A More Visibly Detailing Double “L”

Brazil’s Minister of Economy Paulo Geudes told members of the local press last month that the country was on track to lose about 300,000 “formal” jobs in 2020. Though employment growth has slowed there in the second half of the year, as it has worldwide, Geudes was quite proud of his achievement. After all, though hundreds of thousands of Brazilians have been left unemployed, at least it wasn’t Euro$ #3 bad.

We will possibly reach the end of this year losing 300,000 jobs, that is, 20% of what we lost in 2015 and 2016.

For this nation, and quite a few others, COVID was an economic walk in the park when compared to the devastating (euro)dollar crisis which struck them more than half a decade ago. But they aren’t out of the woods just yet.

Though the real has rebounded over the last few weeks on vaccine-aphoria loosening dollar supplies globally (modest risk-taking), the Brazilian government had been placing all its hopes on 2021 long before Pfizer and Moderna’s announcements. Borrowing at a rate never before seen, the federal government there has followed much the same plan as the US federal government, exploding deficits so as to send direct cash payments to those out-of-work and of the lowest income tiers.

In order to do this, the state has been forced to pay up. Local currency yield spreads are now enormous, unlike those in the US (despite what yield curve hysteria passes for American “analysis”). The 5-year spread, the difference on maturing bonds when compared to those maturing 5 years ahead, is back more than 435 bps. It had been this much, or higher, starting in May 2020 and then a record more than 450 bps at the end of September.

In recent weeks, unlike the repo-hungry primary dealers in US government auctions, several Brazil federal sales have failed to sell out their full allocations. Not only did that push longer yields back higher, the Brazilian Treasury had to go begging to Banco do Brasil (central bank) for a reported 325 billion reais in funds transfers to maintain cash-on-hand balances.

With a whole bunch of shorter-term debt set to mature early next year, officials have been planning a wide variety of stop-gap measures just to hope they can kick the can even further down the road, far enough that maybe, possibly all this mess just randomly cleans itself up.

Despite all the happy economic talk, including a 7.7% quarterly gain in GDP in Q3, the best ever, the truth is Brazil never recovered from 2015-16 (Euro$ #3) and the costs of this severe, ongoing depression continue to, in this case, literally pile up.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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