Almost all do-it-yourself investors who are reading about emerging markets would be aware of BRIC acronym. BRIC stands for Brazil, Russia, India, and China. This BRIC label clubs four distinct emerging markets into a single entity. Based on this labeling, there are many different mutual funds, closed-end funds, and ETFs. What is ironical is there is no similarity except that they are supposed to be the new growing economies. Each of these countries have different governance structure, different governance policies, different types of economies, different strengths, different financial markets, different values, etc., Even with these differences they are clubbed together and viewed as single entity for investing in emerging markets. This is again one of the follies of Wall Street investment firms (think GS!). To top it off GS and other investment firms seems to have more lenient bent towards China’s market among the BRICs. Is this because these firms get more business in China? I am not sure if there is an open answer to this one. But clubbing all these countries under BRIC acronym does not make sense to me.Russia and China seem to have similar ambitions of having a dominant say in world affair, be militarily or economically. However, both seem to be following different paths to reach there. Russia wants to go military way using its natural resources (particularly oil), with scant regards for well being of its population. How about Russian democracy? We all know its democratic governance (pun intended)! Without oil, its economy seems to flatter. China seems to be attempting the path of economic leverage to have its dominating standing in world affairs. It is happy engineering numbers for its advantage. Democracy in China is non-existence. Ironically, we in US want to establish democracy in Arab countries, but happily gloss over at China’s democratic record. China’s export oriented manufacturing economy is quite different than Russia’s oil economy. China’s cheap exports contribute one third to its $4T GDP, while Russia’s exports contribute to one fourth to its $2T GDP. Can Russia and China be clubbed? Are their financial markets open enough for investors?

On the other hand, Brazil and India does not seem to aspire for dominance in world affairs. Both of these countries are perhaps only looking for recognition and say in world affairs. Brazil economy seems to be driven by natural resources, demographics, and internal consumption. Similarly, Indian economy is driven by its demographics and internal consumption. Brazil’s export contribution is less than 10% to its $2T GDP, while India’s export contributes less than 15% to its $1.2T GDP. Furthermore, Brazil and India follow a democratic governance which on many occasions slows down decision making, but provides better transparency to some extent (relative to Russia and China). Which one would you choose; uncertainty of bad or good in China/Russia and knowing how to manage risk; or knowing bad habits of Brazil/India and entering with risk management?

As you can see, there are fundamentally significant differences in BRIC nations. According to me there is no way one can club these countries together. This is once again a delusional concept purported by financial firms to sell their fund-based products. This BRIC label does not have any fundamental basis other than emerging markets. There are thousands of companies in all four economies, and clubbing all together to preparing a representative fund of few tens, or few hundreds does not make sense to me. Also, the idea that one can capture and hedge by investing in BRIC based funds is something that I cannot understand.

Investors interested in emerging markets should be: (a) looking at countries on individual basis; (b) using ETF based investment vehicles; and (c) maintaining allocation according to risk appetite. On a personal front, I am interested in Indian markets for its sustainability and hence use wisdom tree’s EPI as an investment vehicle. In addition, my maximum target allocation for emerging markets is 8% or less.

The declaration of first quarter earnings is over. Like everybody else I was interested in updates from our banks. I was expecting another round huge loses and write downs, and downsizing. Fortunately or unfortunately, depending upon whether you believe the results, that was not the case. Most of the major banks showed profitability. I have reserved this argument for later. I was intrigued by the comments coming out of the banking CEOs. The CEOs of all major banks, viz., Bank of America, Citigroup, JP Morgan, Goldman Sachs, Well Fargo, BB&T (and may be more) have criticized governments heavy handedness and continued interference in the way these esteemed folks run their banks. This criticism was directed particularly at TARP program in which these banks took money from.

When government instituted the TARP program, these same bank CEOs were happy to take liquid capital to shore up their balance sheet. These CEOs were happy to take practically zero interest money from government. At that point in time, when panic set in (if we can call it?):

• they could not make realistic projection to figure out what could happen;
• they could not understand what is the state of their on balance sheet;
• they could not understand that whether they really needed TARP money;
• they could not figure out that there is no free lunch; and
• they could not figure out that any large investors will need something in return (even if that investor is a government and not opportunistic private shark)?

What do you do with those millions that you get paid for, for indecisiveness? At that point in time, not a single CEO came out to proclaim they do not need TARP funding. Their house is in proper order. They kept quiet (were asked to keep quiet?).

Now when the largest investor (in this case government) is tightening screws, asking for accountability, and gunning for their heads, they are feeling uncomfortable. They are feeling this is way too much interference. In addition, many financial media pundits have claimed this will result in politicizing the lending from banks to common people. They cite Freddie and Fannie. Weren’t these banks lending freely until 2007, before the government came in with free money for you guys?

Banking CEOs now are coming out saying they want to return TARP money. Well, if you didn’t need it at first place, where is that money now? You should be able to give them back immediately? Why do you have to wait for government? Why do you need to go raise equity funding or capital issues in the private markets?

If these CEOs believe their house is in order, and they do not foresee any capital liquidity issue in near future, why they are not just returning TARP money back?

I am not a fan of government running our private corporations. It continuously runs our national budget in red, so they definitely do not have credentials to run profit center enterprises. They should limit their job to policy making and regulatory process. However, in this particular case, I would like to think government’s TARP funding like a shark investor. This shark gave these banking CEOs huge amount of liquid capital when they wanted. So what’s wrong in government asking for accountability (albeit the execution can be question, but keeping that aside).

Somebody needs to ask questions to these CEOs and hold them accountable. They should not be allowed to keep changing their colors as per economic season. There ain’t any fall season’s in economy or banking operations. This is not adapting. This is camouflaging.