The beatings will continue until morale improves!

So to answer the question from the previous post: yes, the recession is on purpose. The US Fed just admitted it: they want to create unemployment to improve the job market. They also want to cool the housing market, but their indicators are backward looking, not forward looking.  The Brazilian government has been running a surplus all year, and thus removing money from the economy, to a total sum of R$ 150 billion until the end of July. This cannot end well. The US government has been running a deficit, although not a big enough one to counter the effects of the rapid rise of interest rates. Links: The Fed to reset the U.S. housing market through a ‘difficult correction’—5 things to know about the plan The Rate Hikes Will…

Continue ReadingThe beatings will continue until morale improves!

Is the recession on purpose?

 See Bill Mitchell's blog post below. He argues (and well argued in my opinion) that the elite wants to inflict pain on the economy, regardless of the current situation. Brazil's inverted interest rate curve clearly indicates that the financial markets expect recession to come, that inflationary pressures are transitory, yet the Brazilian Central Bank will have to keep interest rates high to counteract the Fed's hawkishness, or risk currency devaluations and higher inflation from that. Brace yourselves, recession is on purpose, and its meant to make you poorer. Bill's blog post: Elites using monetary policy to deal with paranoid fears that power might shift towards workers From Bloomberg: ‘Inflation Fever’ Is Finally Breaking — But Central Banks Won’t Stop Hiking Rates

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Recession may be coming

The world is feeling the inflation created by covid and warmongering. US and European countries are sanctioning themselves, increasing energy, grain and other commodity prices. Central banks are foolishly raising interest rates globally to try to contain it (raising interest rates leads to more inflation). The US government has been cutting the fiscal deficit. So far $1.5 trillion. And they are proud of it. Recession will surely follow. Brazil's only chance to survive through this is with Lula's win, followed by removal of the useless expense ceiling.   This year, we’re on track to cut the federal deficit by over $1.5 trillion – the biggest decline in a single year ever. — The White House (@WhiteHouse) May 6, 2022

Continue ReadingRecession may be coming

Inverted interest rate yield curve

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.

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Brazilian federal tax income sets a record in July 2021

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…

Continue ReadingBrazilian federal tax income sets a record in July 2021

“Government debt hits x% of GDP…”. Ignore these “news” pieces, they mean nothing…

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

Continue Reading“Government debt hits x% of GDP…”. Ignore these “news” pieces, they mean nothing…

…and here comes stagflation! Thank you Guedes! Superjob there buddy!

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…

Continue Reading…and here comes stagflation! Thank you Guedes! Superjob there buddy!

Why interest rate cycles matter, a LOT!

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…

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Read more about the article Links of the Weakly News – November 9th+
Nothing to see here, the economy is fine...

Links of the Weakly News – November 9th+

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?…

Continue ReadingLinks of the Weakly News – November 9th+