This was the most telegraphed sell-off of the century. Interest rate hike tomorrow (the market expects 50 to 75 bp) and Jan Selic now getting more sanguine, predicting an 11.75 SELIC by Jan 2011 -- that's a full 3% higher than today!!
Oh yeah, and next month we have the largest secondary EVER in the history of the capital markets coming out of PBR. There's also talk now that they're upping their initial raise from US$ 25B to US$ 40B.
You clowns must be joking if you think this stock is going higher with all the adversities coming down the pipeline. But keep holding your longs in your margin accounts. After all, it's from you that I borrowed to short 1000 shares at 43.55 and 1000 shares at 44.05. Good times...
Congrats, Phil, but I think you got your reason wrong. The rate increase and offering are known and likely priced in.
The huge move down today was because Portuguese debt got whacked by S & P, and they finally officially rated Greek debt as junk. Well, duh!!
Germany decided not to bail out Greece until they have a sensible budget... whatever that means.
So Greece can act sensibly and raise taxes and cut services... okay, you all can stop laughing on the floor now!
Or they default, screw the debtors, and send the European banks scrambling. The Euro and Real are joined at the hip, and they both fell as traders moved into the safety of the dollar.
And with the stronger dollar comes lower oil prices.
Add the losses of oil and the Real, and you come pretty close to the same percentage fall PBR had today.
I hope you are keeping EUO on your radar screen and can give me a time from a technical stand point to dive in. Yes, I know shorting the Euro is a crowded trade, but trust me, just because it is crowded trade doesn't mean it is wrong. The Euro is going to 1:1 to the dollar and probably lower within two years. I expect to see the Real back at 2.5 to 3 in that time frame as well. When that happens, maybe I will make a return trip to Brazil. This weak dollar really messes with my travel plans.
<< The Euro and Real are joined at the hip, and they both fell as traders moved into the safety of the dollar.>>
Reversal of carry trade is not the same as flight to safety.
In order to understand effect, you must look to what the REAL cause is.
As to joined at the hip, give me a break.
Brazil's LT fundamentals are much better than those in Europe and the cream will rise again as soon as the scared carry traders' effect is gone.
We went through this before.
<<< The rate increase and offering are known and likely priced in. >>>
It ain't that easy doc.
I believe the offering was known about also as the stock dropped to $37, but the share price climbed back to $47. At what share price point was the offering priced in ? That was a large swing.
I was lucky to sell all of my shares between $46.5 & $47.
If these major factors are priced in completely, should Portugal.
The news of the rate increases can be priced in, but the reality of the effect can take more time to play out... as can the dilution. The long term effects could be much bigger thant the news that is "priced in".
BTW- crude oil down 3x NG today.
No way the real goes to 2.50 - 3.00. Brazil's more sound fundamentally than the USD and the economy is less leveraged from a government and corporate standpoint. Did you check gold today? It rallied and looks to resume its uptrend. The market is sending a signal that it's willing to go long instruments that pose and alternative to unsound currencies such as the USD and the EUR. I believe the Singapore dollar, the Aussie dollar and the Brazilian real offer currency resilience for the long-term vis-à-vis the structurally unsound economies of Europe and America. As for shorting the euro, it's a stupid trade. Sure, it might go lower, but, in trading, good trades present favorable risk-reward. Where do you set your stop on a chart that looks like a falling knife already? You should expect massive reward to compensate you for your risk. Shorting the euro at this point, for me, presents no identifiable risk-reward.
Something else to chew one: Brazil's SELIC is pricing a 300bp increase by January. From an arbitrage point of view alone, this keeps currency inflows alive.
As for PBR, the interest rate meeting wasn't the only reason I went short. I had mentioned last week that USO was flirting with its 50-day line and would break lower very soon. That, added to the fact that PBR has been underperforming the SP-500 on a technical basis YTD. So, whether you wanna call it an S&P downgrade to Greece or a sell-off in oil, the fact is that my technical reasons for selling the stock paid off.
And, mind you, I took the bet on a day when this stock was up 3% and everyone on this board was calling me a loon.
uncu (from uncle it is down to uncu) phil this POS keeps going down and yes you win but remember it is not may 7, 2010 that's when our bet ends and by that time this POS may even go up. Yes it is a POSSQUARE but let's see what happens in the first week of may'2010.
With best regards .
I suggest you review the terms of the bet:
This was the exact quote: "Now, about PBR, let's strike a deal: if this stock tags $40.50 in the next 15 calendar days (so, by May 7) you leave this board forever. If not, I leave. Deal?
(should be easy for you to agree, given how "obvious" it is that PBR is going to explode higher, right?)"
In other words, this bet isn't about where PBR is on May 7, rather, the question is WILL PBR TAG $40.50 BY MAY 7. Hence, if the stock so much as trades there for a nanosecond by May 7, you lose the bet -- even if the stock is above that price point by May 7. I intend to cover at $40.50 and, of course, kindly thank you for the shares you and other bagholders lent me, in the interim, making my short-sale possible.
"The US on the other hand, is like Greece."
It's a slippery slope when everyone is greasing the markets.
Maybe comes down to knowing who is the least like Greece if you're placing a bet and it's not likely the US.
"The US, on the other hand, is like Greece."
LOL. Well, apart from the fact that they are altogether different in every other way!
I think, though, there are some points to your arguments. In my opinion, there are reasons that long-term the real will strengthen against the dollar, as long as the government there maintains their current fiscal financial policy. That is a contributing factor that Petrobras should continue to be a good investment. Of course that is one factor of a hundred though.
"Of course, what does that guy Mish know about anything?"
Obviously not much, if you look at his market performance over the last year. He's been whining about deflation for as long as forever, yet the CPI keeps ticking up. Has no understanding of the global economy, and think's that what happens will necessarily drive prices. Nonsense. The U.S. is 5% of the world's population.
He's not even a legitimate economist. Just a humble layman like yourself.
<The US economy boomed in the 80's, which according to you should have caused the dollar to plummet via high inflation.>
Inflation came down in the 80s, Ilap, which means the currency should get stronger. The Real got stronger than the dollar in the last five years in part because Brazil had decelerating inflation.
<It went from 360 per dollar to 144 by 1990. The exact opposite of what should have happened according to your peculiar theories.>
Wrong, again, Ilap. The U.S. had huge inflation rates in the 70s. The U.S. today is poised for deflation not inflation.
<So how exactly does that bolster your continual claims that monetizing the debt won't cause the dollar to collapse?>
Three reasons. Private debt has been cut much more than federal debt has been expanded. The expansion of federal debt has not worked its way into the economy; it is stuck on bank balance sheets. And finally, overall demand is down. Look at electricity, oil use, travel miles. They all indicate lower demand. Granted, things are mildly better now, but demand is still way, way down from 2007.
As far as budget deficits leading to inflation, that is an urban myth because it doesn't factor in consumer demand. Budget deficits as a percent of GDP were lower in the late 70s than in the 80s or today, and inflation was much higher. Ilap, instead of just listening to Milton Friedman, look at the raw data yourself. You will see there is little to no correlation between deficits and inflation.
<Cherry picking time periods and selectively picking out something that matches up with your preferred explanation for things, which is what you seem to do, is really stupid.>
Again with the insults. Cherry picking data to disprove a theory is how it is done. You haven't done anything to disprove what I have said; you have just insulted, and worst of all, insulted without facts.
Deflation by definition means a stronger currency, and the cause of deflation is always decreased consumer demand. What the fed has done is print out gobs and gobs of money to spur demand and fight off deflation by creating inflation. You Friedman guys assume it will work; history shows it doesn't. Expansion of monetary policy in Japan in the 90s and the U.S. in the 30s didn't stop deflation.
What did stop it wasn't the new deal. What stopped it was World War 2. Nothing like bombing the snot out of Asia and Europe to decrease world capacity and spur demand for U.S. goods and services.
The U.S. population is aging, and on average people start consuming less of almost everything after they hit age 47. So demand in the U.S. for goods and services is and will continue to be down, and that will cause deflation.
Brazil on the other hand is much younger and growing and demand for goods and services will continue to rise. They will have their bumps in the road, but demand will continue higher which will lead to economic expansion and that will cause inflation. Inflation by definition means a weaker currency.
The Friedmanesque approach to inflation doesn't take into account consumer demand, and that is why it is so stupid. You need to take into account supply, i.e. money supply, AND consumer demand. And by money supply, I don't mean some esoteric figure, but the amount of money and credit people actually have on hand.
And in the grand scheme of things, the deficits aren't that big of a deal. GDP is $14 trillion and the deficits are $1 to $1.5 trillion. If you can borrow money at 1% and grow GDP by 3 to 5%, deficits aren't really a big deal.
The real issue isn't the deficits then as how the money is spent. For example, spending money to keep 95 year olds with dementia and cancer alive an extra month is throwing money down the drain. On the other hand, building bridges and highways can increase GDP, and that kind of spending can be very beneficial to our economy.