying. QE helps keep the whole thing afloat and Bernanke’s commitment to maintain essentially zero percent interest rates until 2015 supports the sad state of the global economy and the overburden of debt. Everyone complains about the US debt or the Euro debt but remember in the last go around trillions of dollars of public debt was added to essentially bail out the banking system.

Romney threatens to not renew Bernanke but while Romney may be able to appoint a new chairman his choices are limited and no matter who replaces Bernanke would continue his policies. At the end of the day the Fed Chairman does not work for the President. He works for the banks that own the Fed. It is his job to protect them and his programs of QE and low interest rates are doing just that. But if everything becomes unglued again due to events beyond their control they will once again run back to the public to bail them out. And remember since the end of Glass Steagall in the US (under Democrat Clinton no less) the banks and investment dealers that became banks (like Goldman) have complete access to FDIC insurance to also bail them out. Private leverage that goes awry and the public pays.

The fiscal cliff is also looming but again that is just background noise. A solution to bail out the system or to keep it liquid will prevail and as before it will probably again be at public expense.

In the numbers this past week the GDP seemed to indicate that there was 2% growth in the 3rd quarter. At least that is what they would like you to believe. This of course is the headline number and the pundits picked up on it as if it was prove positive that happy days were soon to be here again. But adjusted for deflation indicator it was not significant even if a bit better than expected. The housing market remains morbid. Durable goods were negative quarter to quarter. Real wages continue to fall.  There was really nothing to get excited about but they will pump it as if there was.

China continues to threaten Japan this time with mass dumping of their bonds. That I admit is an odd one even if the Chinese do hold considerable Japanese bonds. All of this is again over those islands. But one should never underestimate the history between the two nations. The Chinese have a long memory and the invasions of Manchuria and the Rape of Nanking remain even if this all happened some 80 years ago.

There may be more life to the stock markets after the election but do not let a suckers rally fool anyone. It should be the last hurrah. The only question remaining is do we get this one last hurrah or is the top now in. The numbers noted earlier are the ones to watch and if they go the bear has begun and could last upwards of two years. Canada would follow the US.


The gold correction continues. Gold fell 0.7% this past week while silver was off 0.2%. The intermediate uptrend for gold is intact but weakening. Silver is in a weak intermediate uptrend that could shift to neutral. The short term trends for both are down. Gold tested down towards $1,700 this past week. A move in that direction was largely anticipated. If $1,700 does break gold could test down to $1,650 to $1,675. However, I believe that would be it. Silver tested $32 this week and could test $31 and even $30 in a worst case scenario. Silver is not expected to break under $30. Short term indicators for both gold and silver are approaching oversold levels. However, on the weekly charts the important MACD indicator has not turned down so that remains a positive.

The fundamentals for gold and silver remain strong because of QE. And that is even as the bullion banks have pushed gold lower through paper selling. But that is weakening. The important commercial COT for gold rose again this past week to 27% from 26% as short open interest fell some 11,000 contracts while long open interest rose 3,000 contracts. For silver the commercial COT was unchanged at 28% but short open interest fell 2,000 contracts. The shorts are covering.

The gold stocks fell as well this past week but again it was shallow. The Gold Bugs Index (HUI) fell 0.9% while the TSX Gold Index (TGD) was off 0.5%. Financials fell more than the gold stocks. This is a positive sign for the gold stocks as despite the $80 drop in gold prices they have not been hit hard. The intermediate trends remain up although weakening while the short term trends are down.

Gold back over $1,730 is positive. Above $1,760 and the highs should be tested and even see new highs.

Gold’s seasonals turn positive once again in November and if this as I suspect a shallow correction only then a powerful move could get under way that takes gold to $2,100 or even $2,500. Silver could soar to $50 or higher.  The lows seen in gold and silver last December 2011 and again in June/July appear to be important cycle lows. The first one was probably gold’s 34 month cycle low and the June/July low was probably the 4.5 year cycle low. I confess I have never seen both occur as it is usually one or the other but not both. Anyhow a repeat of the 2011 collapse is highly unlikely and a new major up leg should be rising from the June/July lows. The bullion banks (and maybe some hedge funds) fought hard near $1,800 to push things back but odds are when it gets through $1,800 they might well scramble to cover their shorts.


Oil was clobbered this past week breaking under $90 to test $85 losing 4.6%. Yes it was odd because the threats in the Mid-East have not gone away. Israel was alleged to have hit the Sudan bombing an arms factory. That it was an act of war which under international law is, however, usually irrelevant to Israel. And if they were slammed at the UN the US would veto. Israel has refused comment and has neither confirmed or denied. Allegedly the arms from the factory were bound for Gaza. There are rumours that Iran is also involved with the arms factory.

Irrespective it is a sign that things continue to be amiss in the Mid-East and an accident could trigger something far worse. The Syrian conflict continues and a cease fire didn’t last long. The conflict is threatening to spill over into Lebanon. Any widening of this conflict is dangerous.

Hurricane Sandy churning its way up the US coast could be positive for oil even if it doesn’t hit major oil installations. The concern is it will could seriously disrupt refineries along the east coast. With a cold winter blow also expected any shut down in refineries and the cold snap could send heating oil soaring.

Oil prices are down 13% so far from their highs. Technically now as long as $85 holds then odds favour a recovery to get underway .This would then appear to be a correction to the run up from June to September or from about $78 to just over $100. Resistance is now to $90 and $95. But over $100 oil could race towards the line up near $108 and if that falls objectives range to at least $146. Nonetheless oil has a lot to “chew” through before breaking over $100. Oil is approaching a period of positive seasonals. Recall that in 2011 oil bottomed near $76 in early October and raced to $110 by February.


Monday, October 15, 2012

Hola De Mendoza

to dchapman
October 13, 2012
Mendoza, Argentina

Hola from Mendoza. Our journey started a week ago when it took something like 18 hours or so to fly from Toronto via Santiago to Montevideo, Uruguay. In the process we lost 2 hours although we gained one back when we crossed from Uruguay to Argentina. Montevideo the capital of this small nation of only 3.3 million people can best be described as decaying colonial grandeur interspersed with boxy 1950’s communist style buildings. Most were just butt ugly. But once you got out of the old city the suburbs were spread out although it was noticeable in the well-off sections the gates, bars and even spikes surrounding the houses. Prisoners in their own homes?

Still we quite enjoyed Montevideo staying in a small guesthouse with a delightful Welsh host. The elevator to the third floor where we were was classic turn of the previous century clickity clack and small with the metal doors to open and close. It barely took us and our luggage. But the apartment and our room were large and well laid out. Not unusual to find the gem hidden off a grungy busy street with buses rumbling by continually. But a block or two away was a grand plaza and theatres and lovely colonial buildings. Even Canada House was on the plaza. Oh and one grungy looking communist building that threatened to dominant the plaza.

Before we left we had some good meals and the best part was the $15 bottles of wine in the restaurant. Uruguayan of course. We topped off our last night with a visit to a tango bar.

We briefly spent a night in Buenos Aries after taking a bus to Colonia a 16th century Portuguese colonial town and then taking the ferry across to BA. BA is big, grand, with buildings like Paris and even a grand alley (18 lanes wide). But BA is also like being in New York City in the 1970’s. Noisy, polluted and lights. Delightful little boutique hotel again off of a noisy street (you don’t hear it much) again 3 floors up. We return to BA later in the trip. From BA we flew to Mendoza and are staying in a small B&B in a suburb of Mendoza called Lujan de Cuyo. Great hosts who speak decent English. Quiet and if you peak through the trees the Andes are in the background. Oh yes and one can’t forget to mention the wineries. They are everywhere.

Driving in Argentina is an adventure. First our rental car was a standard shift. Guess I had to ask for an automatic. Seems that standard shift is common in Argentina. We were told that automatics are expensive and as such Argentinians drive standard shifts. The good news for me was I learned on standard and like riding a bicycle one doesn’t forget how to do it. Driving is a bit crazy. They drive fast darting in and out of traffic rarely signaling. Buenos Aries looked like chaos but no one hit anyone. Ought to be fun going forward.

So onto the markets…..

The Stock Market…

It was inevitable that a correction set in. Indeed the correction that got underway following the 1,474 S&P 500 high of September 14 is unfolding in a fairly normal manner. The question of course is this a topping pattern or merely a correction to the previous run-up? This past week the S&P 500 fell 2.2%. The key here is the breaking of a previous daily low of 1,396 seen on September 4 or the 1,267 weekly low seen back in June. The 1972 cycle may still be in force. That cycle saw a shallow pullback in October before the election. The reelection that year of Richard Nixon a Republican set the market off on the nifty fifty rally into January 1973. Could the same thing happen again? Yes and more likely with the election of a Republican again. It can’t be helped that Romney has taken a slim lead. But no matter who comes faces the so called “fiscal cliff” that everyone is gnashing their teeth over. Assuming a Romney election it is possible that the tax cuts will once again be put in place and it is possible the cuts due to take place will also happen. Obama in handing over is not likely to buck what Romney wants.

But lurking in the background is the tension surrounding the wars that in our opinion are getting worse. Turkey and Syria are firing on each other. That in turn could bring in NATO. That would be a disaster of course as it could trigger a wider war involving the Russians. Note Turkey pulling aside a Russian passenger plane. Naturally that quickly became a he said and he said game with each countering each other. No Russians were harmed or that might have triggered something. Hezbollah drones are flying over Israel and one was shot down. More tension. Most likely Israeli drones are flying over Hezbollah. Iran and Russia are running arms to Assad but the Americans, the Turks, the Saudis and others are running arms to the rebels. And the rebels include Saudi jihadists who perversely are the sworn enemy of the US and may be Al Qaeda just as it was in Libya. Tension continues in the South China Sea with China and Japan being the prime ones facing off against each other. All this takes is a spark. In 1914 it was the assassination of the Archduke Ferdinand.  History has a bizarre way of repeating as we are approaching the anniversary of the Great War. But a 100 years later the weaponry is more frightening on all sides.

This is not meant to alarm but direction is not encouraging. A 100 years ago when war broke out the stock markets were halted. When they opened again they were largely where they left off. 1915 was a great up year. But remember that was the US and the US was not involved in the war. This time they may be in the center of it. A bankrupt country cannot afford another war without paying for it. It will be paid the same way as the previous ones this past decade and that is by printing more money. Printing money is a sure way to inflation or bankruptcy or both.

Still a Romney election could trigger a run-up ala 1972. A Romney run-up could last into the New Year either January or even March. There are still potential objectives up to 1,525, 1,550 and even 1,600. But when it does top the fall should be at least 50% or more as it was in 2008 and 2002. But it will unfold differently. In the interim this still appears to be a correction but if 1,265 is broken then the high probability shifts to the top being in. In the interim the intermediate uptrend remains up.


Gold too is going through a correction. After a nice run from near $1,530 to a high of $1,795 gold has paused. This appears as a normal correction. What probably has a lot of people nervous is that gold is stalling at the same place it stalled in November 2011 and February 2012. The likelihood that this will fall back towards the previous lows, however, is remote. The Fed is printing money with QE3. QE3 is most likely the last QE. It is open ended unlike previous rounds of QE that had specified end dates. The pullback for gold thus far is shallow. Gold fell 1.1% this past week and silver was off 2.5%. Both remain in uptrends as do the gold indices.

This correction is paper induced. It is not occurring in the physical market. Private money and central banks in Asia and Latin America continue to add to their gold reserves. China continues to be a major purchaser of gold. The gold shorts of the bullion banks are probably trying to push things back as the market goes into the election. A pause at this time is not unusual. After the election gold should take off again if not sooner. The risk to the downside is probably to around $1,650 to $1,675. But even that may be optimistic to the downside. I couldn’t help but notice that while the commercial COT this past week remained unchanged at 25% the shorts open interest fell by 7,000 contracts. Not a lot but it was down after rising the past few weeks.

Last year was unusual for gold as it topped in September and never recovered. Once again the rally got underway in late June/July. But if a more normal strong 4th quarter seasonals kick in gold could run up into the New Year and surpass $2,100 and even $2,500. Continued global tensions that could lead to war will help gold. A Romney election will help gold as the deficit will widen further and the money printing machine of the Fed continues. N

Once gold breaks through $1,800 there should be little to stop it on its way to $1,900 and higher. Naturally I would not want to see it break under $1,650 again but the likelihood of that happening is very low as gold enters a period that is potentially cyclically strong.


Oil is going through its correction as well. It still remains a mystery what pushed it down suddenly here 4 weeks ago. That also appears as potential manipulation. Since then while oil prices have tried to break under $90 it keeps bouncing back. Oil closed up 2.2% this past week.

So $90 r4mains important but a good close under that would suggest a test of $85. But with global tensions rising the likelihood of a breakdown in oil prices is low. Resistance is at $95 and $100 but over $100 things could heat up. $108 remains important and a breakout over that level suggests a run to at least $146.

Oil is political good. Any outbreak of war in the Mid-East would send oil prices soaring. And it would probably sink the western economies plunging them into a recession.


The markets continue their topping pattern but could run higher if Romney is elected President. Gold is pausing in what could become a major “gold rush” into 2013. And oil is pausing as well but with global tensions high an accident could trigger a wider war and with it sharply rising oil prices.

Wednesday, October 3, 2012

Spain Is In A Great Depression!

Yesterday CBS News ran a segment on the current problems in Spain. Scott Pelley reported that the official unemployment rate was 25%. (As in all of these official measures, they do not list all of the people who have given up and dropped out of the labor market as well as all of the under employed people.. The probable actual unemployment rate is above 33%.)

CBS also commented that the youth unemployment rate in Spain is above 50% This means a whole bunch of young school leavers (including college graduates) have little or no prospect of finding work.

CBS went on to show an outdoor market in the relatively prosperous city of Barcelona. On the surface all looked well. People appeared to be well fed and content. But when one looked deeper one saw a sad story. The shop owners disposed of a lot of food products they could not sell at the end of each work day. Desperate and hungry people took the food from the garbage bins and ate it. Food banks in the Barcelona area are overwhelmed with the demand for food.

My readers by any definition this unemployment rate is "A Great Depression."

All of this came about because the Spanish banking sector acted in an irresponsible manner as did banks here in the USA. They made massive real estate loans without any serious underwriting or thought. A property bubble followed. This created a false sense of prosperity. The government went out and borrowed hundreds of billions of dollars to fund social programs and pensions that were not sustainable.

Now the party is over and the bill has come due. The US survived a similar situation because they have the power to print money and attract foreign capital. Spain does not have these abilities. The government in Madrid has bailed out the banks. But it does not have the possible trillions of dollars required to bail out the rest of the economy. The European Union does not have the political will nor the money to bail out Spain fully.

Sadly Spain is facing years or a decade of human misery.

If you are sitting in the US or some other large and prosperous country, do not just relax and say that "it cannot happen here." We have seen small countries like Iceland, Greece, and Argentina default. Now we are going to see a much larger country in a great depression. Such great depressions are like a contagious virus and will spread to other countries.

En Espanol:

Ayer CBS News publicó un segmento sobre los problemas actuales en España. Scott Pelley informó que la tasa oficial de desempleo era del 25%. (Al igual que en todas estas medidas oficiales, no una lista de todas las personas que han dado y nos dejó fuera del mercado laboral, así como todos los archivos. Personas empleadas bajo .. La tasa de desempleo real es probable por encima del 33%)

CBS también comentó que la tasa de desempleo juvenil en España es superior al 50% Esto significa que una gran cantidad de jóvenes que abandonan la escuela (incluidos los graduados universitarios) tienen pocas posibilidades o ninguna de encontrar trabajo.

CBS pasó a mostrar un mercado al aire libre en la ciudad relativamente próspera de Barcelona. En la superficie todo parecía estar bien. La gente parecía estar bien alimentados y contentos. Pero cuando uno se veía más profundo se veía una historia triste. Los dueños de las tiendas dispuestas de una gran cantidad de productos alimenticios que no podían vender al final de cada jornada de trabajo. La gente desesperada y hambrienta tomó la comida de los contenedores de basura y se lo comió. Los bancos de alimentos en el área de Barcelona están abrumados por la demanda de alimentos.

Mis lectores por cualquier definición, este tipo de desempleo es "Un Gran Depresión".

Todo esto se produjo debido a que el sector bancario español actuó de manera irresponsable al igual que los bancos aquí en los EE.UU.. Ellos hicieron grandes préstamos de bienes raíces sin suscripción grave o pensamiento. Una burbuja inmobiliaria siguió. Esto creó una falsa sensación de prosperidad. El gobierno salió y pidió prestado cientos de miles de millones de dólares para financiar programas sociales y de las pensiones que no son sostenibles.

Ahora la fiesta ha terminado y el proyecto de ley se vencen. Los EE.UU. sobrevivió a una situación similar, ya que tienen el poder de imprimir dinero y atraer capital extranjero. España no cuenta con estas habilidades. El gobierno de Madrid ha sacado de apuros a los bancos. Pero no tiene los miles de millones de dólares necesarios posibles para rescatar al resto de la economía. La Unión Europea no tiene la voluntad política ni el dinero para rescatar a España en su totalidad.

Lamentablemente España se enfrenta a años o una década de la miseria humana.

Si usted está sentado en los EE.UU. o en algún otro país grande y próspero, no sólo relajarse y decir que "no puede suceder aquí". Hemos visto a los pequeños países como Islandia, Grecia y Argentina por defecto. Ahora vamos a ver un país mucho más grande en una gran depresión. Estas grandes depresiones son como un virus contagioso y se extenderá a otros países.

Friday, September 21, 2012

Brasil Is A Challenging Place For Retailers


On the banks of the Paraná river next to the Brazilian border sits the Monalisa, one of Paraguay’s most-loved tourist attractions. The six-storey, air-conditioned shopping mall in Ciudad del Este attracts thousands of Brazilians every year, desperate to buy everything from Lacoste polo shirts to Chanel perfume and vintage Taittinger champagne.
“You’ve got three hours guys – no more,” shouts a Brazilian tour guide as his passengers push their way off the bus and head for the entrance, looking furtively at some nearby policemen who have just tried to extract a bribe from the driver.




It is not difficult to understand why the free-trade zone in the relatively lawless border region has become a mecca for Brazilian shoppers. In spite of boasting one of the world’s fastest-growing consumer markets, Latin America’s biggest economy still lacks many of the popular US and European brands available in other emerging markets. And those that are in Brazil are often prohibitively expensive.
About 12 hours’ drive from the Monalisa is São Paulo’s Oscar Freire Street, Brazil’s answer to Fifth Avenue, where even coffee shops have security guards. Here, a pair of jeans that costs $100 in New York goes for as much as R$1,000 ($495). Even a small polyester handbag from Accessorize, for which you would be charged only £8 in London, is priced at R$78 (£24).
For high street or “fast fashion” brands, this means being forced to compete in an alien luxury market, and for high-end labels it can mean being so expensive that they risk losing their customers altogether.
It is a conundrum that has turned what promises to be a retailer’s paradise into one of the industry’s most challenging markets, troubling the likes of Sweden’s Hennes & Mauritz and other high street retailers that are still looking to enter Brazil.
Topshop is a case in point. More than two years ago Sir Philip Green, the British billionaire behind the Arcadia group that owns Topshop, promised to open stores in Brazil to help offset slowing growth in the UK. And despite Brazil’s falling rate of gross domestic product growth – it has slumped from 7.5 per cent in 2010 to below 2 per cent this year – retail sales are still rising at more than 10 per cent year-on-year thanks largely to record-low unemployment.

Big-ticket items

Three products wealthy Brazilians would never buy in Brazil
● iPhones and iPads. Brazil is believed to be home to the world’s most expensive iPhone. On Apple’s US website you can buy an unlocked iPhone 4S for $549 – in Brazil the price is at least R$2,000 ($995).
● Wedding dresses. For brides who want a designer dress for their big day, the sensible option is to take a pre-wedding trip to Miami. The money saved by buying a Carolina Herrera or Vera Wang creation in the US, as well as the gold wedding rings and the champagne, is more than enough to pay for the air tickets and hotel accommodation.
● Pushchairs. Getting pregnant is another good reason to visit Miami or New York. An upmarket Maclaren “Quest Sport” buggy costs about $270 in the US but approximately R$900 ($448) in Brazil.
Yet when Topshop, together with Topman, finally opened its first Brazilian store in June, it was in the country’s most upmarket shopping centre, JK Iguatemi in São Paulo. The giant marble and glass building, which is full of orchids and even has sensors to direct drivers to vacant parking spaces, is also home to Prada and Dolce & Gabbana. “Location is everything in retail,” says Alexandre Dominguez, Topshop’s country manager, who insists the Brazilian store is identical to those in the UK.
Inside, however, well-dressed customers peruse the rails as a cleaner meticulously polishes the sunglasses on sale – a world away from the frenzy of shoppers in Topshop’s flagship Oxford Street store in London.
The shop’s personal shopping service, where customers are offered fashion advice and sometimes a glass of champagne in a special room, is also particularly popular. “It’s because of the nature of the shopping centre we’re in, but Brazilians on a whole also love to be spoiled and to be attended personally,” says Mr Dominguez.
The store’s elevated prices, although not as high as some other imported brands, also explain why Topshop attracts a wealthier customer in Brazil than it does in other markets.
The reason often given for this divergence is simple: huge import taxes. In an attempt to protect struggling domestic manufacturers, Brazil’s government has imposed levies of up to 35 per cent on everything from potatoes to cars.
“It’s not just import taxes either – you have four other taxes on top of that: a tax on industrial products, on the circulation of goods, Cofins [a social security tax], and Pis [workers’ benefits tax],” says Otto Nogami, professor of economics at the Insper business school. “I did the calculation for make-up and beauty products, for example, and the total tax burden works out at 133.47 per cent of the customs value.”
Economists also put foreign retailers’ high prices down to poor economies of scale, given the relatively small size of the Brazilian market, and higher operational costs as a result of the country’s byzantine bureaucracy and poor infrastructure. Brazil’s high interest rates offer yet another explanation.
Brazilians typically buy everything from underwear to televisions on credit, using in-store financing to pay in as many as 60 monthly instalments. The result, though, is that retailers often embed expensive interest rates of up to 6 per cent a month in the final price of their products, says Nelson Beltrame, a professor at the Fipecafi institute.
But this is not the whole story, he explains. A principal reason why foreign companies charge so much is because consumers expect them to. “Price equals quality here, so if you come in with a very low price consumers will just think your product is of poor quality,” says Mr Beltrame.
This view is particularly ingrained in Brazil, where the economy remains relatively closed and cut off to foreign trade, says Walter Molano, head of research at BCP Securities.
However, brands such as Spain’s Zara, which has lowered its prices by moving about 35-40 per cent of production onshore, have remained popular by combining high-profile locations with relatively low prices. After 13 years in the country, Zara has stores in most of São Paulo’s leading shopping malls.
Topshop, which is finalising plans to open another store in Brazil, hopes for similar success. But moving production onshore will only be worth it once the company has established a much larger customer base – a vicious circle few retailers have been able to crack.
The other option for retailers is to give customers the luxuriously high prices they expect. However, if a product is overly expensive Brazilians will simply wait to buy it abroad – be it in Paraguay or, as is increasingly the case, Miami. Travel agents across the country offer six-day shopping trips to Florida, promising activities such as “discovering the marvels of the air-conditioned stores”, as one puts it.
“As soon as the consumer sees the prices outside the country, he’ll realise how expensive it is in Brazil,” says Mr Beltrame. “The company gains a customer and an