Brazilian Real: Most Overvalued Currency in the World

BZF is the ETF that tracks the Brazilian currency is ETF. We track them all live here.

The Economist runs a popular "Big Mac" index that tracks the price of Big Macs around the world.

"To estimate the current fair value of a currency we use the “line of best fit” between Big Mac prices and GDP per person. The difference between the price predicted for each country, given its average income, and its actual price offers a better guide to currency under- and overvaluation than the “raw” index. The beefed-up index suggests that the Brazilian real is the most overvalued currency in the world; the euro is also significantly overvalued. But the yuan now appears to be close to its fair value against the dollar—something for American politicians to chew over".

Jim Rogers Video: U.S. Debtonation

Jim Rogers, as always, interesting to watch.

ERJ, Embraer Profit Rises 51%, Stock Jumps

Embraer shares are jumping today and the company reported net income of $ 153.8 million in the second quarter, up 51.2% from the $ 101.7 million for the same period of 2010.
Net income fell 10.9% to R $ 2.168 billion, compared to R $ 2.435 billion from April to June 2010. In the first half, net income totaled R $ 3.925 billion.

EBITDA (earnings before interest, taxes, depreciation and amortization) reached R $ 250.3 million in the second quarter, down 15.9% from the $ 297.7 million recorded in the same period last year. The EBITDA margin fell from 12.2% in the second quarter of 2010 to 11.5% in 2011. For the year, EBITDA totaled R $ 510.1 million.

Deliveries of Embraer in the second quarter of this year totaled 48 aircraft, 25 commercial jets and 23 jets. On June 30, 2011, the firm had an order backlog of $ 15.8 billion. In the same period last year the number of deliveries was 69 aircraft and the backlog totaled U.S. $ 15.2 billion.

Looking forward, the main expectations is with U.S. company Delta's decision to renew its fleet of regional jets, which will generate an order for 100 new aircraft. The announcement is expected in October. Moreover, the recent decision by Boeing to repalce the engines of its aircraft model 737, in search of lower fuel consumption, rather than developing a completely new plane, transfers to Embraer the decison and expectation of what to do in the future with their e-jets. Embraer was awaiting the announcement of Boeing to decide what to do. Airbus had already made a statement late last year to modernize its choice of its aircraft engines.

Roubini: Greek Package Just Buys Some Politicians Some Time, Ireland, Portugal Also Insolvent

Nouriel Roubini said today that the new rescue package for Greece does not put an end to the debt crisis of the euro area and warned that Ireland and Portugal "are also insolvent."


In an interview with German weekly newspaper Die Zeit, Roubini warned that "in some years, the current financial aid program for Portugal will fail. The same goes for Ireland."

The new aid package to Greece by European leaders that was closed last week will, at best, buy time, he said. Politicians in the euro area can be off the hook for another five years, " but in the end will be facing "very difficult decisions."

"I see a chance of up to 30% of Greece or Portugal out of the eurozone," said Roubini.
On the global economic outlook, the U.S. economist said "worried about the possibility of forced landing (in China) in two or three years." Chinese growth is fueled by heavy investment in infrastructure and production, which may create "excess capacity" and cause "credit problems," he said.

'Speculators Beware": Brazil Sends New Warning as U.S. Dollar Drops to Lowest Since 1999; Currency Wars Alive

Brazil's finance minister, Guido Mantega, sent a new message to investors who believe that the Brazilian currency appreciation will continue in the short term. "We may take further action to prevent this overvaluation. We cannot predict them, but you can just wait."


"Whenever we talk about this, it always ends in measures. Therefore, speculators beware." The dollar touched its lowest level since early 1999, to R $ 1.543.

Mantega also stressed that the exchange is not being used by the government as a major instrument to combat inflation. He said this is being done mainly by fiscal and monetary policy by the Central Bank.

According to the minister, the exchange rate is a matter of concern for two reasons. On the one hand, there are problems of the world economy, since many countries have financial difficulties, which in turn reflect the devaluation of their currencies.

On the other hand, he argued, "there is currency manipulation, an exchange war among countries that seek to reduce the value of their currencies in order to export more and have more competitive."

The minister said some countries are so in need to export, to expand revenues and employment levels, that they resort to triangular operations in "signs of deception" to sell their products to Brazil.

The Brazilian currency ETF is BZF.

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The Sad Chart: RIM to Cut 2,000 Jobs, 11% of Workforce

What a sad chart:

The big news for today: Research In Motion said it will cut about 2,000 jobs, or 11 percent of it workforce, and... that severance payout is not included its second-quarter and full year outlook.


Chief Operating Officer Don Morrison is planning to retire and Thorsten Heins is taking on the expanded role of COO, product and sales.

Moody's and The Greek Tragedy: Downgrades Again and Says Default "Almost" Certain

Moody's credit rating agency has just downgraded Greek debt, yet againn - you are not reading the same news from the past - this time by three notches.

It also warned that the eurozone rescue was almost certain to trigger another two-notch cut to default status.
Fitch agency had done the same on Friday.

Moody's Investors Service said that the second rescue announced on Thursday meant that private sector holders of Greek bonds "are now virtually certain to incur credit losses."

This latest rescue for Greece involves initially up to 2014 about 110 billion euros from eurozone governments in various forms and 50 billion euros from banks. Moody's said the effect would be "limited."
"the current uncertainty about the exact market value of the securities creditors will receive in the exchange."

"if and when the debt exchanges occur, Moody's would define this as a default by the Greek government on its public debt."

What is Going On? Greece Back on the News: Germany and France Agree on Bailout - Yet again!

If you thought that Greece had been "fixed", well, Reuters reports this stunning news today, stunning as in, what is going on!?

It reports that Germany and France have reached a common position on a 2nd Greek bailout. "The accord came after seven hours of talks late into Wednesday night between German Chancellor Angela Merkel and French President Nicolas Sarkozy in Berlin, sources in both governments said".

However, details of the common position were not revealed!

It appears it would include a contribution to the Greek bailout by Europe's banking sector (European Central Bank President Jean-Claude Trichet joined Merkel and Sarkozy for part of their talks).

"The Franco-German accord will now be presented to a summit in Brussels on Thursday of all 17 leaders of the single currency area to address the Greek crisis, which in the last two weeks has threatened to engulf bigger states such as Italy.

The new bailout would supplement a 110 billion euro ($156 billion) rescue plan for Greece launched in May last year. It is expected to include fresh emergency loans to Athens from euro zone governments and the International Monetary Fund, and a contribution by private sector investors".

Is Greece fixed or not?  (that is not a real question).

The U.S.' Debt: Worse Than Eurozone 17; Yet No Downgrade From Agencies

Interesting that the credit rating agencies 'dilapidated; the ratings of countries like Portugal and Greece but have not touched theUnited States, except by making recent threats.

However, the 17 nations that share the European currency together have a debt that 25% lower than the United States.

An important factor is that the U.S. a union of 50 states. The government that issues the currency and borrows money is the same as that is responsible for the balancing (or not) of public accounts. The Euro zone is a set of 17 countries that share the same currency, but each one balances or unbalances accounts independently.

Source: O Estado de Sao Paulo

Moody Places U.S. Under Review

It used to be Ireland, Portugal, greece. Now the rating agencies are the bosses apparently. Moody’s Investors Service placed the nation’s credit rating under review for a downgrade.

The U.S. has been rated Aaa since 1917, but this has now been put on review. The move the pressure on U.S. lawmakers to increase the government’s $14.3 trillion debt limit. The reasons are concerns that the debt threshold will not be raised to prevent a missed payment of interest or principal on outstanding bonds and notes.
 
Steven hess, the senior credit officer at Moody’s in New York, said today: “What we’re looking for is a raising of the limit. It doesn’t matter the process that they get there,”

Goldman Sachs O'Neill: Eurozone Will Not Absorb Italy's Crisis

The problems of the eurozone are growing and the region can not afford to absorb a broad impact of a crisis in the bond market in Italy, said Jim O'Neill, chairman of Goldman Sachs Asset Management, a report this  weekend. O'Neill coined the acronym BRIC (Brazil, Russia, India and China).

Concerns with the results of stress tests of European banks to be released next Friday and doubts about the cohesion of Italian fiscal tightening measures are putting Italy under the spotlight, said O'Neill.
Bonds in Italy have retreated sharply in recent sessions because of concerns about the health of the banking system and the intensification of public friction between the prime minister, Silvio Berlusconi and Finance Minister Giulio Tremonti.

Investors may be selling Italy to hedge its exposure to other countries in the euro zone, said O'Neill. But he added that if it continues, this sale will put the crisis in the region at a more problematic level .

"I found it fairly easy to not get too concerned with the dynamics of the debt of Ireland, Portugal or Greece, but Italy is a different topic," O'Neill wrote, citing the size of the Italian economy.

At 120% of Gross Domestic Product (GDP), Italy's debt already amounts to about 25% of GDP in the euro zone, he said. "Neither the euro zone, or possibly the rest of the world can afford a full-scale crisis in the Italian bond market,"

Inflation Rises to 6.8% in China, Food Prices Soar

The National Bureau of Statistics of China released its latest monthly data released showed the consumer price index for June: prices rose 6.4 % from the same period the year before, higher than expectations  between 6.2% and 6.4%.

Food prices rose 14.4%.

In May it had been 5.5%, which had been the fastest rise in CPI since July 2008.

People's Bank of China Gov. Zhou Xiaochuan tried to calm the markets saying that "It's better to use month-on-month inflation (data)...seasonally adjusted and annualized", apparent suggestion that markets shouldn't over react to this large rise in year-on-year inflation for June.
"In China, we use the year-on-year inflation figure without seasonal adjustment: that's the problem," "You always try to think about the base effect."

These comments are bizarre. Comparing subsequent months makes little sense. Comparing the same month in subsequent years does make sense in my books.

U.N. Says Food Prices To Remain Costly For Years

Jose Graziano da Silva, the FAO’s director-general elect, said that food will remain costly for years and price swings will be around “for a long time,” .

World food prices rose again  in June as sugar and dairy became more expensive, adding to inflationary pressures.


The United Nations’ Food and Agriculture Organization said in a report that an index of 55 food commodities rose to 234 points from 231 points in May. The all-time high was 238 in February.

Expanding Population and New Tastes

As we have commented before, people, specially in Asia, are eating better, and that is causing great strains in fos production - and prices.

Bloomberg quotes analysts Veronique Riches-Flores and Loic de Galzain from Societe Generale: “The question of how to satisfy the food needs of an expanding population with ever more sophisticated tastes and an increasingly unified mode of consumption is getting even more pressing,”
The FAO estimates that world food output will have to rise 70% by 2050 as the global population climbs to 9.2 billion then.

Brazil Says Currency Wars Are Still On; More Measures Coming

As we reported here a few weeks ago,.Guido Mantega, Brazil’s finance minister, says Brazil is preparing  additional measures to either contain the rise of the real, or mitigate the damages of its very signifcant rise.
Mr Mantega said the G20 is still a long way from achieving its goal of agreeing new guidelines for managing currencies.

He says there are struggles between countries such as the US and China, and the global currency war was “absolutely not over”.

He added that slow economic growth coupled with low interest rates in the U.S. and other advanced economies continued to put pressure on Brazil’s currency.
“We always have new measures to take,” he told the FT from London.

We track all currency ETFs live here.

Mantega: “I gave a speech to investors and I hope they did not receive it too enthusiastically,”  “ because there is a tendency for too much capital to enter”.

Mr. Mantega insisted that Brazil had to take other actions because domestic interest rates were already high, to curb inflation, and further rate rises alone tended to encourage further capital inflows.
“Monetary policy is very tight in Brazil and the level [of interest rates] in real terms is higher than in other [emerging] countries,”

Moodys Downgrades Portugal to Junk Status

All the silly loans and "voluntary rollovers" do not seem to be working out.

Moodys has dongraded Portugal debt 4 notches from Ba2 from Baa1, now junk status and with negative outlook. The downgrade places Portugal in "Non-Investment Grade Speculative" category.

The reasons:

• growing risk that Portugal will require a second round of official financing before it can return to the private market
• increasing possibility that private sector creditor participation will be required as a pre-condition.
• heightened concerns that Portugal will not be able to fully achieve the deficit reduction and debt stabilisation targets set out in its loan agreement with the European Union (EU) and International Monetary Fund (IMF) due to formidable challenges the country is facing in reducing spending, increasing tax compliance, achieving economic growth and supporting the banking system.

The agency says there s now an increasing probability that Portugal will not be able to borrow at sustainable rates in the capital markets in the second half of 2013 and for some time thereafter.

S&P Deals Big Blow To Greece Plans: When A Default is a Default

A huge blow has been dealt to the french plans to 'rollover" Greek debt to save the banks. S&P says allowing a debt rollover would amount to a selective default by Greece,

S&P said it would treat the Greek debt restructuring scheme as an effective default of its debt obligations.

French banks have 45B Euro exposure in grrrek debt, the largest exposure of any country.

German banks hold €30bn of Greek debt, about 2X the exposure of UK banks.

All these banks have supported  the "voluntary" debt rollover plans.

What a world!

Roubini: U.S. Needs More Stimulus; Fiscal Train Wreck; Zero Rates As Far As Eyes Can See

Nouriel Roubini said today that the U.S. needs even more fiscal stimulus in the short term as its economy remains weak.

He also says that the country needs to deal with fiscal problems or "you’re going to have a fiscal train wreck,”


“The right solution would be to commit to a program of trying to control spending and raised taxes gradually over the next five years,”
“The trouble is we’re doing short-term drag rather than stimulus and we’re not committing to anything in the medium term, so the policy in the U.S. is not optimal,”

“This is QE3 after QE2. It’s not going to make a huge difference, but you need more monetary stimulus,”

“...you’ll have zero rates for as far as the eye can see,” (Bloomberg TV)

3-Years Later... BAC and JPM Cutting The Principal On Options ARM Mortgages

It pays not to pay your bills on time it seems. 3 years later we are still at this. The New York Tienms reported Sunday that BAC and JPM have started reducing the principal owed on tens of thousands of mortgages "where the banks deem the loans especially risky, even if the borrowers have not asked".

It cited a case in Florida where a lady's principal balance was cut in half.

The banks are targeting holders of option ARM loans, i.e. pay option adjustable-rate mortgages, loans in which borrowers have the option of skipping some principal and interest payments.

Such "option ARM" loans were seen as especially high risk in the wake of the financial crisis;

Reuters: "One law professor quoted by the Times said the banks were behaving in contradictory ways, modifying some loans that should not be and not modifying some loans that should be".

S&P Warns on Greece Again, Mentions It's a Default, Derails Stock Market "Rally"

After the massive rally last week trigered by the ":saving" of Greece and the "voluntary" rollover of debt, Standard & Poor's warned it would treat the latest plan for a rollover of privately-held debt as a default, because that is what it is. There was nothing voluntary about it, and another 12B Euron have been given and lost in Greece.

Reuters reports that Bank stocks are fallin in Europe and "the cost of insuring Greek debt against default resumed an inexorable climb only briefly interrupted last week when the Greek parliament backed a new wave of spending cuts, tax rises and public asset sales.
Investors fear that a default by Greece, which has seen violent protests against austerity, would send shockwaves through the world finance system with some analysts saying it could call the whole euro zone into question".

"It is our view that each of the two financing options described in the (French banks') proposal would likely amount to a default under our criteria," S&P said in a statement.