Call it a triple-edged sword… or a dog and pony show with cats… or a rain of fire…

Or you can just call it plain old nonsensical. That’s what the past few days have been for Latin American markets. From the Mexican border to the tip of Cape Horn, Chile, markets have tumbled fiercely on the news that both Brazil and Argentina are injecting government into the private investment sector.

Brazil’s government wants its state-controled banks to buy stakes in private financial institutions. The announcement, made on Wednesday, did not include any names, but there are several well-known institutions that could be affected by this:

Banco Bradesco (BBD:NYSE)
Banco Itau Holding Financeira (ITU:NYSE)
Unibanco (UBB:NYSE)

Things may be a little worse in Argentina. President Cristina Fernandez de Kirchner announced that the government will take over the $30 billion private pension fund.

She said that Argentina must protect its retirees, and that the country’s constitution requires the president to provide pensions. Last year when the government allowed citizens to chose between privatized pensions and government pensions, only 20% of all people with pensions chose the government’s plan.

In response, markets plummeted.

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When the U.S. economy fell off a cliff, a bunch of investors fled to the “safety” of booming emerging markets, like China and Brazil.

Turned out to be a good bet for a while, until our credit crisis became a global disease… and even stellar markets had their corrections.

But now, on the slightest bump up in the dollar, some analysts are now questioning whether emerging markets is the best place for your cash. Some say that U.S. stocks are a better bet than foreign stocks.

What’s really going on is that other major currencies, like the euro and the British pound, are being hit by recession fears and the possibility of more bank write-downs.

The dollar hasn’t really risen that much on its own yet. We’re still seeing poor housing numbers and sky-high inflation. There have been bright spots in the U.S. economy, and I won’t deny that things are starting to look better, but a major shift back to holding only U.S. assets in your portfolio is a big mistake.

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Mention Brazilian supermodel and the name that immediately comes to mind is Gisele Bündchen.While Ms. Bündchen remains hopelessly out of our league, there is another supermodel far more accessible to us mere mortals. It’s Brazil’s stock exchange, the Bovespa (^BVSP).

Year-to-date, ^BVSP is up 56.5%. The 12-month gain for ^BVSP is 186.1%. And the five-year rise is 81.7%.

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