Quick Overview Print Version

www.brazilinsight.net Page 1 of 10 BRAZIL INSIGHT Investor’s Business Map www.brazilinsight.net Washington, D.C. Quick Overview: Reevaluate Principles, Demographic, and Strategic Value to Keep your Wealth in the Future 1. Questioning Conventional Wisdom! Don’t Follow the Herd, Be the Shepherd… Literally 2. Is There a—Bad to the U.S.—Trend Happening Here? 3. How to Mitigate This Trend 4. We’ll Find Their Main Goal is One Very Familiar 5. Manager With Sufficient Flexibility and Foresight in an Difficult Environment 6. True or False? 7. Let’s Cut to The Chase. Next Catalysts and The Plan 8. Conclusion: If the New Normal Doesn’t Come Instinctively, I Don’t Know if I Can Explain… Peterson Institute for International Economics, 2008 a“Welcome to the Trillion Dollar Club: Brazil”a “Americans have consistently earned higher rates of return on their investments abroad than foreigners have earned on their investments here” — Christina D. Romer 1) Questioning Conventional Wisdom! After moving back to Brazil—the place I was born and raised—for a few months to finish my research, meeting friends, politicians, professors, army personnel, environment leaders, businesspeople, as well as making some new friends; I just came to a gloomy conclusion that most Americans just do not quite understand how to better balance the huge disparity between our capabilities and many of—and wrong—misconceptions that exist between the U.S. and those in Brazil. Brazilians are not doing much better either. There is a total mind-set misalignment. Americans are not playing the cards well, undervaluing, and missing great partnerships. Brazilian market-place needs Americans. After listening, watching, reading, and trying to make sense of what the Brazilian ‘market noise’ was trying to tell me or whoever wants to listen—as El- Erian would described it, politicians & governors are more focused in shaping and reforming its legal rules to accommodate global economic realities than social reforms. Brazil is too big and Brazilians are too poor and too few to manage Brazil by themselves. These reforms and new leaders will set in-motion a huge influx of foreign capital, Brazilian MNCs overseas profits, immigrants, and a new set of political, social and economic order, as well as transparency, security, and trust. Some of these reforms are based in our U.S. systems—‘o jeitinho americano’ as the called it—but more regulated. As a matter of fact, some are even spelled in English. “It is not the strongest of the species that survive, nor the most intelligent, but the ones most responsive to change” — Charles Darwin 2) Is there a—bad—Trend Happening Here? My research in Brasil was on Real Estate and Port’s infrastructures. Real Estate is my background and ports are part of the Brazilian culture. We might be six degrees of separation from Kevin Bacon in the U.S.—but the Brazilian economy is three degrees of separation to its ports and the world. During my research I came to a conundrum that I find very disturbing; Dollar Imported Inflation. Does anybody really want—or see the need—to buy dollars as an investment or as a reserve currency anymore? Most Brazilians economists don’t think so but, Brazil still doing it? Why? Corruption? Bad habits; hard to break? Who do you think is losing more with a weak dollar: the poor, the “BRIMCK’s” nations, or the rich, Uncle Sam? Can the dollar because of being too dependent on foreigners, too many maturing bonds, currency’s unpegging, link to poor underwriting, too much printing, leveraging, and debt, many financial—schemes—instruments, Zimbabwe using it as their currency, and other weaknesses become the ‘sub-prime’ of currency? English as Second Language: Document vulnerable for misspelling and some full capacity sentence structure.

www.brazilinsight.net Page 2 of 10 If that is the case, what would you do as an investor? What should the other nations do? Also, should these nations ‘pack’ all their bad assets in a ‘basket’ too and sell it? And sell it in—or dump on the Cayman Islands for—dollars? Not an easy question to answer, right? Well, let’s take a shot at it. I don’t need to remind you that our Federal Reserve, nor our Treasury and government spending are going to stop—nor that they should. Nor the world is going to stop trading goods in dollars until—of course—they starting running out of dollars. I also don’t need to remind you that our government will need to keep borrowing (foreigners bought four-fifths of the sovereign-bonds to finance the invasion of Iraq) and our government will need to borrow over $1.trillion dollars in 2010 to boost GDP another 1%+/- (keep in mind that, the whole world dollar’s reserve is about $6 trillion dollars), and we will always have some level of inflation. As you can see, any one of these factors alone cannot be good news for the dollar, but these in—any— combination will exacerbate the problem in and for America. But, but, but: Here is the real problem for the dollar, who is causing it, how they are causing it, and the disastrous affect it’ll have on you, and how to avoid it: i. Lack of Growth in The U.S. for Years to Come: Accordingly with Jeremy Grantham of GMO, who oversees more than $107 billion dollars; in his paper “The near certainties are gone,” financial series—P/E ratios, profit margins, sales growth, and dividend yields—has a cycle of seven years before reverting and that just ended. He sees—or he perceives—$20 trillion of dollars will evaporate in a massive deleveraging in the U.S. and it is going to take several years. Under low growth, low margins and profits, our fees and commissions in the U.S. can’t be justified. In addition, the jobs that we are creating—educational and health care—in one form or another are subsidized by the government… and it is not sustainable. To top that, these are not well compensated jobs. ii. Debt Monetization: Another bubble—artificial cure—in the making. Washington Post, Thursday, March 19, 2009; “Fed to pump an additional $1.2 trillion to buy government bonds and mortgage-related securities. The new purchases come with risk. They will balloon the value of the assets the Fed holds by about 50 percent, to more than $3 trillion.” That could make it tricky for the central bank to draw that money out of the system once the economy starts to recover. The Fed would probably find it difficult to sell such massive volumes of assets, and if it doesn't handle the task adeptly, the nation could face high inflation because too much money would be in circulation. The Fed said it will also increase its purchases of mortgage-backed securities by $750 billion, on top of $500 billion previously announced, and double, to $200 billion, its purchases of debt in housing-finance firms such as quasi-government institutions Fannie and Freddie or, as Alexander Green refer as, ‘Phoney and Fraudy’ warehouse of bad mortgages. iii. Allowing Banks to buy Their Own Assets Under PPIP: In short, it allows a bank to sell its toxic loans to U.S. Treasury and buy it back. Come on. Let’s be realistic about this public/private rubbish that they are trying to foul us with. Why would anyone ever buy something from themselves? To commit—or hide—some kind of fraud! iv. Double Deficit: To pay for the extra spending and buy made-goods, U.S. borrows from foreigners. Once we stop—or slowing—buying foreign made-goods, they won’t have the capital surpluses—in dollars—required to keep in every two weeks, lending us and financing our debt. Depending on the level of inflation on their nations, these nations won’t be able to lower their interest rates either, thus creating more pressure on the dollar. Oh! Let’s not forget the interest payments on the debt in 2010 that the U.S. has to honor and—some very smart analysts think—we won’t have the money saved to pay for it. No money down? Haven’t we been down this road before? Remember our short term ‘ARMsD’ ‘Adjustable Rate of Mass Destruction’ and our housing bubble? Can we—Americans—afford to let this happen to our ‘debt market’; the most important institution to raise capital—finance—in the world? Wondering why the emerging economies are scare to death ‘of us’ and the dollar. v. Fiscal Policy; Over-Expanded: Balancing the budget by our Congress and White House; you might as well just forget about this one. With high unemployment, the ‘gig-economy’ (partime, free-lancers, project contracts) being about 13 percent of the working force (most can’t find fulltime work), Congress and White House will have no other choice but to increase spending—on top of $787 billion economic stimulus—and devalue the dollar. vi. U.S. Inflation (Processing): I am not talking about inflating the prices of homes, coffee, and burgers. High Inflation in the U.S. because of cheap money to speculate—not to lend. It can accelerate the—or be the trigger to—crash the dollar. Not possible! Remember what cheap money did to our housing/commercial Real Estate! Imagine what will happen to commodities and made-goods when the world and the U.S. start speculating on it. Bloomberg TV had a chart that predicts in 2011 interest rate futures has become one digit, showing that low interest rates are in Brazil to stay. No inflation expectations are driving interest rates up in Brazil, as they are in the U.S. If Bloomberg article becomes in some level reality, it will decimate American life standards and business purchasing power. Researchers and analysts won’t be able to sort it out or agree on strategies. American higher productivity growth—that kept inflation low, high volume of immigrants, and relatively rapid growth of income, used to be the world’s safe net for investors from all-over the world, but not anymore. vii. Recognize: We’re in for reduced consumption, higher interest rates, weakening currency, more government reregulation’s, deleveraging, i.e., sell it at a big loss, a lot more market failures… and a lot more taxes, period.

www.brazilinsight.net Page 3 of 10 “Financial intermediation, in its various forms, should never account for 41% of total corporate profits, as it did this decade in the U.S. That’s closer to Ponzi scheme than to value creation” — Ryan Avent Andrea Mitchell; The Chinese people know more than American citizens, so…they laughed in his face; “Chinese assets are very safe,” Secretary of Treasury Geithner said in response to a question after a speech at Peking University on Monday June 1st , 2009, where he studied Chinese as a student in the 1980s. Answer drew laughter. A scheme masquerading as an asset class. Stephen C. Kanitz; “knowing as the world's most authoritative credit rating agencies, Moody's Investors Service, S&P, and Fitch IBCA (which David Einhorn call them an abomination… oligopoly that should be abolished; and Paul A. Volcker, ‘they ought to be discredited’) during 1989 to 2009 rated Brazil—and quite a few other nations—a BB (Non Investment grade speculative) and BBB (Lower Medium) investment grade, unjustly, causing enormous suffering and strife to its people and government.” On the other hand, firms such as subprime—gangsters—lenders, AIG, Lehman Brothers, and many others U.S. firms got AAA ratings). “Brazil always had the ability to pay the Real Interest rate of its loans, plus an extra for amortization. It never deserved the rating of ‘questionable’ ability to pay and higher interest rates". Also, Brazil is a democratic nation and in the top ten global economies, perhaps top five by 2020, with a lot more structural underpinning than some ‘fly by night’ or overleveraged—to almost infinity—companies in the U.S. and Europe. Now a Brazilian Rating Company has used the argument against U.S. Treasuries. Since they ARE NOT INDEXED to inflation "there is a questionable doubt that foreign investors will receive the true value of their investment, due to future U.S. inflation". For 30 year treasuries, where a 4% inflation will erode principal by 50% at least. When asked, seventeen of 23 Chinese economists polled sad “U.S. treasuries are a great risk” for the China’s economy.” Stephen; “CC rating—not AAA rating—would have been more appropriate for U.S. treasuries. But that would have seemed adding insult onto injury” It is time Americans realize that Nominal Interest Rates is a form of false advertising, bad pricing model, since part of that interest is inflation, not interest. And inflation is not income by any means. That is one the reason's of the subprime crisis. Forcing poor people paying totally eroded principal 30 years down the line. Ludicrous. And it is time also to starting looking in all these financial schemes—moral hazardous—such as interest rate swaps, debt swaps, swap derivatives, credit spreads, CDOs, CDSs, ABSs. Peterson Institute of International Economics, “in most societies it is traditional to be somewhat sneaky in squeezing your shareholders or the government. You might set up a complicated transfer pricing scheme or perhaps you arrange for a family-owned firm to acquire assets on the cheap from the publicly traded corporation that you control. Or you could always arrange for the Kremlin to provide foreign exchange at a “special” price. In any decent society, these would set the red flags flying, but the banks have apparently lost all sense of moderation.” Some of what you see is a frantic effort to prevent a depression and avoid a comparable blunder of the 1930’s. Let’s hope Fed chairman Ben Bernanke succeeds, because he is running out of choices and his gung is empty. But, but, but, let’s not forget reality and Robert Samuelson; “This doesn't mean the economy won't get worse. It will. The housing glut endures. With unemployment rising, cautious consumers have curbed spending. Economies abroad are slowing, hurting U.S. exports. Banks and other financial institutions will suffer more losses. But these are all normal symptoms of recession. The Great Depression resulted from the perverse mix of a weak economy and government policies that magnified the weakness that were only partially neutralized by the New Deal… but these recent policies may prove blessedly misleading” “Get ready, poor countries subsidizing richer nations—lending them cheap money—is coming to an end” The emerging economies cannot afford to fund the U.S. deficit anymore. U.S. government and consumer spend more than its produce, imports more than they export, and most of the world cannot afford U.S. made goods. U.S. has the largest debt and run the highest deficits in the world. All their savings could not save the U.S. If you look the U.S. as a company and the dollar as its stock… we can, with no doubt say, this company is insolvent and its stock worthless! Remember Warren Buffet 2008 comment; “dollar will be worth-less” “If you are going to fight the world, I put my money on the world” — Frank Zappa Also, emerging economies cannot afford having most of their savings, which is in dollars, being devaluated deliberately. These nations won’t have no other choice, but to curtain, and eventually stop the purchase of long term U.S. bonds and U.S. treasuries. They will also—if they are not already—start developing multilateral exchanges through bilateral agreements and unilateral transfers of their own currencies, as well as issuing their- currency denominated bonds on the debt markets to fight their U.S. dollar saving’s devaluation and U.S. weaker dollar imported inflation, which they will have at home—if they don’t hedge it properly and soon.

www.brazilinsight.net Page 4 of 10 “I figured out that you don't have to know what you want to do with your life; you just have to take a few steps in one direction, and other opportunities will open up” — Anderson Cooper 3) The Fundamental Problem: How to be relevant in the—and have a—future. There is no way to bet—hedge—against this U.S. ‘tsunami’ unless there is a rising dollar, rising exports, and a rising U.S. economy—which all are unlikely to happen. The alternative, accordingly to Gourinchas and Rey, and a business model and approach I favor, is a ‘re-direct composition’ to mitigate these weaknesses in the U.S. Still wondering why you should—worry—be concern? A- (In the U.S.) Social issues we will be facing such as high unemployment, slow growth, and deterioration of the middle class—the pillar of our economy—in a larger scale that we are used to see. America is suffering from jobless; our recovery, when we get one, will be ‘more likely’ a wage-less recovery; and forget thinking that personal savings or average S&P indexes returns will save you and your retirement; Alan Greenspan and a U.S. dirty little secret, “Deficit spending is simply a scheme for the confiscation of wealth. . . In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. . . B- (Emerging Markets) Because of their ability of wakening this dinosaur called—inflation—through inefficiencies, protectionism, and higher borrowing costs—as they grow. These stupidities compound with protectionism can, and in many cases will, make these matters in the U.S. and U.S. exports much worse off. Wondering What you Should do and How? Here are the sequences of events, and your part on it: • Because the Federal Reserve and the Treasury in the U.S. can issue a lot more high-powered money than other countries, and thus effectively borrow interest-free on a not insubstantial scale. • It would make the dollar weaker and U.S. market less profit to foreigners—which in many level already is. It would force the ‘BRIMCK’s nations to invest and grow their own markets, which would help U.S. exports, job creation, and would better balance wages and the global economy that we live-in. • Because our U.S. business, investors, and citizens could borrow at lower rate than our foreign competitor (compared at their own credit markets), it would give us a cost advantage and would place us and our U.S. networks and Americans in high demand in their local markets. We would add more liquidity and competition to their markets, thus lowering their costs—lowering inflation—and creating more consumer demand and value up-the-chain for these consumers as well as U.S. business who wants to allocate there. • We would stop sending our money—buying things that loses value—and we would send our money as investors. How about that, helping their market grow and making some profits, for a change. • You would put an end to another dirty secret: You would choose your investments. Remember the KISS acronym; “Keep It Super Simple.” You wouldn’t have—or depend on—agents or brokers selling you ‘special emerging markets deals, ETFs, or stocks’ because you can purchase it locally and at a discount. These agents get added incentives and special bonuses to ‘move’ them, even when they might not be a good deal anymore. I am not advocating for you to ignore these ‘market movers’ either, but to listen and watch them and, incorporated what they are doing—whenever possible—in your overall picture and goals; not the other way around it. • We would cut the local middleman, traders, and agents. We would save an array of fees: transaction fees, management fees, hourly fees, deal completion fees, consulting fees, performance fees, overseas fees, special events fees, fees of very kind and stripe. You would obliterate another hullabaloo of the bubble years. • We being there at a lower financial cost would give you a competitive advantage in ‘Mid and Small Caps’ company’s acquisitions and land development. The main constraints in Brazil are due to high interest rates and lack of investments. Brazil is addressing this problem by reducing interest rates; the problem they are slow. It is critical for you to get to this market soon. The sooner you get there, the more up-trend-moment you will build. • As their nations and Brazil collected our dollars from our investments in their market, they would eventually recycle that back in our economy buying back our U.S. bonds and keeping our long term rates low, after all, our home mortgages loans are tied to these rates. It would also keep our dollar ‘king,’ as Larry Kudlow want and—would passionately—expect it and nothing less. • “By virtue of these steps, the U.S. would have much more macroeconomic policy running room than anyone else” — Gourinchas and Rey

www.brazilinsight.net Page 5 of 10 • By virtue of these steps, we would export capital, acquire influence, open markets, capture and build near/long term value, and redirect power and speculation from the ‘floors’ and ‘brokers’, thus minimizing and/or slowing inflation and, placing that where that belongs, which is in our investor and our customer’s favor. • “As financial globalization accelerated its pace, the U.S. transformed itself from a World Banker into a World Venture Capitalist” — Gourinchas and Rey “In this world we find no strangers, just younger versions of ourselves, who are prone to all the same sins and manias we once suffered, even as they teach us magnificent new ways to improve our lives and secure our tightly share future. We must neither fear nor dismiss them, but encourage their pursuit of happiness, and in doing so, we’ll find their main goal is one very familiar to us –the attainment of a middle-class existence” — Thomas P.M. Barnett 4) Let’ go Back to Brazil: Get Curious; It Deserves and Needs your Attention. The Next Boom: Bubble, nature of mankind; looking for big returns or; ‘Financial euphoria with several moral deficiencies’ as John Galbraith would call it, will be played in Emerging Markets and Commodities. Wondering why? Let’s analyze Brazil (the slowest mover of all the ‘BRIMCK’s nations), and see some of the demographics, facts, the opportunities, and the ‘baby steps’ for an astute, patient, and committed U.S. investor: • Brazil an Inflationary (curve) Country: 2008:5.9. Short-term interest rate, Brazil: 9.25, U.S.: 0.25 (Brazil is 37 times higher than the U.S.). Credit cards—financial death-wish in Brazil—interest rates, 150 to 170 percent a year and not counting all the fees. Mortgages, 12 percent a year. For a 30-year, $100,000 mortgage, the monthly payment in the U.S. around $537. In Brazil, around $1,029. Not surprisingly that you see people living in shantytowns. Many people delay buying a home until they can pay in cash. Alternatively, many buy smaller homes than they would like, or, among poorer Brazilians, simply build their own. It also means people are much more likely to have their money tied up in their home than, say, in the stock market. And forget about borrowing against that house. Home equity loans are virtually non-existent. • Leveraging: Brazil hasn’t got the same credit crunch and deleveraging issues because they didn’t leverage up in the first place—who can blame them. According to World Bank, outstanding credit in Brazil as of February 2008: 34.9% of gross domestic product. In the euro zone 116% in 2006; in the United States, it was 201 percent and in Japan it was 419 percent. Stephen S. Roach on Bloomberg; “Japanese consumer is bankrupt and American consumer is not a qualified borrow anymore,” the next consumption ‘boom’ will be played-out in developing countries, PERIOD! • ‘BRIMCK’s Per Capita Real Growth 1997-2007: Brazil 14% - Russia 81% - India 64% - Mexico 23% - China 130% - Korea 45%. • ‘BRIMCK’s Interest Rates: Brazil 9.25 – Russia 11.50 – India 4.75 - Mexico 5.25 – China 5.31 – Korea 3.0 (U.S. 0.25). • ‘BRIMCK’s Birth Rate: (births/1,000 population) Brazil 16.04 – Russia 11.03 – India 22.22 - Mexico 20.04 – China 13.71 – Korea 9.83 (U.S. 14.18). Aging of the population will be the greatest challenges nations and business will face. Particularly China, Korea, and the U.S. The U.S. because of all the entitlement’s promise made that won’t—not even by half of what it is promised—be fulfilled, high life standards that make health care extreme expensive, pension funds that financially troubled companies will not honor, as well as a less innovative, less technologic, and less mobile society, one of the hallmarks of American superiority. Brazil is much less innovative and technologic than the U.S., but, we will bring it from the U.S. Brazil has some issues with entitlement’s promises the government has made, but keep in mind, Brazil has a centralized health care and prescription model. It might not be as great as compared to what we have in the U.S., but everybody has it, and the government keeps the prices—costs—lower than otherwise. My mother and some of my friends use the government’s system every time they needed it, which is free; and they all look pretty healthy to me. • Commodities and Natural Resources Will Lead the Market: Being a global necessity as they are, and much more important play for the global economy, they are a bargain compared to some stocks and real estate’s prices in the U.S. and Europe and their currencies. Brazil will be the most important nation in exporting raw commodities and agricultural products by 2020. Brazil will be the main ‘supermarket’ of the world, PERIOD • Oil: Tony Hayward, BP’s chief executive “Brazil has found a North Sea.” Brazil will be free o imported oil in 2010 and natural gas in 2012. The oil and gas areas that I am targeting in Brazil, Petrobras can’t and won’t reverse the course of its investments. On the area of Santos, the barrel of oil below $40 dollars would probably slow the speed of development on those basins, but not stopping it.

www.brazilinsight.net Page 6 of 10 • Currency: Real (Brazilian currency). With $209.576b dollars in reserves (as of July 16 and excluding gold) and purchasing US treasuries—to deflate the Real—you tell me the odds of it devaluing or crashing. • Foreign Debt: Issuance of foreign currency-linked bonds has being discontinued since 2001. Brazilian authorities are raising money in Real (Brazilian currency), not in foreign currencies and by corrupt bankers and politicians like in the 1980’s, and mostly in local markets. Running monthly surpluses, having China as the largest importer of their commodities, exporting deep sea oil/gas exploration technology and know-hall, again, you tell me the odds of this default happening, if ever. • Public Finance: (Fiscal balance before interest payment on government debt). Definitely falling because of lower exporting demand and lower commodities prices; but every data and article that I looked at—even with all the bad news—the analysts forecast a surplus in 2009 of 1.6 to 2.8 of its GDP. • Stock Markets (Bovespa) and Capital Flow: This is another ‘quagmire’ that I find disturbing. It shows a lack of understand about inflation, where and how to play it, and its flip-side by some very smart people in the U.S. I hear that the developing markets are too unstable. You make sense of that. I see the U.S. through force liquidation and government intervention being the one unstable and dragging everybody else with, but, this is a topic for another research. They tell me or I read that; we lost more money in Brazil than U.S. They probably did because they did not do their homework correctly. The Brazilian stock market did go down about 70% compared to about 50% in the U.S., but, that doesn’t make the ‘Brazilian market’ unstable. Wondering why not? Well, look at these facts and you make the judgment yourself: A- Foreigner investors count to about 31 percent of Bovespa. B- Institutional investors count to another 30 percent. Because of the losses in the U.S., many of these investors had to liquidate their position in Brazil to bring back the money to cover for the losses here. C- As that happens some of the Brazilian investors (especially the ones that got ‘that’ phone call first), moved their money to government bonds (or to checking accounts), because it would be safer and interest rates for government bonds and checking accounts are sky-high. This is the flip-side of Brazil's high interest rates: If you have money to save, you can make a healthy return. One-year bonds can get you 11 percent or 12 percent, or, if you prefer, about 7 percent plus the rate of inflation. Because so many investors abandoned the Brazilian stock market when it tanked in the fall of 2008, the government sold 373 percent more bonds in November 2008 than it did in November 2007. And even the simplest of checking accounts gets you at least an 8 percent interest rate; play your cards right and you’ll get more. By the way, Nasdaq still down over 60% 9 years later; Japanese Nikkei is down over 80% 20 years later, S&P is down 20% 10 years later. Institute of International Finance; “As banks and investors haul money back home to shore up balance sheets; net capital flows to emerging markets will drop to just $165bn in 2009 from $929bn as recently as 2007. In the past, when the money stopped flowing in, it precipitated financial meltdowns; but for Brazil, it is a credit crunch” • Private Equity and Venture Capital: 28 funds as of 2006. $26.6 billion in total investments in 2008, that being 58% from foreign investors. Wondering if it is a misprinting? Well, let me repeat: 28 funds (you’ll find that many in a couple blocks in downtown Manhattan) and $26.6 billion dollars (pocket change for multinationals such as Exxon Mobil) in a nation of the size and importance as Brasil. Brazil can and should easily double this amount. • Health Care: Nationalized. If you want something better you purchase insurance yourself, and you negotiate the prices with the doctors. I found this platform with great potential, even with the flaws (for the poor and retirees). • Banks: Goldman Sacks; “Brazilian government involvement and supervision of the banks in the 90’s, even when some nations and business leaders didn’t see it as ‘fashionable’… had a positive impact on the Brazilians banks” Brazilian dirty secret: Brazilian newspaper Folha de São Paulo on Jan. 28th, 2009 reported that the average bank spread in December was the highest in five years: Banks paid an average 12.6 percent rate to borrow money, and lent it out for 43.2 percent. Roberto Troster, a Brazilian economist and partner at Integral-Trust. “Brazil it’s a much better world for people who have money, and a much worse world for people who owe or need money.” • Immigration; Another—key and very—Important Demographic: Brazilians are having some immigration issues and they are looking and studying America and Europe as point of references and for solutions. Unfortunately, the Europeans are struggling and America is moving down the wrong track. Accordingly to Harry Dent, Jr., it takes about $250 thousand to raise an average kid in the U.S. before he or she becomes productive, not counting government schooling and all the taxes’ deductions. On the other hand, immigrants come raised and ready to work. They also add a net of about $80 thousand more in taxes than they take in social costs. However, with the rise in unemployment, we can expect immigration to be restricted or curtained due to a backlash in public sentiment and Lou Dobbs TV immigration bashing, as well as ‘Minute Men’ patrolling the boarder, ‘catch and return’ by the Naturalization Service, and proposing regulations making illegal’s a felony. To top that, some of our best overseas’ college graduates in the U.S. (because of these difficulties, lack of visa, and a weakening dollar) will just move back. Lack of immigrants and a weaker currency place a tremendous burden on employers, making many businesses unprofitable to operate in the U.S. If it wasn’t for our illegal immigrants, the U.S. birth rate would fall below China, which makes it a—very—dangerous demographic trend to America.

www.brazilinsight.net Page 7 of 10 Rethink Offshore-Flexible Regional Bases: “Higher inflation, higher personal and corporate taxes, and a lower dollar point U.S. and global investors away from U.S. assets and toward more competitive economies less burdened by health and pension liabilities – those personified by higher savings rates and investment as a percentage of GDP. Need I say more than sell U.S. assets and buy assets in ones denominated in their local currencies; or if necessary hire a global asset manager with sufficient flexibility and proper foresight to thrive in an increasing difficult investment environment?” — William H. Gross 5) The Reasons Why you Can—and safely—Invest in Brazil: • The new laws in Brazil protects you as a foreigner investor and I am going to be there—crossing the T's and dotting the Is; after all, I am a citizen of both nations, and Brazil Insight is an U.S. firm. I can assist you in opening a company or be part of one in Brazil, getting you permanent visa, then you can do whatever you want. • I would create local opportunities as well as local advantages by working with local government. I have the strategy—the blueprint—and key players to execute it. You will have total understand and control. You wouldn’t worry of giving your money and paying somebody all these fees in the U.S. to gambling on the stock market, dubious investments, and investments prone to systematic failures. You would approve and own each project and investment as they become available. They all would be running independently, decentralized, diversified, and managed by you, PERIOD! • To address the most important aspect of investing: FORESEE RISK. Active management—not easy—but it works. • This type of fund—concept—is not in the market yet. We would be the leaders. We would draw the opportunities, hold (to shape), and then move (to sell) them. We would set a new—and higher—benchmark. We are going to be quick and stealthier. Most—of the unprepared business—will never know what hit them and how that happened. The Reasons Why you Should be Engaged in Developing and Running a Business in Brazil: • We in the U.S. have the best business models and the most tried and longest cycles of business experience • We own the business models. We have the most experienced business’s leaders and business’s experience • We have better understand of business cycles, seeing the risks, when and how to hedge, and when to exit Critical New Normal for Long Term Investors; Don’t be Fooled by ‘BS’: “Have your money, investments, products, and technology controlled and managed through you and not by imbedded and unnecessary personnel and brokers. They erode the competitive advantage—most of them are not creating value, protecting it properly, and giving you any competitive market advantage and cost benefit, PERIOD!” And the Advantages—and rewards—you Would Generate in the U.S.: • You would have the ability to build an effective investor strategy and introduce your networks in Brazil. • You would be able to borrow in the U.S. a lot cheaper than the competition in Brazil. When that reverses, we can hedge with foreign currency denominated debt (FCDD). By then Brazilian market would have more liquidity, more savings, and lower interested rates. We would have operations in Brazil and investors and customers from China as well as American. • You would be in a better position to understand and evaluate, as well as to price-in the Brazilian market in the short to long term positions. • You could build real assets and business (and not a bunch of paper from third parties) in a fund and/or a portfolio in Brazil and in some key areas and sectors, and then turning those in ETFs or take it public in the U.S. • You would have access to the ‘nooks and crannies’ of the world's second and/or third hottest global market place (behind China and/or India) for years to come. Brazil is a democracy, closer, and easier to navigate. You would have local friends, managers, and networks with extensive relationships that will keep you updated (see things that you would otherwise had miss or you didn’t know it) about market moves and new trends. You could see and anticipate trends before they become common knowledge in America. With these updates, you will be able to make a ‘boat load of money’ on the ‘Wall Street trade floors’ and/or on the futures or options ‘pit’ in the U.S., as well as with the ones primed for a fall (making money from the downside).

www.brazilinsight.net Page 8 of 10 “The two worst strategic mistakes to make are acting prematurely and letting an opportunity slip; to avoid this, the warrior treats each situation as if it were unique and never resorts to formulae, recipes, or other people's opinions” — Paulo Coelho 6) True or False: - When you buy a new condominium in Brazil, it doesn’t come with closets, kitchen cabinets, and appliances? - Dollar devaluation increases demand in countries with appreciated currencies? - Most of U.S. conventional indicators and experts do not capture the complexities of the Brazilian market? 7) Let’s Cut to The Chase. Next Catalysts To Grow Your Money: Here is the plan. An ‘Effective Investor’ in the U.S. in venture with ‘Institutional Investors’ and/or a ‘Private Equity’ can scale-up these opportunities below much faster and build it at a sustainable premium. There are many signals of an explosive growth—in a catch- up to the rest of the world style cycle— developing in Brazil now, and here is how you can be part of it: • Land and Real Estate: (Land is key here. Great margins). Through direct buying, rezoning rural land to urban, or ‘permutas’. Develop the design (being that commercial, industrial, or residential), get the permits and local variances (that way we build and develop political access at the local governments), and then sell or lease (with exclusive licensing agreements) these projects that have being approved for construction to companies relocating and/or expanding (being that Brazilians or offshore companies), and have the bid assigned to our group of builders (being that Brazilians and/or foreigners owned builders). • Infrastructures Around Ports: (Tax Advantage and Network). Accordingly to ‘WEF’ World Economic Forum’s latest report; “Brazilian ports are the most inefficient in South America, behind Venezuela and Bolivia. Also, Brazil lacks incentives of a free trade zones, such as Argentina and Uruguay; causing Brazil to lose business and importing and re-exporting of products; however, Brazilians still manage to make money. Imagine when they improve performance and some Governor creates a free trade zone. You can get involved here at a—huge—discount. Wondering how and why? I can show you how to turn a bonded-warehouse in Brazil into a mini-manufacturing plant, which can be sold or leased to a U.S., a Chinese, or any other foreign manufacturer; and the product re-distribution—nationally or overseas— can be managed or done through us or our network. This bonded warehouse—when products have not officially entered Brazilian territory—can double as light assembly plant for transportation and infrastructure equipment and parts; or multinationals, especially global high-tech companies that want to anchor their operations for the Brazilian and/or South America market. Your warehouse would allow manufacturing companies to import parts and partially assembled goods, finish-off with Brazilian-made pieces, then repatriate and/or distribute the finished products throughout the region and/or re-export at lower costs and without paying value-add-tax to the rest of the world. We do our home work right, and at the right state, I will show you how you will be able to supply the Brazilian market quicker than or/to the local competitors and been reimbursed for the ICM’s (Imposto de Circulação de Mercadorias), which is 19% down to 4% - a ‘cool’ 15% profit perfectly legal; and store it-up-to five years without paying taxes, again, perfectly legal. You tell me, where in America are you going to find opportunities like these? • Brazil Needs a Real Estate Land Development Franchise: (Tremendous source of information and connections at little cost to us). It’s not feasible and realist being everywhere at all times to find information’s and opportunities, especially in Brazil, because of its size. Everywhere you go in Brazil, it needs assistance, support, and they don’t have anywhere to go (beside their local banks, which is a joke because of the costs). The inefficiencies and lack of business’s sophistication in Brazil is something that ‘bugs the mind’ and would drive an American citizen crazy; but, on the hand, for an American investor, it is a world of opportunities. My idea is to create a real estate broker’s franchise. It is to organize and acquire information. Right now, these agents are too informal, fragmented, and lacking technologies; but they do know their locations, towns, and city authorities. These are very savvy people. Our franchise will give them a genuine chance to be more prepared, organized, competitive, and more easily and confident to make complex decisions. They will become ‘the only play in their towns’ as well as the talk of their towns. Some of them could be profitable right way. Brazilians that were born on the states closer to the coast usually don’t move (who can blame them; it is beautiful). It is amazing their knowledge of the street’s names and points of references; they don’t need GPS. Brazilians are a very casual society. You can sit on the ‘Bar do Toninho’ in Praia da Costa and Governor Hartung—who speaks English very well— is sitting right next to you having a ‘Skol geladinha’ (little-cold beer). Most of the Brazilian migration happens from in-land to the coast and from the north and northeast to the southeast region; and specially now with the oil discover. These people go to church and soccer games together. Everybody knows everybody; it is the very opposite of the U.S. I believe by given these local agents ‘points’ support; such as a data center, our franchisers ‘points’ can log-in for support, financing, information, or letting us know about their industry and city needs. We would control mismanagement and fraud.

www.brazilinsight.net Page 9 of 10 These agents ‘points’ would introduce—and sell—to their City Halls, business leaders, and industries our ideas and solutions for their infrastructure, land development, build design, and city aesthetics, as well as how to accommodate the new business, domestic migration, and professionals moving to those areas. Some of these city’s officials have no clue and understand of the growth they will be facing and what to do with this type of information; but they will realize—very quickly—when we show it to them. The area considered should start from the south of Bahia, through Espírito Santo, Rio de Janeiro, and end north of São Paulo around Santos. Why these areas? Because of the Brazilian North Sea; the biggest reserve of oil in Brazil! There will be billions; that’s right, billions of dollars invested in these coastal cities by Petrobras, CVRD, FERROUS, the federal government, to name a few. There will be also ‘loyalties’ that will be paid in the millions of dollars—for years to come—to these cities and states, which the oil, coal, iron-ore, and natural gas reserves fields are located. It will create, not that I need to remind you; a ‘self-reinforcing’ cycle of growth and wealth creation that Brazil has never seeing it before. I’ve Said it Before and I’ll Say it Again: (Pick a State). The American investor that gets it right will make a financial kill and will build a tremendous network and political edge. Brazil’s dirty secret; Governors control the state’s resources, political systems, and Congress’s agenda through ‘Bancada dos Governadores’ in Brasília. Senators and ‘Deputado Federal’ listen to Governors, not the President, not party bosses. The party systems affiliation doesn’t apply in Brazil like in the U.S. It is totally fragmented. To make it simple, think like this; the states are nations and they met in Brasilia; Capital of Brazil. The Governors listen and work with ‘Deputados Estaduais,’ ‘Vereadores,’ and Mayors. They make everything possible. City officials and locals follow their… let say, instructions, which you will be dealing and working for and/or with, got it? Forget the capital, think small and pick a state. This is the path; this is the game changer for an investor in Brazil, PERIOD! • Low and Middle Income Housing: (Tax Incentives and Growth). Using Bahria Town of Pakistan—with a Brazilian twist, of course—as the model. I believe this can be the ‘catalyst’ for the biggest wealth creation for its people and here are some of the reasons: "Minha Casa, Minha Vida"—which finance will be channeled directly—was created in March of 2009 and has a starting budget of R$34 millions Reais to 34 percent in subsidies. This is a program that is subsidized by the ‘UNIÃO’ (federal government) for construction and infrastructure (6%), ‘FGTS’ (Fundo de Garantia do Tempo de Serviço—like a 401K) for the down payment (5.5%), and ‘CEF’ (Caixa Econômica Federal) for mortgages up to thirty years for the first time (23.5%). The politicians in some states and municipalities are already talking in adding additional incentives and subsidies for the development on their land; some builders are trying to retrofit some of their projects to take advantage of these incentives. In addition, there is an election for president in 2010. Keep in mind that, every single worker in Brazil has a “FGTS” savings (it is mandatory) and the average in their savings is around R$53 thousand Reais, wish we could say the same of the U.S. worker. The idea behind these incentives—subsidies—is to build one million homes and/or condominiums for the working class. Create five hundred thousand jobs. As of 2009 (depending on the analyst or institution’s data that you look at) Brazil has a lack of seven to seventeen millions homes. The option of buying a home, build equity, renegotiate the existing loans is all based and being structured under the U.S. home ownership system. To give you an idea of the potential of this sector to grow; house mortgages in Brazil in 2007: about 197 thousand mortgages. If you are on the business of building, you must be in Brazil. They have work, finance, and customers waiting for you, period. • World Soccer Cup in 2014: (It’s a Bonus). Will do to Brazil—in a smaller scale—what Olympics’ did for China. • Transportation: (Business with Tremendous Growth and M&A). Keep in mind that, Brazil has a larger land-mass than the U.S. Brazil has a massive—and growing—commodities, agricultural, and ethanol production as well as growing population and immigrants. Brazilian roads are not as well paved and developed as in the U.S. and most Brazilians don’t own a cars… yet, which it puts lots of stress in their buses, trucks, tires, and parts; which brings us back to the bonded warehouse, got it? • Mid and Small Cap Companies: (Restructurings, Capital Advantage, and M&A). Local businessman and private companies (some well connected, knowledgeable, and with long term leases) working for Petrobras, CVRD, and state and local governments not able to grow their business. Wondering why? Well, hear the professor, and you will have your answer. Ilan Goldfajn, a professor of economics at ‘PUC’, the Pontifícia Universidade Católica in Rio de Janeiro and a former deputy governor of the Central Bank “There is a healthy spirit of entrepreneurship in Brazil — if you already have the money to invest. But starting a business from scratch, with bank loans, is scary and getting worse; by maxing out your credit cards — is even more far-fetched here. Why are interest rates so high? The simplest explanation is that the Selic is the federal government’s primary tool to control inflation, a boogeyman here since the devastating hyperinflation of the early 1990s. Larger businesses are able to access loans at 12 percent to 15 percent a year. Not great by American standards, but “a lot better than 40 percent. The government keeps interest rates high in part to crowd out other potential borrowers”. • Offshore Logistics and Business: (Mentors and Great Margins). Many offshore companies and business relocating and in need of all kind of support (from office spaces, warehouses, to management, and etc.)

www.brazilinsight.net Page 10 of 10 8) Conclusion: If the New Normal Doesn’t Come Instinctively I Don’t Know if I Can Explain it Anymore Instinctively… • Micromanaging is out. Companies will run in ‘real-time’ from the bottom up. Forget bureaucracies. • The most influential and successful companies in the world will be consensus builders. • Abundant and cheap natural resources and commodities are over. Emerging countries are going to need them. • Information’s are going to be cheap, easier to find, and plentiful. Rotations are going to be quicker and severe. • Devaluation of currencies for indebt nations. • Control. Very dangerous when you cannot see risks and failures from its sources and from the beginning aSomething Worth Creating; Insights Worth Exploring:a You would have more relevance—as well as more importance—more opportunities, and making more profits in America by expanding your networks in Brazil, than by expanding it here, period! 1. You tell me, where in America are you going to find chances, momentums, and advantages like these? 2. You tell me, where in America could you show-up, make such difference, and be part of such club? 3. Brazil lost a decade and half (80’s/first half of 90’s). Despite recent growth, they have lots of catch-up to do. 4. How are you going to hedge a weakening dollar and inflation in the U.S. without having to pay fees for it? About Brazil Insight: The concept is to create direct contact. Internal and influent inner-circle. Know and able to call and interact with the people that can make things happen; and to build opportunities and real value by owning the projects and managers. To assemble local opportunities by involving local leaders and mass-media. “I can Show you how to Invest Through a non-competitive Bidding in Brazil” Now more than ever, we need to be part by creating an enviroment in Brazil and assisting them, giving them our tools and, in the process building trust and business opportunities for all. My plan is to take Brazil Insight.net public or acquisition, i.e., the people that invested in Brazil Insight.net would have the opportunities to take their profits. In either way, by then, U.S. investors that had invested, would have a clear pathway into the Brazilian market place and direct interaction and understand of its people and systems. These changes and vision that I am offering to you won’t threaten your existing interests either in the U.S. or Brazil; it’s actually the opposite, what I am offering and presenting to you will enhance your opportunities in Brazil and your bottom line in the U.S. If we in the U.S. are not there investing and guiding, using our business knowledge, our networks, and our ingenuity, these bonds and opportunities will simply never be created and fostered in Brazil, and that I believe it is a huge waste financially, logistically, as well as for our foreign policy, security needs, and local influence and opportunities. I hope you found this quick overview interesting and informative. Your comments and observations are welcomed. Feel free to share it with friends and colleagues. If you have any question, need additional clarification, or would like to discuss and learn more about these issues and opportunities, please feel free to contact me. I should have the website running in August. Good luck with your investing, Angelo Balbi Washington, D.C. 202 239.1799 angelobalbi@brazilinsight.net www.brazilinsight.net Insightful / Independent / Innovator Washington, D.C. – 06/20/2009

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