John Baeyens

I just booked my tickets, leaving to Brazil on October 20th and many friends will follow suit the week afterwards. 
After a dreadful grey Belgian climate, I didn’t count more than 5 days where we had a perfect blue sky for more than 6 hours in a row, summer, at last. 
I’m especially eager to go swimming in the sea again.  I usually take my bodyboard out.  Rio has more than 45 surf spots, unfortunatelly with a very low consistency.  Unless I decide to take my bike for a ride to Joatinga, which I never do alone, the waves are mostly disappointing.
And I’m a person who has very low ‘fuzz’ pain barrier when it comes to sports.  Which is why I’ll never take up kite surfing, golfing or even tennis.  I’m the kind of person who likes to grab a board, his inline skates, grab a canoe/rowing boat on the watersportbaan.

If there’s one sport I kick it, it’s wildwater canoeing.  Especially on sea.  Only Rio, is not the place for it; mostly because it’s too hectic to carry the boat into the water.  And it’s way to warm to boil in a Canoe.

In 2006 I heard of Stand Up Paddle surfing for the first time.  I didn’t pay too much attention to it.
It was only when I saw this video that I grasped its potential.

Basically I could walk 4 blocks to Ipanema posto 6, drop my board in the sea, paddle down to Copacabana or Leblon and enjoy the surf, even the mushy waves.

It’s the perfect combination of everything I like: the sea, waves, my canoe and bodyboard skills, skatye equilibrum, low fuzz and the ‘any day works’ factor.
First I need a massive longboard of more than 3,5 meter long, 70 cm wide and 5 cm wide.  That I can find in Rio.  The paddle will be more of an issue.  You need a canoe-style paddle which is about 15cm taller than your own height, in my case that’s a paddle of at least 2m10.

Paddle surfing seems to take of in Brazil, let’s hope they’ll have the gear in my Rio surf shops.

Since the crisis in the US started, more than 5.000 Brazilians have decided to go leave the US and go back to Brazil.

The first Belgian who translates this for me gets a caipirinha from the house.  Essential knowledge of Brazilian verbs.
Tip: whenever a Brazilian priest nags on you, use this one.  He’ll walk away in a split second, guaranteed.

Excellent set from Ze.  Varig flying to Mozambique, London, Frankfurt, Barcelona, Roma, Lisbon, Amsterdam,… where are the times…

The most impressive city in the world.  London and New York are villages compared to it; even Toky is dwarfed by it.
When you’ve lived your whole life in Belgium and you are dropped in Sao Paulo, you wouldn’t stand it there for 4 weeks in a row.   You actually need to change your perception of the world before you can get to like the Megalopole.

Martin Warsawsky explained the dynamics behind the credit crunch crisis today. And European Central Bank Boss Trichet sees again stability on the markets…

Look at this excellent graph of the ‘credit crunch’ problem.

What do you see? Right, the North Western hemisphere.
True, Australia is a rare exception with some hedgefunds seeing black snow -did I mention Brazil has no hedge funds?- and admitted, some companies in Brazil postponed issuing bonds -of which one Cyreal Realty, too bad-. With South African’s current 12,5 intra-banking interest rates (going up to 14% end of this year) or Brazil 11,5 SELIC (coming from 18,5), the US problem of endangered credit lines backed by plummeting real estate prices is rare in those countries.
The times of cheap credits are over.

I’m a leave-it-to-the-market enthusiast, admitted. I’m also an opportunist with no comprehension whatsoever on what nationalistic pride is based on.
I might be worried about the future of our planet, maybe worry about the future of Europe, but the future of Belgium is the least of my worries.

But my enthusiasm doesn’t make me naïve. The naives will believe our soothing Belgian politicians selling the idea that there’s been no major crisis since the Argentine bankruptcy in 2002. How many Belgians can recall what kickstarted that crisis?
How many of my (Belgian) friends have any idea when the Brazilian financial crisis happened? And how many have a clue of the dynamics behind that crisis?
None.

It’s easier to explain to people that I’m keen on Brazil because of the beachlife, samba and caipirinhas. The real reason why I became intrigued about Brazil is my questioning how entrepreneurs like Norbert Odebrecht made a fortune in that turbulent uncertain country. Here in Belgium we have a very misleading false idea of control. Newspapers write about supposedly racism in restaurants and the need of a charter while at the same time the fundaments change under our lazy seats; fast, extremely fast. How many of my friends know that the Belgian GDP has been growing constantly slower for 3 years in a row? Few. How many people have any idea how negative the US trade balance really is and how positive the Brazilian and Asian trade balances are?

Every Brazilian knows that Lula campaigned with the promise of a 5% GDP growth in 2007. And every Brazilian is keeping an eye if he will be able to keep his promise -currently they are at 4,7%-. And even my Brazilian maid can explain you the dynamics behind the ’98 financial crisis in Brazil. What most Brazilians (and still most of the Belgians) don’t know is that commodities are hot. Ever since the Belgian coal mines closed, Belgium has no commodities, even no (water)energy and soon no nuclear energy. Meanwhile the agro industry in Brazil grows, no that’s not taking into account the soon-to-come ethanol boom. Meanwhile in Europe energy prices skyrocket, pasta, bread, chocolate and milk will become substantially more expensive in 2008. Our sustainable competitive advantage? You tell me.

But all that is not why I’m worried for the coming 3 years.
Ever since the Asian crisis in 1997 things have changed. And with the Euro, we Belgians have no clue what exactly changed. The markets are getting bigger, information is moving faster, flows are larges and capital markets keep integrating. The amounts of speculative capital sloshing around in global financial circuits are truly mindblowing. Traditional banks hold a substantial amount of those financial assets, but non-bank operators and investors held 46 trillion US$ in 2005, hedge funds 1,6 trillion US$ and private equity investors almost 600 billion US$. Our world has an overcapacity, it’s heating up -literally, we hear ‘less’ everywhere (fly less, drive slower, heat less, light less,…). In other words: our economies are stagnating. So, why would a capitalist invest in production when there’s overcapacity. The fews who can invest in commodities. Other speculate while it last. The ratio of global financial assets to annual world output has risen from 109 per cent in 1980 to 316 per cent in 2005; speculative activity as a mode of profit-making has also outran trade, with the daily volume of foreign exchange transactions in international markets standing at 1.9 trillion US$ daily, compared to an annual value of 9.1 trillion US$ of trade in goods and services. And the rest… the rest is (kept) blind or at best scared.
The above data were presented by economist C.P. Chandrasekhar at the conference “A Decade After: Recovery and Adjustment since the East Asian Crisis” held in Bangkok, the epicenter of the 1997 financial earthquake, on July 12-14 this year.

Which brings me to the essence of my fear: what really changed since the 1997 financial crisis? Here’s the answer.
Did you read that the Chinese government has begun a concerted campaign of economic threats against the US, threatening that it may liquidate its vast holding of US treasuries if Washington imposes trade sanctions to force a yuan revaluation? Two officials at leading Communist Party bodies have given interviews in recent days warning - for the first time - that Beijing may use its $1.33 trillion of foreign reserves as a political weapon to counter pressure from the US Congress.

And you were afraid of a nuclear *bomb*?

In July and August 1997, the ASEAN countries made a deal with China, South Korea and Japan and formed the “ASEAN plus three” financial grouping enabling members to swap reserves in case of a 1997 scenario would happen again. Since then, they have built up huge financial reserves by running massive trade surpluses, an objective they have achieved by keeping their currencies undervalued. The group has now more then 2,7 trillion US$ in financial reserves. Look at this graph and list the countries which have a factor foreign reserves versus yearly import. Argentina, China, Chile, Brazil,… all have between 0,7 and 0,8 times their import in foreign reserves. Brazil has a positive trade balance every quarter (even with the high Real currency) and has a record high high 114 billion US$ reserve.

A graph makes it more clear:

(the reserves of the European Central Bank are also in the “mature economies” space).

Yes, the US has turned its back away from the nations of the South, and is now transfixed on the Middle East. Some Latin American nations have walked through an open door to increased political and economic collaboration with China, India and Taiwan. China is allover in Africa and Brazil the last year. The Andean nations of Peru, Colombia, Ecuador, Bolivia and Chile have begun negotiating free trade agreements with the Asia-Pacific region as part of the Andean Community of Nations (CAN) economic trade bloc. There is also evidence that Latin America is further organizing itself into an entity that can contest US interests. The possible creation of the Union of South American Nations (UNASUR), could turn out to be an economic organization akin to the European Union, which could bypass restrictive US trade and establish networks with some of its major rivals.
What do I hear you whispering? IMF? LOL !
The IMF is in a serious budget crisis itself. The biggest borrowers refuse to borrow. After 1997 “never again” became the slogan of the affected Asian governments.

Now, there are a lot of speculations about what would happen when the dollar would actually fall. It all depends on the oil producing countries in my opinion. Normally, when the dollar becomes cheaper. American products and services become cheaper for foreigners. Instead of buying bonds, foreigners would increase their imports from the US. Simultaneously, foreign goods will become more expensive for the US. But once again, the US will profit from the oil trade. Oil producers will not accept a lower value for their barrils. If the dollar goes down 10 percent, their prices will “logically” rise 10 percent. Read: the price converted to euros would remain the same. The only solution for this problem would be that oil selling countries accept all currencies on the market. Tehran has already taken into consideration to accept more than one currency and not just the euro. Brazil becomes oil self-sufficient, Chavez hates the US, Iran and Chavez are big buddies, China is luring in Africa,… It’s just a matter of time before oil is traded in multiple currencies, the US just made too many enemies. And when that happens, a fall of the dollar could become a nuclear bomb whipping away the US.

Some people call me a neoliberalist. I prefer being called an ‘opportunist’, since I don’t believe in Neoliberalism. Sure, it would be fashionable to see De Decker in Belgium pushing through his flat-tax regime. It would give a temporary boost to our exhausted Belgian Duracell batteries. And admitted, Brazil can go through another hickup this year; the challenges are vast. But by the end of this decennium the Belgian economy is doomed. The Belgian economy is build to prosper on a thriving globalizing world.  Ones that globalization trend stops, there’s nothing here.  Brainware?  Serious now… 

But one of the other reasons why I went to Brazil is an economic paradigm promoted by the Thai monarch King Bhumidol, called “suffiency economy”.
Actually Lula won the elections on the same paradigm. Weeks before the elections you saw all over the country that Brazil became oil auto-sufficient. Nothing to do with ethanol, rather the unique expertise of Petrobras for deep-sea oil drilling.

Also don’t forget that in 2006 Brazil and Argentina, following Thailand’s example, paid of all their debts to the IMF to achieve financial indepence.  Some months later, Hugo Chavez dropped another shoe by announcing that Venezuela would leave the IMF and the World bank; the boycott by its once biggest borrowers now put the IMF in a serious budget crisis.

Never forget that in the 80s, during the military regime (only 27 years ago), all Brazilians lived in a country with no imports. My wife remembers crystal clear her father driving with a Brazilian-made polyster car and even more clearly the day in the mid 90s when the first non-Brasil made computers arrived in the country.  True, a lot has changed since then.  But still today Brazilians prefer buying goods with the “Industria Brasileira” labels over the imported ones.  During my first weeks in Brazil I got very annoyed by the lack of imported products.  Most Brazilian products are fine, but they are somewhat mediocre compared to our products.  Even when it comes to washing soaps, etc… The foreign brands you’ll see will be made locally.  My frustration even got bigger when I realised how hard it was to set up a business in Brazil; opening a bank account and wiring in capital is quite a challenge for a foreigner.  Not to say that I exploded when I saw that a Powerbook costs 3 times more expensive than the same model in the US.
Two years down the road I started understanding what a unique asset this could be for Brazil.  Contrary to Belgium, Brazilians actually don’t need any foreign goods, raw materials, petrol, scientists,…  In Brazil import is luxury.  You can buy a VW Golf for a really good price.  If you want a Passat, you’ll pay what you pauy for an Audi A6 in Europe.  Not to mention the price of a BMW.  But what’s wrong with a VW Golf or a VW Paraty?  The only people who force Brazil in opening up more and growing beyond 5% yearly are the US and Europe. 

Brazil can implement the ideology of a sufficiency economy in a matter of years.  They did already so in the military dictatorship.  A grand idea, just 30 years to early and the wrong leaders.   And this is exactly what the 2010 presidential elections will be about.  Contrary to the US, where no economical alternative besides continuation exists (is possible), Brazil has a very clear polarization shaped into the PT-PSDB opposition: should Brazil pursue a “third-world” strategy or one close to the major powers?

But Lula also is working to come to agreements with the PSDB, especially the re-elected governor in Minas Gerais, Aécio Neves. Part of this discussion is the issue of the 2010 elections and the question of who will be the successor after Lula. As Lula can’t stand in the elections in 2010, he is working to build an alternative that involves sections of the PSDB. In the PSDB, Aécio Neves is competing against José Serra, newly elected governor of São Paulo, over who will be the party’s candidate for president in 2010. Facing a possibility of being defeated in his own party, Aécio is leaving the door open for a future closer relation with Lula and the PT.

The coming 3 years, a complex process of political reorganistion will happen in the ruling class of Brazil.  Today José Serra would be candidate for the PSDB and Tarso Genro for the PT.  I would certainly not vote for Serra; but Tarso Genro is also not quite the man who could bring Brazil where it could land.

Actually, it doesn’t take so much to be an excellent Brazilian president, the requirements:

1. Know what you are doing,
2. be honest and persevere
3. take a middle path, avoid extremes
4. be sensible and insightful in taking decisions
5. build protection against shocks

Slowly I’m realising Lula is not so bad as a BR president, I’d give hime the following scores on each axis:

1. 65%
2. 45%
3. 90%
4. 85%
5. 90%

This is what makes Brazilian politics so much different compared to Belgian (or US) politics: politicians can actually make a difference.
Maybe in 2014, when the world is in dark clouds, a ‘Lula improved version’ will choose implementing the paradigm of a suffiency economy.  By that time I need to pick a primary school for my kids…

I get the creeps of self-acclaimed journalist Khaled Kazziha and his ‘unreported world’ documentaries which currently run on Saturday’s Terzake.  Next Saturday: Slum Warfare in Rio; Klhaled flew into Brazil and lived 3 weeks in A Favella; woeha.  The last minutes of the documentary he’ll try to convincen you he actually had to flee out of the Favella because the ‘drugslords’ became angry.  But, hallelujah, some days before he was flying out in first class, a rivaling druglord of another Favella called him.  Yeah, sure, he paid his intermediary good money to have some kids show him 3 guns.  
His recepy is good though: make sure you get a shot with the mayor of Rio and your audience will believe any part of your story.  And I guess it works for 90% of Belgians who have never traveled outside of Europe: nicotine on a silver screen.
Don’t understand me wrong, Rio Favella’s, violence and cocaine is real, very real.  But the cheap thrill Khaled Kazziha sells as information is just cheap fiction.  He tries to explain you that ‘every social group’ comes into the Favella to buy cocaine and when someone carries a gun they get killed.   What a joke.   As if cocaine in Rio is traded like potatoes were traded here in Europe: go to the farmer.  The trading doesn’t happen on the hills, trust me. 
And what about context, Khaled?  Why are the favellas still coexisting in the upper class Zona Sul?  Why are the policemen corrupt?  Why can’t the government get the people out of the favellas? 

No, forget  Khaled; if you want an objective view on Rio better seek a real journalist, like Ineke Holtwijk.  Her book Kannibalen in Rio will explain you exactly what Rio Favellas are about.  And unlike Khaled, who spend 3 weeks in a 4 star hotel in Ipanema, she lived for more than 10 years in Rio.

Early May I wrote about the asset inflation of European and American households.  12 weeks later the official party starts: the assets don’t cover the liquidity provided.
This is not a temporary crisis, it’s the start of a fundamental bearish year to come.  The good news is that the Brazilian Real is being pulled down as an effect of this crisis; just 3 weeks after I turned most Reais into Euros.  Contrary to Europe and the United States however, there’s no asset inflation in Brazil.  Yes, real estate prices went up and will further continue to increase in price.  But contrary to Europe and the US, households don’t use their property to get liquidity.  Credits of private banks towards the lower echelons of society are (low and low-middle class) are non existing in Brazil.  Those people turn to the Caixa economica, who uses defaults which are very different from those of private banks. 
South Africa has the same issue as Europe and the States; expect the South African Rand to yield 14% interest rate by October (now 12,5%).  Meanwhile, Brazil is the only country in the world daring to further loer it’s interest rates (from 18% to 11,5% in one year time).  Brazilian banks are the most profitable in the world and none of them are involved in overseas hedge funds; which makes Brazil quite a sound place in these turbulent weeks.  Yes, the Real will further go down as American speculators will flee out of emerging market bonds, especially now with lower Brazilian and higher US/EU interest rates; which makes the BR opportunities later this year only more juicy.

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My favorite Brazilian newspaper is not O Globo, it’s Folha de Sao Paulo; here’s why:

Daringly strong for Brazil.

Marco Aurélio Garcia, I’d love to play ball with him and Waldir Pires.