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Brazil: Sorry For Your Losses

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The Brazilian equity markets are in free fall. “Brazil is in a deepening recession, which may grow into depression, as unemployment continues to rise and corporate credit quality deteriorates. Those that made a bundle investing in Brazil’s commodity-driven export boom have been looking to cash out, if they haven’t already, and the real continues to weaken on deteriorating sovereign credit and rampant inflation. Any interest rate hike by the US could have the unintended effect of sending Brazil’s local yields to the mid-teens to account for incremental currency risk and credit deterioration, which would only exacerbate debt service costs as a percentage of the country’s shrinking GDP. This, in turn, could be the catalyst for even more asset flight out … Read more

Currency: Cases in Probabilistic Thinking

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The rally in the Mexican peso relative to the US dollar during the first Trump-Clinton debate of 2016 showcased the increased likelihood of a Clinton victory, in light of Trump’s current political agenda. Instances like this, where currency markets serve to act as a probability indicator of the likelihood of a future event, have occurred through the course of history, the most fasinating of which happened during the American Civil War and with Confederate scrip specifically. Image Source: Bloomberg, “Mexican Peso Gives Clearest Signal Trump Lost Debate“ By Brian Nelson, CFA At Valuentum, we talk a lot about how markets act as “discounting” mechanisms of the probability of future events, and more specifically as it relates to stocks, how a … Read more