BRIC+ News & comments

Yeah, the plunging Chinese imports are pretty indicative of an economy in some serious trouble. I cant believe ppl are still acting like the chinese are going to pick up consumption enough to even put a dent in whats being lost. Maybe one day, but certainly not in this downturn, and not for many years to come.

 

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As of today, 12 years of S&P 500 gains have evaporated!* In 2009 (until CoB Friday 21 Feb data), DOW has lost 16.2% and NASDAQ 8.7%, but Bovespa is up 3.1%, although on FEb 16 it was just under 42 and on 21Feb closed at 38.714 AND dollar in same 5 day period gained from buying 2.280 to 2.392 Real. FDI into Brazil, less return of profits has turned positive again and except for one slightly negative month the trade balance has been positive every month for 8years. Reserves have dropped to "only" 180 billion as about 20 billion dollars have been used for a multitude of small stimulus projects, well directed to put funds in the hands of the poor, not like GWB did.
(To learn how many US jobs GWB DESTROYED with tax cuts for the wealthy, See: http://www.sciforums.com/showpost.php?p=2174897&postcount=60 )

I don''t have data easily at hand on where the Bovespa was 12 years ago but am confident it is more than twice as high now. I.e. what I advised long ago was much better than investing in the US. (And I am still of that opinion for today if you have a multi-year POV. I.e. it is an excelent time to take advantage of the relatively stronger dollar.)
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* See: http://www.bloomberg.com/apps/news?pid=20601087&sid=aF3nPEnKXg5A&refer=home

 

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BRAZIL (what I have been stating but now by Zacks):

"... it is interesting to understand the situation of Brazil, the biggest economy in the region. Brazil has over US$200 billion* in international reserves, a positive trade balance, a solid fiscal position, a healthy banking system and very high interest rates that will be reduced in the short-term to keep the economy growing.

Brazil still has the highest real interest rate in the world. Domestic rates are now at 12.75% (after the Central Bank slashed rates by 100 bps in January 2009) and 2009 inflation is expected to be 4.5%. The lower volatility of the Brazilian real will enable the Brazilian Central Bank to go on reducing interest rates in the very short-term. We expect Brazilian rates to reach 10% per year by the end of 2009.

Since the local banking system remains solid, lower rates are not transformed into a liquidity trap. Amazingly, the Brazilian economy has even showed some signs of recovery in January and February 2009.

After 5 months of consecutive declines, in January Brazil produced a total of 186,100 vehicles, almost 100% more than in December 2008. Total vehicle sales in January reached 194,500 vehicles, 1.5% more than in December 2008. Some days ago, it was announced that car sales in Brazil increase 15.56% in the first half of February 2009 if compared to the first half of January 2009, reaching a total of 109,258 units (just cars, not including buses or trucks). If we compare to the same period 2008 it also increased by 7.4%. {Billy T note: Probably nearly 3 million vehicles will be produced in 2009 - I think that is more per capital than any other country - Most are very modern, flex-fuel, economical and efficient, four-door 5-person cars, but not the excessively large "boats" the US makes.}

It was also announced some days ago that in January 2009, total subscribers in the Brazilian wireless market grew by 0.86% from December 2008. Despite the crisis, January 2009 was the second best month in terms of subscribers' growth in 10 years,** in absolute terms! ..."
From: http://www.zacks.com/stock/news/17713/
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*Actually Zacks has slight error here. Nearly 20 billion has been used for internal loans, etc. as stimulus. I guess reserves are about 190 billion now.

**At least in part this is due to Bolsa Familia putting money in the hands of the very poor ,who were outside of the cash economy. See my earlier post on how Bolsa Family is not only a great investiment for the future (education and health care) but acutally paying for its self currently in growing internal demand, taxes, etc.

If you want to grow an economy DO NOT GIVE MONEY TO THE ALREADY RICH. Give it to the poor, but with "strings" attached that keep their kids in school til age 18*** and require preventative medicine, like vacinations. (Brazil's Bolsa Family requires both these. - In long run it is even better than the WWII GI bill of right as helps in the health field also.)

To understand how GWB giving tax relief to the already rich DESTORYED jobs in the US and made the current recession deeper etc. See:
http://www.sciforums.com/showpost.php?p=2174897&postcount=60

***Traditionally in rural Brazil, once a kid could read a little and do simple math (say by or before age 10) he dropped out of school and joined his father in the fields. Brazil needs a better educated work force and is making it now. Now with Bolsa Familia, the kid is slightly more valuable to the family if he stays in school.

 

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Billy T,

The Bovespa has lost 65% in the last 8 Months!

Yes, the Real has really tanked in the last year, the worst performer of any 'major' currency except for the Mexican Peso.

Really? I hadn't seen that report.

That negative month was Jan. The trade balance for Feb. has not been calculated yet, but it isn't looking good. For example, in the textile and clothing industry for the first half of Feb., Brazil's imports (mostly from China) were triple its exports.

I'm not sure where you came up with all of that. Perhaps it was a dream?? As of Feb. 27, Brazil's foreign reserves still stood at $199.34 billion. The loans were to bail out local companies that couldn't roll over their foreign debts, not to put 'funds in the hands of the poor'. The amount was expected to be from $20-36 billion, but no money has been dispersed yet. Perhaps the central bank is afraid of a AIG/GM type of problem where they are not sure they can count on repayment in the future.

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Yes I have several times noted that the lack of available credit in the US forced many to sell assets,especially in Brazil, where they were still with profits if they were a couple years invested, to raise essential funds for their businesses, like maturing loans to pay off, etc. So it is true that the slump in Brazil was greater during last half of 2008 than in US and that the demand for dollars (selling of Real investment and converting to dollars to take back to US) was greatly increased.

All this I have repeatedly said. My point in more recent posts was that this seems to be over. Sales are increasing, the reserves are now back up to ~190 I said in last post, 103 footnote:
"Nearly 20 billion has been used for internal loans, etc. as stimulus. I guess reserves are about 190 billion now."
When I corrected Zacks's 180 billion- they had data older by about a month or two than I did. (Same older data I posted and you now quote - if quoting me try to quote most recent values I give. - This is the second time recently you "show me wrong" by quoting an old post of mine of what has changed and ALREADY been updated or corrected BY ME.)

SUMMARY: Brazil's economy is growing, domestic sales are up and exports are expanding again. The weaking of the Real and drop in the BoveSPA reflect the despirate credit suituation in the US. Not the Brazilian economy.
Do not take my word for this - read post 103 report very respected investment advice firm Zacks.

The net funds flow to Brazil is postitive again as I prediceted, in part becuase the credit squeeze in US is begining to ease (Not all who need dollars are being forced to sell assets in Brazil's strong economy as some can now get loans in the US) FDI less re-turned profits has turned positive, by big step when comes China's 10 billion for the Brazilian part of a quaranteed oil supply:

"... China has just threw down a whopping $39 billion into three separate deals to grab future oil supplies from Russia, Brazil and Venezuela.
And all of this comes on top of a $10 billion loan to Brazil, securing a pledge for 160,000 barrels of crude per day. And this is just the beginning! ..."
From: yahoo.com. ...=3f384ca3jp9jk[/url] - THAT WAS DIRECT INTO MY YAHOO MAIL BOX, WITHOUT EVEN PASSWORD REQUIRED - SO I HAVE MESSED IT UP SOME. Perhaps someone can use what is left to get a public link.

This net influx is part of why the reserves have bounced back for 180 to 190 billion in just the last month or two. I have a slight time advantage on you and Zacks as I read the local portugese fiancial news or hear on TV (Bloomberg/ Brazil) the day the figures are released.

I have already told that there were strikes in the auto industry in DEc08 so car export of Jan were low. The textile (and especially the shoe factories have been in trouble for a year or more. Back when the Real was too strong (before the American financial system locked up and cause wave of selling to get funds in Brazil).

Don't you recall my telling nearly two years ago of sitting im NYC Macy's lady shoe department, while wife shopped? In July07 I noted that unlike JUly 06, there were few Brazilian made shoes for sale (In July 06 half were from Brazil!)
Brazilian textiles did not die as quickly due to stong Real but are hurting now as China is dumping textiles in efort to keep worker's jobs. Brazil has just achieved an limitation on the shipments to Brazil (China wants Brazil's oil for next 30 years, so Brazil had some leverage.)

True Feb data is not yet in buT, but I quoted the data as of 15 feb and it showed strong recovery of exports over imports.

SUMMARY: This recovery is real and the slump during last half of 2008 & Jan 09 was not due to textiles, etc. -I am growing tired of telling why (Americans, despirate for cash, selling in Brazil to get cash banks did not lend, strike in Dec reducing car export in Jan09, etc.) You are not listening or believing -either way I will stop explaining.

Most of my infro comes from local papers, but 180 was a about two months ago, 190 was about a month ago your 199,34 is current. - I am glad to see that the reserves are growing at about 10 billion / month. I have been busy (filing taxes in US etc. so have not read as much as usual - may have missed the "reserves nearly 200 billion again" article.

A lot of new money has been put in the hands of the poor - go back and read my post about the expansion of Bolsa Familia - both in numbers and amount granted to each. Also I have commented that many small taxes hgave been cancelled as part of the ~20 billion stimulus - that is same as putting more money in the hands of the poor, if not directly, by making the products they buy less expensive.

What you may be referring to is PPP (private public parnwerships) internal investments - The PPP has existed for about two years, has budget, but last I saw, less than 10% was actually spent. - there is even more red tape and enviromental hurddles to jump over in Brazil, than in the US, so getting it spent has been very slow - It could, in proincple be a stimulus, but was not designed to be (two years ago) and in fact is very slow to make funds flow to the people.

It is true, that some funds have been used to help Brazilian companies pay off Dollar debts that would not roll. They would not roll becuse no could get new loans in the US. Since the US financial system froze, the Brazilian governement (flush with lots of dollars) did decided to step in and make dollar loans. This is just more evidence that Brazil is doing well - is strong - can do what the US can only do by borrowing more - going deep into debt. It is very distorted (or lack of understanding) to cite fact Brazil is helping Brazilain companies with dollar debt as ev idence Brazil or it companies are in trouble. The trouble is the frozen US financial system. Fortunately, Brazil is strong so that does not cause probelm for Brazilian companies.

AGAIN: Don't take my word for all this - read Zack's report on how strong all part fo Brazil's economy is in my quote of Zack in post 103.

 

Billy T,

No, Billy T. Your whole premis of "sales are increasing" is based on a fundamental mistake. The central bank's foreign reserves did not increase due to a recovering economy. Those reserves were never at $180 billion nor $190 billion to start with. Those loans have never been made, the reserves were not 'reduced' to $180 billion and later 'grew back to' $190 billion. That Latin American investment adviser based in Reo was not using 'old' data, he gave the current reserve number of $200 billion which was and has been correct. Here is a link from Friday, Feb. 27, the last trading day this month:

http://www.fxstreet.com/news/forex-news/article.aspx?StoryId=773c2272-ab3d-43f3-913c-ac0d77452110

Billy T, that loan is not a 'positive' development. Petrobras couldn't secure financing for developing its new oil fields and had to resort to an 'oil-for-loan' agreement from SinoPec, China's large oil company. China did the same thing with Vale. In order for Vale to get a needed loan, they had to guarantee a certain amount of ore to China. China said "To Hell with you Brazil, if you want our money loaned to you, you will have to guarantee us oil and ore."

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And Billy, loans to Brazilian businesses do not add to the central bank's foreign reserves.

The problem is not just a frozen US financial system, it is a frozen GLOBAL financial system. Brazilian farmers could not even get the loans they needed for fertilizer and seeds from the Brazilian banks. The Brazilian banks do not have the money to loan and the default rate on loans has been rising very steeply lately, just like the early crisis stage in the US, UK, Spain and other countries in trouble. The UK, most countries in the Eurozone, Japan, Korea and some other countries are in worse shape than the US. Here is a little on Brazil's banking prospects:

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=ax_UcdfQPHN8

 

To 2inqusitive:

Equally well one could view China taking payment for investments in future oil and iron ore from Brazil instead of dollars as has always been China's past contractual practice is that China, like many others, is starting to fear dollar collapse. This is how China is negotiating almost all contracts now. And it is not only China. About a year ago Brazil and Argentina agreed to cease using dollars to settle trade imbalances and for future delivery contracts. Brazil is in discussion with several other South American countries to do the same. I do not have data on this or other countries that are starting to think the dollar is not sound. (The common factor in China's new "pay with real assets" policy is the dollar, not Brazil. - that should give you a clue as to which POV is correct.)

You may reply that "But someone or country has faith in dollar. They are buying Treasury bonds as they are selling well, even at historically low interests."

So I will explain that now: Yes the FED is buying, by making increases in the Treasury's accounts in some of the major US banks. Hope was these banks would use these deposits to make loans to business. (I predicted they would not -that TARP would fail in sciforums post made even before Congress voted the first time on it.)

What the banks have in fact done with these taxpayer's printing press dollars is to also buy Treasury bonds. The money just goes around in a circle and keeps interest rates low. The "assets" (Treasury bonds, mainly but also some commercial paper and agency notes that no one else wants) on the FED's books keeps growing - more than doubled in the last year, but it is true that the Treasury bonds keep selling, mainly in this circle. It is a house of cards. It comes crashing down, as I predicted years ago, with a run on the dollar. I.e. when the Fed and Treasury's musical money chairs game stops as no one believes these "assets" are worth much. (More than the paper they are printed on, if they were any such paper - but there is not - it is all just thin air, bits in computers, and still some confidence.)


On the reserves questions:
Your Ref said: "BRASILIA (Dow Jones)--Brazil's central bank hasn't yet disbursed foreign-currency loans from international reserves under a direct lending program announced earlier this month due to borrower delays in processing paperwork for the operations, the bank said Friday. ..." That may well be true. They were only announced a couple of weeks ago. They are only the latest measures taken. Some were done back in November of 2008 (perhaps even in October). There are very many small measures made in the last three months. That is what caused the reserves to drop to approximately 180 billion.

Your stating they did not drop to ~180 because something announced two weeks as planned has not happened is silly. I never said the drop to 180 about three months ago was caused by failure to implement the only two week old plan to loan in dollars to Brazilian firms that, like everyone else, cannot get loans in the US. The dollars came out of the reserves to buy Real (is part of the reason it recovered some) with which to expand a multitude of small stimulus programs, including Bolas Famlia that require the government to distribute cash. (The ones that are only tax relief do not require central bank buy Real.) On April 30, Brazilian must pay their taxes - then the government will not need to tap the reserves, sell dollars to buy Real for these stimulus programs.

On your statement that farmers are having trouble getting loans* for seeds and fertilizer, there is some truth in that, but your reference is about personnal loan defaults. Especially car loans, as I undestand it. (Brazil has also lost jobs - that caused the Dec. stikes in auto industy and now 4000 are lost at Embaraer. This is making unions want to take pay cuts and less hours instead of some lose jobs. - A new reality for Brazil's labor unions is setting in. - No stike this time at Embaraer.) First thing to stop paying on when you lose your job is the car loan.

Farming is big agri-business in Brazil, not personnal loans. Every year there are photos in the paper of huge air-conditioned, GPS guided, harvesters marching across fields that extend to the horizon, in a closed-spaced V formation, with perhaps 60 trucks following to catch or off load the flow of grains. In one photo a few years ago taken from high in the air. I counted 31 harvesting units and bet each was at least a million dollars, but do not know actually prices.

Also important to note that many of the loans come from US corportions, like Bunge, ADM, Cargill, not the banks, and take part of the harvest as the repayment. If that is not enough, the Bank of Brazil is government owned and controlled - there will be some tough negotiations but the big farms will get the money for seed and fetrilizer, even if the government has to priint it.
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*A not insignificant part of the "trouble" is that Bunge, ADM, Cargill are not getting easy credit to make the loans from US banks. Again what looks on the surface to be a "Brazilian problem" is just a reflection of the US's troubles. If worst were to come to worst - China has plenty of both cash, and hungry mouths to feed. Austraila has a historic dought. China also has a terrible draught, and the worst out break of wheat rust in some years. - China must have Brazil's crops and this fact is driving up the price of soy even before it is planted!

PS: Yes your are correct that foreign loans to Brazilian business (and their export sales too I might add) do not DIRECTLY increase reserves. What an influx of dollars does do is make dollars in surplus. Few want them so you get more for each Real. I.e. the influx makes Real stronger, and high labor cost industries can not export, fire workers (shoe export industry is closed now because of this) Out of work voters make politicians nervous. They "lean on" the central bank to buy up the surplus dollars. - Same effect as if the dollars did go directly to the reserves. You are quibbling. - That is beneath you. It is precisely the influx of dollars with high commodity prices a few years ago that drove the reserves from less than 40 billion to more than 200 billion in less than two years.

 

BRAZIL
Quote immediately below from: http://www.bloomberg.com/apps/news?pid=20601087&sid=akRu3JfL0.YM&refer=home

“ Europe’s biggest bank, {HSBC} may use part of the 12.5 billion pounds ($17.7 billion) it’s raising in a rights offering to fund acquisitions in Asia and other emerging markets. …”

Read “emerging markets” as “Brazil” mainly.

Although HSBC’s 2008 global profits fell 70% YoY, in Brazil they were UP 9% and its deposits GREW by 58% during 2008! There is no significant* credit crunch in Brazil for loans in Real, but the central bank has had to help (with part of dollar reserves) some Brazilian companies with dollar debts to pay as there is still a serious credit crunch in the USA. HSBC has given up on the USA: Plans 6,100 job cuts to close lending units in the United States.
HSBC's CEO now admits it was a "terrible mistake" to buy bank outlets in the US in 2008. He just wants out now, even taking a big loss on the expansion into the US.

ALL* banks in Brazil were profitable in 2008. Here are the profits, in billions of Real, followed by YoY % change in parentheses:

10.00, (-16.1%) Itau & Unibank (Merged in 2008. Drop in percent due to lower profits at Unibank.)
8.80 (74%) Bank do Brazil (Government owns > 50% of stock. I own <<< 1%)
7.62 (5.8%) Bradesco
3.88 (-63.3%) Caixa Economic Federal. (Government owns 100%. Caixa mainly finances modest homes. Probably higher YoY defaults and late mortgages payment explains large percent drop.)
2.76 (3.7%) Santander (A few years ago, bank was owned by São Paulo, but now by a Spanish bank)
1.35 (9.0%) HSBC (Only operates in Sao Paulo & Rio, I think, but perhaps a few other big cities.)
0.90 (-18%) Votorantim (Possible target for HSBC take over / make over?)
0.65 (113.5%) Nossa Caixa (I think owned by State of Sao Paulo)
Note “caixa” generally means “box” but often refers to a place money is kept.
“Caixa 2” is how one refers to the funds obtained illegally, bribes, political contributions in excess of limits, etc.

SUMMARY: Any inference that Brazil's banks are in trouble is nonsense.
See quote from Zacks in post 103 for Zack’s recent and strong endorsement of ALL aspects of the Brazilian economy.

Also here is what Market Watch said today in an article on the BRICs: "In contrast to Russia, Brazil is in much better shape, even though it too has suffered from the global crisis. Its currency and equity market have taken a beating, but it has a diversified array of exports, including agricultural products, minerals, and various manufactured goods. What is more, Brazil, instead of dithering on policy, as the Russians seem to be doing, has actually mounted a balanced program to deal with the economic and financial pressure." From:http://www.marketwatch.com/news/sto...x?guid={ADFF0790-ED3F-4B16-8FC4-6702D8EF91AA}

To 2inqusitive: The trade balance data for Feb09 is in today’s paper. As I fore told, the slight negative result of Jan08 was NOT start of down tend. Jan08 was a fluk, caused mainly by stikes at end of 2008 related to a few thousand workers in large unions losing their Jobs. The unions seems to have learned that only hurt all, as when Embaraer announced 4000 would be laid off last week, the unions are asking for that to be reversed and all take pay cuts and less work hours instead.

Just to prove I was correct, below is the monthly trade balance data in US$ millions. The 2008 monthly average is: 2.06 billion USD / month. (The graph I read data from skipped printing values on the graph for alternate months. I.e. the ~ indicates a value I read from the curve, not an exact printed value.)
Here is month by month data:

922 Jan 2008
~900 Feb
988 Mar
~1,700 Apr
4,075 May
~2,800 June
3,329 July
~2.250 Aug
2,732 Sept
~1,200 Oct
1,621 Nov
~2,200Dec

-524 Jan 2009
1,767 Feb

Thus far from your expectations that Feb09 would be negative, it is approximately TWICE the POSITIVE Feb08 amount.
February is always a slow month, especially in years like this one, when Brazil shuts down for at least a week of Carnival celebrations. One negative month in more than eight years is not bad! (Especially since it was a self-inflicted wound by silly union's strikes.)! I did not check, but bet the US did not even have one positive trade balance month in GWB's eight years. How can anyone expect the dollar NOT to collapse? (Especially with the printing presses cranking them out at more than a trillion / per year as far into the future as one can foresee.)

I admit to a pro-Brazil economic bias, but you must face some facts:

Brazil’s GOVERNMENT has NO net external debts (Brazilian companies, many are really international, do have net debts in foreign currencies.) There are some Brazilian bonds, payable in dollars out, but less than the dollar reserves, which have climbed back above 200billion US dollars. Trade with US is dropping, but not as fast as trade with Asia is rising. I.e. everything** I predicted years ago is coming true. Brazil is becoming an “economic colony” of Asia supplying it with food stock, minerals, including oil, and soon significant quantities of Alcohol fuel. Embaraer’s joint venture with China to produce airplanes in China is doing well. – China has announced that it will not be buying more from Boeing. China wants to buy farm land in Brazil and import the flex fuel technology. Lula's has made many small stimulus changes, including expanding Bolsa Familia, and the 12.75% basic interest rate (highest real rate in the world, to limit growth to a sustainable level) leaves enormous room for monetary stimulus, should that be required. (US has no more bullets in the monetary gun.) So I again reaffirm: THERE WILL BE NO RECESSION IN BRAZIL, but I am no longer 100% sure that US and EU will slip into depression as Obama is doing many things right and is a very inspiring leader.**
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*Perhaps there may be a few, one-branch, small-town banks in Brazil that were not profitable and had problems making loans as their customers moved deposits to bigger banks, but most of them are now part of the bigger banks.

** The run on the dollar I predicted has not yet happened, but it will, and well before the end of the time window I set for it years ago. (October 2014) Probably that does still lead to US & EU in depression worse than 1929 only a few months later, but Obama’s talents and intelligence, assuming he is not killed, make that less sure.

 

CHINA
By chairman Andrew Leung (A.L. International Consultants Limited):

"...The improved figures in December and January show that excess capacity is being absorbed. There was $14.6 billion extra spending in [the fourth quarter of] 2008. Moreover, aggressive investments have been announced by the railways, housing, civil aviation, and transport ministries totaling $424.6 billion and extra local government spending of $382.1 billion in Beijing and Guangdong alone. The total impact could be as much as four times the original stimulus package of $586 billion, even allowing for double counting.

The Chinese government can implement these budgets, as well as supportive lending policies, much more rapidly than Western democracies. So, while worsening global market conditions may further depress China’s overall economic figures in the first half of 2009, I see increasing likelihood of more positive figures in the second half. On balance, I am inclined towards a forecast of close to 8% in 2009. ..."

From: http://www.moneyshow.com/investing/global.asp?aid=GlobalQA-16294

Remainder of this Q&A exchange gives his POV about various types of investments - worth a read if interested in that.

 

BRAZIL

2008 Was good year for Brazil, but last quarter turned sour mainly due to global problems but local strikes in Dec hurt too and made Jan09 the first month with trade deficit in eight years (Feb09 was healthy positive again.)

2008 GDP grew 5.1% but 4Q08 was one of the world's worst GDP "cliffs." (-3.6% !) Here is the recent QonQ percent CHANGES in GDP (NOT the GDP) for several

Country...1Q07..2Q07..3Q07..4Q07...1Q08..2Q08..3Q08..4Q08
USA .........0.2....0.9....1.2......0.2.........0.2....0.7.....-0.1....-1.6 (Official Recession)
Brazil........1.7....1.4.....1.2......1.8.........1.6....1.6......1.7.....-3.6 (Recession possible)
Euro Zone.0.8....0.3.....0.7.....0.4........0.7 ...-0.3....-0.2....-1.5 (3Qs of recession)
Japan........1.0....-0.4....0.3.....0.9........0.2...-0.9.....-0.6....-3.3 (3Qs of recession)
China........3.8....2.6.....1.7......2.4........3.9....1.6......0.7.....0.3 (Still growing)

Both China and Brazil have joined RoW with slightly negative inflation in February 2008. (Way below lower bound of the inflation goal 2.5% in Brazil's case.)
Thus, with inflation switched negative last month, yesterday Brazil's central Bank cut the basic interest rate 1.5%, which at 11.25% nominal and on annual inflation adjustment is 6.5% real, the highest in the world still. (Note: Should they be needed, there are still more seven of these "1.5% bullets" in Brazil's monetary gun! The US has not even had a 0.5% bullet left in its monetary gun for 3 months now.) I expect the Brazilain central bank to fire a 1.25% bullet at it next meeting (about 45 days) to bring the basic interest rate to 10%. If it does, it will still have eight of those bullets left, with which to "kill a looming recession."*

Here is Brazil's annual GDP growth for recent years (in %):
2000...01...02...03...04...05...06...07...08
4.3.....1.3...2.7..1.1...5.7..3.2...4.0..5.7...5.1

Price of most commodities (except iron ore) and Brazilian exports have started to increase (compared to 3Q08) again so it is very likely 2Q09 will show GDP growth.

I.e. Brazil likely (and certainly China) to avoid recession, in first half of 2009, at least.
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*Brazil's history with rapid inflation makes these "bullets" extra powerful. When inflation was rapid, people rarely were concerned with the cost of durable goods. Salaries were adjusted monthly for inflation as as were monthly payments, so the total paid might be 10 or 30 times the cash price when inflation was bad. I.e. no one even bothered to ask what a refrigerator costs - only what was the monthly payment and for how many months. They still think that way. Thus, when interest is cut 1.5% that has big effect on their monthly payments and some who could not buy, now can and will. Stores will raise the price and lower the monthly payment with 1.5% lower interest.

 

I'm sure I've mentioned before that China's official GDP growth rates cannot be compared with those of other countries, because they are accounted differently. Specifically, they overstate Chinese GDP growth relative to other countries during slowdowns, because they use a longer time-lag to calculate the annualized rate.

Specifically, when you say that US GDP growth in 4Q08 was -1.6%, that means that the GDP at the end of 4Q08 was smaller than 3Q08, by an amount that (were the trend to continue steadily) would work out to a decline of 1.6% per year.

But when you say Chinese GDP growth in 4Q08 was 0.3%, that means that the Chinese GDP at the end of 4Q08 was 0.3% larger than the Chinese GDP in 4Q07. Both of these methods produce equivalent results under steady economic conditions. But during a downturn, the numbers from everyone other than China will turn negative much sooner, because they only reflect the most recent performance. China's reported growth rate, on the other hand, will only turn negative after multiple consecutive quarters of decline.

 

To Quadphonics:

I do not undestand your point, but neither do I understand the data I quoted (from page B2 of 11March09 Folio de Sao Paulo) which was constructed by FIESP, which is a large Brazilian economic research organization. (They make lots of different stastical indicies related to inflation, GDP growth, etc. They are not governmental, as far as I know, but private. I do not know how they support them selves, but think they are some sort of foundation.*)

For example, I tried to get Brazil's claimed 5.1% GDP growth in 2008 from the four quartely changes (1.6,1.6.,1.7 & -3.6%) but you can not do that as they are all relative to the prior quarter and none is absolute. Same is true of all the other data I quoted in first table.

The associated article (and my introductory comment to the table) was focused on how steep the fourth quarter "cliff" of GDP decline was. According to the article, only South Korea, had a steeper decline in 4Q08 wrt 3Q08.

Clearly if China has four quarters in a row with each only 0.3% better than the prior in 2009, they will have very low, but positve GDP for 2009. I think it would be (1.003)^4 = 1.2% growth for full year. (compared to 2008 GDP)

Likewise 1,016 x1.016x1.017 (Brazil's first three quarter of 2008) gives 1.0498increase on 2007 in three quarters, but then came a -3.6% growth vs the +1.7% of 3Q08 or a 5.3% decline from the positve 1.7%. Thus, for all of 2008, 1.0498x 0.943 = 0.99, but this is NOT consistent with other data published in same edition. Namily the GDP for 2007 was 5.7% and for 2008 it was claimed to be 5.1% (much lower than 0.99 times 5.7)

Perhaps what I must do is: 1.057x0.99 = 1.0464 but that is only 4.64% growth for 2008, not the 5.1% claimed.

Perhaps my problem (in understanding exactly what this data is) is that the 5.7% growth in 2007 is also not absolute but wrt to 2006.

I obviously do not adequately understand the data I posted. If you can explain it to me, I would appreciated it. All I really understand is the article's main point - Brazil's GDP growth really fell off a cliff in 4Q08.
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*I am just guessing, but bet their name is something like: Foundation for Indicies Economic of Sao Paulo. (That fits with the adjectives after nouns of Portuguese with the two prepositional phrases as adjectives and "Economic" as an adjective following and modifing "Indicies" inside of one.)

 

Well, without knowing what data they used, and exactly how those numbers were computed (and what their units are: are the annualized?), it's difficult to figure out where the discrepancies are. However, it is very much standard to perform seasonal weightings when looking at quarterly GDP data. I.e., there are known, fixed quarterly variations in GDP, and these are accounted for when the growth rate is calculated (for example, the Christmas shopping season results in a bigger GDP in Q4 than other quarters, and this effect is compensated for). I suspect this is the source of your difficulties.

Moreover, I doubt very much that FIESP has access to any better China numbers than the official ones; pretty much nobody does. That doesn't mean they used the official ones, but if they didn't it's even more suspect.

Let me give an example of the difference between Chinese GDP growth computation and everyone else. Imagine some fictional country whose GDP (not growth, actual GDP) looks like this over some period:

Q0: 1
Q1: 1
Q2: 10
Q3: 10
Q4: 5

And suppose we want to estimate the annualized growth rate as of Q4. Using the regular method, we see that GDP declined by 50% from Q3 to Q4, which works out to an annualized growth rate of around -95% (very bad!). Using the Chinese method, however, we compute by comparing Q4 to Q0 (and ignoring Q1, Q2 and Q3). Under this approach, we get an annualized figure of %500 growth! So, for the exact same economy, the standard method gives a hugely negative growth rate, while the Chinese method gives a hugely positive growth rate. This is because the standard method is telling you how you compare to the previous quarter, while the Chinese method is telling you how you compare to 4 quarters ago. And during periods of volatility, these can be wildly different.

The two approaches work out the same only when growth is constant each quarter (which it never is, unless you include seasonal adjustments). The advantage of the Chinese method is that it produces smoother results, so a single bad or good quarter doesn't throw things off much. The downside is that it has a longer time-lag, and so is not providing as up-to-date a picture of the trend. Both approaches have advantages and drawbacks, but the important thing is to keep in mind that they're apples and oranges. That China's economy is bigger than it was a year ago, while America's is smaller than it was 3 months ago, doesn't actually imply that China is in better shape than America. It is perfectly possible that America's economy is also bigger than it was a year ago, and China's also smaller than 3 months ago.

The magnitudes of the growth rates you quote lead me to suspect that they are simply quarter-on-quarter changes. Which avoids the problem of different ways of annualizing the results, but does not avoid the issues with seasonal adjustments, which are more than significant enough to substantially change the picture, and which do not exist (in any commonly accepted form anyway) for China.

 

BRAZIL

"... Exxon Mobil’s Azulao-1 well tapped a reservoir that could contain 8 billion barrels of recoverable oil, ... The size of the discovery will intensify interest in Brazil’s offshore region among U.S., European and Chinese producers amid a dwindling supply of untapped oil basins outside the Persian Gulf and Russia, ...“This is very huge,” Lemos {of Petrobras} said yesterday ...
Petrobras triggered a flood of interest in Brazil’s offshore crude deposits with the November 2007 announcement that Tupi may hold the equivalent of 8 billion barrels of recoverable oil. That would make it the largest find in the Americas since Mexico’s Cantarell field was discovered in 1976...
At current energy prices, 8 billion barrels of oil is worth about $380 billion, which exceeds the economic output of Taiwan, South Africa and Ireland.

The Brazilian prospects cover an area the size of the U.S. state of Florida* about 170 miles (274 kilometers) offshore under more than 16,000 feet of water, rock and salt, Lemos said. The region will require $500 billion in investments over the next few decades for pipelines, production platforms, gas-processing plants and other infrastructure, ..."

From:http://www.bloomberg.com/apps/news?pid=20601087&sid=ayLSMCD585X8&refer=home
More reason why Brazil will prosper. (Asia will finance and take the oil)

PS to Quadphonics:
I do not think any of the data used the "Chinese mentod" you spoke of. (or all was) It is all from the same table by the same organization. I am sure they must rely on Chinese data but they get this all the time. Surely are not mixing in "Chinese Method" but using their records of what China and others have published for years, not just a recent and different report from China.

I think that the data in my quoted table is how the most recent quarter changed the 12 month annualized GDP from the previous quarter's same computation. I.e. 4Q08's drop was 5.3% fall from the +1.7% annualized increase of 3Q08 but the annualized with four quarters of 2008 GDP growth was -3.6% down form the annualized 4Q07 thru 3Q08 GDP growth.

I really am not sure of any of this. Only that Brazil's 4Q08 was a cliff for GDP.
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*Area mostly not yet drilled. Some optimists are suggesting more difficult to extract oil than Saudi Arabia had.

 

How China is trying to cope with 6.1 million new university graduates:

"In recent weeks the government has therefore announced various measures to cushion the blow for graduates. They can get loans of up to 50,000 yuan ($7,300) to start their own businesses. Companies that employ them can also qualify for loans and earn tax breaks. Graduates who join the army or who take up jobs in poor, remote areas of western China will get their university tuition fees refunded by the government. Most cities have been told that for graduates they should waive residency requirements that restrict hiring from beyond their own municipalities.

In 2006 the government was already trying to find something useful for graduates to do by encouraging them to take up jobs in villages as assistants to rural officials. They were promised preferential treatment after three years in the countryside when applying for civil-service jobs or for places in graduate school. Beijing municipality, which includes a large rural hinterland, says it has already fulfilled its goal of installing two graduates in every village. Last year there were 17,000 applicants in the city for 3,000 such posts. Now the government worries that the first to enroll in this scheme are about to finish their three years and return to seek their employment rewards."
From: http://www.economist.com/world/asia/displaystory.cfm?story_id=13446878

What is the US doing for it new graduates?

 

Zack’s View of Brazil:

“…Despite the problems that became more pronounced with the emergence of the crisis, it is important to recognize that the Brazilian banking system remains solid and healthy and that interest rates are being reduced in Brazil. … there was no boom and Brazil market conditions were not even close to a boom, like the one in the U.S. real estate market, given the small credit portfolio in real estate.
{Billy T insert: Mortgages in US are 70% of annual GDP, In China, 10% and in Brazil only 3% -definitely not a real estate bubble. But}
…{Brazil’s Central Bank} slashed its interest rates … to 11.25% currently. … We {Zacks} expect that the Brazilian domestic rates will reach somewhere between 9% and 10% by the end of 2009, the lowest level in more than 25 years. We believe the continued decrease of the domestic rates in Brazil will help to counterbalance the effects of the international crisis in the short-term. It is very important to take into account that Brazil has a solid and healthy banking system, thus we do believe that a more relaxed monetary policy will eventually translate into more loans. Mainly considering that there is a long way down. Brazil still has the highest real interest rates in the world around 7%, considering an expected inflation for 2009 of 4.5%. Additionally, the country has huge international reserves (above US$200 billion), a positive trade balance, slightly negative current account balance, and reasonably solid fiscal situation. Even though Brazil is affected by this crisis, we do expect Brazil to outperform more developed economies in the U.S., Europe and Japan. …”

From: http://www.zacks.com/newsroom/commentary/new_pdf.php?id=10681&type=6
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As I predicted years ago, Brazil is becoming an “Economic Colony” of Asia especially China and USA is growing less important for Brazil. In less than one month President Lula, will be in China with a delegation of business men also, to work out details of how their bilateral trade will cease to use dollars. Probably both central banks will swap currencies so that Brazil’s central bank has Yuan (RMB) to lend to Brazilian firms importing Chinese goods and conversely. I.e. Brazilian exporters who earn RMB will sell them to the Brazilian central bank.

Probably also, as the dollar becomes less important, more of Brazil’s >200 billion dollar reserves will be held in RMB and less in Dollars. Not only China is concerned that they could get stuck holding a bag of green paper. Almost all governments with large reserves in dollars are concerned. Those with large net balance of trade have set up “Sovern Funds” to buy real assets, instead of Uncle Sam’s promises to pay dollars later. (US treasury bonds). The Fed is now the main buyer of Treasury paper. – It effectively has printing presses of unlimited capacity as the growing US debt must be financed by someone. Uncle Sam will never default, but when your $1000 bond matures, it may cover the cost of a movie ticket, but not the pop-corn.

Brazil's trading is shifting towards China. Exports, Ex; Imports, Im; & Net in billions of dollars for first three months were as follows:
Ex 2008 = 2.1 Im 2008 = 4.1 Net = -2.0
Ex 2009 = 3.4 Im 2009 = 3.6 Net = -0.2 probably full 2009 will be positive as soy price is now up and most of the harvest is yet to ship.

Total Trade (Ex +Im) with China = 7.011 Billion is up 12.5% YoY.
Total Trade (Ex +Im) with USA = 8.9 Billion is Down 19.0% YoY.

Note with USA, Brazil has switched to be a net importer as follows:

Ex 2008 = 5.8 Im 2008 = 5.3 Net = +0.5
Ex 2009 = 3.6 Im 2009 = 5.1 Net = -1.8

The big drop in Brazil's exports to the US is due to the US going broke. The US's trade balance with almost everyone is improving as it imports are falling more rapidly than exports, which were are in many cases also falling as in the first quarter of 2009. (The rush to safety, buying of treasury bonds, has made the dollar stronger, which hurts US exports.)

Brazil is a slight exception due the rapid increase in prosperity in Brazil, especial in the lower economic classes, in large part due to the expansion of Bolsa Familia, both in numbers and grants to each. (It is soon and election year in Brazil. The pot holes in local roads will get fixed also. etc. as government makes work and spreads money arournd.)

However, unlike simple manual patches of pot holes, Bolsa Famila is very good program, which pays for is self short term (reduced heath cost and multiplier effect makes more economic activity that is taxed) and very much so in the long term. (As the WWII's GI bill did in higher earnings the are taxed for a lifetime.) Bolsa Familia grants to the poor require that their children remain in school until age 18 and get all their vaccinations and check-ups. Prior to B.F. the rural child typically left school soon after learning to read and do simple math to help his father work in the fields.

The grant is not large but may more than double the family’s cash income. Many of the rural poor in Brazil live almost entirely outside of the formal economy. They grow their food, coffee and tobacco, cook with wood stove, etc. If they have a salaried job it is for very low wages, but does let them have electricity and a few store bought items. Bolsa Familia turns them into modest buyers in the nearby town. To the extent that the recent expansion Bolsa Familia is part of Brazil’s stimulus plan, the US made Global recession has been a great help to Brazil’s poor.

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"People’s Bank of China Governor Zhou Xiaochuan said China would continue a “moderately loose” monetary policy in order to boost economic growth. Zhou, speaking at a meeting of the International Monetary Fund in Washington, said China’s economy has the ability to “continue to grow relatively fast.” Zhou’s comments were released by the Chinese IMF delegation in Washington. "
From: http://www.bloomberg.com/apps/news?pid=20601087&sid=aHrws1IX4z_E&refer=home

Which BTW is the entire article - two sentences - the shortest I have ever seen at Bloomberg.

 

Post 116 give a mainly economic POV about Brazil that I agree with in general. This post provides some facts about how Brazil is changing:

First let me note that Brazil no longer has the highest real interest rates in the world (China does) as the basic nominal rate was cut 1% down to 10.25% last week. Depending on who you want to believe, Brazil’s GDP is growing about 5% now but surely is at least 10 percentage points HIGHER than that of the USA. (negative 6.3% now)

Probably the most significant change in the last 45 years has been demographic (Excepting the ending of run away inflation with the Real via the URV plan.)

The fraction of the population of working age (defined to be 15 to 65) has increased for 52.8% in 1965 to 67.6 in 2010 (Yes it is not yet 2010, but this is very predictable as they are all already born.)

Brazil was a country of youth. In this same time period, the average age increased from 18.2 to 29.0 years! This is because the average number of live births a woman had fell from 6.15 to 1.90, which is less than replacement value of slightly more than 2, and the fact the old are living years longer with public health services now essentially free to all. The population is still increasing however, as the old are living longer more than compensates for the low birth rates. Back in 1965 the population was increasing at 2.96% per year. Now at only 0.98% per year.

In a decade or so Brazil’s population will peak and then in another decade Brazil will be more like a European country with a declining native born population. Many of the Brazilians who went to the US, EU and Japan for greater economic opportunities are now returning to Brazil, for the same reason. If not for this, the rate of population would be increasing more slowly. Japan is actually paying US$3000 to each of the many now unemployed Brazilians living there to return to Brazil. Sao Paulo City and State has a large population of Japanese, second only to Toyko!

Charles DeGaule said two things about Brazil, many years ago:

“Brazil is not a serious country.”* And somewhat contradictorily: “Brazil is the land of the future.”

It was not Charles who turned that last statement into a joke, but a Brazilian, by adding “and it always will be.”

Well it seems to be turning out that Charles was correct and the future is beginning now as the US, EU and Japan slide down hill economically. Brazil is turning to China as it main export market but Brazil’s economy is not much into exports, despite what most believe. Brazil GDP is mainly domestic. Only 8% is directly related to exports. Why Brazil’s GDP is still growing despite reduced volume of exports.

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* I think he was here during Carnival at the time. The whole country does shut down for a week of partying then and the government gives out more than 100,000 free condoms via agents on the streets of São Paulo alone as part of the AIDs control program.