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Is It Worth It to the Host Country to Have a World Cup?

 

Washington, DC -- (ReleaseWire) -- 06/26/2014 -- Economies, businesses and even major planned sports events are not necessarily rational endeavors says Dawn Bennett, CEO and Founder of Bennett Group Financial Services. The World Cup generates more revenue for its association, FIFA, than any other sports tournament except the NFL Super Bowl, which reigns supreme. The business of the World Cup is not cheap for the host country to operate, and odds are, the financial benefits, won't last long, she says in her latest missive.

She fears the Brazilian economy will be facing economic trouble after the World Cup has left town. Some countries and cities have managed to profit from well-run major sporting events such as the World Cup and the Olympics, but that's far from the norm. Typically the economic benefits are zero to negative for the host country she asserts.

FIFA does not care about the cost of putting on the Cup for the Brazilian economy. Why should it? FIFA will never pay any of the costs. What a sweet deal! she says. For this iteration of the quadrennial extravaganza, FIFA is estimated to walk away with about $2 billion in profit says Bennett. Brazilian facilities for the games are rumored to be incomplete, and even the $318 million stadium that was built specifically for the Brazilian World Cup Finals, is rumored to be incomplete still into the event.

The place where they built it is in a city called Amazonian, which is about 4,000 kilometers from Rio. It can't be reached by road. So, this stadium is already a white elephant. The negative economic aftereffects are already present she says.

What will the tournament's impact be on Brazil's economy and stock market? Taking our cues from past host countries, the answer is profoundly negative according to Bennett.

The World Cup Brazil is in June and July, and then the Brazilian presidential election in October. Many Brazilians are not thinking about this, so next year, 2015, will likely be a memorable one for all the wrong reasons she says.

Brazil has a number of growing financial imbalances just like America. Brazil has similar issues as the U.S.; dwindling growth; high unemployment; above-target inflation; and tons of red tape. All of which are worsening Brazil's economy and economic performance, just like ours says Bennett.

What's really making things worse is that Brazil's inflation is getting bad. For the month of May it rose at a higher than expected rate of 0.46 percent, which makes Brazil's price index 6.37 percent in measuring inflation. That's high. In fact, economists have recently lowered Brazil's growth forecast for 2014 as the country is now expected to grow at a rate of only 1.62 percent. As a reminder, the United States is growing at a rate of negative 1 percent GDP she says.

They are facing the same serious economic issues as the U.S. because they have modeled their economy too close to ours. They are beginning to suffer the same economic ills as the U.S., which also means their financial markets will make a mockery out of logic, much like the U.S. It will happen says Bennett.

There is this place where the difference between what should happen and what is happening is perhaps the greatest it has ever been in our investment lifetime here in the United States. Since we have a more mature economy than Brazil, it's going to happen, asserts Bennett.

The U .S. and Brazil are heading into an overwhelming amount of issues beyond just the simple reversion to the mean laws in math: weak economic growth; sky-high valuations; goosed stock earnings; record-high margin debt; poor consumer confidence; lack of retail buying; high energy prices; continued central bank suppression of interest rates; and anything that goes against the dollar.

They are both trying to prop their currency up to make them look better. So, are these the type of truths that justify a stock market hitting new highs week after week for the past three years with barely a pullback of material proportion here in the United States? asks Bennett.

Louis Pasteur said, "Fortune favors the prepared mind." What he meant is having a prepared mind when others are losing theirs greatly increases odds for success.

With the current massive discrepancy between asset prices and fundamentals here in the United States, just like it is in the Brazilian markets, investors shouldn’t be vulnerable as in the correction of 2008 concludes Bennett

All market data references are sourced to Bloomberg terminal database.

About Bennett Group Financial Services LLC
Bennett Group Financial Services LLC, based in Washington, D.C., is a comprehensive financial services firm committed to providing opportunities to clients’ as they seek long-term financial success. Its customized programs are designed with the potential to help grow, lower overall risk and conserve client assets by delivering a high level of personalized service and skill. For more information, call 866-286-2268 or visit http://www.bennettgroupfinancial.com.

Securities offered through Western International Securities Inc. (WIS), member FINRA/SIPC. BGFS and WIS are separate and unaffiliated entities.

Dawn Bennett is CEO and Founder of Bennett Group Financial Services.

Dawn discusses educational topics and events in the financial news, along with her thoughts on the economy, financial markets, investments, and more with her live guests, who have included Rock Legend Ted Nugent, as well as Steve Forbes and Grover Norquist. Listeners can call 855-884-DAWN as well as take podcasts on the road and forums for interaction. The show is a great complement to Dawn’s monthly investing seminars that take place at Tysons Corner in McLean, VA, where she discusses investing.

She can be reached on Twitter @DawnBennettFMB or on Facebook Financial Myth Busting with Dawn Bennett or dbennett@bennettgroupfinancial.com