1. On our way from the airport to downtown, the taxi driver told us the following true story about himself: “The real estate is definitely in bubble territory…. I, personally, have bought a house in Guarulhos (low-mid income suburb 45 minutes from the city of Sao Paulo) for R$180,000 reais in 2008… sold in 2010 for R$360,000! Isn’t this crazy? My taxi-cab fellows are all now getting mortgage credit to finance their own houses because of my success, but the prices are now super expensive, so I think it will not end nicely… but, for me, the real bubble is in credit: everyone I know is getting credit like there is no tomorrow… in 30 years, I have not seen anything similar to this. And the worse thing is that no one in Brazil thinks that there is a bubble because the media and the government keeps telling us to get credit, spend, and buy apartments!”
2. Fact: dining in Sao Paulo is twice more expensive than in the US.
3. Rua Oscar Freire (the Brazilian Rodeo Drive) is still rocking… it seems that people are still consuming, although in a lesser volume compared to 2009 and 2010…
3. A local Brazilian friend of ours told us at a dinner: “You are wrong about Brazil. I can assure you that if you buy a house now price will still go up in the future because there is a housing deficit (typical bubble phrase)… besides, Brazil is the “IN” country… which emerging country is this cool? That’s why prices will still go up, because there is nothing as cool as this… gringos love it and will keep buying things”.
Our “2-cent”: we agree with our friend about Brazil being the coolest place on Earth…. but his asset valuations based on the “coolness” factor are irrational… and that’s exactly why we think there is a bubble: most people are not pricing the assets by fair value…. it is now mainly driven by emotion and the “World Cup” fallacy.