When I came living in Brazil in 2003 the first big potential I notice was the country's ability to be self-sustaining.
Brazil has plenty of food (it's the second biggest food exporting country in the world), is self-sufficient in petrol, has 80% of it's electricity coming from renewable hydro-plants, has iron ores and exports steel, makes its own cars, is the biggest meat exporter in the world, exports clothes and shoes,...
It mainly is depending on natural gas (although that might change in the future) and machinery and electronics imports.
I know, the military tried that route in the 70/80s and failed, yet I believe that this crisis is so fundamental that increasing protectionism could be a good choice for Brazil in the long run. And I'm not alone, why else would Mandelons by screaming so loud to Brazil to never regard its frontiers as the boundary .
Yestedray George Soros warned that the UK might have to seek IMF rescue . Brazil still has the IMF rescue of the 90s fresh in its memory. This time they have nothing to do with the causes of this economical crisis and this time it's "the others" who are in trouble and having to seek IMF aid. Don't expect too much mercy and understanding of Brazil towards the " white people with the blue eyes ".
This other article from Soros on the UK is also a must-read .
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Mar 29 2009
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Mar 25 2009
People asked me how the employment markt is fairing in Brazil. Below the most recent graphs from Globo.
It is crucial to understand two layers of duality here:
1. There is avery big dichotomy between the Northern and Southern States, the job losses of February are almost exclusively recorded in Northern States of Brazil (Amazonia, Rio Grande do Norte, Alagoas, Paraiba, Para). In Rio de Janeiro and Santa Catarina states respectively 5.480 and 5.647 people were contracted in February.
2. There is a big difference in industries. It is mainly the assembly sector and mining sectors which is slashing people. The services market has hired more than 57.000 people in February and also the construction industry had a net job increase in February.
Tomorrow some stats on the real estate market in Rio de Janeiro.
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Mar 24 2009
An excellent extensive report on the matter has just been published by the Inter-American dialogue , a must-read.
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Mar 22 2009
I previously wrote on David Neeleman, the former JetBlue CEO starting up the Brazilian carrier Azul .
When I came living in Brazil early 2004, GOL was a small startup carrier, it had not more than 20 connections within Brazil. Flying is hassle free in Brazil, especially when compared to flying within Europe or the US; not to mentio n taking connecting flights in Heathrow (terminal 5 !) or Miami. My advice: always avoid those two airports.
The small challenger of 2004 changed, today GOL has an integrated network of approximately 800 daily flights to 59 destinations in Brazil and South America, the most comprehensive route network in South America with a total fleet of 115 aircraft. Sure, also for GOL Q4 2008 was challenging, yet I don't think many aire carriers can match them in keeping their figures up . GOL's net revenue totalled 1.548.600.00 R$ in Q4 2008, which is 5,2% up from Q4 2007. The company transported 6,1 million passengers in Q4 2008.
However, with GOL buying VARIG , the Brazilian market again risked to be for 80% in hands of a duopoly (GOL and TAM ); yes there are many other players like Oceanair , but those are no real threats to players like GOL and TAM.
Which is why it's good that Azul steps in the game.
Below you can find an interview with David Neeleman on the opportunity and challenge of starting an airline carrier in Brazil. He righly explains that the true market opportunity in Brazil is grabbing the 200 million people who never flew yet and are paying expensive tickets for using bus transport throughout the country. Even GOL itself is using campaigns to attract bus travelers to its planes .
We flew Azul for the first time and the service and comfort in the Embraer planes is just stunning (79cm leg space !).
I have an amazing respect for hard working people like David Neeleman opening the opportunity of emerging markets. As an example: here's the story of last Friday of how Neeleman is trying to exercise the rights to land on the much desired Santos-Dumont airport in the centre of Rio which was renovated under the wings of one Simone Mendonça. -
Mar 11 2009
South Africa is flooded by poor economic data. First, South Africa’s purchasing managers index plummeted to a record low of 39.2 points in February 2009.
Secondly, a disastrous month for the motor manufacturing industry as February new passenger vehicle sales plummet further. The industry is on the brink of collapse and is hoping for R10bn from government to keep it going.
And the thirdly – a disappointing January 2009 trade deficit has sent the rand into freefall against the Euro and dollar. This is in sharp contrast with Brazil posting a trade surplus in February .
This means inflation will go up again in South Africa, which will firther weaken the Rand. I have been warning for more than a year now how South Africa's trade deficit is a serious problem. Customs and Excise reported the January 2009 number at R17.380bn – the weakest on record – and a fair margin worse than the previous R14.7bn ‘low’ recorded in October 2007.
With this new inflationary pressure, you can expect that there will be no immediate further rate cuts in South Africa. The South African prime rate is still 14,00% !! Meanwhile in Brazil, the comparable SELIC rate which is at 12,75% will highly probable be dropped to 11,75% this week . More importantly is that in Brazil the spread charged by the banks is also going down; I'll write on this later this week.
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Mar 9 2009
I'm sitting ina Brazilian airport catching up on the news of the last days. If I add up the below impressions I catched up, I see a thin read line; am I biased?
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Mar 9 2009
Only yesterday did I publish this article stating my scepticism on South Africa; one of my arguments is the complete lack of private saving rate in South Africa ; something where the government cannot easily act upon. Still South Africans believe they can spend themselves out of trouble and t he economic prospects that finance minister Manuel Trevor announced last week are called "heroic" (an ephemism for 'naive').
And just today did I discover this new report which the IMF just published on South Africa, titled: " Why Isn’t South Africa Growing Faster? A Comparative Approach ", 25 pages long and a must-read.
Bear with me for the conclusions: -
Mar 7 2009
When I arrived in Brazil the first thing that stroke me is that all restaurants are jammed with people. True: Embraer (planes) and Rio Vale Doce (iron) dismissed people; but national consumption doesn't seem to be affected for now. I explained in a previous post the dynamics behind this.
A lot has been writte on Brazil last week; Karine Huet wrote a very balanced Brazil special feature in the Trends of March 5th, titled: "The B of the BRICS dances the Samba" and The Economist also dedicated an article on Brazil.
The arguments of the article in The Economist repeat what I have been saying for the last two years :
"The reasons for Brazil's improvement are largely to do with public-sector debt , which was once a weak point but has been brought down below 40% of GDP . Foreign-currency borrowings have mostly been exchanged for real-denominated ones, so slumps in the currency no longer hurt the government’s balance-sheet . Brazil has built up $200 billion of reserves to defend the real . Its current-account deficit is small . Most important, this crisis is not pushing up inflation —Brazil’s congenital weakness. That in turn has allowed the central bank to cut rates (making public debt cheaper to service). This is the first time Brazil has been able to run a counter-cyclical monetary policy .
Yet by comparison with Brazil’s recent past, and also with what other countries are experiencing, the economy is in fair shape . The IMF forecasts that only the developing countries in Asia (which are poorer than Brazil), Africa (ditto) and the Middle East will do better in 2009. Given Brazil’s previous tendency to go into cardiac arrest whenever economies elsewhere became stressed, this is impressive . "
When looking at this chart of the economical status of Europe, with more than 13 European countries having a public debt versus GDP ratio of more than 40%, which is Brazil's public debt ration one can indeed only say the status of Brazil is indeed impressive. Belgian's public debt to GDP ratio is actually today more than twice as big as Brazil's.
Add to that Brazil's commercial balance was positive in February, the country exported 1,767billion US$ more than it imported , things surely look not as grim as one would expect in this worldwide downwards spiral. -
Feb 28 2009
Globo just published an article that the Rio de Janeiro car sales were up between 6-10% february 2009 compared to january 2009 . This is quite exceptional to other places in the world. Brazil never really had an interest rupture since January 2004, that is for the last 5 years. Since then the Brazilian overnight lending rate hoovered initially between 15 and 17% and then slowly came down to the current 12,74%. Contrary to the crazy EU/US lending explosion of 2002, 2003 and 2004, Brazilians never had a credit "explosion" in nominal terms. The country comes, with a +20% history, even in 200, 2001, 2002 and a somewhat frightening sudden surge to 25% in 2003, from a situation where until 2004, real estate financing was a marginal phenomenon. People bought houses to live in, to guard inflation away. The situation of Europe and the US, where every would-be tycoon wanted to build, with lended money, some houses and apartments to sell with a +30% profit two years later was and still is non-existing in Brazil. People buy a house or apartment to life it. It's their best guarantee to guard of inflation (which is very fresh engraved in their minds) and have a guarantee to have a comfortable place to stay in, even in harsh times.
To understand why Brazil differs (a bit) from the rest of the world, you need to take a look to the SELIC (Brazilian overnight lending) rate; comparable to the ECB or Bank of England overnight lending rate.
From early 2001 on, Europe, the VS and England all cut 4,5 - 6,5% interest rates drastically and to a big extent artificially. In one year time the US interest rates dropped from 6,5% to less than 2%. This is when the roots of the current financially crisis grew exponentially; the real estate financing versus GDP ratio grew at an unseen pace from January 2001 - January 2006; nearing 100% and even exceeding 100% in countries like Belgium or the Netherlands. Only in January 2006 (in the US from mid 2004 on) inflation rates showed us the engines were overheating; all due to this artificial wealth bubble that was created after the dot com bust.
Just look at this graph of UK real estate prices to understand to which extent this growth was artificial.
The situation in Brazil was completely different in that period. The Brazilian interest rates were 15% in January 2001. The real estate financing versus GDP was almost to be neglected at that time, less than 2%. The Brazilian central bank persisted in a very tight monetary policy and the intrest rates were raised to 19% in January 2002 and 25% on January 2003. No real estate financing bubble in Brazil while Europe and the US were experiencing their leveraged wealth bubble. From June 2003 on, the interest rates were slowly, coming down 10% in 2003. Yet, the real interest rate didn't came down; the Brazilian central bank kept it's tight stand. You can see this in the currency appreciation early 2003, which then stabalized throughout 2004 when the Brazilian interest rates stayed more or less equal between 15,25 and 17,5%. I entered Brazil exactly at that time. From december 2003 until december March 2006 the interest rate remained pretty much around 17% average. The currency was appreciating rapidly and inflation was kept at bay, so the Brazilian central bank lowered slowly the interest rate to 13,75% . For the average Brazilian mid it pretty much remained stable at that rate (with some minor fluctuations) until end 2008 and now it was lowered to 12,75%. Brazil, with it's history of hyperinflation remembers a period from January 2004 till today where the interest fluctuated between 15 and 13% with a slow downward trend. Today, Brazilians still get credit and the rates of all banks go effectively down (see this weeks table which compares charged interest rates of all banks in Brazil), this in sharp contrast with Europe and the US, where the central banks get lower interest rates but don't pass it down to consumer s and companies. Example: the interest rates charged by all Brazilian banks to consumers for car loans, January 2009 compared to February 2009:
Just look at the below graphs to understand the difference in patterns and in consumer psychology involved when you compare the Brazilian centra bank interest rate evolution versus the one in Europe and the US for the period Januuary 2004 - today:
From here on? A hard call because of the item raised in this article .
For the better part of a century now, the global gold trade has been dominated by the US dollar. This will change sooner or later thanks to the US Fed trying to destroy the dollar with exponential fiat-money-supply growth and zero yields , but it still holds true for now . Because of this, all over the world the prevailing gold price is a function of any currency's exchange rate with the US dollar along with the dollar price of gold.
What is happening now in the US and Europe will have huge impacts on the currency rates. Sooner than later we will have a huge FOREX mess and we'll need a new Bretton woods. I'm only wondering how long it will take before we'll get there.
Anybody's view? -
Feb 28 2009
"Irish farmers should be preparing to renew the fight against Brazilian beef on the grounds of carbon footprints, a leading bio-energy expert has warned ."
I've repeated it before, despite all the press on the Amazon Forrest, CO2 emissions is something Brazil should not worry about. The emission per capita remained for the least years neatly below 1,8 metric tons per capita . More than 20 times lower than the US emission per capita,; more than 5 times lower than the Belgian emission per capita and more than 3 times lower then the South African emission per capita. In other words: South Africa needs to reduce the CO2 emission per capita by 300% before Brazil has to start working and the US needs to drop emissions by 2.000% (!!) before Brazil is required to take action.
The most interesting is the GDP/emission ration . Brazil scores 2.000 US$ GDP output per metric ton emission, that is higher than the US with 1.936 US$ per metric ton CO2 . And honestly, despite all the "green" mumbo jumbo in the current US speech, I believe that Brazil will further widen its lead on the US when it comes to GDP output / metric ton CO2.
And preserving the Amazon? Simple: global payments for ecological services rendered by the Amazon such as the carbon retaining in its forests could go a long way to preserving them, a new study has found. This study is just last week published by WWF ; a must read.
Exactly my point: people want Brazil to preserve the Amazon for preserving the carbon retaining capacity of the forest ? OK, then pay Brazil for rendering this service. Once there used to be forest in the US and Belgium where both countries put production cpacity without ever worrying of the carbon retaining capacity of those forests.
I'll eat my excellent Brazilian meat (Picanha and piece of Brazilian Mignon with parmesan risotto) in March without any carbon-emission guilt.
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