Is the BACEN fuelling the bubble?

Today in Estadão: BC incentiva crédito no momento em que a dívida de brasileiro bate recorde

It's the goverment trying to push the economic cycle beyond its limits. We have seen how its ends.

Japan's Debt

Japan has a debt as a share of GDP over 200% and also incurs in primary budget deficit:

Compared with Italy, the latest target of creditor angst, on many counts Japan is more troubling. Its net debt is bigger as a share of GDP and it has a primary budget deficit (ie, before interest payments), whereas Italy has a surplus. With the fastest-ageing society on Earth its growth prospects are not obviously better than Italy’s.

Source: The Economist

The World Is In Trouble

At least is what assures Jim Rogers, an author, financial commentator and successful international investor, and bullish about China:

We're certainly going to have more crises coming out of Europe and America; the world is in trouble. The world has been spending staggering amounts of money that it doesn't have for a few decades now, and it's all coming home to roost.

 Last time, America quadrupled its debt. The system is much more extended now, and America cannot quadruple its debt again. Greece cannot double its debt again. The next time around is going to be much worse.

Source here: Jim Rogers Blog

Even tropical fruits are more expensive here than in US

With  appreciation of the real, not only capital goods costs a lot less outside Brazil.
This article shows that even typical Brazilian tropical fruits costs more here than in New York!

Optimistcs News

As pessimistics news are rare, here goes one to help us remember how fragil things are:

http://exame.abril.com.br/seu-dinheiro/acoes/noticias/5-gurus-bem-pessimistas-com-a-bolsa

S.&P. Downgrades Debt Rating of U.S. for the First Time

You said you're missing the time of circuit breakers.
Well, I think that time has come again.
I just need to have the necessary patience not to buy too early...
Let's cheers this new time!

Consumer credit in Brazil

Financiamento de veículos: inadimplência aumenta

O atraso nas prestações vencidas há mais de 90 dias é de 3,6% de todos contratos, numa trajetória crescente. Era de 2,6% em janeiro, foi a 2,8% em fevereiro, a 3% em março e a 3,2% em abril.

China's Hidden Debt

A recent article from The Economist shows that debit in China could be substantially high than published, due to the hidden debts of its local governments.

The official public debt of the central government was only 19% of GDP at the end of 2010. Adding the debts of local governments, the non-performing loans of the banks and other liabilities, such as central-bank bills, the public debt amounts to about 80% of GDP according to Andrew Batson and Janet Zhang of GaveKalDragonomics, a consultancy in Beijing. That sounds high for a developing country.

The government has never revealed how much debt the local-government vehicles took on. Despite this opacity, or perhaps because of it, these hidden liabilities have become one of the four big worries haunting China-watchers, along with the property bubble, inflation and lightly regulated trust companies. Victor Shih of Northwestern University has described the debts as a “big rock-candy mountain”. In June 2010, he projected it might reach as high as 24 trillion yuan ($3.7 trillion) by the end of 2012, or over half of China’s GDP.

Brazil Credit Bubble

Again Financial Times argues that Brazil is exposed to a credit bubble, transitioning from a boom to bust. Main points are:

• The consumer debt service burden, which stood at 24 per cent of disposable income in 2010, is now slated to rise to 28 per cent in 2011. This compares with 16 per cent for an “overburdened” US consumer and a mid-single digit reading for other emerging markets such as China and India.
• But they calculate that the debt service burden for the so-called “middle class” in Brazil has now breached 50 per cent of disposable income, as high income earners have little need to borrow at rates which are punitive and most of the consumer credit is therefore being directed to the “middle class” for consumption.
• Meanwhile, delinquencies in Brazil (defaults in excess of 15 days) have begun to move up rapidly, from 7.8 per cent to 9.1 per cent of total loans between December 2010 and May 2011.

Important to highlight that this is very troubling as credit indicators have deteriorated even as the economy has stayed strong and the unemployment rates are at a record low. When they begin to deteriorate before any economic weakness it usually represents a structural problem relating to underlying cash flow or underwriting weakness in the quality of credit – Brazil has both problems.

China's Hard Landing

In this 5 series on Bloomberg,  A. Gary Shilling, author of The Age of Deleveraging: Investment Strategies for a Decade of Slow Growth and Deflation, states that China is headed for a hard landing.

Part1 - Part2 - Part3 - Part4 - Part5

Balance of Payments

I was taking a look at Brazilian Balance of Payments and what drove my attention was a line called Foreign Stocks Investments. We can see from the graph below that it has increased a lot and is now about BRL 140 billions accumulated (since 1995). It's more than a month of Ibovespa trade!
By the way, that amount enter in the computation of brazilian's reserves?

Richest Countries Debt

The debt of a handful of rich countries increased by US$ 16 trillion (more than the U.S. GDP) since 2007 and now reaches US$ 42 trillion, or 61% of global GDP, representing one of the main threats to the recovery the world economy. This debt worries the United States today, countries in the euro zone, Britain and Japan, just the richest part of the world, which for centuries was the engine and the vanguard of the expansion of human prosperity.
A lot of money!

Source: Exame.

China's International Reserves

China's International Reserves has grown to above US$ 3 trillions, an annual increase of almost 25%!
That's more than half its GDP!

The right way to look at Brazillians's Debt

Debts swallow 24% of family income

According to this news, Brazilians spend 24.2% of their salary to pay off loans and interest. Commitment to debt already is higher in Brazil than in the United States. 

I'm just posting this because I do hate when those big fool analysts say that there is no bubble here because credit in relation to GNP is very low regarding USA, and blah, blah, blah...

Productivity Makes Difference

An article from Exame shows that productivity makes difference (a lot).
While the U.S. and China manufacturing output are similar (almost 2 trillion U.S. dollars), China has to employ 100 million Chinese workers whereas USA only 11.5 million!

Slowing China

Interesting article about the most important economic subject for this century.

Income evolution in Lula's Government

A nice article about income evolution in Lula's Government that undermines the so exciting view about Brazil and/or Lula. In summary, during the Lula government the evolution of income in Brazil was characterized by:
1) poor performance by historical standards in Brazil (4% x 4.5% GNP growth)
2) very poor performance when compared to other presidents (11th worst president)
3) relative global fall (4.0% x 4.2% GNP growth)
4) country was hitted hard by the global crisis in 2009

Government are deferring expenses

As posted in the Mansueto's Blog, Brazil Government are deferring BRL 128 billions expenses in order to inflate "primary outcome", using what is called in the tax accounting of "outstanding commitments" (amounts to be paid).
This amount doesn't appear in the primary outcome neither in the net debt.
Besides the old tricks already known, like the operation of the capitalization of Petrobras (BRL 30 billions) and antecipating dividends receivement, there is now this big one.
So, who dare to say what are the really amount of Brazil's Debt? What are the primary outcome amount?

Brazil may be heading for a subprime crisis

Financial Times published today that Brazil may be heading for a subprime crisis. Finally somebody realized that "borrowing in Brazil is punitively expensive". We have to look to debt service burden in relation to disposable income, instead of just saying that loans to GDP is “only” 46 per cent:

For consumers specifically, the ramifications are serious as the debt service burden has risen to 24 per cent of disposable income and is set to rise further as rates push higher. We expect the burden to rise to an exorbitant 30 per cent by 2012. To put this into context, the US consumer “blew up” when the debt service burden hit 14 per cent (with a current read of approximately 12 per cent). In other words, the Brazilian consumer has twice the debt load from a cash flow perspective relative to a US consumer who is still widely regarded as being over leveraged.