Barry Ritholz paints a bleak picture for China and Brazil (and we agree):
“I can’t stop thinking about China.  I had dinner a month ago or so with one of the most noted China bears on The Street.  I came away thinking about how the rampant accounting fraud happening with small caps that have listed stateside could be just the tip of the iceberg (“The People’s Republic of Madoff” was how he phrased it).  But that’s a longer-term issue, in the short term I’m still freaked out about how Brazil has gone from raising rates to ward off inflation to cutting rates out of nowhere.  While Brazil has done a nice job of allowing their internal middle class to flourish, one cannot forget the fact that the main driver of the economy is mineral exports and the main customer is China.  The two markets are inseparable, like auto parts and auto manufacturing.  When the factory stops calling for windshields, the glaziers probably have a tough slog ahead of them.  The question becomes: “Was Brazil’s rate cut purely in response to the unwelcome strength in the Real?  Or did they perhaps get a whiff of some demand destruction coming from the east?”
China’s stock market has slowdown written all over it, for those not keeping score – the Shanghai Composite just printed a 14-month low with a crucial CPI datapoint coming Friday.  If prices show no sign of having cooled off then China’s relentless rate and reserve hikes may have to continue.  If we have any hope of global growth in 2012 we’ll need China’s Soft Landing to actually happen.  The only trouble is, I can’t think of any notable “soft landings” that have actually occurred in the last 15 years, and certainly none in an economy of that size and velocity.”


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