Real vs Dollar and other currency issues

[Vlad2005]

Thank you for you information Rio_Bob but a "translation" would be greatly appreciated as I don't know shit about economics.

Thank you

[Rio Bob]

brazil's real, local bonds rise after central bank cuts rate

by adriana brasileiro and cecilia tornaghi

sept. 6 (bloomberg) -- brazil's real and local currency bonds rose after the central bank cut the benchmark interest rate by the smallest amount in three policy meetings because inflation remains below the target of policy makers.

the bank's monetary policy committee reduced the rate by a 0.25 percentage point to 11.25 percent late yesterday, matching forecasts from all 34 economists surveyed by bloomberg. brazil, which cut rates by half a percentage point in june and july, still has the highest borrowing costs in south america, making local-currency bonds and the real attractive to investors.

``the fundamentals are all very positive, with the outlook for inflation still benign and markets recovering well from the recent credit-market turbulence,'' said mauro cunha, who helps oversee more than $1.3 billion as a partner at maua investimentos in sao paulo.

the real rose 1.1 percent to 1.9450 reais per dollar at 4:05 p.m. new york time. the currency has strengthened 9.8 percent against the dollar this year, the biggest gain among the seven most actively traded latin american currencies.

the yield on brazil's benchmark zero-coupon bonds due january 2008 fell 6 basis points, or 0.06 percentage point, to 11.15 percent, according to banco ubs pactual sa.

the bank has sliced the benchmark rate 18 times from 19.75 percent in 2005 to spur economic growth that lags behind most of its regional peers. the central bank adjusts interest rates in an effort to keep inflation at or near 4.5 percent.

brazil's consumer prices rose 0.47 percent in august from the previous month, led by higher food costs, the national statistics agency ibge said in rio de janeiro today.

inflation results

inflation, as measured by the government's benchmark ipca index, rose last month at a faster pace than in july. the 0.47 percent increase was in line with the median 0.46 percent increase forecast in a bloomberg survey of 34 economists.

milk and dairy products jumped 5.77 percent in august from a month earlier, the agency said. brazil's inflation rate in the 12 months through august was 4.18 percent, compared with 3.74 percent in the 12 months through july, the agency said. the central bank targets inflation of 4.5 percent.

[Rio Bob]

The rates do vary. But I also have heard that the period you mention is not really considered a busy season. Most of the consolidators I use tell me that the rates drop after Jan. 15 for about 2 weeks. I think the airlines call Jan15-the end of the month, the post-Christmas period.

So I understand your point but that period you mention is not representative of the usual West Coast fare.


In fact, I normally fly to Rio on Continental exactly during that time period to get the good rates. I remember watching the Super Bowl in Rio. So, yes, guys should look at those 2 weeks, becuase you can get good fares that will leave you with some money in your pockets.

But the average rate is well above that range you quote.

TJ

Did you check the price using Continental's own website? I did a few sample dates in September, October, November, December and January and I came up with the same price of $880, all going through NWK, what dates are you looking at?

[Exec Talent]

Ok so in hindsight this observation is correct, the Dow goes up the dollar goes down, great.

Or do we do nothing and sit here watching you pat yourself on the back telling us that your theory is correct after it has happened?

My comments were many months ago. Not after the fact. They were real time when money could have been made. As usual, you were just wrong. If I had to advise anything right now it would be to do the opposite of what you recommend.

[Bubba Boy]

You've also shown once again that you're not a "bubba." I can't help wondering why you chose that screen name. Regards, L

I actually chose that name after a website that changed my life a little. Basically I was sick of banking and looking for something to do in my life. I started playing around on the internet and came accross a website where the guy called himself "bubba". The dude from the website was a PHD grad and certainly no bubba. Anyway, long story short. I became interested in the Net maybe 10 years ago, started a business, which ultimately made me enough cash to live comfortable for the rest of my life without working to hard. Hence I fill in my time by basically travelling between Europe and South America full time. It is also why I have the time in my life to write my guide on Rio. I owe the "Bubba" from that website a lot. I don’t have a problem with people thinking I am a Bubba, I would rather people underestimate me.

I often get people inviting me to have a beer with them from this site. Mainly because of the guide I wrote. That is cool, however I never take them up on their offer, due mainly to me not hanging much in Zona Sul anymore. Having said that, out off all the dudes on this site that I would perhaps like to have a beer with one day, Lorenzo would be near the top. Banging Rio's finest when approaching "geisa hood" (lorenzos own words) is an inspiration to me. I want to be doing that when I am Lorenzo’s age. I am in my mid 30’s.

[Sunset Strip]

The rates do vary. But I also have heard that the period you mention is not really considered a busy season. Most of the consolidators I use tell me that the rates drop after Jan. 15 for about 2 weeks. I think the airlines call Jan15-the end of the month, the post-Christmas period.

So I understand your point but that period you mention is not representative of the usual West Coast fare.


In fact, I normally fly to Rio on Continental exactly during that time period to get the good rates. I remember watching the Super Bowl in Rio. So, yes, guys should look at those 2 weeks, becuase you can get good fares that will leave you with some money in your pockets.

But the average rate is well above that range you quote.

TJ

[Rio Bob]

The Real to Dollar could be 1 to 1 and that would be no issue to the regular monger. For myself, the issue seems to be that airfares are more expensive. Back in 2001 through 2003, I flew to Rio from LA for $500 total in coach. Now that same seat is at least $1200. And first class has gone up quite a bit too.

The supply of women in Rio is still high, even though the quality is a bit lower, so guys can still get laid. The problem is that many men just do not have as much disposable income to spend once in Rio.

Most regulars can find some girls they can pay R$150 or so for all night. Of course these girls will want exclusivity. But for many men paying $1200-$1700 to fly to Rio in coach, rent an apartment at least US$60, and then pay for girls is asking too much.

I think even if the dollar to real was at 3:1, guys would still find the airfare prohibitive in many cases.

So in the best world, both the dollar would get stronger AND airfares would drop.

But at the moment there are too many Brazilians flying back and forth to the US for fares to lower.

So is the demise of Varig part of the problem, too?

TJ

I don't know what dates you're looking at but I did a rate check on Continental Air, Lax - GIG 1/16/08 - 1/28/08 just as an example in the height of the season right before Carnaval and I got a rate of $776 plus tax = $880. This is not such a bad rate.

[Sunset Strip]

The Real to Dollar could be 1 to 1 and that would be no issue to the regular monger. For myself, the issue seems to be that airfares are more expensive. Back in 2001 through 2003, I flew to Rio from LA for $500 total in coach. Now that same seat is at least $1200. And first class has gone up quite a bit too.

The supply of women in Rio is still high, even though the quality is a bit lower, so guys can still get laid. The problem is that many men just do not have as much disposable income to spend once in Rio.

Most regulars can find some girls they can pay R$150 or so for all night. Of course these girls will want exclusivity. But for many men paying $1200-$1700 to fly to Rio in coach, rent an apartment at least US$60, and then pay for girls is asking too much.

I think even if the dollar to real was at 3:1, guys would still find the airfare prohibitive in many cases.

So in the best world, both the dollar would get stronger AND airfares would drop.

But at the moment there are too many Brazilians flying back and forth to the US for fares to lower.

So is the demise of Varig part of the problem, too?

TJ

[Lorenzo]

The time frame? If anyone body could predict this with certainty they would be obviously able to leverage this.

Thanks for the interesting and informative post. You are echoing time-honored conventional wisdom about investing, that you can't time any kind of market. You've also shown once again that you're not a "bubba." I can't help wondering why you chose that screen name. Regards,

L

[Mr Enternational]

I guess I am as qualified as anybody, I have a Bachelor of Economics and Bachelor of Law and spent many years working in Merchant banking. Does this mean I can predict the future exchange rate with certainty? No, no one can.

Plus you wrote THE GUIDE!

[Alex Deuce]

I guess I am as qualified as anybody, I have a Bachelor of Economics and Bachelor of Law and spent many years working in Merchant banking. Does this mean I can predict the future exchange rate with certainty? No, no one can. I remember walking onto the trading floor of our bank on several occasions and asking several very qualified and extremely highly paid individuals what a market would do, usually you could find some one saying the dollar will definitely fall, while the dude sitting next to him would say that it is going to rise. No one knows with any certainty what the exchange rate will do in the near to medium term. Qualifications don’t necessarily mean some one will get it right.

Over the longer term one can be a little bit more certain, but then the prediction of the timing can be off.

Near term prediction of the real/us. Most likely the real will continue to rise, and the dollar fall. Now, the big driver of the currency in Brasil is not necessarily the weak US dollar, which is of course not helping, but the high returns offered in the Brazilian financial markets. Yes a strong export led current account surplus is helping the Real, but the over riding factors are the high returns offered by high interest rates and a rapidly rising Brazilian stock market. Hence when you see the Dow or other world markets fall, the Brazilian market falls as well, usually two or three times harder. The real then tends to fall as investors pull back from Brazil as the cash is taken out of the markets.

Now, the high rates of return offered in Brazil will tend to not last forever, hence one will see a reversal of this and the real should depreciate over the longer term. One could say the economic fundamentals do not support a very strong Brazilian currency. The Brazilian economy is extremely ineffecient and there is high inflation, don't believe the official quoted figures of 6%, it is closer to 10%-%15. A recent survey, by the Brazilian government of the efficiency of 48 of the larger economies around the globe found Brazil to come in at number 48, thats right dead last, the most ineffecient economy on the planet. The biggest factor in contributing to the inefficency of the economy is the ripe corruption at every level, not an easy thing to fix overnight. To fix it would take a generation or 2, this will not happen over night. Hence, some time in the future, most likely when China’s economic growth comes to a halt and or their markets melt down, the Real will depreciate again. The time frame? If anyone body could predict this with certainty they would be obviously able to leverage this.

Great post, but does not address the main reason that I think the dollar will fall. BUSH, he wants a weak dollar to promote trade.

[Rio Bob]

Near term prediction of the real/us. Most likely the real will continue to rise, and the dollar fall. Now, the big driver of the currency in Brasil is not necessarily the weak US dollar, which is of course not helping, but the high returns offered in the Brazilian financial markets.

Thank you, this was an excellent report, probably the most accurate explanation on this subject all in one place I have seen yet.

[Bubba Boy]

I guess I am as qualified as anybody, I have a Bachelor of Economics and Bachelor of Law and spent many years working in Merchant banking. Does this mean I can predict the future exchange rate with certainty? No, no one can. I remember walking onto the trading floor of our bank on several occasions and asking several very qualified and extremely highly paid individuals what a market would do, usually you could find some one saying the dollar will definitely fall, while the dude sitting next to him would say that it is going to rise. No one knows with any certainty what the exchange rate will do in the near to medium term. Qualifications don’t necessarily mean some one will get it right.

Over the longer term one can be a little bit more certain, but then the prediction of the timing can be off.

Near term prediction of the real/us. Most likely the real will continue to rise, and the dollar fall. Now, the big driver of the currency in Brasil is not necessarily the weak US dollar, which is of course not helping, but the high returns offered in the Brazilian financial markets. Yes a strong export led current account surplus is helping the Real, but the over riding factors are the high returns offered by high interest rates and a rapidly rising Brazilian stock market. Hence when you see the Dow or other world markets fall, the Brazilian market falls as well, usually two or three times harder. The real then tends to fall as investors pull back from Brazil as the cash is taken out of the markets.

Now, the high rates of return offered in Brazil will tend to not last forever, hence one will see a reversal of this and the real should depreciate over the longer term. One could say the economic fundamentals do not support a very strong Brazilian currency. The Brazilian economy is extremely ineffecient and there is high inflation, don't believe the official quoted figures of 6%, it is closer to 10%-%15. A recent survey, by the Brazilian government of the efficiency of 48 of the larger economies around the globe found Brazil to come in at number 48, thats right dead last, the most ineffecient economy on the planet. The biggest factor in contributing to the inefficency of the economy is the ripe corruption at every level, not an easy thing to fix overnight. To fix it would take a generation or 2, this will not happen over night. Hence, some time in the future, most likely when China’s economic growth comes to a halt and or their markets melt down, the Real will depreciate again. The time frame? If anyone body could predict this with certainty they would be obviously able to leverage this.

[Giggity]

Look for the dollar and Real to stabilize at 1US to about 1. 85 Real.

...

Just the humble rants of an individual with a Masters in Economics and Pimping.

Being a sophomore Economics major who just finished Basic Macroeconomics, I'm curious as to where one derives a future rate for the BRL like you did. Will I learn that later in International Finance? I'm really enjoying this field.

(Ha! An M.A. in Pimpology... a university offering that would get more applications for the first year the offered it than all other graduate programs in the country combined.)

[Giggity]

SO what is going to happen in the next few years?Are people from all over the world come to monger in US?

Since economics and mongering are connected I would like to hear some more opinions.I am planning a one year trip in eastern europe and coming from the US the US dollar is my major source of funding so.

a) Don't save your dollars right now. I'm hardly an expert financial planner, but with the Fed creating so many dollars out of thin air to buy up the exponentially increasing federal debt, and now the debt of irresponsible home buyers, the value of the dollar as compared to foreign currencies has really nowhere to go but down (unless foreign central banks manage to inflate their currencies even faster, which is certainly possible). Gold and silver are often good ways to hedge against currency fluctuations, but do look closer into that before basing your investments on that idea. In essence, I have no useful advice... just a handful of introductory economic theory.

b) As far as foreigners coming into the US to monger as the boom recedes, foreigners have always come into the US to monger (see $1000/hr Las Vegas chicks surrounded by Asian businessmen). All that could accomplish is to make more inaccessible that which is already inaccessible.