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Business/Finance See other Business/Finance Articles Title: Greetings From Sao Paulo! Our conception for years was that Brazil might be the new United States. It had a large population. Strong economic growth. Natural resources. Maturing financial markets. Attractive women. It seemed a good long-term macro bet, like India or China. But “I was once told,” explained Jim Rickards last night, “that Brazil is the land of the future… and it always will be. Investing there is like a siren’s song.” We decided to verify that ourselves. We arrived just in time, too… “BREAKING: Brazil Real Drops to Record Low Against the U.S. Dollar,” reported Bloomberg this morning. “Brazil’s real fell to its lowest level since its introduction two decades ago, and stocks dropped a fourth consecutive day on concern that President Dilma Rousseff won’t be able to shore up the country’s budget and avoid further credit-rating cuts.” Earlier this month, Brazil’s credit was downgraded by Standard & Poor’s from investment grade to junk. Apparently, deficits do matter. At least, they do down here… It’s a good time to publish contrarian financial advice in Brazil. We know that because we’re squatting in our Brazilian partner’s office in Sao Paulo. Peter posing before the Empiricus Research logo Your weary traveler arrives in Sao Paulo. The group is called Empiricus Research. They draw their inspiration from their Greek philosophical namesake: Sextus Empiricus. “Sextus Empiricus is an ancient thinker,” explained the group who took us out for a great steak. “He’s the father of the so-called philosophic school of skepticism. He’s always inquisitive about stuff. He views the world as empirical facts, much more reliable than Platonic theories. Empiricus deconstructs mainstream idealized fallacies through reality, plain and simple. That’s what we try to do with our financial research. The skepticism of Main Street while looking at Wall Street. “We’re called Empiricus because we’re skeptical about the financial mainstream, and we’d rather have our feet on the ground of companies than our minds on theoretical spreadsheets.” Boots on the ground. Proof of concept. Ready, fire, aim. These are strategic concepts we share. “Our firm’s reputation is growing,” explained co-founder Caio Mesquita this morning. “We’ve been recommending our readers get out of reals and into dollars. It’s easier and more culturally acceptable than recommending gold. “We saw that what the mainstream was saying was wrong. It was in 2014. Dilma Rousseff, our president, was up for re-election. She was dividing the country -- between the rich states and the poor states. She had a populist message. She promised to spend money on social welfare programs. The government ran huge budget deficits. “We’ve been recommending our readers get out of reals and into dollars.” “She just barely won. There’s a good chance she’ll be impeached. She took dirty money bribes from state-owned Petrobras. She mismanaged the nation’s budgets to spend more than she should’ve. Now the government’s facing the consequences. GDP is shrinking, while inflation’s near 10%.” At the same time that President Rousseff was electioneering, Empiricus’ most well-known analyst, Felipe Miranda, wrote a book called The End of Brazil. They pointed out the obvious when no one else would and made a lot of money for their readers. The real is down 44% relative to the dollar since they made their predictions. We lamented to Caio that everything Brazil faces -- budget deficits, debt, low growth, political corruption, currency risk -- the U.S. faces too. Except in Brazil, things break. So it goes with world reserve currencies. Until it doesn’t. As we wait, our Brazilian friends are starting to contemplate the other side of their bet. “We think maybe we’re approaching a bottom,” said Roberto, an Empiricus analyst. “The Bovespa, Brazil’s stock market, is at the lowest point in dollar terms since the 1990s. Lower than it was in 2008.” From there, it climbed over 120%. “Are we looking at a similar setup, today?” they thought aloud. Jim Rickards has some thoughts on the topic -- and not just regarding Brazil -- below. Read on... Cheers, Peter Coyne for The Daily Reckoning Post Comment Private Reply Ignore Thread
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