Sohn Brazil Conference: Verde Warns Of Coming Crisis; Ackman Explains VRX Disaster And More

Today, while we were busy finishing up our coverage the Sohn London Conference, the Sohn foundation had its first event in Brazil, and the organizers were kind enough to give us a free pass. The Sohn Brazil Conference featured the following re-known investors William A. Ackman, Pershing Square; Mauricio Bittencourt of M Square Brasil Daniel Golberg  of  Farallon Latin America; André Jakurski, founder of JGP; Hernan Kazah Co-Founder  of Kaszek Ventures; Beeneet Kothari from  Tekne Capital; Steven J. Quamme Senior Managing Director, Cartic; and most famous of all Luis Stuhlberger, Verde Asset Management. Most of the speeches and pitches (besides Ackman's were in Portuguese - reminder that in Brazil they speak Portuguese NOT Spanish), we were lucky to have a local reader in investment management industry who is fluent or native? In both Portuguese and English and runs Tropical Value Investing (great blog check it out) and was able to attend the conference for ValueWalk. Below are our informal notes we will have much more in coming days so please stay tuned - please note this is not verbatim especially since these were translated that should be obvious but although 99% of our readership is excellent... but  because of  the .9% who are idiots and the far worse .1%n who are malicious evil legal parasites with no soul we are forced to spend time explaining things like that. Additionally, these notes are for information purposes only.

Verde - Luis Stuhlberger

  • For Brazil to have a 2,5% GDP, the country must invest circa 23% of GDP vs current 15,4%;
  • Demographics has helped a lot: between 1995-2016, 1,6% population growth compared to a 2,4% GDP print. In the next ten years, we estimate a population growth hovering 0,7% and a GDP of 1,7%;
  • Pension Reform: aging population grows 2,7% p.a., too heavy of a burden to the system. Even with the reform proposal of May 2017 and optimistic premises (2,5% GDP and 4,0% inflation), this account grows relative to GDP;
  • Fiscal: no more room to cut discretionary spending on investment, which has already collapsed by ~65%. Healthcare and education budgets were also cut, now representing less than 10% of GDP. Taxes revenues have declined 11% between 2014 and 2017.
  • Debt scenarios: if GDP 2,5% and interest rates at 8,0%, government balance sheet delevers to below 75% GDP by 2028, assuming the pension reform;
  • Market prices imply 70%-80% chances Lula will not run for president;
  • EWZ underperformance relative to EEM mainly because of Technology in China and South Korea (Tencent, Alibaba, Samsung performances).
  • Wild market through the elections means low-risk allocation. What he likes: 1) Yield curve is too steep, pricing 11,5% rates. The risk would be the rapid scale of inflation as Brazil resumes growth trajectory but believes FX, monetary policy, and regulated tariffs are well calibrated today. 2) Equities: believes in the operational leverage story post-Brazil harshest crisis.

Cartica - Steven Quamme


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