Brazil . . . Winning the World Cup of Interest Rates

Conclusion: Brazil increases interest rates to 10.25%, which leads the G20. Investors applaud, the masses are less pleased.


From Brazil, we're seeing more proactive risk management from a central bank president not named Glenn Stevens. As widely anticipated, the central bank’s monetary policy committee voted unanimously to raise Brazil’s primary interest rate, the SELIC, by 0.75%, to 10.25%.  The previous rate hike – also 0.75%, from 8.75% to 9.5% - was put through in April.  The rate increase was in line with market expectations in the central bank’s efforts to combat inflation.  The monetary policy committee meets again on 20 July.

 

Labor unions and business owners have expressed displeasure, saying the bank has thrown a bucket of cold water on the economy at what should have been an auspicious moment.  Sao Paulo’s business federation (Fecomerico) said the rate hike is the bank’s way of compensating for the state’s inefficiency.  They said the country should get public spending under control and make investments that will provide productive stimulus, rather than seek to control demand through higher interest rates. Consumers are echoing the more of the same with their wallets. Consumer credit delinquencies rose 1.9% in May Y/Y and 4.3% M/M (the first increase since Oct. 2009). Burgeoning credit card debt, consumer financing and bank loans were seen as the principle cause of the rise in the indicator, as consumer indebtedness grew at an accelerated rate during the last three quarters.  Rising interest rates were also seen as a contributing factor.

 

While we’d prefer not to take sides here, we do have a soft spot in our hearts for countries that respect the cost of capital – particularly in the face of white-hot growth and above-target inflation. To recap, Brazil posted a China-esque +9% Y/Y 1Q10 GDP release on Tuesday and May inflation (CPI) came in up 5.22%, though down sequentially from 5.26% in April, which is above the target rate of 4.5%.

 

In short, this seems like a classic case of short-term pain for long term economic gain. While Brazil does indeed have its problems (crime, government wastefulness, dried up capital markets), it certainly deserves a pat on the back for this latest bout of risk management. With the Bovespa rallying 2.6% yesterday, it looks as if it is getting just that.

 

 Brazil . . . Winning the World Cup of Interest Rates - Bovespa

 

Moshe Silver

Chief Compliance Officer and Managing Director

 

Darius Dale

Analyst


Cartoon of the Day: Acrophobia

"Most people who are making a ton of money right now are focused on growth companies seeing accelerations," Hedgeye CEO Keith McCullough wrote in today's Early Look. "That’s what happens in Quad 1."

read more

People's Bank of China Spins China’s Bad-Loan Data

PBoC Deputy Governor Yi says China's non-performing loan problem has “pretty much stabilized." "Yi is spinning. China’s bad-debt problem remains serious," write Benn Steil and Emma Smith, Council on Foreign Relations.

read more

UnderArmour: 'I Am Much More Bearish Than I Was 3 Hours Ago'

“The consumer has a short memory.” Yes, Plank actually said this," writes Hedgeye Retail analyst Brian McGough. "Last time I heard such arrogance was Ron Johnson."

read more

Buffalo Wild Wings: Complacency & Lack of Leadership (by Howard Penney)

"Buffalo Wild Wings has been plagued by complacency and a continued lack of adequate leadership," writes Hedgeye Restaurants analyst Howard Penney.

read more

Todd Jordan on Las Vegas Sands Earnings

"The quarter actually beat lowered expectations. Overall, the mass segment performed well although base mass lagging is a concern," writes Hedgeye Gaming, Lodging & Leisure analyst Todd Jordan on Las Vegas Sands.

read more

An Update on Defense Spending by Lt. Gen Emo Gardner

"Congress' FY17 omnibus appropriation will fully fund the Pentagon's original budget request plus $15B of its $30B supplemental request," writes Hedgeye Potomac Defense Policy analyst Lt. Gen Emerson "Emo" Gardner USMC Ret.

read more

Got Process? Zero Hedge Sells Fear, Not Truth

Fear sells. Always has. Look no further than Zero Hedge.

read more

REPLAY: Review of $EXAS Earnings Call (A Hedgeye Best Idea Long)

Our Healthcare Team made a monster call to be long EXAS - hear their updated thoughts.

read more

Capital Brief: 5 Things to Watch Right Now In Washington

Here's a quick look at some key issues investors should keep an eye on from Hedgeye's JT Taylor and our team of Washington Policy analysts in D.C.

read more

Premium insight

[UNLOCKED] Today's Daily Trading Ranges

“If I could only have one thing of the many things we have it would be my daily ranges." Hedgeye CEO Keith McCullough said recently.

read more

We'll Say It Again: Leave Your Politics Out of Your Portfolio

If your politics dictates your portfolio positioning, the Democrats and #NeverTrump crowd out there have had a hell of a week.

read more

Cartoon of the Day: 'Biggest Tax Cut Ever'

President Donald Trump's economic team unveiled what he called last week, "the biggest tax cut we’ve ever had.” Before you get too excited about that hang on a sec. "Trump Tax Reform ain’t gettin’ done anytime soon," Hedgeye CEO Keith McCullough wrote in today's Early Look.

read more