Guedes: “the economy is lifting off!”. Is it?
It doesn't look like it to me... Sinais por toda parte indicam que economia está decolando, diz Guedes
…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…
Why Brazilians are so poor today and cannot afford to go to Disney World
It is very simple, really: Because the rich and powerful are back in power. The rich and powerful do not like Reais, they stash their money and profits away on tax havens. Let's say you are rich and powerful, your money is all hidden away in the Cayman Islands, and now you run Brazil again. What would you do? Well, it makes sense to devalue the Real as much as possible. This makes you much richer in Reals, and allows you to buy anything you want, including the dumb competitors who forgot to stash their money somewhere else. Also, if you are one of the smart rich folks, you don't dabble in the internal Brazilian economy, that is too small, its better to be an exporter. As an exporter, once…
The Evil Plan is doing just fine…
Guedes Plan status update: Install a gringo-loving president that is absolutely bonkers, controversial, and vocal. This will keep the media and the opposition busy trying to prove each one of his false assertions are incorrect. As they say: it takes ten times more energy to prove something is stupid than it takes to say it in the first place. Tricks to get this fool elected: make him pretend he is religious, that he caters to the working class, that he will get rid of corruption (Other people's corruption, not ours!), etc. We can use that fool Moro for a bit to get elected then we get rid of him or he will arrest us too... Use all weapons of mass disinformation available to spread fake news and attack any opposition.…
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…
Watch out for reductions in the foreign reserves by the Government
While it is true that the Brazilian Government has only a very small amount of debt issues in dollars, states, cities and companies have a lot of dollar denominated debt. The dollar reserves, even unused, have more of a psychological effect, a certain assurance that the country in general would find dollars if it needed to. Venda de reservas está no cardápio para redução da dívida, mas decisão é do BC, diz Waldery Reducing the reserves is bad news, unnecessary, and quite frankly, very dumb. It shows the Central Bank does not understand how their own money works, and that the government can issue any amount of money it needs to pay its Real denominated debt. To ignore that is downright stupid, and very, very worrying. Just the fact that…
The Brazilian Central Bank and the Dollar swaps
This is an example of Big Government that no one (read: rich people) complains about. The Dollar/Real exchanges are done between banks in Brazil, and as such it is a small market. If the government didn't intervene with these swaps the exchange rate would be unpredictably insane. It is not really "losing" money, its just acting as a market maker for future Dollar purchases. In terms of the values on the date the swap was created, the Central Bank has the same amount of money it started with, the "loss" is calculated because the Dollar changed value as time passed. BC tem ganho de R$ 17,733 bi com swaps cambiais nas duas primeiras semanas de novembro Sometimes someone will complain that the Government is manipulating the exchange rates, but that…
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?…
Links of the Weakly News
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…