Barclays On Brazil Rate Cut: "Unexpected...Unprecedented"

Tyler Durden's picture

Feeling like one of the 62 sellside analysts tonight, all of whom had no idea Brazil would cut its overnight rate by 50 bps? Wondering what this "unexpected, unprecedented" move means for Brazil? Curious what the implications of this shocking announcement are? Here is Barclays which while still shellshocked, is the first to try to put lipstick on the pig that the BRIC economy suddenly has become.

From Barclays : Brazil: Shock and awe strategy - Copom unexpectedly cuts Selic rate 50bp.

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chump666's picture

What we know is this, Sth Korea/Tawian/Singapore sans Japan's and China's fudgy numbers is that Asia is slowing down and probably hard. 

China is on course sending the global economy into a major depression

High Plains Drifter's picture

fukushima has put a permanent drag on japan and it won't ever get better and by that i mean forever. what is happening there now, has world wide ramifications and this will come out over time for everyone. the question is, simple. how can you fix something if you cannot get near it to work on it without dying?

DoChenRollingBearing's picture

chump and HPD,

Yes, Asia looks like it is about to implode if BRAZIL is cutting.  My eyes will be on Peru (of course), they are at least as exposed to commodity exports to China, Japan and elsewhere.

Brazil, over the past few years has a had a LOT of success selling manufactured products (like VW trucks) to Peru over the past few years.

Brazil is one of the important canaries to keep an eye on.

HPD, I share your dire concerns about Fukushima being a catastrophe that will also be another big part of pulling the world down...


HPD.  If I were to buy, say, 100 acres as a retreat in Texas, what counties ought I look at?

TruthInSunshine's picture


Why would you want to buy Texas land? Assuming you aren't speaking of politics, there's better land to be had in Nebraska, Colorado, etc.

DoChenRollingBearing's picture

I used to live in Texas.  Nebraska and Colorado are a bit cold to my taste.

I have heard nice things about the states mentioned at (something like the Fortress States) like Wyoming, Idaho, Colorado, eastern Oregon, etc.

delacroix's picture

why not stake a mining claim, or two. lots of lattitude on what you can do. minimal cash outlay.  I think it's 40 acres per

chump666's picture

So what you are saying is if Brazil slows so does Peru on trade deals?  Thus South America going into a recession/stagflation?  Good point.  Actually the whole of South America will be an excellent bell-weather for China, be looking at Argentina also for signs.

I think that the rate cut will be a slow burn panic, already (on wires) investment banks are going into damage control on the Brazilian rate cut.

DoChenRollingBearing's picture

Yeah, I guess that is what I am saying: a correlation between exporters of South America.

I know Peru well.  I only visited Brazil for two days.

I talk with my in-laws in Peru almost every day about our business (importing rolling bearings for cars and commercial vehicles there in Lima).  Often our sales are a good indicator of the state of Peru's economy.  Lower exports and a bad economy, fewer people can fix their cars...  Kind of the opposite of what you would expect.

Business in Peru (up til now anyway) has been booming for years...

Potemkin Nation's picture

What do you think the chances are that Peru would ever nationalize parts of its mining industry?

DoChenRollingBearing's picture

We have not heard Humala say much since he won the election, but I would say there is a fairly high chance that he could either nationalizr or raise taxes on the miners.  Or support striking miners...

He got money (illegaly under Peruvian law) from Chavez, and has spouted off like him.

I would wait a year or two before even thinking about buying Peruvian miners because of these risks.

NetDamage's picture

You need really obidient sheep?

Blorf's picture

The more countries that join in Bernanke's fiat suicide pact, the higher the price of gold (and everything else tangible).  How many bikini waxings will it cost to buy a loaf of bread next year? 

Long-John-Silver's picture

Just another fiat currency and banking system sliding down the ways to Davy Jones locker.

Oh regional Indian's picture

Well LJS, now imagine if the loosest monetary regime in  he world, to the surprise of the world, begins a tightening in September? 

Add a bit of QE by whatever name (Mortgage buying, SNAP expanding, Swap increasing, anything BUT printing) and the "world" could be in for a super shocker. India has been on a bit of a tightening spree lately, but unfortunately, except for it's billion plus consumers, I don't think the world really understands what a hollow and meaningless story India's recent rise and shine has been.

Just like Fx, we will son see whip-saw action in CB rates around the world. A race to the bottom....tch...


ISEEIT's picture


You people are hardcore. I love the tenacity. I'm actually shocked by it. I haven't found better truth telling anywhere else.

Shock and awe.

Timing is the bitch though, this monster dies hard.

Thanks for what you do though people. Seriously, thank you.

Waffen's picture

In relative terms can someone enlighten me as to how much of a change 50bps is in regards to the "Selic Rate?"

tekhneek's picture

Use your imagination over a compounded borrowing schedule using time frames like, oh, say, 5-10 years.

Now, do that with a few trillion dollars.

It makes a pretty huge difference.

But, is this actually deflationary? I think so. I'm a "hyperinflationist" but, that cut was a far cry from the upcoming "hyperinflation" we all expect or, I'm wrong again and, it's incredibly inflationary and the markets will just take off tomorrow on the "new liquidity"

nonclaim's picture

Down to 12% now... started the year at 8.75% per year.

To put things in a real economy perspective a good credit card will charge your revolving credit around 13% per *month*.

Atomizer's picture

Brazil just needs to buy a 1 year Greece government bill at 60% yield. All worries will be behind them.


tekhneek's picture

Were you being sarcastic?

/sarc <-- Very unnecessary. You don't need to point out sarcasm. I read the stuff you type.

Seriously though, how much longer can the T-bill BS keep going? 2.2% w/ a 3.x% CPI? And that number, the CPI, c'mon? That is the funniest shit. Almost as funny as the unemployment numbers. How many more ways can you be not working? Overly mal-employed or some shit? I can't wait for the next metric.

Atomizer's picture

Some don't understand. I have to do the /sarc out of moral obligation. winks.

DoChenRollingBearing's picture

My sarcasm meter is practically non-functional.  I appreciate it when I read that someone IDs his words as sarcasm.  So, No. 2 green for you!

Blorf's picture

The Fed is flooding the market with put options on T-Bills.  This artificially decreases their yield, because people think they have insurance on their purchases.  Until they realize the massive fraud of buying insurance on a bond from the same people selling them the bond, there is no floor to yield.  BAC, a manifestly insolvent institution, only pays 0.15% interest to depositors because of FDIC insurance.  The same idea is at work here, except for the epic fraud aspect.



Mr. Mandelbrot's picture

To be honest, I don't really know what this means, but if it furthers the cause of of the global ponzi blowing up, I'm all for it.  I'm a firm believer that our goal should be the prosperity of yesteryear, where a single, middleclass breadwinner could provide and more for the family while the stay-at-home spouse trains and rears the kids.  With all of the technological advances in agronomy and such, it seems to me that the average Joe should be doing at least as well if not better while his/her standard of living is increasing in terms of hours worked, vacation time, work stress, etc.  Unfortunately, all the social and standard of living metrics are going backwards.  We're overworked and depressed as a people.  The system is broken for most and the sooner we realize this and sharpen our pitchforks the better.  The only way up, is down [Jesus] . . .

pods's picture

I have thought about this as well.  Why are we working harder while seeing less gains?

Two words:
Compound Interest.


Thorlyx's picture

Try energy prices. In the old days oil was 3 bucks, now it over 100. Oil is in every product Joe needs to buy. Do the math.

Bicycle Repairman's picture

Try the people who control compound interest also control oil prices and we are all getting "skimmed".

TruthInSunshine's picture

Just the first BRIC in the wall that's coming undone, along with the U.S., Japan & Europe.

We're entering a global depression, which will see a contraction on a scale never seen before, as the world is more interwoven than ever.

There are many causes, but fractional reserve banking, using inherently worthless fiat, created out of thin air (Hayek warned of this, and we're going to see the results of Hayek's warnings going unheeded for a century now, and it's going to be brutal), and central planning by Central Banksters and governments, picking winners and losers and whom to subsidize and to not subsidize (resulting in massive misallocation of capital and massive bubbles and massive interference with price discovery and the supply/demand curve), are two of the biggest factors.

TruthInSunshine's picture

Great series.

That's a great series, and while he talks at length about the global realignment, he should spend more time on the core problem of how once economic growth is necessitated by massive debt expansion, the system literally cannibalizes itself (metaphor that's commonly used is snake eating its own tail), which will always be the case with a fractional reserve banking reliant economy.

Hayek's boom bust cycle working together with G. Edward Griffin's season of 'harvest' is a great framework by which to view the current events we're all observing.

That gentleman is a graduate of both the Harvard Business School & U.S. Military Academy, and it's interesting to hear someone speak such truth given that kind of background. And refreshing.

myne's picture

On the topic of the season of harvest, it boggles my mind that in a world where the major religions all follow variants of one, that is based on the 'biible' and its original texts, that everyone has completely missed one of the basic lessons contained within it.

This lesson is both a moral lesson and a historical account that is most likely fact and therefore is likely to be identical in each version of the text. This means it should be impossible to have missed this lesson.

The lesson is, that in Egypt back then, there was a distinct cyclical nature of their harvests. Roughly 7 years, which correlates to the el nino cycle. 7 years of plenty and 7 years of famine.

The way they were forced to tackle this problem was straight forward. Some great economist or historian must have pointed out the cycle, and long before Minsky, concluded that the boom was the problem. Or rather, not so much the boom, but the behaviour during a boom.

So they modified their behaviour in a manner similar to what Keynes recommended. During the boom they saved their grain so that they might eat during the bust. Keynes gets a lot of flack for his government intervention in the business cycle during the bust, but his model has been distorted. They are not saving during the boom! Therefore of course it makes no sense to spend during the bust.

We really do have to return to this ancient Egyptian model. While the agricultural aspect has become less relevant with better logistics offering better diversification against harvest risk, the business cycle is similar to the 7 years of plenty and the 7 years of famine. It inspires the same behaviours as you would expect during a lengthy run of good harvests. People become complacent, and fail to save for the drought. Finance becomes increasingly loose, and ultimately, the rains fail to come one year and we're all surprised.

How on earth can we claim to be surprised when, believe in it or not, the original documents that serve as the fondation for Christian, Jewish and Muslim beliefs - and thus serve as a big chunk of the foundation of our collective civilisations - outlined in detail both the problem and the solution?!

I think the answer to that question lies in our belief in progress. We think that because we know more, and make better stuff, that we are superior in nature to our ancestors. It's a concept that implies that intellectual and technological evolution also evolves us. I think the creationists should agree with me more here, but they're just as likely to believe that we're somehow more evolved than our great, great ancestors. Ironic, I think.

But underneath every human being's knowledge and generations of actual physical evolution of our brains sizes, lies the foundation that has not changed at all in milennia.

It's the primitive emotional brain. The reptilian brain if you prefer, that is literally almost identical to a crocodiles.

That's where we get the feelings that control the direction our logical mind takes to justify our positions and actions.

We actually believe that because we have built better tools that we are different to the apes. It's a feeling we get, and we justify it by waving our hands at all that we have built as evidence to this claim. It's that belief that cripples our ability to apply the lessons of the past. Because this time, it really is different. The Egyptians lived in a different world we might claim, and so the lessons don't apply.

The world might have changed, but we have not.

We're totally delusional.

Bicycle Repairman's picture

The folks that run things do not read the Bible/Koran and are not religious.  They don't care if you have 7 years of lean or seven centuries of lean.  But if they experience a moments discomfort, you'd better duck.

GoinFawr's picture

"unexpected, unprecedented"

Simply take out the 'uns' and you have Tylers' perspective. Alternately you could use, "telegraphed, megaphoned"

DoChenRollingBearing's picture

Almost, not quite, but almost a Black Swan.  Keep your eyes on Brazil as an indicator.

Cdad's picture

The only way up, is down 


pods's picture

This seems like a high stakes game of poker.  And the smaller economies (central banks) are folding.

The gyrations are getting larger and more spread out.  Too much leverage, and unlike 08, this time it is going to be sovereigns going boom.


TruthInSunshine's picture


In 2008, it was banks and financials blowing up.

They're going to have sovereign company this time around.

chump666's picture

USD buying kicking in,

Caviar Emptor's picture

Brazil was supposed to be one of only 2 BRICS that saw exports increase in Q2, while the rest of the OECD's saw a sharp drop in trade growth (1.9% down from 7.7% Q1). 

This rate cut is Bad for global growth bulls and for Real bulls (poof!). And it signals some real weakness in the once booming Brazil. I know Tyler likes to compare this year to 2010. But things are considerably more ominous. Global growth was supposed to pull the world out of depression. Not. And worse, lack fo global growth was supposed to at least make input prices cheaper. Not. Gulp!

chump666's picture

Very bad.   The China bulls are usually dumb ass investment banks in the delusion cycle i.e soft landing crapola.  I

The Deleuzian's picture

we'll see Fed officials, ex-treasury guys, bank ceo's, Greenspan, Volcker, senators, congressmen, talking heads from overseas, Steve Forbes...Shit- the King of Siam, and the ghost of Steve Mcqueen all telling us to be calm this time around!!!!!

Caviar Emptor's picture

....or scatter and duck away from the flying BS that they're afraid will stick

wretch's picture

What, no game theory references?

zorba THE GREEK's picture

I think that this move by Brazil is no big deal. They just want to get ahead of a slow down. They can always reverse course again

in October if they see things going the other way. We have criticized our Fed for not reacting fast enough in a slowdown.

TruthInSunshine's picture

All waterfalls begin as a slow trickle.

fishface's picture

Zorba thats right there was a lot of political pressure to reduce the Selic

They talked about it a lot on monday

The idea is to be prepared of what to come.

To control the inflation the governmet pledged to reduce public spending