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Brazil Wants ‘Real’ity Check

Posted by Larry Doyle on October 21st, 2009 9:04 AM |

Brazil is increasingly concerned by the flow of capital pouring into its economy. Why? Isn’t that a good thing? Well, when the money is ‘fast money’ (meaning largely speculative) and it drives a nation’s currency dramatically higher, it can have an extremely negative and potentially destabilizing impact on a nation’s trade flows, primarily its exports. Let’s navigate.

There is no doubt the global markets are being driven largely by the cheap funding that is emanating from the United States. The oft-repeated statement by Fed chair Ben Bernanke that he will leave the Fed Funds rate unchanged at 0-.25% for an extended period has provided real comfort to speculators, traders, and investors around the world. What are these market participants doing? Selling the U.S. greenback to purchase a variety of global risk based assets. While investors may like positive returns generated to date on their investments, rest assured foreign central bankers are significantly less enthused with the strengthening of their own currencies relative to the greenback. Why?

As I highlighted in my weekly recap, October 10, 2009: Month to date Market Review:

While I think Washington is not disappointed in a relatively weak dollar, although they should be (”Dollar Devaluation Is a Dangerous Game”), other countries are not overly keen about further dollar weakness. Why? A weak dollar puts those countries in a marginally less competitive position in international trade. ECB President Jean-Claude Trichet voiced his concerns on this topic. Rest assured, the Asian nations feel the same way although they are careful in their comments.

Let’s navigate south and visit Brazil. The Brazilian currency, the real (pronounced “ray-al”), has appreciated by approximately 36% against the greenback this year alone. The real has appreciated over 50% against the greenback from its lowest valuation a few years ago. While that appreciation is a positive for Brazilian consumers, it is a major headwind for Brazilian exporters. (more…)

Grab Some Cover from More Incoming BRICs

Posted by Larry Doyle on June 17th, 2009 6:02 PM |

While all eyes domestically are seemingly focused on the financial regulatory reforms coming out of Washington, news of much greater long term impact is hitting us half a world away.

Take cover!! Shots from one BRIC nation after the other are coursing across our landscape. Don’t think for a second that Washington does not feel this heat. The mere fact that the media largely dismisses these stories is not surprising. In fact, the media’s approach of generally overlooking these developments is remarkably consistent.

Be careful . . . and let’s review the following:

1. Bloomberg reports: Russia, China to Promote Ruble, Yuan Use in Trade

plus

2. The Washington Post writes: Beijing Orders ‘Buy China’ for Stimulus Projects

plus

3. Yahoo News offers: China Sells U.S. Bonds to ‘Show Concern’

plus

4. Breitbart provides: Time for ‘New World Order’: Brazilian President

There is little doubt that stories of this magnitude and measure were released in a very coordinated fashion. Recall that the BRIC (Brazil, Russia, India, China) Summit in Yekaterinburg just finished.

By the way, how do you think the U.S. dollar did today?

The Wall Street Journal highlights: Euro, Yen Make Gains Against Dollar

and

Breitbart adds: Dollar Drops on Reserve Currency Doubts

If our dollar were to continue declining in value, that is the precursor to inflation. For those who maintain that our economy is too weak with too much slack to spark inflation . . . welcome to stagflation. Who has thoughts about that?

InvestmentNews reports: Roubini Warns of Stagflation

In connecting these dots, I look at this onslaught of activity and coordinated news releases and think, “just because you’re paranoid, does not mean they’re not out to get you!”

LD






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