WSJ: Fast Rising Steel Prices Set Back Big Projects

Inflation is a tax on all people, companies, and countries. This is exactly the type of thing that we are beginning to see in the corporate world [May 14: Deere Earnings - Why I'm Avoiding Equipment Stocks] and what I believe is the largest threat to the 'global growth' story. The 'World of Shortages' thesis I've been talking about since day 1, continues to devour everything in its path. At some price point it no longer makes sense to build things, even for China (although they are forced to, to swallow up the masses of populace moving from the countryside to the cities). I have to say I've been amazed that the steel companies can continue to pass along all costs to their end customers but at some point this stops. The point seems to be closing in.

Unfortunately as investors this races some serious questions; much of the current investing themes are based on global growth. If that takes a sharp downswing, we face the potential of (a) global recession and (b) not much to invest in - I guess we'd have to flee back into US banks and retailers? Yikes. And if you think global recession seems far fetched keep in mind, in 2006 (I don't have the exact figures) but something like 156 of 157 nations showed GDP expansion. So the opposite is not out of line. Oil at $175-$200 and raw material costs at levels that simply make it not worth to build (for most countries) and/or makes producing products unprofitable for many companies would cause serious hardship. Not saying this is the road we will travel, but simply outlining one potential path. At some point these high prices go from being "cute" and "great for companies that product these things" to major threat to global growth.

• Relentless increases in the price of steel are halting or slowing major construction projects world-wide and investments in shipbuilding and oil-and-gas exploration, setting the stage for a potential backlash against steelmakers.
• In Turkey, a construction association said this week it will begin a 15-day strike in eight cities Thursday to press steelmakers to cut their prices, which have more than doubled locally since late last year.
• In New Delhi, India, an ambitious bridge project has been put on hold because of steel-related cost overruns, and contractors are postponing or reining in construction of much-needed housing for the poor, prompting the Indian government to freeze steel prices for the next three months.
• Venezuela, aiming to control prices, renationalized its largest steelmaker and is limiting exports. Oil executives in the U.S., meanwhile, say costly steel is threatening their energy exploration efforts.
• Globally, steel prices are up 40% to 50% since December, and industry executives say they haven't hit their peak. Also the cost of alternatives, such as aluminum and certain plastics, is increasing.
• Iron-ore prices have risen 71% this year. Two other crucial steelmaking ingredients, coking coal and scrap steel, have doubled in price.
• While still in a position of pricing power, steelmakers are concerned that over time, their high prices will affect sales. "There will be impact on demand, and that is not a good development for the steel industry," said Aditya Mittal, chief financial officer of ArcelorMittal, on a separate conference call.
• As a result, steelmakers are taking steps to cut their costs. To shield themselves from higher raw-material prices, more of them are acquiring their own iron-ore and coal mines or deposits, as well as producers of scrap steel.
• Some nations, meanwhile, are hoarding steel by erecting export barriers. Last week, India imposed a 15% duty on exported steel. Countries that don't make enough of the metal are slashing import taxes in an effort to attract more. Last month, Iran announced it was lowering its import tax on rebar steel, used in new buildings and roads, to 9% from 20%. (sound familiar? we were typing the same things about agriculture products a few months ago - the World of Shortages will lead to major international strife - this is only the beginning stages of a multi decade issue)
• The impact of high steel prices is rippling through industries from shipbuilding to energy exploration.

Bookkeeping: 'Rising Tide' Performance Week 41

Week 41 performance of the mutual fund

Comments: The equity market continues its 2 month run of happiness and joy, discounting "everything" from here to 2010. Good news is great, and bad news is even better. Because "it's all priced in". Much of what we've seen lately makes about as much sense as some office workers we all know in our lives, but we can't dismiss them completely. The animal spirits are here, and it is what it is. Commodities remain on fire, and the inflation they create on both consumer and producer is completely ignored and/or "priced in". (more on that this weekend) Godzilla just attacked Tokyo - but it's "priced in". Etc. We now approach the highs of the year and although certain bloggers who clearly don't understand how great everything will be in "6 months" express caution [Risk is High], the market can only laugh off such simple mindedness. In fact, the investment bank's... err, the people's champion, Uncle Paulson has come out today to assure the minions that the economy will be rebounding by the 2nd half of 2008. Judging that this is coming from the man who runs Treasury and is the great seer of all things financial in America and was able to discern in April 2007 "I don't see (subprime mortgage market troubles) imposing a serious problem. I think it's going to be largely contained", I feel ever confidant in his most current analysis. Conclusion: Buy stocks.

Again, as I say every week if you believe commodities are overpriced in any manner due to the Federal Reserve (and every government in the world tied to the US dollar who must also print their currency like mad to remain pegged), than you must believe equities are also overpriced to some degree as this flood of paper currency flows into all things of limited supply, of which equities are one. I opined back in the late summer/early fall that the Fed would create a new bubble to get us out of the swamp from the old bubble (i.e. the solution for a bubble brought on by low rates, is to create a new bubble with low rates).... I thought it would either happen in emerging markets or commodities - it is looking more and more like commodities will be the winner of that contest; and this is coming from an avowed commodities bull. :) So I suppose crude can get to $150 and it will have no effect and/or it is all "priced in". Perhaps we return to an equity bubble like the turn of the century... as earnings fall in sector after sector, stock prices go up, creating 50+ P/E ratios. Only now it won't just be NASDAQ stocks; and people will keep buying because what else are they going to do with all that newfound cash? Everything else has negative real returns with inflation at 12-15%... err... 3%. Conclusion: Buy stocks.

For the fund, after a ridiculous display last week, trouncing the markets by nearly 5%, I had written " I expect to give some of this back next week since the gap versus the indexes was so huge." And so it came to be true. Our hedged policy just does not work that effectively in weeks like this where you must throw a dart and be long anything and everything. So much of our gains on the long side were eliminated by the quite sizeable short exposure. Unfortunately, we cannot short individual names and the index shorts are proving less effective in a "sideways" market than they were in last fall's/early winter market. So we suffer a bit on weeks like this; thankfully what we do have long was in general working very well so it helped offset the damage done by the short exposure, and high cash (15-20% all week). Coal continues to work very well, solar had a boffo week, oil services nice, and the metals stock (what little we own) were simply unstoppable.

I've cut back these "winning" sector weightings as far as I wish, so I really am hoping for a fallback to rebuild positions (the day it does come I do expect it to be severe) I continue to try to find new buys, or increase exposure outside of commodities in positions that I believe in for more than just a 3 day or 7 day trade (i.e. retail). But if you look at fundamentals (which apparently only I and three old men in Wichita seem to do anymore), the pickings are slim. If however you discount everything from here to 2019, pretty much every stock is a steal. And that seems to be the current market mindset. Conclusion: Buy stocks.

Going forward we will remain in a defensive posture, but if the markets break out to new yearly highs and over the 200 day moving average, we have to rethink things. Because at that point, every technical trader on Wall Street (and their computers) will have signals to jump into the market. So we'll cross that bridge when we get there; but if we under perform the market for a bit here until we see if that technical breakout is indeed the next step, we'll go down that path... and hope our long positions can make up for the 40% of the portfolio either sitting in cash or betting against the beast that is this Bull. Conclusion: Why the heck am I not buying stocks?

The S&P 500 & Russell 1000 both laughed all the way to the bank, gaining 2.7% and 2.8% respectively this week. Rising Tide Growth Fund sniffled along with a 1.6% gain (the Ultrashorts mock us this week) . So on the plus side with only about 60% long exposure (and 20% betting against the market) we still made some good return this week, and in fact did not give back as much (versus the market) as I anticipated after last week's large beat.

Price of Rising Tide Growth: $12.277
Lifetime Performance to date (vs Aug 3, 2007): +22.77%

Comparable S&P 500: 1,425.4 (-2.72%)
Comparable Russell 1000: 780.5 (-1.98%)

Fund return vs S&P 500: +25.49%
Fund return vs Russell 1000: +24.75%

Last week's results here.

Since the market cap of the median stock in the Rising Tide Growth fund (median $7.1 Billion as of April 08) is significantly below the SP500 index (median $13.1 Billion as of September 07) but higher than the median market cap in the Russell 1000 (median market cap $5.8 Billion as of September 07), I am measuring the fund against both indexes. Click here to see all fund's holdings as of April 2008.

Basis for indexes is 5 day weighted average of closing prices Aug 3-9
SP500 : 1,465.2
Russell 1000 : 796.2

To see why I use the 5 day weighted average of the first 5 trading days to smooth out the volatility of the indexes as the fund launched, see here.

Please click here: fund performance for previous updates

Friday Readings

Some items of interest

Americans seem to be finally educating themselves and want Paulson to do "something, anything" about the dollar, and the fact its stoking inflation. Inflation they see, feel, touch - but the government reports do not. Unfortunately the real culprits to the weak dollar require "solutions" that most Americans are not ready to face, such as actually living within our means as a nation and cutting back entitlements.

• Americans want Treasury Secretary Henry Paulson to act to stop the dollar's decline, which has stoked the inflation eroding their household incomes.
• A Bloomberg/Los Angeles Times poll found that 76 percent of Americans think the government should do something to halt the falling dollar. Among those with incomes of $100,000 or more, seven in 10 favored aiding the currency, putting pressure on Paulson, who's charged with setting the policy, to match his ``strong dollar'' rhetoric with action.
• The U.S. currency has slumped 41 percent against the euro since 2002 and 13 percent in the past 12 months alone.
• ``The long-term fundamentals of the U.S. economy will be reflected in our currency,'' Paulson said in Kansas City, Missouri, last week, responding to a question from the audience. (sadly that's the truth, and the market has spoken)

Let's see, countries who allowed the financiers of the globe to introduce their magic of "financial innovation" and stupid human tricks aka toxic mortgages are suffering across the globe - United States, England, Ireland, Spain.... while countries who stuck to traditional methodology aka "you want a house? No no no... you cannot have it for no money down and 1% interest rate for 2 years", seem to be doing fine - Germany, France, even with a terribly strong currency that is hurting their exports plus their worker friendly "socialist" backdrop. Ironic. Keep in mind, those tight fisted French and Germans still require crazy things like 20% down to buy a home. Nuts, I tell you.

• Surprising even the most optimistic forecasters, the German economy grew 1.5 percent in the first quarter of this year, delivering its best performance in over a decade despite the global financial crisis and recessionary fears enveloping the United States.
• The euro zone, where Germany accounts for a third of economic output among 15 members, grew 0.7 percent during the period, the statistics agency Eurostat reported Thursday. The region’s numbers, which represent quarter-on-quarter growth, also got a surprising lift from France, where the economy grew 0.6 percent in the first quarter.
• However, economists said the numbers obscure severe slowdowns in Ireland and Spain, which have been battered by the global housing decline, and a probable recession in Italy. Growth in Spain and Ireland, which profited immensely from the global housing boom, was near zero in the first quarter, Eurostat said, reflecting stagnant or falling housing prices.
• Still, the statistics appeared to validate the path of the European Central Bank, which has resisted cutting interest rates as the Federal Reserve has done in the United States. The European bank has repeatedly emphasized that inflation remains a threat while playing down the risks to growth posed by financial market distress since August.

But... but.... but... we NEED them to cut rates. Otherwise how will our dollar ever regain its stature above US Peso? Please cut your rates and subject your citizens to more inflation - please... we beg you.

Speaking of those damn socialists who have that silly thing called "regulation" that slows down greedy humans from feasting on the remains of their fellow man, the International Herald Tribune reports that EU Finance regulators want to (gasp) curb executive pay. The horror - I must avert my eyes. I mean if a CEO of a major US company was paid $3 million instead of $38 million (plus $22 million in restricted stock options, plus a relocation, plus corporate jet, plus taxes paid by corporation, plus cars, plus ....ok I digress) we all know what would happen. Every person in his organization would no longer function, and the company would be bankrupt within weeks! We must have more compensation because these few select men and women are the ONLY ones on the planet with the talent to run these companies!!! No person in middle management could do this job! Please write your Congressman and/or I urge a boycott of all European products so that we, together as Americans, can show our support for our embattled executives. Please will you help save a CEO's 14th home? I'll start rounding up the rock stars and R&B singers so we can do our version of Live Aid... you know "CEO Aid"....

• Condemning excessive executive pay as "scandalous" and a "social scourge," European finance ministers pledged to keep boardroom remuneration in check by enhancing shareholder power or changing the tax laws.
• "The excesses of captains of industry we have seen in several countries and sectors in the euro area are really scandalous and we continue to examine how something can be done in terms of professional ethics and taxation to combat these excesses," said Jean-Claude Juncker, the Eurogroup chairman.
• Pay for chief executives in Europe is significantly lower than for their counterparts in the United States. (that's because Americans are clearly the only ones who can run a company well!! Sheesh, how obvious do I need to make it! The higher you are paid the smarter you are!! Right Bear Stearns? Merrill? Enron? Worldcom? Citigroup? Cmon readers, I urge you to fire yourselves so your company can shovel more money into the top 3 slots [your salary is a weight to the company that has better purposes, such as more CEO compensation]- that will show those Europeans and their silly egalitarian ways)
  

One of my favorite subjects, and something I've written about in the past - how there is almost never a "sell" rating on Wall Street, and the reasons behind it (you'd never want to peeve off a company another arm of your bank could do investment banking with i.e. more fees!), but the NYTimes has an interesting piece of how Merrill Lynch is going to require its analysts to say something bad about 1 out of every 5 stocks they cover. Hilarious. Want to know what % of all stocks are now rated sell? 5%. Yee haw! That means 95% are in great shape! Or you should at least hold them! No wonder Wall Street is such a happy place. Oh and after the last disaster of the late 90s when analysts used to issue BUY ratings than email their friends inside the bank what a disaster the company was (damn email trail), and new regulation came on due to that ridiculous situation... well 5% is an improvement. Back in "those good ole days" only 2% of stocks got a 'sell' rating. Again folks, Wall Street is really a used car sales lot with better suits and better college degrees. But in the end, its just a big sales job. Keep sending them your money....

But I do want to point out some interesting quotes from the story - how Wall Street has turned, even institutionally, to an environment that ONLY cares about short term results. And this is why "long term investing" is going the way of the do do bird - most high level compensation is based on 1 year time frames. So nothing else matters.... read on

• Some analysts say the market does not value investment research about stocks as much as it used to because hedge funds and other investors are more focused on short-term results than they used to be.
• “There’s much more short-term orientation and more emphasis on quarterly earnings reports today,
• “The real reason I got out of the business was the market doesn’t care about the future anymore,” he said. “If something isn’t going to occur in this calendar year when institutional investors get paid, it might as well be happening on Pluto.”

Speaking of which, the legend, the man, Ken Griffin from Citadel says many of our problems are caused by the youth - all these 20something traders who have little experience and whose idea of long term is a few minutes. Go Ken, tell 'em (of course Ken is 40, but at least he is a genius) as opposed to all those salesmen... err, very well versed traders who make 6-8 figures for selling the worst products to unsuspecting fools worldwide under the guise of "it's safe, just trust us". One day I'll be like Ken, talking to newspapers about how idiotic my brethren are; until then I blog in obscurity! Mad respect to a man who is inside the industry who actually speaks unpopular things.

• Kenneth Griffin, who runs one of the biggest and most successful hedge fund firms, has a blunt assessment: "We, as an industry, dropped the ball."
• The breakdown happened, Griffin contends, when big investment banks gambled away money and jobs during the late great credit boom. The bosses let all those young gung-ho traders take far too many risks and now everyone is paying the price.
• But the answer is simple, in his view. The entire industry needs to overhaul its thinking and, believe it or not, perhaps even accept greater regulation. (the horror! Ken! Free markets solve everything!! Darn is everyone turning socialistic in this country!)
• He is upset that the investment bank Bear Stearns ran aground. He is annoyed at the big-name chief executives who took too much risk and then watched as billions of dollars of value vanished from balance sheets. And he is particularly galled with regulators in Washington who have overseen what he calls "the great depression on Wall Street."
• A problem, he says, is youth and inexperience - and that's coming from a former child prodigy. "Walk across any of the trading floors - they are full of 29-year-old kids," he said. "The capital markets of America are controlled by a bunch of right-out-of-business-school young guys who haven't really seen that much. You have a real lack of wisdom." (Bravo. Bravo. Bravo.)
• The problem is compounded further by weak government oversight, he said. "The unwillingness of the Federal Reserve and the SEC to require working capital" limits, he said, only exacerbates the risk-taking environment because the banks are playing the equivalent of no-limit poker. (Bravo. Bravo. Bravo.)
  

And to finish off on a fun note, I love Thin Mints but this is ridiculous! Impressive feat!

Bookkeeping: Adding to Intuitive Surgical (ISRG)

This is purely a technical trade but I am adding to Intuitive Surgical (ISRG) north of $300, as the stock has broken back above the 50 day moving average, after building a month long base. Volume is also picking up. That's about as smart as I get on the technical analysis side. I'll completely reverse this trade *if* the stock breaks back below the 50 day moving average - this is a nice low risk entry point to me. If this is the beginning of a move, we are good. If it is not, we take a small loss (about 2%) and hunker back down awaiting this puppy to get jiggy with it. In this market, at this stage of mania, I am keeping a tight leash on new buys... if they start misbehaving they go away quickly.

This moves Intuitive up from 1.2% of portfolio to 2.0%, and if we see more strength, I'll add more from here. Purchases made around $302; I'll exit this buy if it falls back to $295 or so...

[Apr 18: 2 New Positions - Intuitive Surgical and Morgan Stanley]

Long Intuitive Surgical in fund and personal account

Brazil is Sexy...

... and not just for obvious reasons (don't you dare click to enlarge photo). While I've been a long time Brazilian bull, we are starting to see it more and more in the popular press. Which is beginning to get me nervous. The more something turns into a consensus, the more crowded a trade becomes (in the near term). The long term does not change of course...

There are a limited amount of ways to play Brazil for American investors. We have energy giant Petrobras (PBR), mining giant Vale [formerly CVRD] (RIO), 2 major steel makers Gerdau (GGB) and Companhia Siderugica (SID), 2 major banks Bradesco (BBD) and Banco Itau (ITU) (no subprime I promise), homebuilder Gafisa (GFA), and a few regional consumer related names, along with an airline. Or iShares Brazil (EWZ) if you want the country ETF (but its top heavy in PBR and RIO)

Now compare that to China where we are flooded with a hundred companies of all shapes, sizes, and hype. With that said, as I keep saying, Americans are very inward looking people with belief that if it does not happen "here", it does not matter. That's a quite arrogant/narcissistic attitude that is coming home to roost. And if said attitude continues it will consistently hurt us more and more, as many other parts of the world grow, evolve, and prosper. Much of it happening with our dollars, as our massive debt/consumption finances their upswing in lifestyles. [Jan 21: A Tour Through the Middle East] With eyes closed to it, it can only hurt more.

Here are two stories just in the past few days

Wall Street Journal: Brazil Joins Front Rank of New Economic Powers

• For much of the decade, slow-growing Brazil seemed out of its league lumped in with the dynamic emerging economies of Russia, India and China in the so-called BRIC group.
• But slowly and without great fanfare, Brazil's economy has turned a big corner. Already a global power in agriculture and natural resources, Brazil has added a key ingredient that had long eluded it: a currency with staying power. (we used to have one of those) In turn, that's helping unleash the greatest burst of prosperity the country has witnessed in three decades, attracting foreign investors by the score and providing a growth engine for a flagging global economy.
  
• Brazil has enough money lying around that Monday it announced it would follow other booming countries like China and Persian Gulf oil states in setting up a sovereign-wealth fund, worth between $10 billion and $20 billion, to invest its excess cash. (money lying around?... interesting concept - we don't believe in that here)
  
• Brazil's newfound stability has elevated millions of poor Brazilians into the middle class, making it the largest population bracket in a nation long known for having only haves and have-nots. (as opposed to some countries going in the opposite direction....)
  
• On April 30, another piece fell into place for Brazil when Wall Street ratings firm Standard & Poor's upgraded Brazil's debt to "investment grade" -- making Brazil the last of the BRIC nations to have its creditworthiness win that coveted seal of approval.
  
• The nation of 190 million inhabitants hasn't shed all its economic perils. Much of its economic surge is riding on soaring commodities prices, including agrarian products, oil and minerals; a reversal would be deeply felt. (very valid)
  
• But Mr. da Silva has proven himself an adept bridge builder who seems equally at home having barbecue with George Bush or drinking cafe cubano with Raul Castro. "Brazil doesn't really have any enemies," That's just fine with investors who see Brazil as a relatively safe haven, a resource-rich democracy that's growing steadily, if not spectacularly, in a quiet corner of the world.
  
• Brazil is the only one of the four big emerging economies without nuclear weapons.
  
• Brazil was awash in foreign capital, much of it directed toward brick-and-mortar projects.
  
• On the outskirts of Rio de Janeiro, 13,000 laborers are working overtime to build German industrial giant ThyssenKrupp AG's new $4.6 billion steel plant, the largest mill to be built in Brazil in 20 years. Mexican billionaire Ricardo Salinas recently made a whirlwind visit to historically impoverished, but now economically surging, Northeastern Brazil to launch a chain of banks aimed at low-income clients. Illiterate clients will be able to register accounts using their fingerprints. International oil companies, such as Statoil SA of Norway and Royal Dutch Shell PLC, are set to invest $25 billion in Brazil in the coming years, according to Brazil's industry association for foreign oil companies. Alcoa Inc. is putting $2 billion into hydroelectric power, mining and smelting projects throughout Brazil -- the company's most ambitious investment program anywhere.
  
• Brazil lacks the savings and investment rates of China and India. But Brazil has reached a more mature stage of development than China and India -- with a larger share of the population urbanized and higher per capita wealth -- so it's simply less likely to take giant leaps these days.
  
• Since 2005... The percentage of middle-class Brazilians has grown to 46% from 34%.

MSNMoney: Booming Brazil. The New China.

• If there is a single word to sum up the global rallies in steel, iron ore, gold, grains and energy over the past three years, it is Brazil. It's not an exaggeration to suggest investors should now look upon the former Portuguese colony as the new China -- a top dog among global economic powerhouses that smart investors ignore at their peril.
  
• Although the nation's key Bovespa Index is up 535% since 2003 -- almost nine times the return of our Standard & Poor's 500 Index ($INX) -- it does not appear to be overvalued. Brazil's big industrial companies are still cheap, mostly because their story is not yet fully believed. They are not getting the credit they deserve as fiscally clean giants in a country largely free of the extreme corruption, political disharmony and waste that has hampered peers in emerging markets.
  
• Most analysts date Brazil's turnaround to the presidential election of Luiz Inácio Lula da Silva (or as we call him 'Lula'!). Virtually from the moment he took office in 2003, Brazilian stocks threw off a long-term bear market and got their bull on. Yet Silva stunned the world by putting competent pragmatists in key positions as central bank chief and finance minister. (Wow pragmatists as opposed to people beholden to Wall Street and the top 0.5%? Interesting concept - it would be nice if we could go back to that sort of thing here)
  
• Silva was aided in his quest to grow Brazil into an export powerhouse by a decision by military dictators in the 1970s to commit the country to self-sufficiency in energy. At the time, it meant the widespread development of the nation's vast sugar cane crop as an efficient feedstock for ethanol. Most Brazilian cars and trucks now run on pure ethanol, a mix of ethanol and gasoline, or natural gas cheaply procured from neighboring Bolivia. (ok so a long term vision that runs longer than 1 election cycle? Thinking ahead 10, 15, 20 years? Hmm... interesting - and whom is the 3rd world country exactly?)
  
• There's much more to Brazil's agriculture than sugar cane, though, as its tropical climate allows for two growing seasons. The country has the world's largest amount of uncultivated arable land, and farmers, in league with Japanese and U.S. agribusiness leaders Cargill, Bunge (BG, news, msgs) and Monsanto (MON, news, msgs), are steadily moving into the western steppes to grow more soybeans, wheat and alfalfa, as well as graze the world's largest cattle herds to satisfy a growing world hunger for protein.
  
• And the mining industry has exploded under the nearly monopolistic direction of Vale (RIO, news, msgs). Vale's shares have risen almost 1,700% since Silva took office and his finance team started selling the government's share of the company to the public. The second-largest mining concern in the world, Vale produces iron ore, nickel, copper, bauxite and aluminum, and runs nine hydroelectric plants to supply the world with raw materials.
  
• Though Brazil has China beat with native sources of food and natural resources, its expensive currency and smaller population have stymied efforts to create much of a manufacturing sector. Brazilian industrial outfits such as steel maker Gerdau (GGB, news, msgs) have ventured overseas to buy and distribute high-grade metal plate, and Embraer (ERJ, news, msgs) has hawked commercial jets. But mainly due to high tariffs and bad luck, the only Brazilian goods you'll likely buy in the U.S. are cooking oil, carved wood and orange juice.
  
• To be sure, Brazil is not perfect. Around a third of Brazilians live in poverty, and the median income of households badly trails that of Mexico and Chile. Yet economic growth around 4.7% and a sharp drop in inflation (which had topped 100% in the 1990s) have spurred growth in a middle class that is avidly buying wireless phones and refrigerators, traveling and