“Fiscal Cliff” put in a much betterperspective.

Lesson # 1:

* U.S. Tax revenue:$2,170,000,000,000

* Fed budget: $3,820,000,000,000

* New debt: $ 1,650,000,000,000

* National debt: $14,271,000,000,000

* Recent budget cuts: $38,500,000,000

Let's now remove 8 zeros and pretendit's a household budget:

* Annual family income: $21,700

* Money the family spent: $38,200

* New debt on the credit card:$16,500

* Outstanding balance on the creditcard: $142,710

* Total budget cuts so far: $38.50

Got It ?????

OK now,

Lesson # 2:

Here's another way to look at theDebt Ceiling:

Let's say, You come home from workand find that there has been a sewer backup in your neighbourhood and your homehas sewage all the way up to your ceilings.

What do you think you should do ?

Raise the ceilings, remove the sh*tor continue printing dollars until we run out of ink?

Under such madness dominating thebenchmark currency, how can it be possible to predict exchange rates or wherethe hand-basket is headed?

I transferred the money this morning from Euroland to Brazil. So if anyone says that it's better to wait with the cambio, come up with that soon. There is still time to reverse my transfer.

Brazilian Real Tumbles to Three-Year Low as GDP Misses Forecasts

EMERGING MARKETS-Brazil real, rates slide after disappointing GDP

Brazil's Real Closes Weaker

As a straight-forward down to earth guy who is set to sell some Euro's and buy some Reais in the near future for business purposes, I thought I'd take a look here to make my 'guess' on the timing-issue. Wow, is this place hijacked by Americans who think they know! No offense and don't get me wrong, it's an interesting read, but not enitirely on what the topic is about. More on a cultural, social and psychological level.

Well frankly gentlemen, havingreached a 60% value gain with an all Brazilian investment portfolio that has steadfastlyprovided a return of in excess of 11% every year, I feel that it’s time to withdraw both from the currency andthe country; Brazil has, I feel, peaked and is incapable of exponentialimprovement. The sirens of first world horizons beckon.

During this or any other globalrecession, governments take a nationalistic approach to economics. This isquite understandable because they need votes to remain in power and so currencydevaluation can help with the import/export trading. The US adopted monetarypolicies that led to a weaker dollar followed by similar financial policies bythe central European bank. The Japanese have been doing it for years as havethe Chinese and now Brazil is trying the same. Of course if everybody devalues theirrespective currencies this game becomes irrelevant.

The world is burdened by debt anduntil such time when repayment is made and the risk of disorderly defaultdiminishes, the world will continue in lack lustre growth and one form ofcrisis or another.  Inept governments andan unregulated banking system together with global greed and stupidity hasplaced us in this deep debt hole and it will take us several years to crawl out.Meanwhile we can watch as the escalation accelerates leading toward unemployment,protectionism and trade wars.   

This is why I don't trust politicians with money. Also, this is why I think that every person who reads what is written here needs to work very hard to try build wealth in a manner that is LEAST LIKELY to be devalued by politicians.

Here are just a few examples:

1. The US in 2006 when they first started to really print money;

2. The US with QE 1 & 2;

3. Collor suspending access to poupanças;

4. Argentina confiscating dollars and then converting them to pesos at a terrible rate;

Money in a bank account is a very dangerous thing.

Given the buoyant state of themarkets and improving bank liquidity, helicopter Ben has no justification forfurther QE, yet conditions for allowing the pre-election White House incumbentto boast about the success of his administration are non-existent; healthcareis old news and not yet in evidence coupled with impotence to remedy adysfunctional Congress and the rising deficit. Perhaps the US is hoping forsomeone to blink in Europe while they wait for the German High Court to decidewhether or not the bailout and Euro printing is legal under their Constitution.There yet may be more road down which to kick the can of hopelessness, butsurely the endgame is close to hand and the final realisation that borrowing toget out of debt is a nonsense and that the collective standard of living isbeing rebalanced; meaning almost everybody reading this will be poorer.       

Given the sorry state of affairs on both sides of the north Atlantic Ocean, I think it's obvious the present tenant of the Casa Branca has 'requested' his European cohorts to keep their fingers in the dike a little bit longer.  Then once the dog and pony show, the bread and circus known as 'free elections' is over, I wouldn't be surprised if what happens then, makes 2008 seem like the Doldrums.

With fluctuations of about 1%during the months of July and August the rate is essentially flat-lining. The westerneconomies have maxed out their financial ability to consume; just like Mr Creosote.http://www.youtube.com/watch?v=rXH_12QWWg8    

It would appear that we are in ‘thesilly season’ apropos serious politics, exchange rates and the approaching endof the world as we know it. The US is embroiled in its usual low-brow benign fascinationwith the approaching Presidential election. I’m no Obama fan but the prospectof America electing a bishop in a religion that takes a quantum leap in puerilityover Christianity is a little worrying to say the least.

Then we have the continuingEuropean debacle simmering on the backburner while the protagonists get a well-deservedsuntan in holiday sunshine. Meanwhile China, just about to change itsleadership, has slowed down to a comparative crawl because the nations thathitherto imported her products on the strength of borrowed money have maxed outtheir credit cards. Brazil waits nervously, as ever on the side-line, hoping,praying that God will sprinkle some happy dust that may instigate a littleorder and progress. Get ready for change…            

Perhaps we should pose that question to one of the herd, as they begin their stampede from the currencies of unstable, as well as 'emerging' markets (even relatively stable ones), back to the 'safety' of the USD?!?

On an (assuming) unrelated topic, the NY Fed wants a regulation passed which will prohibit money market funds from being withdrawn on whim (panic), but only after a 30 days notice.  "Yes... it IS your money... you just can't have it yet.  Get back to us in 30 days."  WTF?!?

Maior potencial de expansão em SC está na cidade de Imbituba

Itajaí, em SC, prospera com porto e cresce 700% em dez anos

And so the Real/Dollar appears tobe flat-lining at a hair over twofers while we await the next anxiety attackfrom Europe or to learn just how audacious it was to hope for a US recovery instrong growth. Dysfunctional governments on both sides of the pond seem to be rockingback and forth while sitting on their hands and waiting for something to turnup meanwhile grateful that the banks are taking the media flak over the fraudulentfixing of the LIBOR rate and money laundering.

So, taking stock of life, belief inthe tooth fairy and Santa Claus has been long shattered. Christopher Hitchenshas disproved the existence of God. Not everything is better with Coke. Heinekenis probably not the best larger and Guinness is certainly not good for youjudging by the hangovers and the colour of one’s stools. And so it has come topass that everything that was good and wholesome in the world has collapsed intothe chaos of Murphy’s Law: it’s all gone wrong apart from masturbation andsinging in the bath.     

Brazil's Selic Rate Cut To New Low: Is It Enough To Spark Economic Growth?
July 13, 2012  | 37 commentsby: Caiman Valores  |  includes: EWZ, PBR, VALE The Brazilian government has just announced that it has cut the official interest rate, the Selic rate to an historic low of 8%. This is the eighth time the rate has been cut since hitting a peak of 12.5% in July 2011. It is also the first time that the rate has been under double digits since October 2009. Brazil's consistently high official interest rate has acted as a magnet attracting significant inflows of foreign investment or 'hot money' seeking high secure rates of return. This hot money has disrupted the government's already heavy handed monetary measures which were aimed at containing inflation and dampening a growing consumer credit bubble.

This rate cut is in line with expectations and comes on the back of weaker than expected economic growth, with a first quarter GDP growth rate of 1.89% and second quarter GDP growth estimated to be at around 2%. With weak economic growth and a domestic economy that is more and more looking like it has hit 'stall speed' the Brazilian government is pulling out all stops to kick-start economic growth.

Other policy measures put in place

Already the Brazilian government has introduced a wide range of measures from across the economic policy spectrum in order to catalyze growth but with little or no result. This has included implementing a range of measures aimed at protecting Brazilian industry from imports and introducing regulations that give local Brazilian companies preference in government procurements.

The government has also been keeping an artificial cap on gasoline prices as means of managing inflation and domestic transport costs in order to promote domestic growth. It has also introduced local content rules for the oil and gas industry, forcing energy companies to ensure that 65% of all materials used in operations are sourced from within Brazil. But the primary impact from these measures to date has been to harm the future expansion prospects of the government controlled oil giant Petrobras (PBR).

The government has also moved to cut the presence of foreign mining and energy companies by declaring assets such as farmland, oil, metals and minerals as strategic assets. These measures have also given Petrobras preferential access to the pre-salt oil fields and forced foreign oil and gas companies to operate in partnership with Petrobras.

Yet this hasn't been enough to restart an economy that is dangerously approaching economic stall speed and where the government's previous heavy handed monetary policy initiatives have crushed one of the key engines of Brazil's economic growth, domestic consumption. These measures so far have done little other than to increase the degree of political risk present when investing in Brazil, making investors more wary and less likely to invest.

Factors inhibiting Brazil's economic growth

Despite all of these indicators many market pundits and investors are still selling the virtues of investing in Brazil, its growth miracle and growing domestic consumption. But even with an additional fall in the Selic rate I doubt that domestic consumption rise will to the levels optimistically predicted.

While there is an obvious link between the cost of money and domestics consumption, dramatically reducing the cost of money in order to increase the money supply in an emerging like Brazil's does not have the same effect on consumption as it does in a developed economy such as the U.S.

There are a number of reasons for this, and some of the key reasons are Brazil's significant income inequality, high poverty and low average income. It is estimated that more than 26% of Brazil's population lives in poverty and even those households classified as middle-class in Brazil are living on a modest income in a country that has one of the highest levels of income inequality in Latin America.

The Gini coefficient which measures income inequality between 0 and 1, with 0 being the most equal and 1 being the least, indicates that Brazil has one of the highest levels of inequality in Latin America as the chart illustrates.

source data: World Bank

This indicates that a significant portion of Brazil's population has a moderate to low level of income and very little disposable income available for discretionary spending. As a result many consumers unable to access consumer credit or engage in significant levels discretionary spending, with most if not all of their disposable income spent on necessities.

The chart below illustrates that Brazil's average monthly wage adjusted for purchasing power parity is among the lowest in Latin America and is far lower than the United States, Chile or Argentina.

source data: International Labor Organization

Another indicator of Brazil's inability to sustain strong domestic consumption and rapidly grow consumption through increasing the money supply by reducing the price of credit is the country's low credit to GDP ratio. Currently, Brazil's credit to GDP ratio is around 50% and this is significantly lower than the average for emerging European and Asian economies.

source: Banco Bradesco Q1 2012 Presentation

This I believe is symptomatic of Brazil being caught in the "middle income trap" where it has already experienced the rapid growth associated with being a catch-up economy and is now plateauing because it lacks the right catalysts to become a high income economy. This has created a ceiling on the level of domestic credit and consumption.

Of even more concern is that the ratio is only forecast to grow moderately over the next 2 years to reach 55% by 2014. This indicates there is little if any opportunity for ongoing growth in consumer credit and a repeat of the consumer credit funded explosion in consumption witnessed over the past two years. It is also representative of how little effect the dropping the official interest rate has on stimulating domestic consumption.

Economic growth is dependent on China and Europe

An important piece of the Brazilian economic puzzle lies in the global economic headwinds being generated by slowing growth in China and the ongoing European financial crisis. Brazil has developed a dangerous economic dependency on China, which is now Brazil's dominant export partner and the destination for 18% of its exports. China is also now the dominant consumer of Brazil's iron ore and soybeans.

Brazil's other key trading partners are the member countries of the European Union ('EU') which as a collective region are the destination of 20% of Brazil's exports. All told, China and the EU are the combined destination for 38% of Brazil's total exports as the chart shows.

source data: Banco Central do Brasil

However, with the European financial crisis in full swing many of the EU's member states have fallen into deep recessions resulting from economic mismanagement and the now severe fiscal austerity measures being imposed upon them. In conjunction with this the Chinese economy has been slowing as part of a controlled economic slowdown initiated by the Chinese government to control inflation and prevent the growth of an emerging property bubble. As a result, Chinese industrial production, construction and domestic consumption have fallen curtailing the Chinese appetite for commodities.

Both of these have had a significant impact on the demand for Brazil's commodities and effectively brought to an end the tremendous commodity boom that was driving Brazil's economic growth. It is unlikely that monetary policy alone will be sufficient to trigger economic growth in Brazil, particularly because domestic consumption has stalled and will require a catalyst like a sustained surge in the demand for commodities to trigger renewed consumption.

The future outlook

While a lower Selic rate is beneficial for Brazilian exporters and for industrial activity as a whole, it is bad for Brazilian companies with share prices denominated in U.S dollars. Already the Brazilian real has depreciated against the U.S dollar by 8% this year and it is now likely that it will depreciate further.

This will have the effect of increasing interest costs for Brazilian companies with dollar denominated debt such as Petrobras and Vale (VALE) and for those Brazilian companies with significant dollar denominated debt placing further pressure on lending covenants. It is also likely that any further significant depreciation in the real will see those companies examining means of limiting capital expenditure so as to contain expenses in a difficult operating environment. Obviously this would see less domestic investment in Brazil by some of the country's largest corporations.

It is unlikely that reducing the official rate alone will reinvigorate Brazilian economic growth nor stimulate domestic consumption. The key catalyst that will trigger renewed economic growth in Brazil will be a resumption in China's rapid growth and demand for commodities. A further catalyst will be renewed economic growth in Europe, which will only occur when European financial crisis is resolved.

While there is certainly cyclical element to the current fall in Brazilian economic growth related primarily to global demand for commodities, I believe there are structural economic and developmental issues that will prevent the overly optimistic view of Brazil's economic miracle becoming reality. These include the dangerous over-dependence on China, the excessive economic protectionism and high levels of poverty and income inequality. Until these structural issues are dealt with, it will not be possible for Brazilian domestic consumption to become a driver of economic growth.

For these reasons even if there is a strong recovery in China and Europe it is unlikely that Brazil will experience the rapid pace of economic growth that it has seen over the last decade. I would expect future economic growth to be moderate and this will obviously effect the valuation of Brazilian companies. For these reasons it is unlikely that investors will see the high returns expected from what has been touted as one of the world's hottest emerging markets. This doesn't bode well for the performance of broad based Brazilian ETFs such as the iShares MSCI Brazil Index (EWZ), which leads me to speculate that Brazilian investments have been overbought on optimistic sentiment.

Realising that it may be acontradiction in terms, there yet remains the possibility that the collectiveidiot may come to the final conclusion that politicians are just as dumb and idioticas the rest of us. Self-interest, criminality, greed and gross stupidity got usinto the grievous financial position that prevails today. No news here but hugesums of money have been spent and, apart from the bank balances of the preciousfew, there is little to show for it; we have maxed-out the collective creditcard by consuming on the basis of future earnings.

Today the club med countries,Greece, Italy, Portugal and Spain are in very deep and serious trouble and thepolitician’s clever solution is to go cold turkey on their debt addiction; stopspending, a simplistic and dumber than dumb series of retrograde actions thatare having a negative effect on their respective economies. The complexities ofeconomics within economies are an elusive and ever-changing set ofcircumstances evolving within the constraints dictated by Newton’s third lawe.g. the cure for obesity is to stop eating [cold turkey] [pardon the pun] Stopeating and the patient dies.

The cure rests with the people andwith what common sense prevails. The Europeans are in desperate need of thelong awaited epiphany that will have them shun the European Dream, the dream ofFederalism. Rise up and rebel! Take back your currencies and resume your properplace in the rankings of the global economy while remembering that not all menare equal. Deutschland über alles.      

Has the world gone mad or what! Both stocks and gold fall in value because the Fed has no immediate intention of printing more Dollars? So let me get this clear: printing money is to dilute the value of money therefore stocks and gold rise in value to compensate for the depreciation cause by dilution. Where’s the freakin’ gain guys? Let me loose in Wall Street and I’ll bitchslap some sense into those eejits.  

I gather that the unemployment statistics indicate to a rate of 6% or under which is regarded as very good during these troubled economic times [there being always a percentage within those figures that are unemployable]. This goes some way in explaining why it is difficult to find skilled workers [hah! Skilled workers?]. However I don’t recall making any comment about 90% of Brazilians being poor - yet to come to think of it and, dependent on the current definition of rich, a couple of million that are truly rich may not be so inaccurate. Poverty is a relative term and in passing I would observe that one is far more likely to find poverty in Brazil than in the US.

Boy, have you stirred up a hornet’s nest – hit the deck. INCOMING!!!!