Out Fox The $treet

As riots erupted in Brazil over the last few weeks, the stocks trading on US exchanges have collapsed. In fact, the Brazil iShares Index (NYSEMKT: EWZ ) fell from around $54 to $40 over a few weeks during June. Even worse, the index peaked out around $75 back in early 2011. Over two years later and the index still remains in a downtrend as domestic stocks soar. Another major reason for more » Disclosure: No positions mentioned. Please review the disclaimer page for more details. 

After eight rate cuts totaling 450 basis points to a record low 8%, the Brazilian economy and stock market are still struggling to regain the growth of the last decade. Read this CNBC report for more details on the economy and interest rate cuts. Surely, now has to be the time to invest in this country. The Bovespa (BVSP) now trades close to 3 year lows, only trading slightly lower in the August to October 2011 time frame last year. So why aren't the rate cuts propping up the stock market? For one, the market doesn't appear as forward-looking anymore. The original rate cut didn't happen until August 2011, meaning that it is just now impacting the economy. Unfortunately, it hasn't prevented the forecast for the economy from dropping to 2.5% now. Until this trajectory returns to increased growth, stocks probably won't move up much. Read the full article at Seeking Alpha. Disclosure: Long NIHD. Please review the disclaimer page for more details.  ...

According to this Bloomberg report , Brazil expects to continue cutting the interest rate by 50 basis point intervals for the time being. The Selic rate is already at a historical low of 8.5% after five rate cuts. Yes, you read that correctly. From the chart below, the interest rate has averaged 16% since 1999. An incredibly high level when you consider the rates in the US or Germany. Heck, the 10 yr Treasury in Italy and Spain doesn't even match 8.5%. The amazing part is that the Bovespa trades closer to 3 year lows than highs. Shouldn't the significantly lower rates spur growth and investment demand? Well that use to be the theory but investors appear less forward looking than in the past. Just as the higher rates in 2011 hurt growth these rates should fuel growth. Unfortunately any gains are likely to lead to a spike in the markets followed by sharply higher interest rates. The drastic cuts by the government are going to lead to volatile times. The nex...

How many rate cuts is it going to take to kick start growth in Brazil? The 50 basis point cut is the 7th cut in a row and marks a drop in rates to record lows of 8.5%. While many apparently doubt whether growth will be kick started, this unprecedented move will undoubtedly usher in huge growth as 2012 ends. Combined with the country getting ready for the World Cup in 2014 and the Olympics in 2016, these rate cuts will put growth into sizzling status for 2013. The amazing part is that interest rates have now dropped below the 8.75% reached during the financial crisis in 2009. What happened next was boom times for the stock market as 2009 ended and 2010 started. Unfortunately that's when the Bovespa peaked in this cycle. Back then, inflation kicked up big time as commodity prices plunged in 2008 and then rebounded sharply by 2010. The year over year change over amplified some of the inflation fears back then. The two amazingly pieces to this story is that first interest rates...

Brazil's central bank slashed interest rates yet again making the sixth rate cut in under a year. Rates were lowered a dramatic 75 basis points making the rate 9%. Yes, that is correct. The rate in Brazil still remains one of the highest rates in the world even after 350 basis points in cuts since August. The rate peaked at 12.5% The reason for the cut was an anemic GDP print in Q4 of only 0.3%. Inflation has also dropped with expectations now at only 4.4% for 2012. This could provide cover for even more cuts this year. Amazingly, the interest rate could fall below levels last hit in July 2009 of 8.75%. Even possibly lower. Heck, I'm not sure I understand why Brazil has such a insanely high rate. It doesn't have GDP growth faster than China or India so why are interest rates higher? Anyway, guess that is besides the point. Eventually these rate cuts should help spur the economy. Stocks in our models such as home builder Gafisa (GFA) and wireless provider NII Holding...

It wasn't surprising that Brazil slashed interest rates for the 5th time tonight, but it was a little surprising to see a 75 basis point cut. One needs to understand though that Brazil still maintains one of the highest interest rates in the world after this cut to 9.75%. This even after 275 basis points of rate cuts in the last 6 to 7 months. After a 2.7% GDP print for 2011, its just natural that the interest rate would drop from such lofty levels. What is ironic is that the original surprise cut back in August last year was so criticized. Just imagine now if the central bank hadn't started so soon. This economy might be headed to a recession if not for the fast action. One also needs to understand that interest rate cuts take up to 9-12 months to have an impact on the economy to a great extent. The original cut was only some 7 months ago. Though this does further highlight the typical problem with rate cuts. The Brazilian central bank has already made 5 rate cuts before t...

This is the 2nd article in a series focusing on whether now is the time to invest in emerging markets. The first article which focused on India concluded that while some appealing stocks were at very discounted levels, investors need to wade into the stocks carefully, in order to not catch the proverbial falling knife. This article focuses on the largest Latin America economy, Brazil. It faces similar problems, where high inflation led to numerous interest rate increases by the central bank, leading to a slowing down of the economy. The major difference, though, is that Brazil has already been aggressive-- with three rate cuts of 50 basis points each-- while India is still pondering whether to cut rates. The country also has two potential catalysts, with the World Cup arriving in 2014 and the Summer Olympics in 2016. Both events will require large infrastructure spending that should benefit not only the economy, but a lot of the stocks traded in the U.S. Read the full article at...

After a year of crumbling stock markets some live now exists in the Emerging Markets. The main culprit has been high inflation, but for numerous reasons that is in the process of ending. Are argument all along has been an issue in how inflation reporting focuses on the year over year numbers as opposed to inflation over time. For example, commodity prices hit the inflation numbers hard towards the end of 2010, but only when you compare them to 2009 numbers. But going back a few years to 2007 and all of a sudden the 'inflation' doesn't exist anymore. Naturally China has been facing wage pressure along with most other emerging markets, but a lot of this was due to the relentless focus on the spiraling commodity prices. Not that pries for copper and oil have stabilized and even dropped from early 2011 highs, the numbers will start showing year over year drops even if Brent remains elevated around $110. All of this brings us back to focusing on emerging market stocks. Suc...

After the markets closed tonight, Brazil cut interest rates 50 basis points to 12% from 12.5%. Wow! Guess I haven't paid enough attention to the Brazil economy as I was not expecting an interest rate cut much less a 50 basis point cut. Many an investor would probably be surprised to realize that Brazil interest rates remain as high as 12% after a big rate cut. Apparently this move caught investors off guard as the expectation was for a 25 basis point cut if at all. With inflation running around 7%, I'm surprised as well though inflation rates should moderate as material costs maxed out earlier this year. Year over year numbers will eventually subside as 2012 rolls around. This bodes well for emerging market stocks that have been rocked this year due to interest rate increases due to rapidly rising inflation fears. Some economists think China might be done raising interest rates as well which could usher a major rally in Chinese stocks that have underperformed for well ove...