Is it time to buy into Brazilian assets?
After all, the saying goes that a savvy investors should buy when everyone is selling. But “don’t catch a falling knife” may be more appropriate in this case.
According to David Stockman, which labels Brazil “a financially unstable, debt-bloated, politically corrupt, speculation-riven satellite of the China house of cards”, potential foreign investors in Brazil must know that “nearly every single macro indicator is heading south at an accelerating pace; that over the last 10 years the Brazilian economy has been bloated and distorted by the double whammy of unsustainable demand for raw materials from China and rampant internal malinvestment and speculative bubbles funded by its socialist government and the latter’s central bank hand-maiden; and that the Brazilian household sector went on a borrowing spree that made the US mortgage bubble look tame.”
He goes further:
“During the last 10-years, Brazil has experienced what amount to a double-bubble. That is, its export accounts rose 5X between 2004 and the 2012 peak of the China infrastructure boom. At the same time, domestic consumer debt rose by 8X… In a healthy free market economy, big variables like exports and consumer debt can possibly grow by 0.5X (i.e. 50%) during the course of a decade—-when the stars are well aligned. But not by 4-8X. Not even close. The latter happens only under the spell of unsustainable bubble economics; it embodies the footprint of rampant central bank money printing… Brazil’s soaring exports of soybeans, iron ore, and other industrial materials to China would not have happened absent the massive credit bubble there—-which caused total credit market debt outstanding to soar from $1 trillion to $25 trillion in less than 14 years.”
And with most of this debt issued in dollar… do you hear that BOOM sound?
Source: David Stockman