Just As Brazil Hits Rock Bottom, Things Are About To Get Even Worse

Tyler Durden's picture

For anyone who might have missed it, Brazil is in trouble.

The country is "at the center of a triple unwind of EM credit, China’s leverage, and US monetary easing" (to quote Morgan Stanley) and as Goldman recently pointed out, faces a stagflationary nightmare.

Last quarter, Brazil suffered through the worst growth-inflation mix in over ten years. As Goldman put it, "since 1Q2004 there has not been a single quarter in which we had simultaneously higher inflation and lower growth than during 2Q2015."

And then there's the twin deficit problem. Here's Goldman again:

Over the last 11.5 years, we cannot identify a month with a strictly-worse fiscal-CA deficit outcome than that of May-15 (lower left quadrant is empty). In fact, at 7.9% of GDP the fiscal deficit is now the widest it has ever been since Jan-04, and there were only a few months (5 out of 137 months in the sample) were the current account deficit was marginally wider than currently.


Meanwhile, as we mentioned on Monday, Dilma Rousseff is now the most unpopular democratically elected president since a military dictatorship ended in 1985, with an approval rating of just 8%. In a recent poll, 71% said they disapprove of the way Rousseff is doing her job... and two-thirds would like to see her impeached. Here’s Bloomberg summing up the situation

To be sure, the president faces a host of challenges this month, not least of which is a nationwide protest planned for Aug. 16.

 

The country’s audit court also must decide whether the government broke the fiscal law by doctoring budget results last year. A ruling against the government could provide the legal foundation to start impeachment hearings, opposition lawmakers say. Her administration says previous presidents used the same practices.

 

Investors are concerned that the political instability will push Brazil into a deeper recession and make it increasingly vulnerable to a sovereign-credit downgrade. The real has depreciated 8.1 percent in the last month, the biggest decline among 16 major currencies tracked by Bloomberg.

 


Given all of this, just about the last thing Brazil needed was for China to officially enter the global currency wars, which is of course exactly what happened overnight. Our response:

And the response from Brazil's trade ministry (via Reuters):

Brazil's Trade Minister Armando Monteiro on Tuesday said China's decision to devalue the yuan could hurt the country's manufacturing exports. 

So what lies ahead for Brazil given all of the above? Well, further BRL weakness - or at least according to Goldman. Here's more:

We are moving our BRL forecasts to show further downside – we expect $/BRL to reach 4.00 in 12 months (relative to 3.55 previously). A weaker BRL is part of a necessary adjustment to address the macro imbalances in Brazil; and the combination of a weak and increasingly back-loaded path of fiscal adjustment and a central bank that appears to be done with tightening policy for now suggests that the exchange rate is likely to bear more of the overall burden of absorbing the impact of the commodity price downdraft, restoring competitiveness and correcting the current account deficit. 

 

Brazil stands at a crossroads – both roads involve currency depreciation. The combination of significant macro challenges (economic contraction, elevated inflation and large fiscal and current account deficits) and a deteriorating political and institutional backdrop means that Brazil stands at a pivotal crossroads. One road involves the risk of a further deterioration in the political backdrop morphing into a full-fledged governability and institutional crisis (potentially including the departure of key policymakers) and a further deterioration in investor (and rating agency) confidence, with an associated additional hit to an already contracting economy. The other road involves a potential stabilisation in the political picture, which in turn would provide the authorities with room to undertake necessary short- and medium-term fiscal consolidation measures, coupled with monetary easing further down the line. In either case, we think the BRL is likely to depreciate further because it is hard for us to see a route back to a more balanced set of macro outcomes in Brazil that do not involve currency weakness. Along the first road, the depreciation is likely to be sharper and disruptive, with scope for overshooting and an eventual rebound; the alternative scenario would likely involve a grinding, more controlled move, potentially encouraged by policymakers.

 

Macro imbalances in Brazil are large, the worst in almost a decade...We have developed a simple scoring algorithm to assess the scale of internal (inflation relative to target) and external imbalances (current accounts relative to sustainable levels) and, as Exhibit 1 shows, in Brazil these imbalances are at their widest combined level in a decade. The fiscal deficit at -8.1% of GDP is also at its widest in more than 20 years, with the combined twin deficits now tracking at a disquieting 12.5% of GDP.

 

 

Of course as we said late last month, the simple fact is that whether it's China, runaway stagflation, or simple politician greed and corruption, Brazil has passed the recession phase and its economy is in absolute free fall and against a backdrop of an escalating currency war (which the country's most important trading partner has just officially entered), unattainable fiscal targets, and protracted weakness in commodity prices, the path to stabilization and rebalancing is anything but clear, but what does seem virtually certain is that Brazil has a date with junk status in the not-so-distant future. 

And on cue, just moments ago:

  • BRAZIL CUT TO Baa3 FROM Baa2 BY MOODY'S; OUTLOOK TO STABLE

So that's one step up from junk for Moody's and one step from junk for S&P - it shouldn't be long now, because no matter what Moody's says, there isn't anything "stable" about this situation.

We suppose the only lingering questions are whether Rousseff will be impeached and whether economic decay, a dangerously unstable political situation, and problems of a more, shall we say, "putrid" nature, will conspire to make Rio a veritable ghost town for next summer's Olympic games.

Then again, this young lady doesn't seem particularly concerned...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
madcows's picture

well, at least they have pretty girls.

america?  we've got walmart shoppers in scooter shopping carts.

G.O.O.D's picture

Agreed, this country called these united states has some incredible land whales roaming the landscapes. 

NoDebt's picture

"The women.  How much for the women?"

 

Latina Lover's picture

What women? The USSA females think they should be treated like males but expect men to foot their bills.

Crash Overide's picture

If I have to go to Walmart for some reason, I always bring a harpoon...

FreeMoney's picture

At least the Tyler gave us the click bait picture.  +100

Ignatius's picture

Take heart, Brazil, Brazilian bottoms are among the best.

0b1knob's picture

Whenewver you see a headline like "Things are bad in (developing country) and they can only get worse"  then it is probably time to invest there.

Getting rid of Dilma would do wonders for the coutry.

highandwired's picture

You should invest in Venezuela then, with that mindset.

PersonalResponsibility's picture

Stop.  I never login... but that was just too funny.

Kprime's picture

Captain Ahab was born in the wrong place and the wrong time.  He would have had an orgy in Walmart.

nosam's picture
nosam (not verified) Kprime Aug 11, 2015 9:15 PM

The great whites of walmart.

madcows's picture

your daughters.  how much for the little girl. i want to buy your daughters.  sell me your women.

WOAR's picture

SELL ME YOUR CHILDREN!!!

Captain Debtcrash's picture
Captain Debtcrash (not verified) NoDebt Aug 11, 2015 4:07 PM

New rule: If there is a thumb pic of a talented young lady on the ZH home page a full-size version will be supplied if clicked. 

bob_stl's picture

I hear ya. I was scrolling downa and all I was seeing was fucking graphs.

CheapBastard's picture

Graphs make my head hurt.

 

Pictures of Brazilian Babes [or Japanese, Chinese, Korean, Argentinian, and so on] make my head feel good.

Spigot's picture

Easier to just tell you: Brazil has three times in the past 30 years resorted to Hyperinflation to clean out its bad debt problem, and also to drop all the prols back into poverty. This will be the fourth iteration of the same thing. Anyone in Brazil with two neurons firing reliably will be an owner of gold and silver in order to resurface after the next hyperinflation repeats the same financial pogrom against the stupid and lazy. Its just the way its worked down that way. It's policy.

I would suggest that the entire "fiat currency system" globally will probably go the same way, too. See comment above about Ag/Ag as a tool to survive it.

TeethVillage88s's picture

In 1970s South America was creating a Middle Class, then the Wealthy Supported Military Juntas and Dirty Wars all through the Cone of South America.

The Hacienda Owners know how to work this racket.

Gotta have Cheap Labor Rates. And the people need to come to you for Financing.

mkkby's picture

Wrong.  Major fail.  People around the world hold dollars and trade on the black market when their currency is not trustworthy.

Nobody really knows what gold is any more.  Since 1971 it has not been money.  Again, that may change in the next monetary system.

Spigot's picture

You are incredibly ignorant. Pull your head out of your ass, you'll be able to breath better and your ass won't hurt so much. Why in the fuck do Central Banks hold hundreds and thousands of metric TONNES of gold!?! Why are they accumulating it? Why do they force small nations to disgorge their meagre gold bullion holdings into the holds of military transports when "debt problems" overwhelm those little countries?

Nixon closed the window to repurchases of gold, primarily European naitons, because Washington had pulled 8,000 tonnes of gold out of Europe during and after WWII and that gold had finally been bought back by those same European nations. The deal was finished. We were not going to bleed out any more gold out of the US stockpile (which, interestingly enough turns out to have been 8,000 metric tonnes at the time, as well.

Possibly you are stupid by choice rather than rather than that being a reflection of your parentage. Answer these questions:

1) What is China selling these days? (hint: it ain't gold)

2) What is China buying these days? (hint: it isn't US government BONDS)

3) Why did Europe want it's gold back?

4) Why did the US insist on preventing any more gold from being removed from it's stockpiles?

5) Why did Germany recently want to publicly declare it's insterest in repatriating gold from London, Paris and New York?

6) What do wealthy Arab oil Billionaires buy in Dubai?

7) Why are you such a stupid fuck?

 

toady's picture

I hope they fix everything in time for the Olympics. 

gatorengineer's picture

Tyler is really slipping Brazil doesnt make ANYTHING, except for Brazlillians, and lots of domestically consumed ethanol....

Athens, Turin Italy, beijing, vancouver, london, sochi, Rio, Korea..... anyone see a pattern of olympic curse of economic destruction (except somehow London).....  You could also throw salt lake in before that...

TeethVillage88s's picture

BENPIIGS (Add Brazil, UK, Nederland, to PIIGS)

AntiSanta's picture

Unfortunately for anyone trying to find an affordable home anywhere near Salt Lake, Utah's economy has been among the best in the nation for years, and our housing bubble 2.0 is in full swing. Plus we have that NSA facility with all the jobs that come with it! ;)

Closet Boy's picture

About 300R in the termas.

TeethVillage88s's picture

$86 bucks, you must be remembering the old rate of $100.

Crap, what do you get for $100 all night??

You ain't going to the Fevelas, you high class.

Closet Boy's picture

Cheap can be defined as "affordable," and does not mean the product and/or service is of inferior kind.

 

A significant amount of garotas de programa are from favelas.   

Closet Boy's picture

Also, you can barter with Victoria's Secret goods for services.

Lets Buy The Dip's picture

Haha, I just got back from brazil in Feb, And seriously they breed them nice over there. 

In terms of the BRZ or brazil market, it could be a buy soon. A big one, its too far oversold. 

This guy here is rediculously accurate, and has killer stuff, so one to listen to ==> http://www.bit.ly/1fMcakI he thinks with the flooding of money into EUROPE, you should consentrate there. Also when people see asia is too rocky, they are gunna start to move back to the US. 

Janet yellen can kiss my arse, every time they say they are gunna raise rates, something bad mysteriously comes up and she says “nope, ok, not yet” LOL. yes….that old chest nut!!! Its getting old now, do you not think??????

The US govt criminals are devaluing the USD.....and trying to hurt US companies. I say death to the US govt. They are nothing but criminals who listen to our phone calls, track us in the car, and what we buy so they can put up more crap to our letter boxes. Damn them to hell and back. Its time to take our own back, and fight for what we have left, our FREEDOM! [or what is left of it?]

SWRichmond's picture

from the link above:

I thought to myself about how women and men have both been effectively socialized to pretend periods don’t exist.

Either that, or they have been socialized that it isn't necessary to talk about it, anymore than it is necessary to talk about so many other normal bodily functions. 

toady's picture

Maybe men have been socialized not to talk about it, but women can't shut up about it.

Miketheterrible's picture

The comments in the comment section of that article are absolutly attrocious.  Is this what is happening to North America?  People all needing to have to express these "feelings" and forcing thier stupid ideology and beliefs on others through bullshit causes?

I never felt so ashamed to be a human being.  These idiots who are fighting for "rights" don't even know what rights are and have even a clue as to what they are fighting for (other than anarchy).  Running a marathon with no tampon isn't going to change anything in any other country, than make me feel less of you.

IndyPat's picture

She needed to use her filthy gash for something.

That particular "cause" is about the only attention her twat will ever get...and it's gone.

Latina Lover's picture

Personally, I think the greatest invention from Brazil is the Brazilian Wax.

mkhs's picture

I guess you never saw the Brazilian butt?

froze25's picture

That girl in the photo has absolutely nothing to worry about she obviously has the perfect ASSets to weather the storm.

Freddie's picture

She is not that pretty and the percentage of pretty ones in Brazil is a lot lower than say Argentina or Venezuela.

I once had a very attractive young Brazilian girl interview for a job.  No papers and she would have been a huge distraction. The majority of Brazilian woman are not that great looking but this one was one of th ebest looking I have ever seen.

I hired a 50 something American woman who was a very good worker.

The women in Sweden are genearlly way above average.  Czech Repub is good too followed by maybe Denmark and some of the Baltic countries.

Osmium's picture

Not that pretty?

I wouldn't kick her out of bed for eating crackers.

I can't imagine what else she would doing besides eating crackers though...

ayyy lmao's picture

"I wouldn't kick her out of bed for eating crackers"

 

I would, then we could do it on the floor.

ayyy lmao's picture

"I wouldn't kick her out of bed for eating crackers"

 

I would, then we could do it on the floor.

 

Damn...double post.

AntiSanta's picture

Sorry, I spent a couple of years in Argentina and I saw only TWO attractive women in that entire time. Of course I was nowhere near the ocean and the beaches, and worked mostly with the poor, who can't afford to primp and dress up like the rich.

The second the incredibly attractive blonde stewardess appeared on my flight home and I heard the glorious words "Please direct your attention to the nearest flight attendant," I completely reassessed my opinion of "beauty," and I never went back. Of course seeing only ONE blonde Argentine didn't exactly help, since skinny blondes are my type and they're awfully rare in the interior of Argentina. One would think they'd be pretty rare in Brazil as well, but there were rumors of entire cities settled by German "immigrants" after WWII in Brazil and Argentina. Unfortunately I was never sent to any of those places... :(

venturen's picture

Well you have Kaitlan! Spelled incorrectly as I can't say or write any of their names

Laddie's picture

Or anorexic women, dieting, EXERCISING!!!
I don't think Brasilian women exercise, at least not in the way that American women exercise.

HardAssets's picture

I didnt bother to even read the article. (The world is going down the toilet - we know that.) My high vote is for the babe in the photo.

Finally, ZH just doesnt just have those itty-bitty pics near the title that you can hardly see.

Bravo !

mkhs's picture

I only read Zh for the articles.  No, seriously.