In Brazil, the year 2016 will no doubt go down in the history books as one of the worst the country has experienced. The Brazilian president, Dilma Rousseff, was impeached for the role they played in a bribery scandal and for illegally disguising the country’s real debt. Moreover, the Brazilian economy had its worst recession in more than half a century.
And yet, there are some encouraging signs that, at least as far as the economy and the Brazilian Real are concerned, the country might have turned a corner.
Brazilian Bonds Revival
In the months of January and February, when the political climate turned more and more chaotic and Brazilian growth tumbled, yields on Brazilian 10-year bonds were as high as 16.78% and CDS prices, which measure the likelihood of a sovereign debt default, jumped to 7%. One would then expect that, from this point onwards, and especially in recent months with the prospect of a Fed’s tightening weighing on bond markets across the globe, the already fragile Brazilian government bonds would experience an utter meltdown, even to the extent of risking an actual default. But what happened instead was interesting. While bonds across the world were tanking and yields surging (bond yields move in reverse, relative to prices) amid the Fed’s tightening, Brazilian bonds staged an impressive rally, and yields on 10-year bonds fell from their highs back in January to as low as 11.4% today. Unsurprisingly, this was followed by an impressive rebound for the Brazilian Real. Continue reading "Will Brazil Turn A Corner In 2017?" →
A little more than a week ago, Brazil marked a historic milestone in its governance. After a lengthy process, and with a landslide vote, the Brazilian Parliament decided to impeach President Dilma Rousseff amid charges of corruption and breach of trust. For the record, Ms. Rousseff is widely held responsible for Brazil’s worst recession in a hundred years.
During the impeachment proceedings, which lasted some eight months, the Brazilian Vice President, Michel Temer, assumed the helm and took Rousseff’s place. Now, with the proceedings finally concluded, Michel Temer is officially Brazil’s president. Mr. Temer’s pro-business approach had been well rewarded with a period of grace from investors. Under Mr. Temer, the Brazilian Real rallied by 7% against the dollar, bond yields on Brazilian bonds fell and Credit Default Swaps, an important gauge for risk, fell as well. That made it easier for Mr. Temer to navigate and encouraged investors’ hopes for more pro-business reforms. But now, as Mr. Temer has turned from merely the acting president to the incumbent, the political climate is on the verge of change. The “grace period” afforded Mr. Temer during the impeachment proceedings has expired, and with the shift in sentiment the Brazilian economy and, consequently, the Brazilian Real, could fall into a tailspin.
The Brazilian economic crisis has three notable dimensions; a collapse in commodity prices, a weak monetary system, and an ugly fiscal picture. Continue reading "Brazilian Real May Face Another Spiral" →
LATAM currencies are back in the game. Optimism over Brazil’s political future is growing and commodities, a key driver of regional growth, are recovering. Together, much of the uncertainty looming over the region has been removed and put regional currencies -the Brazilian Real, Mexican Peso and Chilean Peso into favor.
One important gauge of rising optimism is the price of Credit Default Swaps. Credit Default Swaps, or CDS for short, measure the cost of insuring against a bankruptcy. When the price of Credit Default Swaps falls, it points on lower risk and higher optimism. As the chart below indicates, Credit Default Swaps have fallen dramatically across the region since February, signaling a surge in optimism in the LATAM space.
Chart courtesy of Deutsche Bank
But the CDS chart illustrates another very interesting picture. While the fall in risk is across the board, Brazil, the largest economy in the region, is deemed as the most probable to default on its debt by a wide margin compared to much smaller regional peers. Continue reading "LATAM: Watch Brazil But Buy The Peso" →
Latin America is going to end 2015 with a big bang. The entire region has experienced what could only be described as a mini Latin Spring. The corrupt government of Argentina lost power to the pro-business leader, Mauricio Macri. Meanwhile, Venezuela's left-wing extremists suffered a defeat in Parliamentary elections. More recently, Brazil's president, Dilma Rousseff, is facing impeachment charges amid a corruption scandal.
All this naturally begs two questions; are the winds changing in the Latin American space and what does that mean for LatAm currencies? Continue reading "LatAM: First The Pain, Then The Gain?" →
The Energy Report: Your book, "The Colder War," is based on the idea that world domination will come through control of the energy economy, and that Russia is winning the fight. How is Russia using the petrodollar to achieve energy supremacy?
Marin Katusa: Under the leadership of President Vladimir Putin, Russia has reestablished itself as the alternative to the American superpower. Putin has aligned himself with nations like China to work in concert against U.S. interests globally. Furthermore, a new bank formed by the BRICS countries Brazil, Russia, India, China and South Africa will attempt to assert itself as an alternative to the International Monetary Fund.
The Colder War will be a long battle, just like the first Cold War, but in the Colder War, judgment day of the petrodollar will be the critical battle. One must understand global politics and the Colder War to be a successful investor in the energy sector.
TER: What is China's role in this struggle? Continue reading "Marin Katusa: Winter is Coming, How Investors Can Win in the 'Colder War'" →