Friday, February 22, 2013

Brazil is doing great. Huh?

My case for being bearish EM is based on data points I am seeing for a variety of EM/growth-linked economic performances contrasted with their respective asset prices, especially Sovereign bonds yields, not spreads.

I’ll leave you with charts for Brazilian Formal Employment Creation, Foreign Investment Flows, Current Account (Exports have declined some 15-20bln, with stable Imports SO FAR). These were released today.

Brazilian inflation is running high even after the Government changed some tax rules to hammer the headline down a bit through the past couple of years. It’s not Argentine INDEC yet. Not close. But it’s tricky. 
The BACEN cut 500bp in rates and the economy is still sliding sideways, not bringing in any kind of fantastic numbers. No job growth. Much worse than the US.

So… check Mexican data out. Check Canadian data out. It is very tough to believe China is going to recover under this environment and tough to believe the US is any good after these fiscal budget cuts.
Or that South Korea will get back on their feet with this weak JPY.


A few funny charts.
Have a fantastic weekend.

PS: On the Foreign Investment front, if you exclude capital that went into Petrobras (PBR Equity) in late 2010... the chart would look uglier than it is right now. The company is spending a lot of cash, but crude production growth keeps disappointing. They can't raise gasoline/diesel prices because the government wants to keep inflation down, subsidizing consumers, screwing PBR's shareholders.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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