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HAJIME KITANO: The Big Surprise Of 2014 May Be A Brazilian Financial Crisis...

 
Luisport

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12/05/2012 12:46 PM

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HAJIME KITANO: The Big Surprise Of 2014 May Be A Brazilian Financial Crisis...
Business Insider‏@businessinsider

HAJIME KITANO: The Big Surprise Of 2014 May Be A Brazilian Financial Crisis [link to read.bi]
Luisport (OP)

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12/05/2012 12:48 PM

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Re: HAJIME KITANO: The Big Surprise Of 2014 May Be A Brazilian Financial Crisis...
JPMorgan strategist Hajime Kitano is skipping the 2013 predictions.

Instead, Kitano is moving the conversation forward to 2014, which he says could be the year that the Brazilian real finally crashes, enveloping the country in a financial crisis.

The reason, Kitano says, is that the real is one of the most overvalued currencies on the planet, second only to the Australian dollar.

Of course, Brazilian authorities are aware of this concern and have been quite outspoken about the overvalued real, attacking developed market central banks like the Federal Reserve and Bank of Japan for instituting easy money policies that have the pernicious side effect of driving up the value of the Brazilian currency against the U.S. dollar.

The country's finance minister, Guido Mantega, went so far as to dub this phenomenon "currency wars" back in 2010. In that case, Brazil is definitely one of the losers.

This leads us to Kitano's latest ruminations on the subject:

It is that time of year when we are often asked ‘What will next year's surprise be?’ When asked this over the past few years, our reply has been a dramatic fall in the Brazilian real. This is because we considered the Brazilian real overvalued, and expected a return to average values.

Figure 1 shows the real effective Brazilian real. It has tended to fall after peaking in July 2011, but remains above its average since 1970 +2σ.

In other words, the Brazilian real has peaked, but still remains extraordinarily high by historical standards:

Today's Brazilian real reminds Kitano of both the U.S. dollar leading up the savings and loan crisis in the late 1980s and the Japanese yen in the mid 1990s. Both peaked at levels higher than two standard deviations above the historical average before leading to a financial crisis....


Read more: [link to www.businessinsider.com]
Anonymous Coward
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12/05/2012 01:10 PM
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Re: HAJIME KITANO: The Big Surprise Of 2014 May Be A Brazilian Financial Crisis...
didn't read the article but upfront there are lots of incongruent info in that analysis. First BRL only came into existance during the mid 90's (94). Second it was a bit higher than the USD (.95, .96 cents to the dollar) and it remained on a stable devaluation till 1999. Right after the mexican and russian crisis during the end of the century (tequila and vodka) it shot upwards to 1.9 - 2 to the dollar. From then on it fluctuated up from 3.2 down to 1.4.

And yes, Brazilian central bank is very active on currency stablization (manipulation), but in this scenario you can see that that's probably a good thing -- at the very least by smoothing the fluctuations out. And this is the first time I have read someone aying that BRL is overvalued, most pundits always tout the contrary that it is in fact undervalued (pro exportation politicies, same as with china).

I think he's just riding the emerging countries fad and trying one oppositional point of view to generate some polemic and a few web hits.

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