Perfect Storm 

Reader Lucas from Brazil writes about the “perfect storm“. 

 Hello Mish 

Brazilian interest rates are skyrocketing. Rates went up more than 2 percentage points in a month. Bond trading was suspended due to the quick devaluation. 

Nobody is talking much about it, but energy corporation Petrobras is down 95% from the peak (in dollars). They have a high dollar exposure, and some estimates say that since June, Real devaluation alone was responsible for a +R$100B increase in debt. 

Brazil’s majors oil investments are in (really) deep water drilling, and they may be not worthy anymore. Petrobras debt is now equivalent to 8% of the whole country GDP. 

And while. our president doesn’t have support to do anything.

It’s a perfect storm here. 

Lucas

Petrobras

In classic bubble action, shares of Petrobas went from $4 to $77 back to $4. Executives no doubt, cashed out at every opportunity.

Brazil Real

The Brazilian Real went from 1.6 to the US dollar to 4.1 to the US dollar. That’s a decline of about 54% .

Brazil 1-Year Government Bonds

Since 2007, the yield on 1-year Brazil government bonds went from just over 7% to over 16%.

Flashback March 2012

Please note the inserts on the second two charts. I highlighted the March 2012 candle because that’s when Brazil Declared New Currency War on US and Europe. 

 “When the real appreciates, it reduces our competitiveness. Exports are more expensive, imports are cheaper and it creates unfair competition for businesses in Brazil,” said Guido Mantega, the finance minister who was the first to use the controversial term “currency war” in 2010.

President Dilma Rousseff later weighed in on the debate, vowing to defend Brazilian industry and stop developed countries’ policies from causing the “cannibalisation” of emerging markets.

The move comes as Brazil’s central bank also steps up direct intervention in the market, selling dollars and offering derivatives called reverse currency swaps to curb the real’s near 9 per cent surge against the US dollar this year.