The interest rate curve for Tesouro Direto below is inverted, meaning the future rates are lower than near term rates. This is not a good sign, it usually means we are undergoing an inflationary period but expect lower rates int he future due to a financial crisis of some sort, hence the lower future rates. This makes sense from the latest news of Brazil's past quarter showing a technical recession.
So, good and bad news, let's look into it: Good news: an increase in tax income for the government usually signifies an increase in money circulation, which is probably good news for the GDP. It could be a one-off for a major government operation, which then would not mean its good news, it would be an outlier. Bad news: more money taxed away from the economy means the economy shrinks. If there is an increase in government spending above the amount taxed then we would see an increase. By itself its hard to understand the impact of higher tax income. It is also bad news if it is caused by inflation an no actual growth, which seems to be the case, at least partially. On a side note, if the…
The government's debt as a % of GDP means absolutely nothing. There is no correlation between the two, no cap on government debt issued in its own currency. It does not create "debt for our children to pay". Ignore any news article or economist who says otherwise. Dívida pública brasileira sobe para 90% do PIB e bate novo recorde
It doesn't look like it to me... Sinais por toda parte indicam que economia está decolando, diz Guedes
The financial media is now asking for higher interest rates in Brasil. They claim it is needed to hold back inflation. Its like no one understands how money really works. Well, the big money will win, and interest rates will go up. When that happens, usually the stock market goes down. So stockholders beware! On the plus side, the Real should go up in value against the US dollar. Everyone will be too broke to take advantage of that though... This is messy. With high unemployment, low GDP, devalued currency, high inflation, to increase interest rates is almost suicidal. It will hurt whatever was left of the economy, creating your typical stagflation. With Guedes in power, there won't be any countercyclical measures, there will be procyclical ones, meaning digging ourselves…
Summarized version for now, I'll try to enhance it more in the future: Increasing or high interest rate phase: Costs for corporate investments go up or are higher reducing their IRR, increasing payback periods, or just making them unprofitable a lot of corporate investments get shelved during a period of high interest rates Costs to buy house go up Higher interest rates = Higher monthly payments Higher revenue required to buy a house of same price Lower home affordability Less houses built, or lower priced houses built due to market conditions Lower demand drives down house prices Borrowing costs to invest in stock market go up Lower demand decreases stock prices Fixed income markets become more interesting than stock markets Less risk, guaranteed returns Stock prices go down Options pricing…
Brasil deve deixar ranking das 10 maiores economias do mundo That is something Guedes does not seem to think is a problem. He thinks its ok for the exchange rate to have dropped pretty much non-stop since Bolsonaro took over. I guess its ok if you are a banker and put all your bets on this happening, but for the rest of the population, including Bolsonaro supporters who love going to Miami, this is not ok. The dollar going up, on purpose, is what is causing the current inflation. There is currently no policy in place to revert this, so I am personally betting on continued deterioration of the Real. Can anyone tell me where are the magical investors that Guedes is waiting for to come and save the country?…
I collected several articles this week that exemplify the incorrect reasoning that is endemic in the Brazilian news when it comes to how the economy works and/or what it needs. This bad math/logic is what is killing the economy. The trick is to learn how it is killing the economy and bet timely against it to win... Governo tenta votar projeto que abre caminho para conta em dólar no Brasil Who is this for? The rich. If you read the article you notice that they think this was something important to pass now. I would think so too, they are destroying the currency, it is damn well important if you are rich to get your wealth out of the Real! The poor, on the other hand, well, they are just…
Hyper-Inflation. Scary stuff. Most 40+ people in Brazil know what that means, and what life is like in that scenario. How likely is it that it will return? How likely is it that it would have happened had the PT party stayed in power? How likely is it now that a right-wingish party is in power? All good questions. Here is an attempt at answering them: 1) Very likely. Brazil has a right-wing party but its populist, so it has a tendency to spend money to please the populace, while being dumb and believing that the government has a spending limit, and that spending generates inflation no-matter-what. So it is on a suicidal path by destroying supply, either through currency devaluations or demand suppression, all under the religious belief that…
