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Economic Collapse Full Frontal: The Brazil Case Study
To be sure, emerging markets are for the most part an across-the-board trainwreck right now, as a confluence of factors including still-depressed Chinese demand, sluggish global growth and trade, depressed commodity prices, and a looming (supposedly) Fed hike have conspired to push emerging economies from LatAm to AsiaPac to the brink.
That’s no secret and neither is the fact that Brazil was long expected to be the epicenter of any future EM crisis just as it was, in many ways, the picture of EM success during better times.
Having said all of that, the extent to which everything that could go wrong for Brazil did go wrong for Brazil is truly something to behold. Indeed, even we’ve been surprised with the pace at which the situation has deteriorated and in the wake of the S&P downgrade the market is now left to ponder just how much worse things can get and also whether somehow, the embattled government can manage to get its fiscal house in order before the whole thing falls apart completely. On that note, we present the following assessment from Goldman which pretty much sums up the myriad obstacles that lie ahead:
We expect the economy to continue to face headwinds from:
- the ongoing fiscal and quasi-fiscal adjustment
- higher interest rates
- increasingly exigent credit conditions
- rapidly weakening labor market
- higher levels of inventory in key industrial sectors
- higher public tariffs and taxes
- high levels of household indebtedness
- weak external demand
- soft commodity prices
- political uncertainty
- extremely depressed consumer and business confidence.
Oh, is that all?
On the bright side, the BRL’s harrowing decline and an outright lack of demand may ironically serve to limit the downside:
On the positive side, a more competitive exchange rate and weak domestic demand conditions should gradually lift the contribution of net exports to growth and provide a floor for the expected contraction of real GDP in 2015.
Meanwhile, the political turmoil surrounding calls for President Dilma Rousseff's impeachment and the ongoing "Carwash" investigations continue to cast a pall over attempts to right the ship. Here's the latest courtesy of Bloomberg:
- Session to discuss President Rousseff’s vetoes on measures that may increase govt spending is expected to take place tomorrow;
- Govt says initiatives approved by Congress earlier this year may represent ~BRL6b/yr in additional spending over the next 4 years, undermining fiscal austerity efforts
- Fresh defeat in Congress would also underscore Rousseff’s political fragility
- Breach of 3.91 last week opens way for BRL to test all- time low at 4.004 if BZ budget is hit by Congress decision
- Rousseff’s allies suggesting she may delay announcement of ministry reform, also expected this week, to avoid extra friction with other parties whose posts may be cut; gives Congress further chances to override vetoes
- Reform seen more as cosmetic by mkt participants, as no significant impact in expenses expected; Chief of Staff Aloizio Mercadante’s exit would be only signal with potential positive impact, local trader says
- Veja reports Lower House President Cunha will analyze the 13 impeachment requests filed so far at pace of 3 per week, beginning with the ones with weaker legal grounds
- Impeachment request submitted by PT party co-founder Helio Bicudo and former Justice Minister Miguel Reale, which is considered the strongest, expected to be analyzed at end of Oct. or beginning of Nov.
- PSDB leaders see need to let Rousseff “bleed” longer in her post, according to Veja; it may be more interesting for opposition and PMDB to attempt to force Rousseff to address most unpopular measures first before advancing with impeachment talks, local trader says
- Brazil police carry out 11 court orders in new Carwash phase
- Brazil’s Engevix Executive Arrested in New Carwash Phase: Estado
Finally, Brazil's former Treasury Secretary (who's now chief economist at Banco Safra) described recent actions by the central bank has reflective of "crisis mode." Via Bloomberg:
- Treasury announcing it will buy back 1m NTN-F at auction today is an attempt to ease pressures over DI rates, Carlos Kawall, chief economist at Banco Safra, says by phone.
- Move is similar to BCB auctions of FX credit lines and swaps for rollovers; such actions are done in “crisis mode,” not to fix structural problems, but to avoid idea that BZ mkt is out of control
- BZ also could reduce offerings of fixed rates bonds, former Treasury Sec. Kawall says
- BCB could even sell reserves when political scenario becomes less uncertain than it appears now
- BRL nearing record lows is dangerous for inflation; FX pass- through for prices, while still limited, may increase
- Recent pressures that led BRL to near 4.00/USD and Jan 21 DI to pass 16% attributed to uncertainties over risk of Rousseff being impeached and fears that Congress could increase public spending
Summing up...

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Jim never gets old.
I got that Olympic fever.
Should be a marvelous event this time around.
So we will get to see what a marathon race looks like when it tries to go through streets full of clashing rioters and police?
Damn, sounds like a heck of a show!
The Brazilian economy is being stripped bare.
Clear out Brazil's "leadership class".
Maybe Brazil will go for the ever popular Five Year Plan.
Too late!
Petrobras and PIMCO have already lost on the increasingly-popular "100 Year Plan:"
http://www.bloomberg.com/news/articles/2015-09-14/pimco-fidelity-stung-by-collapse-of-petrobras-s-100-year-bond
BZQ FTW
Socialism has consequences.
See Venezuela.
Yet I'm sure they are convinced, as many are here, that the only reason it failed is because the rest of the world wasn't socialist as well, that they couldn't spread their costs around further and likewise spread the rest of the world's wealth into their pockets. Socialism NEVER fails, it simply is implemented improperly or is deliberately sabotaged by "capitalists".
Capitalism could find a way to fuck up a wet dream.
Communism/socialism does fuck up a wet dream.
Fixed it for ya!
Generally antibiotics can knock that right out!
Come on! You had "full frontal" and "Brazil" in the same sentence. WHERE'S THE PICS?!?!?!?!?!?
And those pictures say it all.
Football. All your hopes and identity placed in the hands of a privately held team of thugs.
Fuck you Brazil.....oh wait.....
Indeed.
Americans aren't much better.
They live vicariously; sitting on a sofa, stuffing their faces with Beer and Buffalo-Wings screaming: "WE WON!!! WE WON!!! WE WON!!!"
No, you didn't; you sat on your fat a** clogging your arteries with cholesterol while a syndicate of over-paid, pampered, petulant, perpetual adolescents outscored another syndicate of over-paid, pampered, petulant, perpetual adolescents.
Suggestion: Go out and play sports yourself...
Cholesterol is good for you. They're feeding us a bunch of lies man.
Only so they can feed you a bunch of over priced pharmaceuticals.
with side effects...
So? There's drugs for those, too. And then drugs for their side-effects. Etc.
Is asking questions a crime? http://vho.org/Intro/GB/Flyer.html
Comment Of The Week.
Wasn't always like this though. The Glasgow Celtic team that won the European Cup in 1967 were all born within 30 miles of the club's ground. Today's "Celtic" team is mostly Africans and South Americans.
Brazilian Pepe Escobar talks about the whole corrupt Brazilian football system and how their players are spoiled and lazy millionaires who are not very good. Dilma the zio douchebag spending $13.6 billion on the World Cup.
http://www.atimes.com/atimes/World/WOR-01-100714.html
The Germans worked their asses off for the World Cup.
Sadly, the Germans never rid themselves of the zio-banksters who have murdered tens of millions of Germans in their banskter wars for hurndreds of years.
https://www.youtube.com/watch?v=uQ9bgQCRmWw
Germany 7 Brazil 1
Almost sad but the Brazilians told Dilma to go f**k herself when she would show up for games.
They started heading down the toilet when they nationalized Petrobras and the cronies started feeding at the trough and it'll just keep getting worse until they have a revolution, which won't make it better, but it will be different.....
Hey, at least this wasn't just "click bait".
Admit it, you were hoping for some better pictures than these.
From Bra--zeal? You betcha;)
This is going to cause big trouble for another giant costly sporting show! Brazil's people will wonder why so much money goes to create a show for Atheltes. While real people go without! Social unrest at these olympics is a real possibility. Brazil will need to shoot a few thousand to make Olympic Villages safe. And how will that look in the press?
Big Trouble In Little Rio.
That 2014 World Cup vs Germany loss (BRA 1 v GER 7) certainly provided a lot of ZH click bait photos as well as a preview of the demise of an EM "powerhouse".
And all that much more money to waste on 2016 Olympics!
Don't underestimate the damage that horrifying defeat had on the Brazilian psyche.
It just seems so odd that they can't build their economy on people chasing and kicking balls around a field. Simply amazing!
People constantly confuse making a living with what you do with the living you earned.
Sounds like a December Fed rate rise to me.
Long glitter paint
This is great. Olympic hookers are gonna be cheap.
And since this is Brazil, most of them will be virgins too.
You forgot between the ages of 17 and 20, makes all the difference in the world by the way.
maybe they'll ge tinvolved in fighting terrur in Syria, too.
Real growth industry, fighting US/Saudi/Israeli/Turkish -backed terror mercs.
'Mercorists'
Great idea!
Why can't they send all of these ME "immigrants" to Brazil and Venezuela? Its like a short cut where they can go straight to jail without passing go OR collecting $100. Instead of pushing Europe into its last gasps of socialist failure they can go immediately to the actual failed states themselves, and get used to sucking on a dry tit. No better way to convert a socialist redistribute-er than to take them where there is nothing left to redistribute...and it gone!
Brazil's national track team will definitely win the snatched-purse-mile-relay event when the Olympics comes to their "turf."
Where "turf" = "favella with plasmas on every wall"
As usual, when it comes to ZH articles on Brazil. I'm just here for the pic
;)
Forget the pictures of Brazilian chicks. I want to see Brazilian chicks' Brazilians !
Actually forget I said that. At the rate Brazil's economy is collapsing even the men folk will be getting Brazilians. Bankers too. EEEeechhh.....THAT I don't want to see.
What's a Brazilian?
The opposite of a Panties-Zilian!
LOL !
Really ? Well.....it's a .....ummmm.....how can I put this ? It's a really....REALLY close, clean shave. Where it matters. Like when you wear a bikini.
I use it as a euphamenism for the haircut Brazil is going to have to take financially.
It comes after trillions.
Lots of poor people who won't be missed means there's a real potential market for organ theft.
Has there been an uptick in flights between Rio and Tel Aviv?
Brazil should have gotten a nuke of its own.
Putin could ship a few.
Looks like Brazil's economy is returning to "normal" after a 10 year period of living in fantasyland with the money rolling in.
Too bad the useless Brazilian political elites thought it was the new world.
If they don't issue the arrest warrants for Lloyd Blankfein and anyone associated with Goldman Sachs its going to get a lot worse.
Bazil is a socialist revolutionl looking for property to steal