The people of Brazil didn’t get much for hosting the World Cup, other than a bad economic deal and a couple of existentially gruesome national sporting humiliations. They did get a few extra days off—but even those, alas, aren’t free. Read more »
You’d think that having a million foreigners flying hither and thither about your enormous country, dumping their dollars and euros and whatever into all manner of kit, feijoada and caiparinhas, might offer a little pick-me-up to the Brazilian economy. You know, like how it helped swell a little non-profit called FIFA’s coffers by $2.36 billion. But you’d be wrong. Read more »
The World Cup will actually make things worse for the former postercountry for emerging markets, even before the locals burn Rio to the ground after the home XI go out in the quarterfinals. Read more »
The take-away here is put in for that transfer to Brazil? From the front lines: Read more »
If so, might we suggest you tell whoever makes your travel arrangements to book you a flight on Colombia’s Aires airline, whose planes are protected by some sort of force field that allows them to struck by lightening, break into three pieces and only have one person (out of 131) die (and not as a direct result of the crash)? [WSJ]
Naked short-selling has been blamed for many a market evil in recent years. Not so much any good.
Well, here’s one in the controversial practice’s corner: South Korea may allow institutional investors to short-sell bonds in an effort to boost liquidity in its nascent fixed-income market. Now, it isn’t the short-selling, per se, that will boost liquidity, but the move could win Seoul a coveted place in Citigroup’s World Government Bond Index. And then, just try to keep the money from rolling in.
The following post is by a hedge fund manager friend of DB who shall remain nameless. He runs the emerging markets desk at his firm.
Brazil has been one of the most confidence-inspiring credit stories in Emerging Markets. At the end of September, Moody’s awarded the country an investment grade rating. But while most of the market showers praise on the tightest-of-the-Latin-majors credit spreads, the 6 Bs of ratings, and dollar-crushing currency, a certain class of creditors is shouting about an imminent default. Their shouts are going largely unheeded, and they are learning a hard lesson about sovereign lending to Emerging Markets. In EM, there is no solidarity among creditors.
The controversy relates to a class of debts called precatorios. These are instruments representing judicial claims against government entities – the federal government, states, and municipalities. While this might sound like a small and obscure corner of government finance, litigating against the government has become something of a Brazilian national pastime. Hopeful plaintiffs don’t lack for grounds of complaint. The inflation stabilization plans of the 1980s imposed very complicated monetary correction formulae on all manner of wages, pensions, and prices, sparking disputes that continue to this day. Price controls on ethanol, also from that happy decade, have likewise spawned generation-spanning suits. At the same time, Brazilian jurisprudence has an incredibly expansive notion of direitos adquiridos – “acquired rights” – that cannot be messed with. Think of it as the insanely broad conception of fault that you find in American malpractice law, applied to the field of takings. Any meaningful reform creates losers; in Brazil they are only losers (from a new law or policy) as long as it takes to sue the government, at which point they become winners (of a lawsuit). In fact, government legal losses have consistently enough generated large liabilities for the government that most analysts’ fiscal projections still include a line for “skeletons” – the term of art for old claims that get adjudicated against the government.