Reuters just announced that Brazil will earn in September the investment-grade rating by Moody’s. This is the third investment-grade rating after two other credit agencies have Brazil an investment-grade rating earlier in 2008.

The upgrade by Moody’s will help Brazilian bond prices as it increases the pool of potential investors who can buy the debt under fund management covenants. I however, don’t think it will cause a rally for Brazilian stocks in September.

Tags: brazil investment grade, brazil moody's

With the impact of the crisis, the problematic impact of demographics on economies has subdued. But expect these problems to surge with a vengeance.

The problem is twicefold:
1. Ageing became expensive, very expensive. Belgium is betting on building out it’s medical care in order to create jobs. But they forgot that this is … not productive. Ageing is extremely unproductive.
In Brazil, the life expentancy is 71,71 years, in Belgium is is 79,07 years. This means that an average Belgium has to work 10% more productive in his working time just to cover his extra life expectancy, and this figure is seriously underestimate since the cost of a year ageing is much more expensive in Belgium than it is in Brazil.
2. Brazil has a healthy population of workers and future workers to build the economy and make the country rich before they get old. Belgium simply doesn’t have the base of workers to support the massive bulk of retiring people which are exiting now the job market.

Below the demographic pyramid of Belgium in 20007, the picture is clear:a huge baby boom bulk of 45-60 year old people retiring without any base to supportthem.

1. Belgium:

More interesting are these 2025 extrapolations for China, Russia and Brazil:

1. China

In 2025 China has a huge mass of retired persons (born before the 60s) with no support below (in the 60s the 1 child per family has been imposed).
We believe that China is over-hyped as the cornerstone of BRIC success and that demographics will soon stifle the country’s economy as the number of workers declines and the numbers of elderly swell.
Considering the size of its population, demographical problems become in China quickly desasters considering its sheer size of population.

2. Russia:

Let’s not even look at Russia. Russia has one of the worst demographic profiles of the developed and developing world, and is losing population at a devastating rate that bodes a bleak future for its economy.

3. Brazil

On a demographic basis it is clear that Brazil has the most potential for continued long-term growth. The country has a healthy population of workers and future workers to build the economy and make the country rich before they get old.
- 2009 population: 196,6 million
- 2025 estimated population: 228,8 million (16,4% growth)

This is why people get the impression of the “Brazilian beautiful women” saga.  Whereas most countries in the world, equally China and Russia have much more +40 year old women in the street, Brazil has nearly no +50y old women in the street, all women you’ll see are -40.

Brazil had in 2008 18,72 births / 1.000 poulation and 6,35 deaths/1.000 population and a growth rate of 1,228% (that is: 2,42 million extra Brazilians in 2010 !).
Belgium had in 2008 10,22 births /1.000 population and 10,38 deaths / 1.000 population and a growth rate of 0,106% (due to immigration; this is only 11.028 extra people in 2010 !)
China had in 2008 13,71 births / 1.000 population and 7,03 deaths / 1.000 population and a growth rate of 0,629% (that is: 8,36 million extra Chinese in 2010)

Brazil posted an annualized growth rate of 6,47% in the second quarter of 2009.  Last week, Guide Mantega presented the August update on the state of the Brazilian economy, you can download the full presentation here.

Some highlights:

1. The Selic interest rate was lowered to 8,75% throughout the last year.  A historical low record.   Yet, the Brazilian Central Bank preserves its tight monetary policy, since inflation is today at 4%; the average of 2009 is expected to be 4,3%.  As you can see in the below chart, the Brazilian inflation rate remained below 6,6% since 2004 on and the Brazilian Central Bank maintains now an inflation target of 4,5% in the coming years.
Compare this to South Africa where the South African reserve bank lowered its prime interest rate to 7%, but where the inflation remains at 6,9%, last July it went up from 6,7% in June.

2. Since 2001, the Brazilian commercial balance has been positive and also today it remains positive.  This in sharp contrast to the structural negative commercial balances of Belgium and South Africa.

3. The Brazilian economy had a short temporary dip in the 4th quarter of 2008, but recovered strongly in the first and second quarter  of 2009.  The pace of recovery was noticeably stronger than the Chinese pace of recovery.  Luize Guilhereme Chymura of the Institute of the Getulio Vargas Foundation estimates the Brazilian GDP will grow 4% next year, but that he would not be surprised if it grows 5 or 6 percent.
“I believe the year of 2010 will be very positive for Brazilians. The economy will grow, the inflation will be low, and the local currency Real will likely appreciate against the U.S. dollar. The appreciation is good news for Brazilian consumers, as it means they can buy cheaper imported products,” he said.
“With this favorable economic scenario, the government will have a lot to say in next year’s presidential race. The government’s candidate will benefit from the positive economy, as well as from the salary rise of public employees,” Schymura said, referring to President Luiz Inacio Lula da Silva’s chief of staff Dilma Rousseff, who will run for the October 2010 presidential election.
But Schymura said the appreciation of the Real is bad news for the local manufacturing sector, which will face growing competition from cheaper imports.

4. Brazil has no foreign debts, their foreign reserves grew to 213,7 billion US$.

5. The interest rates are at a historical low of 8,75%.  However, the real interest rate is now 4%, which leaves the Brazilian reserve bank a more than comfortable buffer whenever needed.  In South Africa the real interest rate is today quasi 0%.    The below graph explains to a big extent the delta today between Brazil and most other countries: Brazil has’nt been polluted in the last decade by a cheap credit tsunami (let be subpime problems).   The focus of the Brazilian central bank has been inflation control and a tight monetary policy, quite the reverse of the policy in the US and to a certain extent Europe or South Africa.  It is only since 2002 that intrest rates came below 20%  and only since this year are interest rates in Brazil for the first time in history single-digit interest rates.  This means that for the first time a generation of consumers can get a bond to buy a house or appartment.

And expect this to happen: last week, Banco do Brasil, Latin America’s largest lender announced that they may double credit to individuals over the next decade as falling interest rates spur demand for car and home loans. Personal loans may climb to as high as 50 percent of the state-controlled bank’s total portfolio from 27% in the second quarter. Such lending rose 69% to 68.5 billion reais ($37.1 billion) in the three months ending June 30 after the central bank cut the benchmark below 10 percent for the first time.   Brazilian banks and households are completely unleveraged compared to their European and American counterparts and now is the time for Brazilian banks to seize the opportunity; read the full article on Bloomberg.

6. Brazilian banks keep lending money.  Below a chart comparing the rate of lending of all banks in Brazil.  The red line are the national private banks, the green the foreign banks and the blue lines are the Brazilian public bancs.  Actually, in Brazil more than 80% of the residential real estate financing happens through Caixa Economica and Banco do Brasil, two banks where the government has a majority stake.  If only the Belgian government had been wise enough to follow the same strategy and nationalise Fortis bank when the “shit hitted the fan”.

7. The cost of this crisis.  The below chart is absolutely impressive (2009 and 2010 estimates of the IMF).  While the United States will spend 13,6% of their GDP on stimulus packages in 2009 and 9,7% of GDP in 2010, Brazil will only spend 1,9% of their GDP on stimulus packages in 2009 and 0,8% in 2010.    Also see the huge difference between Brazil and Chine.
Another surprising factor is the countries which will spend more on stimuli in 2010 than 2009: Australia, Germany, Italy, France and South Africa.

8. The below chart needs to be compared with the Belgian figures…
End 2009 the Brazilian public debt will be 42,5% (coming from 53,5% in 2003); the IMF even projects only 41,9% for 2009.  This figure will decrease gradually to 28,4% by 2013.  In Belgium the graph goes the opposite direction: by 2014, the public debt will rise to 110% of the Belgian GDP.

9. Brazilian confidence.  63% of the Brazilians say the crisis only has a slight or no impact on them; a record-low compared to other countries.  Same reason: Brazilian households are not leveraged and no jobs are lossed.

10.  Since January 2009, the Brazilian stock index Bovespa went up 70%.

11. While the South African retail sales is in constant decline, Brazilian retail sales kept growing all since 2006 at rates above 4%.  In July retail sales grew 5,7%. Predictions are that the country’s retail sales will grow from around US$368bn in 2008 to US$573bn by 2013. Generally positive trends in underlying economic growth, an enormous and growing population and rising disposable income are key factors behind the forecast growth in Brazil’s retail sales. Easier access to credit and the emergence of a wealthier middle class are also likely to see the value of the retail segment increase during the forecast period.

With the population increasing from 192 million in 2008 to an estimated 204 million by 2013, GDP per capita is forecast to rise 39.7% (!) by the end of 2013, reaching US$11,449. This means that consumption per capita will rise from US$7,219 in 2008 to US$9,275 by 2013. The national monthly minimum wage rose 26% in real terms between 2003 and 2006, and by 2008 the average annual salary had reached US$9,160.

12. In the same line: car sales were in July up to 285.400 cars sold a month, this is a historic record for the country.

13. The crisis never had a really big effect on employment in Brazil. While in 2006 and 2007 Brazil had unemplyment figures hoovering around 10%, the unemployment figures never went above 8,9% in 2009. Since April unemployment has decreased substantially, reaching 8,0% in July, which is the same rate as in July 2008, before the crisis. Compare this to the unempoyment figures in the United States.

Also don’t underestimate the positive effect of Brazil’s demographics.
In 2005, 67.8% of the Brazilian population was described by the UN as active, with 40.3% in the crucial 20-44 age range. More than 84% of the population was classified by the UN as urban. By 2015, the urban population is forecast to have exceeded 88%, with 39.5% in the 20-44 age band, with 66.9% of the population is expected to be active.

Tags: brazil 2010, brazilian GDP 2010, brazilian interest rates 2010

Many media reported today on the report of the Mexican NGO Consejo Ciudadano de Seguridad Pública on the most violent cities in the world.
It’s quite a challenge to get clear factual news reports on the real murder rates in cities.

The Mexican city Ciudad Juarez is featured on number 1, with 130 murders per 100.000 habitants.
The ranking continues:
2. Caracaz, Venezuela
3. New Orleans, United States (!!)
4. Tijuana, Mexico
5. Cape Town, South Africa (!!)
6. Port Moresby, Paua New Guinea
7. San Salvador, El Salvador
8. Medelin, Colombia
9. Baltimore, United States (!!)
10. Bagdad, Irak

No Brazilian towns are featured in the top 10, despite Cape Town ranking on number 5, as well as 2 United States cities in the top 10.

We would be very eager receiving the full report, so that we can check where Rio de Janeiro and Sao Paulo rank.

Tags: murder rate Cape Town, Murder rate Rio de Janeiro, Murder rate Sao Paulo, safety

2 more months to go and we will know who will host the Olympics in 2016. Officially Tokyo, Madrid, Chicago and Rio de Janeiro are still in the running, but it became clear the last months that the battle is between Chicago and Rio. If you do some research, you’ll realize to which extent the decission between Chicago and Rio de Janeiro is of an unseen geopolical dimension.

Chicago has lost some ground lately because of the politcal games that the USOC (United States Olympic Committee) is playing. Also, Chicago is virtually bankrupt and many citizens of the town are opposing against money being spend on organizing the Olympics.

The news agency AFP reported last week that Rio made huge advances since IOC member Carloz Nuzman made a “passionate and effective” presentation to the European Olympic Committee in Istanbul last November. Aided to a large part by Brazilian president Luis Ignacio Lula da Silva, they have built on that steadily and, reports AFP, with apparently a vibrant economy and the funds in place they are ready to meet all the requirements of the IOC.

The real decission will be in the hands of the Belgian IOC president Jacques Rogge. Rogge leaves office in 2013 and he really wants to leave a legacy. The man succeeded with Beijing hosting a succesful games despite universal scepticism. What better legacy could Rogge leave than seeing South America win the right to host the Games for the first time.

More on the Rio 2016 website and the news section.

(more…)

Tags: rio2016