Weekly Latin America Risk Monitor: The Bernank Tax

Conclusion: We await for more quantitative clarity on the price front as the outsized potential for another implementation of The Bernank Tax clouds Latin America’s GROWTH/INFLATION/POLICY outlook.



All % moves week-over-week unless otherwise specified.

    • Median: +1.1%
    • High: Peru +3.2%
    • Low: Argentina -3.8%
    • Callout: Latin American equity market are up +10.3% for the YTD on a median basis
  • FX (vs. USD):
    • Median: +0.2%
    • High: Brazilian real +0.7%
    • Low: Argentine peso flat
    • Callout: Latin American currencies are up +6.2% vs. the USD for the YTD on a median basis
    • High: Colombia flat
    • Low: Brazil -44bps
    • Callout: Brazil down -52bps YTD vs. Colombia only down -7bps
    • High: Colombia -3bps
    • Low: Brazil -19bps
    • Callout: Brazil down +8bps YTD vs. Mexico down -56bps
    • High: Brazil +25bps
    • Low: Mexico -10bps
    • Callout: Brazil +60bps wider YTD vs. Colombia -25bps tighter
  • 5YR CDS:
    • Median: -3.1%
    • High: Argentina -1.6%
    • Low: Peru -3.6%
    • Callout: Venezuela -17.7% tighter over the LTM vs. a regional widening of +18.2% on a median basis
    • Median: -0.5%
    • High: Colombia +3.9%/+20bps
    • Low: Brazil -3.3%/-32bps
    • Callout: Chile +4.2% wider YTD vs. Brazil -4.8% tighter
    • Median: -0.2%
    • High: Colombia +5.2%/+24bps
    • Low: Chile -0.8%/-4bps
    • Callout: Colombia +3.7% wider YTD vs. Brazil -5.2% tighter
  • CORRELATION RISK: The risk of heightening inflationary pressures is being incrementally priced into LatAm bond markets, with the MSCI EM Latin America Equity Index trading with a 23% inverse correlation to the price of Brent Crude Oil on a three-week basis. Extending the analysis across six additional [longer] durations, the correlations are all positive, which adds ethos to this data point as quantitative signal of a fundamental inflection point on Latin America’s growth/inflation outlook.

Full price and performance tables can be found at the conclusion of this note.



We’ve been vocal in calling out the risks to growth that are associated with the Fed’s renewed policy to inflate. We’ve rhetorically shifted our research focus alongside a demonstrable shift in our Asset Allocation and Virtual Portfolio to capture this immediate-term consternation. The key quantitative breakout/breakdown levels that will help us decide our next directional shift en masse are outlined in the charts below:


Weekly Latin America Risk Monitor: The Bernank Tax - 1


Weekly Latin America Risk Monitor: The Bernank Tax - 2



Growth Slowing’s Bottom:

  • Brazil: FGV Consumer Confidence ticked down in JAN to 116 vs. 119.6 prior. The country’s Unemployment Rate did make a new all-time low in DEC, at 4.7%. While seasonality exists in this metric on a month-to-month basis, the YoY decline in the rate actually accelerated: -60bps vs. -50bps prior.
  • Brazil: Industrial Production growth accelerated in DEC to -1.2% YoY vs. -2.7% prior. On a MoM basis, growth accelerated to +0.9% vs. +0.2% prior.
  • Argentina: Consumer Confidence ticked up in JAN to 57.4 vs. 52.6.
  • Chile: Industrial Production and Industrial Sales growth both slowed in DEC to +0.5% YoY (vs. +2% prior) and +0.4% YoY (vs. +4.5% prior), respectively. Retail Sales growth accelerated, however, to +10.1% YoY vs. +8.5% prior.

The Bernank Tax:

  • Brazil: The unofficial IGP-M CPI series slowed in JAN to +4.5% YoY vs. +5.1% prior; this positive data point should continue to drag the benchmark IPCA series down with it on a 2-4 month lag. As alluded to above, however, should the USD continue to break down quantitatively and Brent prices continue to break out, we think inflation on a global basis will start to reaccelerate heading into 2Q.
  • Colombia: In the wake of Bernanke priming the pump for QE3, Colombia’s central bank raised its benchmark interest rate +25bps to 5%, citing “increased inflation expectations”. This move is in-line with our outlook for Colombian 1H12 growth and inflation.


  • Brazil: Finance Minister Guido Mantega reiterated President Rouseff’s previous commentary in saying that Brazil will use fiscal policy to make room for more flexible monetary policy. Per the central bank’s latest minutes, “flexible” in this case is currently being defined as the Selic Rate being lowered into the high single digits, which is the level we saw in the thralls of 2009. The country is seeking a reacceleration to +4% Real GDP growth in 2012 via a combination of credit expansion of +15-17%, an increase in public investment, and consumer tax cuts/incentives. 
  • Brazil: To the point above, credit continues to come in hot amid gov’t incentives and lower interest rates (consumer lending rates: 43.8% on average in DEC down from 2011 peak of 47.1% in OCT): +19% YoY in DEC vs. +18.2% prior; +2.3% MoM vs. +1.9% prior. Looking ahead, we expect the Brazilian gov't to unveil policies designed to support Brazilian homeownership, with mortgages representing just shy of 10% of all domestic loans (vs. 31.2% for all other consumer credit).
  • Mexico: Incumbent president Filipe Calderon continues to audition for a role at the IMF following the culmination of his presidency by stating: “The G-20 should act together to help build a firewall that will prevent the spread of the financial crisis throughout Europe.” His view is in-line with Lagarde’s fear-mongering and is yet another sign of the Keynesian slant Mexican policymakers have adopted in recent years (haven’t hiked rates at all since the ‘08/’09 crisis).
  • Argentina: As inflation continues to trend well above official metrics, Argentines are responding in kind via “parking” their money in cars in search of dwindling opportunities for inflation protection. Automobile loans grew in 2011 at 10yr-high rate of +61% to a 10yr-high level of $3.8B. Car sales increased +30% YoY in 2011 following this expansion of capital. Not coincidentally, Standard & Poor’s, an agency that is not liable to the Argentine gov’t which fines private economists for publishing CPI rates north of official statistics, estimates Argentine CPI to come in at +29% YoY in 2012.
  • Argentina: President Cristina Fernandez de Kirchner’s regime continues to aggressively intervene in Argentine capital markets in pursuit of financial repression; the latest measures include the central bank’s decision to force dividend-paying banks to hold 75% more capital than the minimum requirement starting in FEB (up from 30%). The central bank pitched the change as a step towards compliance with Basel III, but the timing and punitive nature of the changes suggests otherwise to us – which is in line with the growing number of financial services professionals becoming increasingly disenchanted with the country due to the government’s [growing] heavy hand in markets. The latest measure should limit the amount of pesos being converted into dollars in order to be sent overseas to international investors and may serve to incrementally lower Argentine interest rates if banks do away w/ dividend payments altogether, as that would increase the aggregate supply of capital in the domestic economy. This is yet another measure that reduces Argentina’s need to devalue the peso and the country’s dollar debt is responding in kind: +10% YTD vs. -14% in 2011.
  • Argentina: YPF Sociedad Anonima shares have plunged this week and are now down -15% since the ADR put in an intermediate-term lower-high on JAN 23 on speculation that the government is discussing nationalization of the Argentinean oil giant. Fernandez’s administration has not been shy about pushing the country’s oil companies to increase domestic investment; nor have they been shy about blaming these corporations for a doubling of Argentina’s fuel imports to $9.4B in 2011. Our Energy team believes that such speculation is not warranted due to Argentina’s inability to finance YPF’s capital expenditures on their own; additionally the country stands to incrementally lose foreign investment amid a bevy of other interventionist measures.


Moshe Silver, our Chief Compliance Officer, is fluent in Portuguese and mines the local Brazilian press for hard-to-get data points for us each day. Below, we flag his top three callouts from the previous week:

  1. The Minha Casa, Minha Vida (“My House, My Life”) cash transfer program, whose focus is to build new housing for poor families, targets building 2 million additional dwelling units by 2014.  Finance minister Guido Mantega said aid to the construction sector is essential if the government’s target of 4% GDP growth is to be met this year.  Planning Minister Miriam Belchior said half of the 2 million units have already been completed and noted that the government is working on other aspects of the projects in an effort to speed completion and reduce costs.  This covers such areas as delays in installation of electricity, water, sewer lines, and documentation of families supposed to be covered by the program. 
  2. The central bank reports Brazilian tourists spent a record US$ 21.2 billion abroad in 2011, up 30% from 2010.  At the same time, foreign tourists in Brazil spent US$ 6.8 billion, an increase of 16.7%. Record spending levels notwithstanding, spending declined in the four months through November.  November showed a 5% decline month over month before spending picked up again in December, rising 2.2% MoM. 
  3. Brazilian mining and metals giant Vale won the “Oscar of Shame” award, an on-line poll conducted by Public Eye and sponsored by Greenpeace.  88,000 people voted worldwide to choose the world’s worst company.  The winner, with over 25,000 votes, was Vale, followed by Tepco, the operator of the Fukushima nuclear plant, Samsung and Barclays.  Vale was cited for its long history “characterized by inhuman working conditions, human rights violations, and destruction of the environment,” and was criticized for participating in the highly controversial Belo Monte hydroelectric dam.


Key economic data releases and policy announcements:

  • WED:
    • Brazil: JAN Manufacturing PMI, JAN Trade Data
    • Peru: JAN CPI
  • THURS:
    • Brazil: JAN FIPE CPI
  • FRI:
    • Brazil: DEC Capacity Utilization
    • Mexico: JAN Consumer Confidence; Central Bank Monetary Policy Minutes
    • Colombia: JAN PPI
    • Colombia: JAN CPI
  • MON:
    • Chile: DEC Economic Activity Index
  • TUES:
    • Mexico: JAN Manufacturing PMI; JAN Services PMI
    • Chile: JAN Trade Data

Darius Dale

Senior Analyst


Weekly Latin America Risk Monitor: The Bernank Tax - 3


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Weekly Latin America Risk Monitor: The Bernank Tax - 9

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