Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: Haim R. Branisteanu who wrote (53900)	8/22/2009 2:37:50 PM
From: elmatador	Respond to of 220167

Is Brazil’s central bank betting on a US slowdown? I have kept this for the last 3 years... Is Brazil’s central bank betting on a US slowdown? Oct 27, 2006 In August, Brazilians – the central bank and private investors – bought $11b of US Treasuries. That is a lot. Back in 2002, I would never have thought Brazil would provide (annualized) $120b in credit to the US Treasury in any month … Here is one way of thinking about the magnitudes. Brazil’s 2002 IMF bailout was in the $30b range. Suppose 1/3 of the IMF’s useable funds come from the US. Then Brazil provided as much financing to the US government in the month of August as the US provided Brazil’s government (through the IMF) back during Brazil’s entire crisis. The times they are a changing. Actually, Brazilian purchases of US Treasuries are more like a swap than outright financing of the US. US and European investors looking for yield buy high-yielding Brazilian debt, and Brazil’s central bank, which is intervening to keep the real from appreciating, uses the funds to buy US debt. That is a trade that – at least so far – has generated big profits (dark matter, in other words) for American and European investors. Back to August. How did Brazil manage to afford $11b in US treasuries in a month? First, Brazil’s reserves increased by a bit less than $5b in August. Second, Brazilian central bank/ banks reduced their short-term claims on the US by $2.7b or so. So even Brazil's central bank accounted for all the fall in short-term claims, it would have only been able to generate $7.5b or so of $11b in purchases .... Yet even if Brazil's central bank didn’t do all the buying, it rather clearly invested a decent chunk of growing reserves in Treasuries and shifted a significant sum from short-term investments to longer-term investments. That is the sort of thing you do if you think US rates are about to fall. In other words, it was the sort of bet that makes sense if you think Mr. Recession in 2007 is going to be at least ½ right, and not just about the third quarter. rgemonitor.com