Connect with us


In Brazil, Be Careful What You Wish For





Brazil is suffering from a classic case of getting too much of what it’s always wanted.

For generations, other than the perennial complaint of the ruling elite, there were two things every Brazilian lamented over.  Those two things ruining their lives in paradise were high inflation and the world’s highest interest rates, easily over 20 percent for decades.

If Brazil was a “serious country” (Brazilians tend to believe that their country is more or less a paradox; one part anointed by God,  one part pirate ship of fools) governed by democratic minded leaders, it would have low inflation and low interest rates. With that, Brazilians could get credit. Like they do in the U.S. They could buy houses. They could buy cars. They could get store credit cars and do what Brazilians love as much as us Americans, shopping. Brazilians, in their on again off again inferiority complex, would be as serious and as savvy as the Americans they tend to envy. Just ask commentator Diogo Mainardi of Veja magazine. The man is not happy unless he is bashing Brazil or Brazilians and praising the wonders and the genius of American politics and society.

Politics aside, Brazil now has all of those economic things it always wanted: fairly predictable interest rates (with the one exception of last year), and cheaper credit.  It’s not as cheap as it is in the U.S. or Europe, but by Brazilian standards, it has never been cheaper.

Yet, despite this missing ingredient all Brazilians believed they had to find, the economy is doing worse than the U.S.

Third quarter growth was under 1 percent.

Interest rates are at record lows, just 7.25 percent.  Core inflation is around 5 percent currently. Real interest rates, therefore, are under three percent. Never have Brazilian banks and corporates been able to borrow at such a cheap rate.

Cheaper credit, higher incomes have Brazilian consumers spending more than ever. Low interest rates have not been able to help this economy, now seen growing under 1 percent this year.

Of course, this is not what consumers pay in interest.  They pay close to double that. However, for housing, interest rates are collapsing to single digits. That’s never ever been the case in Brazil. Home ownership is on the rise.

In 2008, for example, Brazil had 57.6 million permanently owned homes, 1.8 million more than in 2007, according to the Brazilian Institute of Geography and Statistics, or IBGE. The home ownership rate grew from 74 percent in 2007 to 74.4 percent in 2008; and paid-off homes increased from 69.9 percent to 70.1 percent in the same time period.

The populist My Home, My Life– or in Portguês: Minha Casa, Minha Vida — a low cost housing program has brought in an addition one million new home owners to the mix.

Unemployment is at a historic low, at just under 5.5 percent.

Incomes are rising, especially among the poorest of the lot, most of them living in the northeast.

The Brazilian Institute of Applied Economic Research says the poorest 10 percent of Brazilians saw their per capita income go up 91 percent between 2001 and 2011. The richest 10 percent saw income rise by around 17 percent. Overall, 21.8 million Brazilians rose out of poverty during the period, leaving 10 percent of the country’s 192 million people living on less than $5 a day.

What’s happening in Brazil?

Companies are not investing. Gross fixed capital formation had a decrease of 2 percent in the third quarter. These very negative fixed investment results all pointed to a lower-for-longer interest rate strategy in Brazil going forward. “We believe that the GDP release (last week) significantly alters the situation in Brazil and we are now considering a new leg of monetary easing,” said Barclays Capital economist Marcelo Solomon.  He expects interest rates to fall to 6.25 percent in the first quarter of 2013, through two cuts of 50 basis points. Brazil started out 2011 with interest rates at 11.25 percent.

Solomon said that the path of economic activity will be weaker than the base case scenario being presented by the Central Bank of Brazil.

Finance Minister Guido Mantega last week during a press call with reporters said the fourth quarter would be stronger, as stimulus is taking longer than expected to kick in. However, China has been improving in the third, which is good for Brazil because it is Brazil’s biggest market. Interest rates have been falling all year. Stimulus has been in place since the second quarter. And yet, the third quarter growth was just 0.6 percent over the second. Mantegna call and the Central Bank’s forecasts have been off all year.

Moreover, the inflation outlook remains very positive, as an accommodation of wholesale inflation is expected to lower consumer price pressures in the coming months in the BCB’s scenario. So, there are unlikely to be constraints to a resumption of rates cuts from the inflation side. Critical to the view that rates are going even lower is the fact that industrial production will not maintain the strong performance observed in October.

The manufacturing industry grew 1.5 percent against the second quarter of 2012. The manufacturing industry is the one that suffers the most with the world crisis, which restricts markets. But Brazil, with the measures that have been taken, managed to post good results.

Solomon doesn’t think that will continue into the fourth.  “Our preliminary forecasts are pointing to a negative print in November, which to us will be an important release to trigger further policy loosening,” he said.

Any further stimulus from monetary policy like interest rates could end up feeding inflation with little positive impact on growth. Companies will be back to where they were in 2011, struggling to calculate inflation, which means they don’t know what to price their goods and services at. If they misprice and inflation is higher than they forecast, that squeezes their profit margins. And, if interest rates move out of the Central Bank’s tolerance band — say over 7 percent — interest rates will move higher and choke Brazilian equities, already struggling (with the exception of consumer focused stocks).

The Brazilian economy has failed to gain traction from 525bp of rate cuts, a dream come true for Brazilian economic pundits.

Tony Volpon, a managing director at Nomura Securities in New York, and a Brazilian, said he thinks the main problem in Brazil is what he calls a  “plugged up” transmission channel in supply and demand. It’s not a lack of aggregate demand stimulus, which is now coming from all policy instruments — monetary, fiscal, credit and forex.  The Brazilian real, once strong, is now weak at around 2.1 to the dollar.  It’s been that way for months, and yet…

“We see the low interest rate thesis as really a statement to the effect that enough has been done from a monetary policy perspective, and now — unfortunately from a political point of view — we just have to be patient and wait for the transmission channels to clear up so that nominal demand can materialize into a combination of greater output and, unfortunately, inflation,” Volpon said.

“Better transmission” should occur in 2013.

If the Central Bank does rush into more rate cuts early next year, where growth will likely still not be impressive, it will just add to the mess it will ultimately have to clean up later on in the year, said Volpon.

Given political realities in favor of Western style low rates that possibility of rate cuts again next year cannot be rules out.

When it comes to cheap money, Brazil wants to be American. They want to be European.

But these are two different worlds. They shouldn’t be allowed to collide.

“The market could be right in pricing in a positive probability of rate cuts at the end of the first quarter or second, though we are not ready to forecast this just yet,” Volpon wrote in a note to clients on Thursday.  “Unless one believes that Brazil has joined the ranks of deflation-prone countries, we recommend investors think twice before positioning for this (low rate) situation to last.”

Continue Reading


Breaking News : Oil tanker explodes in Lagos .



A tanker explosion has occurred at Toyota bus-stop inwards Mile 2, along Oshodi-Apapa expressway.

The tanker was fully loaded with fuel at the time it exploded.

Oil tanker explodes in Lagos (photos/video)

Fire service arrived at the scene to put out the fire.

The Federal Fire Service giving an update on Twitter moments later, the Federal Fire Service said, “Update: The tanker fire situation at Toyota Bus stop, along Oshodi Apapa Expressway, Lagos State has been brought under control.”


Oil tanker explodes in Lagos (photos/video)

Continue Reading


Lagos state government shuts down all schools over #EndSARS protests



The Lagos State Government has ordered the closure of public and private schools in the state indefinitely.
This was announced in a press statement by the state’s Head of Public Affairs, Ministry of Education, Kayode Abayomi, on Monday.
The statement was titled, ‘Lagos directs students to stay at home’.
It quoted the Commissioner for Education, Mrs. Folasade Adefisayo, as saying that the schools were shut down over “tension generated by the #EndSARS protests.”
The statement read in part, “The Lagos State Government has directed all pupils/students in public and private schools to stay at home following the tension generated by the anti-SARS protests.
“A new date of resumption for all classes will be announced as soon as possible.”
Adefisayo added that “the safety of the pupils/students, parents and all staff working in schools is paramount at this critical period”.
She however advised parents to “keep an eye on their wards and not allow them to be used as willing tools in the hands of those who might want to hijack the protests to unleash mayhem on the society”.
The Commissioner also encouraged schools to “utilize other means of distance teaching and learning i.e radio, television and online media as they have been doing during and post the recent COVID-19 lockdown”.

Continue Reading


Siberian Husky Awaits Trial For Allegedly Murdering Neighbor Cat



A Siberian Husky in Denver was accused of killing a neighbor’s cat and now sits in an animal shelter awaiting a trial.

Zuma, the 12-year-old dog who lives with Kevin and Valerie Kickham, reportedly wandered over to a neighbor’s yard in Central Park early August and took the life of a seven-year-old Tabby cat, according to FOX 31 News.

“It was only this one moment in time that I lost track of Zuma and something did occur,” Kevin confessed to the outlet with Valerie by his side.

Denver Animal Protection eventually picked Zuma up and has held him in their shelter since the alleged incident.

While Kevin and Valerie “feel bad” about the loss of the cat, they are very concerned for Zuma, whom they have sheltered since he was eight weeks old and call “son.”

“He’s very much our child,” stated Valerie.

“I remember him taking part of his first Thanksgiving turkey,” Kevin recalled fondly. “We fed him turkey in the bowl and next thing you know he actually jumped up and grabbed a piece of turkey for himself.”

A spokesperson for the Denver Animal Protection told the outlet that a judge may exonerate Zuma. If found guilty, however, Zuma could be put to sleep or relocated “somewhere outside the city.”

“It’s not a scenario that’s ideal,” explained Kevin.

While they await the trial date set for mid-November, the Kickhams are allowed weekly visits to the shelter.

“Both of our last visits he wasn’t excited,” Kevin told the news source. “It’s been very hard.”

With the life expectancy of a Siberian Husky ranging from 12 to 15 years, the couple are fearful they may not have much more time together with Zuma.

“We know that it’s not going to be much longer,” Kevin added. “We’ve cherished every moment with him.”

The outlet said they have reached out to the family of the feline victim, but there has been no response.

Continue Reading


Copyright © 2018, Pink Entertainment

WP Facebook Auto Publish Powered By :