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Checking in with Brazil

2/20/2014

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Brazil Bubble:

According to a recent article on Estado de SP, for the first time in almost ten years the lease prices of commercial offices in São Paulo ended the year (2013) in negative territory, a clear indication of a much-needed correction.

Seems like the early signs of a bubble deflation.

“Prices have already reached the maximum limit so we’ll hardly see upward price adjustments above inflation,” said Fernanda Rosalem, Director of of real estate firm Cushman & Wakefield.

The firm’s research shows that the average asking price in São Paulo dropped about 15% in 2013. In addition, vacancy rates increased from 14.6 % in late 2012 to 17.2 % in December 2013.

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Tyler Cowen predicts the future of the US will be like present day Brazil

9/11/2013

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New book out from Marginal Revolution cofounder.
The review suggests the book is fatalistic about rising inequality implying that little can or should be done about it. In America's not too distant future America's ever increasing poor will live in favelas common to large Brazilian cites like Rio or Sao Paulo.  There is of course the option of redistribution. This is the age old false premise provided by the economic and political right. First they take forever to realize the problem, then they deny anything can be done about it- you can't stop globalization.

I can think of a lot that could be done to stop Tyler's vision from becoming a reality.

For starters:
All of  the OECD could get together and reform taxes so that Apple has to pay more than 1.9% taxes on $10B in profits and Mitt Romney can pay more than 13% and be prevented from living/working (running for Prez) in the US after he transfers his estate to the GC.

Tyler Cowen (and his revolutionary brothers in arms at the National Review and the Heritage Foundation) isn't an economist - he is an insurance executive,who tells his employees (the Marginal Revolution echo chamber) "Here's how we will handle the problem of inequality (insurance claims). Deny its existence. Defer doing anything about it. (No hint the book has any current suggestions for diminishing inequality- because conveniently nothing can be done) Discount (defend in court so client will settle for less) the payments (Tyler envisions an America where the state supplies very little in services to the poor- Brazilian favela level service). (Many of Tyler's ilk argue the poor are getting too much already in America and this is mainly their fault.)

Americans thought they were in a country where they were created equal. Turns out that they didn't read the fine print of the constitution (insurance contract) - some are more equal than others -money can't by love but a better level of equality can at least be rented.

I suggest Tyler uses the huge off shore protected profits from his book in order to bullet proof a new Escalade and move to a gated community -that's how the rich in Brazil roll.   If Tyler Cowen's policies are followed and he gets his way America may just get a (marginal) revolution from the middle class - akin to those started by middle class whites in Brazil earlier this year. Tyler made need a history lesson for how growing inequality ends.

This is what I said in February.
"What is striking, and frightening, is the extent to which, at least in the U.S.-China trade relationship, the knee-jerk, populist fears intellectuals tend to deride actually turned out to be true." Cold comfort for the unemployed. Meanwhile the economics profession continues to cheerlead trade liberalism and ignore the need to compensate those hurt by trade in order to retain efficiency. I want to see my science actually fight/lobby/extoll for compensation measures, the same way it does for "free markets" and the same way it shills for the finance industry; then we might be once again seen as relevant.

Cowen's book fits in nicely with the above description. 

 
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 Reply to Brent's post on my Abnormal return's post

9/7/2013

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I said, "Lot of other interesting posts as well. (Balance sheet recession over)'
Brent said: "Do we count that last one (Bonddad) as counterprogramming?"

I am not sure. There are stats I have seen that show that leverage has not decreased that much if at all- (theBonddad post includes one of  them). I would guess most of the household deleveraging has come because of  bankruptcies and represent impaired demand. That said, the car industry seems to have its replacement cycle well under way, housing seems to have hit bottom, the shale gas cycle seems to be lowering America's energy costs. The Fed, it seems, has kicked the can far enough down the road to allow for some stabilization of the American economy.  While the Fed's actions have not been costless, they seem to have had a measure of success.  I feel like I have underestimated the ability of the Fed.

I have given my mea culpa before about my predicitions on the economy but I still expect a global synchronized sovereign debt crisis. Perhaps, this will ultimately be proven to be wrong just as my US recession prediction. Perhaps the worst is over and the Fed "won".
Perhaps. 

I try to update my beliefs as new information comes in. At this moment my concerns and beliefs remain, for the most part, the same as they have been for years. The Fed has blown yet another bubble - a bond bubble and sovereign debt bubble. Policy makers have been lulled into a false sense of security for low interest rates, the message to the banking system from the Fed's actions is exactly 180 degrees from what is best for society. Corporate cronyism, Inequality and tax reform remain unaddressed. None of the major systemic factors facing the economy have been addressed in America or in Europe. 

My concerns that have been expressed since this blog's inception were eloquently expressed this summer by BIS. And I find it ironic that in the US, much of the market/economics establishment cheers the socialization of financial markets will deriding national socialism for healthcare or income inequality reduction.  Government should have a unlimited role in backstopping the wealth of the elite but not the well being of the lower class. If the poor are supposed to save their way to prosperity, that channel has been destroyed by the Fed. The central banks as pied piper have lured everyone to the edge of the cliff. Let's hope the leap of faith we are all taking leads us to prosperity and not disaster.

I see that John Hussman's performance post crisis has been abysmal- his franchise risk is growing daily. A mass exodus of his client base would be a good contrarian indicator that the end is near. Or, that I was wrong.

Finally, Brent, in personal correspondence, has encouraged me to couch my pronouncements with less certainty and more probabilistic qualifiers. After reading Nate Silver's "The Signal and the Noise"  this summer, I am now convinced of the wisdom of this advice.

I still believe the global economy is a Goat Rodeo; with a high probability of systemic sovereign debt crisis in the medium term.
Central Banks are working hard to prevent such an event by forestalling economic collapse in the face of weak demand - by conducting unprecedented levels of asset purchases.

My personal belief is that there is a much better than 50% chance that history will show this was a pyrrhic victory for central banks. Among other things, there is a trade-off at work here - each year the central banks succeed in propping up demand is one that brings us closer to depreciating excess capital and allowing the global economy to get its feet underneath it (as well as strengthening the financial system). Unfortunately, it is also an additional year in which policy makers do not have to make tough fiscal decisions and forestall the fundamental changes needed to stabilize their economies in the long run. If the effects of the former out weigh the effects of the latter, with each passing month and improving economic statistic - Bayesian updating would require me to shift some of my "global reset" probability weight to "muddle through".

But that's the rub, I am not sure whether the former out weighs the latter - when I consider inequality and unemployment in the US and Europe. I am not sure how to judge progress - which brings me back full circle to the start of this post. 
I don't know how to Bayesian update what I have been observing.  It is fair to say I less sure of myself than I was when I started my blog. But I was also less sure of my predictions of global recession and $40 oil in the summer of 2007 than I when I had made those predictions in January, 2007. At the Global Petroleum show in Calgary, in May 2008, I sheepishly admitted to those predictions having been wrong. I guess I am sure that Brent was correct in suggesting I explicitly qualify my opinions more probabilistically,; particularly since getting the 2007 call correct has done nothing to advance my career (Nor the many other things I have gotten correct on this website since then). Going forward, I will hedge my opinions.   

 
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Albert Edwards doubles down on his "End of the World" prediction.

8/30/2013

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This is your location for one stop shopping for the most bearish sentiment.
Zerohedge.
"The emerging markets "story" has once again been exposed as a pyramid of piffle. The EM edifice has come crashing down as their underlying balance of payments weaknesses have been exposed first by the yen’s slide and  then by the threat of Fed tightening. China has flipflopped from  berating Bernanke for too much QE in 2010 to warning about the negative impact of tapering on emerging markets! It is a mystery to me why anyone, apart  from the activists that seem to inhabit western central banks, thinks QE could  be the solution to the problems of the global economy. But in temporarily papering over the cracks, they have allowed those cracks to become immeasurably deep crevasses. At  the risk of being called a crackpot again, I repeat my forecasts of 450 for the  S&P, sub-1% US 10y yields and gold above $10,000."
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Brazil's economy is becoming more vulnerable

8/23/2013

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Brazil bubble
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"Virtually Every Market Is Trading At Very Artificial Levels"

4/16/2013

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I think this is an older video dating back to 2011 pre-US downgrade. PIMCO'S El-Erian via Zerohedge. Structural unemployment, central bank creating systemic risk, the Eurozone market design issues and execution.Financial repression, deflation. you have heard it all here before. He is more optimisitc then i am aboout China's ability to manage its economy.
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I have been trying to get down to the heart of the matter

2/13/2013

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It about inequality of opportunity.
"The absence of rewarding employment opportunities in the lower- and  middle-income ranges breaks an important part of the social contract in  America,  which holds that you are largely on your own but that if you work hard the  opportunities will be there. The second part of that contract is now in  question. "

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I heart Brazil

2/13/2013

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Pictures from this year's Carnival. Saudades.
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Zerohedge reviews its forecasts of 2012

12/28/2012

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I shared some of Zerohedge's views and similarly underestimated the ability of CBs/policy makers to kick the can down the road.
i would say that if the US isn't in a official recession by Mar. 2013 I will admit to being wrong.
EU held up better (politically) than I thought it would -though economic performance was on par with my expectations.
The bottom line is I have been expecting a syncrhonized crisis EU-US-China-Japan and so far the world has managed to muddle through. I still expect this to happen "soon".
As an x-boss used to say about forecasting, give a date or a price - but never both.
I still believe we are headed for soverign debt crisis which will rival or exceed the Great Recession.  But........
May all my pessimistic forecasts be found to be tail events which never happen.
Its been a good year for me personally.
I thank the readers of this blog for their time and attention. Hopefully you have found something of value from my filters.
Happy New Year.
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State sponsored corruption in Russia

9/20/2012

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Charlie Rose. This is the type of economy China can hope to "improve" towards.
 Here is a link to The Economist's (Newspaper) Democracy index. 
Notice that China sits in the lowest category,  as one of the worst countries in the world, 141 out of 167.

Russia is in  the same category as China, only higher at 117. Brazil is 45, South Korea is  22, United States is 19, Japan 21,  Malaysia is 71. So who is China more likely  to evolve towards in the next century?

Here is a Time article discussing  that  Malaysia has fallen into a middle income  trap. How then is it that China,  one of the most oppressive corrupt centrally planned  economies in the world, is going to do as well, or better than  Malaysia? Malaysian GDP is $8,600- Chinese is $5,200 in 2011 according to  IMF.

It seems to me the most reasonable  assumption is that China will follow a path of crony capitalism as Russia did  when the Soviet Union collapsed.


Meanwhile, the American dream is still alive in Brazil.
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