Brazil’s economy has been given a second chance. And so have prospective investors.

Brazil will use that second chance well – shouldn’t we?

Although there are a number of ways to play this promising “BRIC” (Brazil, Russia, India and China) market, including some excellent companies, the best way to capitalize on Brazil’s terrific prospects is through the iShares MSCI Brazil Index (NYSE: EWZ).

In this special in-depth report – in which you will benefit from my special emerging markets expertise – I will demonstrate just why you will want to by this exchange-traded fund (ETF) in increasing increments between now and the end of the year. The report is longer – and more detailed – than the typical Money Morning “Buy, Sell or Hold” report. But this feature has proven so popular, and the following so enthusiastic, that in the midst of this volatile and very-trying market we thought we should go out of our way to offer our loyal following something very special. This report is the result of our wish to show you our gratitude.

My Brazil Story

It was February 1994, and I was discussing Brazil with the chief operating officer of a second-tier Wall Street investment house – one that specialized in high yield and emerging markets bonds. I remember looking directly at him and saying: “I believe Brazil will have no option other than to default or devalue its currency – possibly both.”

My words caught him by surprise and he called the head of the investment-banking firm into our meeting. At that moment, this firm happened to have more than 50% of its trading book playing the “carry trade” in Brazil.  That is, they were borrowing in Japanese Yen at very low rates and were investing the proceeds in Brazil – at the time, and consistently since then, one of the highest-yielding currencies in the world. The trade has been a winner for more than 15 years whenever the markets are relatively stable.  A sudden forced unwinding of that trade would have been extremely damaging for that bank.

I had just successfully predicted the blow-ups of both Argentina (August 1994) and Mexico (December 1994) and managed to minimize any damage from such financially horrific events, thanks to the superb team I was a member of at Merrill Lynch & Co. Inc.’s (MER) Asset Management unit. The accuracy of my predictions had been a real surprise – even to me, I’ll admit. My estimate was correct within three weeks of the actual blow-up. Now, I was very concerned about Brazil succumbing to the “contagion” effect.

In fact, I was so concerned that I had used my January vacation to travel down to my native Argentina – to visit relatives but also to check on the situation with the Ministry of Economics, the central bank and the heads of the top three Argentine banks to gauge the possible future ramifications of the Argentine fiscal crisis and the “Tequila Effect”.

I also stopped by Brazil on my way back to the United States and conducted my personal “due diligence” in that market, too. I met with the top three banks and the top local brokers, some government officials, a former head of Brazil’s central banks and a local hedge fund.  The Brazilians were all convinced that – even though the country was under extreme financial pressure from the markets – it would resist the economic and financial pressures then sweeping the region, and wouldn’t be force to devalue is currency, known as the “Real.”

At the time, derivatives contracts on the Brazilian Real had the largest open interest of all the derivatives contacts traded on the Chicago Mercantile Exchange, evidencing the incredible fight over the value of the currency that was playing out in the marketplace.  In Brazil, a similar fight was taking place, with a huge number of local players buying protection against devaluation in the forward markets.

I did not believe them.  I thought that surely the private sector would flinch, taking their currency in droves out of the country and forcing the government to devalue.

But Brazil was hanging on. Who was selling the protection?  I found out: It was the government banks, defending the currency with all their firepower, knowing that they had green light from the government, who would recapitalize them if needed.  And the private sector did not panic.  Brazil held on.

Fortunately, on this part of the “Tequila Effect,” I was wrong and Brazil survived the contagion to actually thrive. I missed the first third of a zooming “gapping up” rally on the table (missing out on the profits that would have come with that near-vertical jump). But I learned a valuable lesson as I watched the first part of that rally.

I realized that Brazil had made the tough, gradual adjustments on the fiscal side and stuck to defending the stability of its financial system, evidencing a very strong resolve from the locals to stand behind their country. And I learned to recognize those patterns when they appeared again. As they have.

Suddenly, the motto on Brazil’s flag, “ordem e progresso” (order and progress) did not seem far-fetched, as it had been during the second half of the 20th century.