Emerging South

 The Wall Street Journal was very dark this weekend on the US Outlook for the coming quarters; the worst is indeed still to come, but contrary to the Wall Street Journal, I don't believe that the recession will be over in June 2009, it will take all the way through 2009. 

Meanwhile, Brazil's new strategy for maintaining investment and expanding credit is reducing interest rates on loans granted by Bank of Brasil and Caixa Economica Federal (Federal Savings Bank).  Which is, I think, a very smart plan.  Here in Europe the ECB is cutting down interest rates massively, but this is not dripping through to the companies and people in the street.  In Brasil, the Reserve Bank hasn't dropped interest rates yet; I'm happy for this, since I believe in Europe and the US we are creating a massive hyper-inflation tornado coming our way; and not in the least also in South Africa, where the Reserve Bank lowered the interest rate last week.
In Brazil the credit market is somewhat atypic; you need to understand the structure of Bank of Brasil and Caixa Economica for this.  Caixa is omnipresent, all worker people put their saving money (Poupanca) at Caixa.  And most of the housing credit is provided through Caixa.  Contrary to the US and Europe, housing credit in Brasil is small; luckily.  Real estate financing only amounts to 4% of the GDP.  What Brasil now wants to do is keep the Reserv Bank rates the same, but reduce the spreads (difference between the interest rates that bank receuves and what they loan to third parties) by inforcing Caixa and Banco Brasil to lower their interest rates.  This would mean banks in Brasil would make less profit; which is perfectly fina, since they have been sitting on ever increasing mountains of profit the last years.  Also the PAC (Growth Acceleratioon) Investment Program will be paintained, income taxes will be lowered and the Financial Operation Tax (IOF) will disappear (excellent news for foreign investors), although only for natural persons.  Also the IPI (Industrialized Products Tax) will be lowered and the Central Bank will use their reserve funds in dollar auctions.   The tax waivers from fiscal measures will total 8,4 billion R$.

This weekend Forbes published an excellent article on the Emerging Markets: Asia and Latin America: China, Hong Kong and Brazil are the places to be.