First, as a continuation of the previous article, some of you may be wondering if a Spanish banking crisis may impact Brazil. The answer is probably not much. Despite the fact that some of the largest banks in Brazil are Spanish e.g., Santander, Brazil’s banks are run as independent entities from their parent companies in other countries. Plus Brazil’s banks are famously profitable from the spread they earn on interest rates. I’d be more worried with US bank failures than Brazilian bank failures. Now then, here are some new data points to like about Brazil.

• 2Q 2009 saw the Brazilian economy fall into a recession (way after we did). The Brazilian economy looks like it will emerge from recession in Q3.
• Government stimulus was very effective at getting consumers back in the game. This is the advantage economies have that did not binge for the past 3 decades (USA). Any stimulus works very well because consumers are not buried in debt.
  • The amount of mortgage debt in the US = approx 80% of GDP. In Brazil it is 2.5% of GDP. Lots of room for growth and credit expansion before things become inflationary.
• Brazil’s last decade has seen nothing but budget surpluses. In the past 50 years there have been 4 years with budget surpluses in the USA (the last 3 of the Clinton white house, and first year of Bush 2).
• Interest rates were “slashed” by Brazil’s central bankers from 13.75% to 8.75%.
• The past 6 years have seen the creation of 8M jobs, while the US has net created none (and the US has 50% more population). At the same time minimum wage has increased 45%!!! – lifting the poor into the middle class.
• The fiscal stimulus (tax cut) ends this October, so maybe we’ll see a small pull-back in Nov-Dec.