Brazil's real strengthened for an eighth straight day yesterday, alomst reaching a nine-year high, as a tumbling U.S. dollar and surging commodity prices boosted demand for the currency. The real has jumped up 4,8% since February 15, making it the biggest gainer against US dollar among the world's 16 most actively traded currencies during the period. The currency has strengthened 28 percent in the past 12 months, also the biggest gain among the major currencies against the dollar.
Brazil's real interest rate, calculated by subtracting annual inflation of 4.56 percent from the 11.25 percent Selic benchmark lending rate, is 6.79 percent .
Crude oil also rose above $102 a barrel today, the highest dollar level ever, as the weakening dollar led investors to buy commodities as a hedge against inflation. Brazil exports the crude oil it pumps from what are the deepest waters in the world, with recent discoveries in fields as deep as 6 kilometers. Commodity sales helped Brazilian exports rise to a record $160.6 billion in 2007. Brazil will export as much as $180 billion this yea r, according to Trade Ministry estimates.
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Feb 28 2008
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Jan 9 2009
The sub-Saharan economy is doing well, very well. The economy grew with 5,4% in 200 . South Africa is an exception with a collapsing economy . Some people like Mr. Wayne McCurrie believe in their naivity all will be well again. My personal views on South Africa are very black, especially real estate wise and the political troubles don't really help. The ANC indeed needs more people with humility .
Cape Town Property Bubble used to be a good source to keep an eye on the crashing South African real estate market, but the editor fell asleep. I wished he published as frequent as the Belgian real estate property bubble blog . This blog on the South African Real Estate market is a good alernative. The South African real estate market was one of the first worldwideto show cracks and will be one of the last markets to gain stability. -
Mar 29 2009
As promised last week: an update from the real estate market in Rio de Janeiro.
Until september Brazil was completely outside the current market crisis. It took even until Oktober to see a very slight impact on the real estate prices. In the center, the prices had a small 10% dip in price in October. In Ipanema the prices dropped 3,9% in November. From November on prices rose again. Actually, from September until end February prices rose 30,8% in Rio de Janeiro center and 16% in Ipanema. Consider than that inflation is around 5% y/y (2,5% 6 months) and you have your net appreciation.
A 2 bedroom apartment (in Rio a 2 bedroom apartment is max 85m2, you need a 3 bedroom apartment to get to 95-115 m2) comes at an average price of (dived by 3 to get the prices in Euros):
Ipanema: 750.000 R$
Leblon: 860.000 R$
Lagoa: 885.000 R$ (Lagoa topped Leblon and Ipanema, different from 2004)
Jardim Botanico: 740.000 R$
The cheaper areas in zona sul are Botafo and Laranjeiras. Amazingly the average prices in Laranjeiras also rose to 560.000 R$.
I could dedicate an entire blog on the real estate market of Rio de Janeiro, one of the most interesting (and most complex) ones in the world.
Drop me a line for more insights. -
Mar 11 2008
A buy advice for bot Brazilian Bonds and stocks ? Both?
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Oct 13 2008
Remember my post in which I pointed to the increasing interest of America and Russia in Brazil since Brazil discovered its new oil and gas reserves?
Well, today Russian Gazprom announced they are opening their first Brazilian office in Rio , remember the Memorandum of Understanding they signed in 2007 . -
Apr 12 2008
Some people swear by the "crane factor" (counting the number of cranes you see when driving from the airport to your hotel and deriving the economical growth of a city/country from it). I have another theory: "the online t-shirt shop factor". The number of online t-shirt shops per capita tell you something of the entrepeneurshop and creativity of a country.
So, I decided to do the test for Brazil. At least once a week I'll do a review of an online Brazilian T-shirt show and buy one of their T-shirts, delivered to our Brazilian address, since most are targeted to the national market. If you'd like to order one yourself: we can always take it with us from Brazil, just drop us a mail what you'd want.
1. Camiseteria - www.camiseteria.com.br
Camiseteria is the brainchild of Fabio Seixas . The Brazilian threadless; I even think there is some official link between Camiseteria and Threadless, but Fabio has to enlighten me on that one. T-shirts are only sold on the site, not in (Brazilian) stores. The site is high-class, and developed by Brazilian Ebit . There's a nice social networking integration where you can meet people who already bought the Tee you are considering and see how the T-shirt fits on them. Delivery only in Brazil (you need a CEP nr).
I ordered: Welcome to Rio and Birdy . Price per T-shirt: 55 R$ (20,6 €).
RSS feed of the Camiseteria Blog and New Products .
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Feb 15 2009
After last weeks update on the South African economy and real estate market , the figures of the Plettenberg Bay Property market show a further drop of 4,8% in the real estate prices for January only. The 2009 South African real estate prospects are a further decline until early 2010.
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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. -
Jan 10 2009
Just had an excange with Bart Becks and Robin Wauters on Twitter on the 2009 foresights of the US.
I share the recent views of Nouriel Roubini and Peter Schiffer . The US recession will last two years. GDP will fall with a total of 5%, which is absolutely massive. Only in 2009, the US GDP will fall with 3,4%, declining every quarter of 2009. Unemployment will reach 9% by 2010. And housing prices will fall on average 44% from their 2007 until mid 2010 . Only then will they stabilize and slowly, very slowly grow again. But it will take until far beyon 2015 before they will reach 2007 levels again. Even if Obama dances the Samba, those effects would only be felt by 2010.
And then we didn't even talk about the possible risk of a fierce US$ devaluation... -
Jan 21 2008
Recent nog op het nieuws: hoe de “kleine” banken als Rabobank en Deutsche Bank massaal klanten aantrekken met hogere tarieven. En gelukkig dat we allemaal zijn met onze 4% (die overigens niet hoger kan wegens wettelijk maximum intrest op spaarboekje = 4%). Wat we allemaal vergeten is dat de inflatie in België nu 3,1% bedraagt en naar mijn inschatten nog (substantieel) verder zal stijgen in 2008.
De meeste mensen weten eigenlijk niet (precies) wat inflatie is; ik schreef hier reeds over . Getuige hiervan de discussie tussen Yves en Marc Huybrechts in de comments van deze post . Zoals Marc terecht meent is de enige ‘complete’ inflatie-meter in een economie de GDP-deflator. Dit is inderdaad iets wat men eigenlijk enkel ex-post kan berekenen op basis van de Nationale Rekeningen. Zoals Yves toelicht heeft inflatie invloed op intresten. Zij het met vertraging. Zeker wanneer de discrepantie tussen de geschatte inflatie, op basis van de Belgische korf voor het berekenen van de CPI en de GDP/BNP deflatie groot blijkt te zijn (wat in 2007 absoluut het geval was en in 2008 nog meer het geval zal zijn). Dit leidt inderdaad tot een herverdeling van schuldeisers naar schuldenaars. Helemaal leuk wordt het natuurlijk wanneer je schuldenaar bent in België om schuldeiser te worden in Brazilie. Concreet: wanneer ik in België geldt beleg op een spaarrekening krijg ik 4% intresten. Trek daarvan de (geschatte !) inflatie van af en ik hou 0,9% netto over. In Brazilië brengt een spaarboekje (poupança) me 7,75% op. De inflatie voor 2008 wordt op 4,29% geraamd en werd recentelijk naar beneden herzien. De Braziliaanse inflatie leunt overigens sterker aan bij de reeële GDP deflatie dan de Belgische. Ik hou dus 3,46% netto over; een veel eerlijkere netto spread. En de vraagt stelt zich of ik met de Braziliaanse inflatie rekening moet houden? Wat telt is de koersvergoeding BRL/EU wanneer ik in EU reken, of een verhouding 30% BRL en 70 EU (mijn uitgavenpatroon). In dat geval is de netto opbrengst 4,65%. Daar moet ik wel 15% van aftrekken (Braziliaanse CDI tax, in België betaal ik op de eerste 2.500 EU geen roerende voorheffing). Of 3,95% netto ‘real’ intrest. Doch, zonder Braziliaans paspoort krijg je geen Poupança, dus je kijkt naar een CDI fonds met kapitaalbescherming dat je 0,7% per maand kan garanderen. Bijvoorbeeld een combinatie van Legg Mason DI Special en UBS Pactual Mutual Credito.
Ondertussen raast de echte inflatie in België op ongeziene hoogten. De ECB die de interesten verder gaat optrekken? Neen, zij vinden dat er vooral geen loonstijgingen mogen komen. Nochtans zijn die loonsstijgingen na al die maanden knagende inflatie broodnodig, zeker nu de gas en electriciteitsrekening ook aan ons budget gaan knagen als waren het piranas. Maar neen, de ECB zegt dat we geen extra loon mogen krijgen. Dan zal de 'inflatie' binnen enkele maanden vanzelf overgaan. U las ook toch vorige week in alle kranten dat alle Belgische consumenten met nooit geziene kredieten zitten?
Dus: (1) de 'echte' inflatie is veel hoger dan diegene die in de Belgische CPI wordt berekend (2) de ECB komt niet monetair tussen, ze houdt de intrest artificieel laag (3) er komen geen loonsstijgingen om de inflatie bij te benen (4) alle Belgen gaan kredieten opnemen om hun koopkracht te bestendigen. Deze mix klinkt me zo herkenbaar in de oren? -
Jan 23 2008
Last night on the Belgian television: André Bergen, CEO of KBC . He tried to convince us that the 0,5% extra that Rabobank, Deutsche Bank end Keytrade Bank give on their savings accounts is not a real differentiator. The man has a point of course. On amounts smaller than 5.000 EU that 0,5% doesn’t compensate the hassle of opening and managing an extra account. And when you have more than 5.000 EUto save, you must be somewhat retarted to use a "spaarboekske" (BR: poupança) as a savings instrument.
André Bergen points out that the network of agencies is KBC’s real differentiator. I personally go at most 6 times per year to my ING agency, even though I have more than 12 private and company accounts I manage at ING. The “local touch” of a bank agency has disappeared; completely.
Going to a physical agency has become a hassle, for everyone. Last week I saw that ING deducted 93 EU bank costs for 2008 on a startup company I founded in 2007. They however credited it back into the account of the company the day after with the message ‘new startup company pays no bank costs the first 2 years’. However, I have another startup company at ING. Also a BVBA which was also started in 2007. On that second company the sum of 93 EU was not credited back into the acount. I hate banks which are inconsistent. I call my agency to clarify the ‘different treatment’ on the two companies. The local ING agency in Gent couldn’t give an answer and had to call ‘Brussels’. I could as well have send a message via the online application and cut out the local agency. And this is exactly what ING wants to do: cut down on their agencies and invest in online features and convenience. This in sharp contrast to Fortis who will be further expanding its real world 'physical layer'. I can already feel the difference, in my local agency agency I can only do 'money transactions' at the counter in the morning from September 2007 on. Well, ING, given your strategic dimension I have some questions for you. I do a lot of banking, in a lot of countries. Most of it in supposedly ‘third world countries’ like Brazil and South Africa. Now, let me tell you that (online) banking in those countries is way more sophisticated than what ING (and most Belgian banks) offer me in ‘cutting edge Belgium’. Let me take some features from one of my South African banks ( ABSA Bank ) I truly miss in Belgium:
1. As the administrator of my accounts on ABSA, I can enter my mobile number. On every account can set a limit. If I do an expense on that account exceeding that limit, I get a warning with the details of the payment exceeding the specificied amount. Via SMS on my mobile. Simple but extremely powerful. This works as well on my bank cards as on my credit cards. So when my wife goes shopping with the credit card, I can basically see which shops she is entering. Sheer convenience. Only not when she the SMS warning states the name of a lingerie shop; I tend to get distracted in that case.
2. In the Homebank Plus Offline package I can only export to a messy txt file. I work a lot with Quicken. No problem in South Africa and Brazil, all my banks offer me export facilities to .ofc (MS Money) or .ofx (Quicken). These banks already offer this for years. How comes this is not possible at ING?
3. Cellphone banking. On my South African Telephone I can access my accounts via my Cellphone. Get my account balances, view statements, transfer funds, pay accounts,… Why is this not possible at ING?
4. Integration with online spending management tools. For my personal accounts I would love to use services like Spendview . Still no support for any of those services (countless Spendview-alikes are popping up).
5. Credit card statements. Can you believe that ING Belgium you cannot follow-up the payments of a corporate credit card online? They only have an online follow-up for private credit cards issued by ING Belgium. I already flagged this two years ago. They agreed it's 'somewhat unconvenient' and that they were going to remedy this. Still no solution since then. I mean: we want direct realtime follow-up of our credit card payments, export facilities and SMS warnings; on all of our ING credit cards, especially the corporate ones. This is the year 2008, not?
Why is ING not developing and launches these services? Why do runner-up banks like Keytrade leave this opportunity untouched? If they would only support 2 of the above features I would already switch away from ING.
Differentiate and innovate, Belgium! The third world is catching up on you! -
Jan 20 2008
Rio fashion week just ended last week. I didn’t pay much attention to the new 2008 winter collections; Carioca fashion is not my thing.
I prefer the Sao Paulo street-smart, hyper urban style .
The only irritating thing about Sao Paulo Fashion Week (FPSW) is the opening statement of Gilberto Gill. This year the Brazilian minister of culture preached: "Elegantes são os negros da Bahia, do Ilê-Ayê, que usam calças brancas comuns e camisetas sem mangas com a mesma graça de quem veste um estilista bacana”. Nice. But when asked why the government is not funding fashion projects and how the lack of fashion courses in public schools could be sorted, the man didn’t really have a convincing answer in his pocket. Worse, when informed about his personal fashion style, Gilberto answered in roaring words “that he believes in elegance and that elegance has nothing to do with money”. When the journalist than asked why Gilberto was wearing Prada, the man just smiled.
Enough about him, I made my point I’m not a fan of his role as a minister of culture. We all know that fashion is not about politics or ethics. The models are as skinny and white as they have been before. -
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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Dec 24 2007
Last Friday I had dinner with a gifted Belgian entrepreneur and good friend.
Entrepreneurship is (and always has been) on a low level in Belgium. We were discussing on the reasons for this old pain. A bottle of wine further in the conversation, we were discussing on the raging inflation in Belgium . My good friend pointed to his high rental costs and why he thought it would have been better to buy the house he lives in. I asked him the rental cost he currently pays and we made an estimate of the realistic low price he could be buying the house for. It took us 30 seconds to calculate that at the current interest rates, which can only further rise in 2008, my friend is actually doing a very good deal on renting his house versus buying it. Only of course of he would calculate in a 15% yearly added value on his property; which is very implausible course insane in the current market context.
Which brings me to the real reason why Belgians don’t make good entrepreneurs: they believe that putting their money in bricks yields higher added values than putting their money in their business. I'm not referring to my friend, he actually sold his apartment to put his money in his business. But deep down his instinct tells him he is losing tons of money by renting a house instead of buying. Just look at the graphs: in Holland and Belgium the financing of real estate amounts more than 109% of the GDP of each country. In Brazil this figure is today 2%.
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Jan 12 2009
Contrary to Europe and the United States, real estate financing was quasi non-existing in Brazil before 2004. Real estate financing in Brazil only accounts 4% of the countru's GDP. In holland and Belgium this is more than 100% of the GDP . The real estate financing market is also completely different organised. Most of the real estate financing happens through Caixa Economica .
In 2008, Caixa financed for 22,8 billion R$, or 498.000 units . The projection is that this figure will grow 20% in 2009. Contrary to thye US and Europe there is plenty of room for growth of real estate financing; especially now that the Central Bank in Brazil will lower interest rates. -
Nov 2 2008
A long overdue update on the Brazilianand South African economy. I included some Belgian figures for the sake of comparison. You can download the original presentation on Slideshare .
It goes without saying that I'm extremely sceptical on the South African prospects for 2009 and 2010. As I've written many times before, from Q2 2009 you'll be able to buy into unseen real estate bargains in South Africa. The prices will further plummet and the South African rand will remain low. It's hard to predict however when the uptake will then happen. Although the prospects of Africa as a continent are not at all bad; South Africa is really structurally ill and it will take a while to heal.
As to my biggest worry: the freefloat currency mess , which was my main concern as to the Brazilian Economy in a short term, the Real moved back to pre-crisis patterns . I wrote extensively end September and beginning October how unique the chance was to buy into Reals. The BRL is now again in the 0,35 - 0,375 bracket against to the EU; which is still sound enogh to buy into. When the Reals would move again up above 0,375 to the Euro, I would gold my horses. When the currency would leave that level however, the Banco Central will probably level off the selic intrest rate somewhat. Personally I hope however that move will be taken later than sooner.
Any opinions, input or considerations on the state of the economy in Brazil and South Africa? -
Oct 11 2008
The degree of denial on the economical tundra that lais ahead of us is truly mindblowing. To a big degree I blame the mainstream press for this. Like I wrote many times before the Belgian mainstream press (including De tijd, De Morgen and especially the VRT) all fail to give real analysis of what is happening and especially of what's ahead; vox populi indeed. While I have been predictint doom since mid 2007 all of them have been writing until last August that Europe is well shielded and that recession in the US was highly unlikely. Real estate prices were still going up and Belgian real estate would very much unlikely ever go down.
As if everything will soon be OK again? I can't help picturing Willie Coyote still "hanging" in the air, pondering what is happening just seconds before he falls down.
Get real or go home !
Look around you, the impact of this Tornado on 'real life' is hitting shores and the storm is here to stay, for many years.
Luckily some people do read the relevant news sources, Vincent Touquet is one of them, he just beamed me the below excellent presentation of Sequoia : This is not going to be a V-shaped recession: recovery will be long and hard. -
Dec 12 2008
Update December 13th: average of 20 predictions is that 1 Euro will yield 3,14 BRL on December 2009; that's a little bit less than what it yields today (3,14). I remain with my position that the Euro will lower to 2,53 Reais by end 2009.
The first question in the new set of 10 prediction questions for the coming: what will the EUR / BRL rate be on December 31st 2009?
My prediction is 2,53 , what is yours? Vote here (caution: use . instead of , as a decimal marker) -
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? -
Dec 27 2007
Since February 2006, the South African Rand is in freefal . This year, the currency has been constantly drifting downwards. I was in South Africa early December and I was stunned how cheap life in South Africa has become when you calculate back to Euros. A Big Mac Meal in Cape Town costs SAR 16,75 or 1,67 EU. Last year I would pay 2,5 EU for that same Big Mac Meal in Cape Town. According to this Big Mac index the Rand is seriously under valuated. And this is exactly the strange thing, the interest rate in South Africa is high, but still much lower than what it has been in the past; the growth rate is on track (4,8% GPD growth this year) and things are looking good for the ecoomy in 2008 (5,2% estimate for 2008). But still the rand falls.
While the Brazilian Real keeps scoring records ; the slide of the South African Rand is continuing on a daily basis. Economists are clueless. They think the reason is a mix of more emotional factors: the Zuma factor , the politicians and their position with regards to AIDS , the situation in Zimbabwe. But none of these can justify the movement of the currency. The slide now has a momentum of its own. This is the time to enter the South African market or take a stake in a South African exporting business. The South African central bank is trying to dam panic and avoid inflation impacts by raising the interest rates -another reason to enter with money into South Africa-
My advice: wait until the SAR drops to 0,093 against the EU -very soon, a matter of weeks- and wire some money into South Africa and let it yield a healthy 11% on a Money Markets account until the currency takes up again by the end of 2008. Or better even: take a stake in a South African exporting business which is independent from importing machinery or raw materials.
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