Thursday, July 28, 2011

The R-Word?

The last few months have been very strange. As mentioned in the "about me" section, I work for a chemicals company and while we are in specialty chemicals, many of our suppliers and market partners also are in a broad range of chemical commodities.

What is strange is that while everybody keeps talking about Brazil being the country of the future and with growth opportunities everywhere, we, our market partners and suppliers have started to feel something weakening. While raw materials have spiralled out of control around the world, the favorable exchange rate has kept imports somewhat in check - so raw material costs are not on the levels of the rest of the world. Thus, the lack of demand cannot really be based on cost, or at least not fully. So consumer demand is still also up and capital inflows have remained strong?

To check if it really is just my neck of the woods, I have consulted people in the automotive industry: Demand is down... And I have checked my favorite indicator: Diapers. Diapers is not something that you stop buying just because the economy is down - in fact, it probably would be one of the last things that you would stop buying... yet even here a huge diaper producer in Brazil has told suppliers to slow down on deliveries... Is consumer demand weakening?

As the central bank has hinted that interest rates may start falling soon (after all, the 12.5% already are the maximum level that the bank wanted to reach... in December) and that commodity prices have peaked... and capital inflows have been mainly due to high real interest rates, and not so much to invest in the country.

I would not call it a recession - there is just too much business activity going on, but the economy continues on the brink of overheating, especially in real estate. Infrastructure is not keeping up to the demand, and the creaking is becoming visible on all ends. If consumers start balking too - and consumer indebtness has gone up strongly in 2011 - then the economy may be in trouble.

I would not go long on the BOVESPA if I were you...


  1. There is weaking in the real state already, new construction is slowlying down. Constrution companies are talking about land being too expensive and a need for prices to come down to reality, or they will stop building.
    There is just so much speculation the market can take and it looks like speculation with real state prices have peaked as well...


  2. I sincerely hope you listened to my last advice... it could have made you rich...