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Post by jrtheoriginal on Sept 1, 2011 7:34:41 GMT -5
Well my bias is that the things that are going on in AG are related to stupid monetary policy. Mostly ours but there certainly is a lot of room for blame at all the big names.
Last night Brazil gave in to the non austerity crowd and lowered it's interest rates. Right before planting down there. It looks like this is the new plan and that in Oct. they will lower another half point. THis is gonna open the flood gates on the bean acres. It also will encourage the expansion of safrinna corn acres.
But the biggest effect is that this will lower the reals value against the dolar. SO instead of importing E they will be able to once again be net exporters. Watch out guys this is gonna be a hard one to watch for awhile.
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Post by jrtheoriginal on Sept 2, 2011 7:21:18 GMT -5
UPDATE 5-Brazil slashes interest rates on global worries
Wed Aug 31, 2011 9:29pm EDT
* Brazil central bank cuts rates sharply in surprise move
* Reflects economic slowdown, may stoke inflation fears
* Committee says sees inflation risks as "more favorable" (Adds market expectations in fifth paragraph)
By Raymond Colitt and Isabel Versiani
BRASILIA, Aug 31 (Reuters) - Brazil's central bank slashed its key interest rate to 12 percent from 12.5 percent on Wednesday in a shock decision that it said reflects a mounting global slowdown as well as weaker growth in Latin America's largest economy.
The sharp 50-basis-point cut risks fanning investor worries about stubborn inflation and reviving concern about government influence in monetary policy after a series of comments by senior officials pushing for a rate cut in recent days.
In a split decision, the central bank's monetary policy committee, Copom, voted five to two to trim the so-called Selic rate by 50 basis points, following five consecutive increases earlier this year. It is Brazil's first rate cut since July 2009.
Explaining its decision, the committee said it saw a "substantial deterioration" in the international outlook as the United States and Europe struggle with debt and anemic economic growth. It said the slowdown in developed economies was likely to be more prolonged than previously expected and could hit Brazil's economy through weaker trade and investment flows and tighter credit.
All 20 analysts in a Reuters survey had expected the central bank to keep the Selic rate unchanged. The decision also surprised investors -- interest rate futures <0#DIJ:> had been reflecting expectations of steady rates or at most a cut of 25 basis points.
"I think it's a huge mistake. They gave in to political pressure," said Tony Volpon, economist and Latin America strategist at Nomura Securities in New York.
"The central bank is making a bet that it is 2008 all over again but central banks shouldn't be in the business of making bets," he added, referring to the 2008 financial crisis.
Clear signs of an economic slowdown have emerged in the past few weeks as Brazil feels the impact of global financial problems in addition to a natural cooling from unsustainably strong growth of 7.5 percent last year.
CONCERN OVER INFLATION, SPENDING
Economists have been cutting their GDP forecasts for the year to between 3 and 4 percent as evidence builds that Brazil's indebted consumers are running out of steam and the manufacturing sector suffers from a strong currency.
Industry groups cheered the decision. Fiesp, Brazil's most influential business lobby, called the bank's move an important step to prevent the economy from being contaminated by the global turmoil.
Most analysts had believed the central bank would be too wary of lingering inflation pressures to cut rates this soon, even by 25 basis points.
"I found the decision a bit premature," said Mauricio Rosal, chief economist at Raymond James in Sao Paulo, who was expecting only a 25 basis point cut by the end of 2011.
"...From now on, the Selic rate will become a much more difficult policy instrument to predict, and a volatile one."
Brazil's cut signals a rapid shift in interest rate expectations as Latin America responds to a darkening global outlook. Since the start of the month, markets have swung from expecting hikes to pricing but now see policy loosening in Brazil, Chile and Mexico, where the central bank stunned markets on Friday by opening the door to rate cuts. For details, see [ID:nN1E77P0KW]
The hefty rate cut in Brazil could raise market nerves about a lack of inflation control as a hot labor market keeps upward pressure on prices. The bank's committee said it saw the balance of risks for inflation as "more favorable."
The decision is likely to spark volatility in local interest rate markets, given conflicting signals as the government aims to prevent a broad economic slowdown while keeping control of inflation that is running above 7 percent annually. Some analysts are concerned that the boldness of the central bank move will not be accompanied by enough public spending restraint.
The central bank, which government officials says has full control when it chooses to cut rates, has come under pressure to ease policy following a series of government comments on the need to cut rates sooner or later.
President Dilma Rousseff's government said this week it would maintain spending discipline for the rest of 2011, hoping to reduce demand pressures in the economy and pave the way for a cut in interest rates that are among the world's highest.
Since taking office in January, Central Bank President Alexandre Tombini has defended a gradualist policy approach that involves closer policy coordination with finance ministry officials.
(Additional reporting by Guillermo Parrabernal, Jeb Blount and Brad Haynes; writing by Stuart Grudgings; Editing by Bernard Orr)
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Post by linsal on Sept 2, 2011 8:37:09 GMT -5
Yeah...and considering that Brazil is one of the BRIC's (Brazil, Russia, India and China), this may be a sign of things to come.
It's no wonder that the dip sh!t analysts mentioned in JR's article didn't see this coming..they didn't see the 2008 financial crisis coming either, or the housing crisis, or "whatever" crisis one wishes to identify...
I suspect that many countries in the world are going to continue to try to devalue their currency in order to boost exports to help their own economies. The only problem with that strategy is that everybody can't keep devaluing their currency---somebody has to be on top, and in the middle, and on the bottom. It's really all about the debt crisis in the EU and US. I suspect that the BRIC's and their big international banks are slowly reducing their financial exposure to the problems they see coming in the EU and US.
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Post by looter on Sept 3, 2011 21:36:27 GMT -5
Well my bias is that the things that are going on in AG are related to stupid monetary policy. Mostly ours but there certainly is a lot of room for blame at all the big names. Last night Brazil gave in to the non austerity crowd and lowered it's interest rates. Right before planting down there. It looks like this is the new plan and that in Oct. they will lower another half point. THis is gonna open the flood gates on the bean acres. It also will encourage the expansion of safrinna corn acres. But the biggest effect is that this will lower the reals value against the dolar. SO instead of importing E they will be able to once again be net exporters. Watch out guys this is gonna be a hard one to watch for awhile. JR, the Brazilians could take interest rates to negative infinity, collapse the Real to the value of smoke, and they still couldn't export a drop of ethanol. Regardless of relative value, it takes 13 lbs of sugar to make a gallon of ethanol. That physical reality isn't about currencies. The Brazilians will never export ethanol as long as they are better off exporting sugar. Love your posts JR. Thanks so much!
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Post by jrtheoriginal on Sept 4, 2011 7:11:12 GMT -5
My thought Looter is that this is gonna be economic war! The Brazilians are hoping mad at us right now. In war some people do not do things that make sense. In fact all countries do things that make no sense. And to see Brazil send outa a boat load of E just to be able to stick their tongue out at us is in the cards I think. BUt your scenario is also very probable!
THis isn't gonna end well.
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Post by looter on Sept 4, 2011 7:44:19 GMT -5
My thought Looter is that this is gonna be economic war! The Brazilians are hoping mad at us right now. In war some people do not do things that make sense. In fact all countries do things that make no sense. And to see Brazil send outa a boat load of E just to be able to stick their tongue out at us is in the cards I think. BUt your scenario is also very probable! THis isn't gonna end well. I subscribe to the evidence that a weakened currency injures manufacturing. Presently scalpers are loading up iron from behind trees and sending it to China. That's gotta be bad for US manufacturer's. Iron ore is finite, as is coal which sails away from the low bid. Faust's theory that a weak currency improves peoples lives doesn't work in the real world. A weak currency breaks manufacturing's back because it puts factories at a disadvantage when buying raw materials. More often than not, a social safety net coincides with a weak currency, and that is a death knell on factories competing with the govt dole for labor. There has never in world history been an example where currency debasement increased either manufacturing or prosperity. For decades now the Chinese Yaun has strengthened. Their % of world's manufacturing dominance grew lockstep with the Yaun. The past decade saw the US Dollar depreciate. The faster it falls, the harder our factories get hit. A weak Brazilian Real will not require less than 13 lbs sugar per gallon ethanol. Another thing to consider is capital inflow/outflow. This has a ton to do with factory creation/destruction. Capital naturally flows from weak currency to strong. This is another reason why Faust theory never worked once in real life.
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Post by jrtheoriginal on Sept 4, 2011 8:03:10 GMT -5
YEP I agree a weak currency is never good. And Faust is out lunch on that one. Look what happened in the US after the 1870's we went back to the gold standard and America prospered like never before!
A consistent currency is long term favorable because it keeps debt in check and it rewards Creation instead of money transfers and financial gimmicks.
Also it keeps bankers honest.
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Post by looter on Sept 4, 2011 8:23:23 GMT -5
YEP I agree a weak currency is never good. And Faust is out lunch on that one. Look what happened in the US after the 1870's we went back to the gold standard and America prospered like never before! A consistent currency is long term favorable because it keeps debt in check and it rewards Creation instead of money transfers and financial gimmicks. Also it keeps bankers honest. You Da Man!! Macroeconomics = fun!!
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Post by thirsty on Sept 4, 2011 10:02:08 GMT -5
;D Yup. With the loonie at par with the US dollar the canuck economy has never been better. Germany is an export powerhouse with the Euro at $1.45. The Swiss Franc has been on a binge and exports are near record highs: www.tradingeconomics.com/switzerland/exportsThats the thing, strong currencies will reward the disciplined and the productive with strong, vibrant economies in the malthusian era. And you guys wonder why gold is going up??? Every single central bank on the planet outside the anglosphere had been buying for that day of reckoning when the US dollar/economy falls off a cliff. www.zerohedge.com/news/wikileaks-discloses-reasons-behind-chinas-shadow-gold-buying-spreeZimbabwe tried to depreciate its way back to economic growth and how did that work out for them??? The world is going back to a gold standard, for the exact macro-economic reasons you guys state.... because it can not afford not to!
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Post by sandbox on Sept 4, 2011 11:55:56 GMT -5
YEP I agree a weak currency is never good. And Faust is out lunch on that one. Look what happened in the US after the 1870's we went back to the gold standard and America prospered like never before! A consistent currency is long term favorable because it keeps debt in check and it rewards Creation instead of money transfers and financial gimmicks. Also it keeps bankers honest. Honest bankers and a currency grounded by something other than a mixture of promises and fantasies. That's just crazy talk.
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Post by Grainbelt on Sept 4, 2011 12:08:45 GMT -5
Currency exchange rates and nominal interest rates set by governmental entities won't have much affect on plantings. Profit margins are what matters and you can calculate them in whatever currency you want. Reals, Dollars, Gold, Poppy Seeds, or sea shells. Fiat currency is nothing more than effective medium of exchange, nothing more nothing less. THEY ARE NOT STORES OF VALUE. Assets of various types can be.
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Post by Hobbyfarmer on Sept 4, 2011 13:15:35 GMT -5
You guys all need an exault for this series....
? is where do we go from here if you are caught in this downward spiral the dollar is in. Except for thirsty the rest are in this trap, is there an escape hatch or safety net in sight?
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Post by thirsty on Sept 4, 2011 14:43:57 GMT -5
You guys all need an exault for this series.... ? is where do we go from here if you are caught in this downward spiral the dollar is in. Except for thirsty the rest are in this trap, is there an escape hatch or safety net in sight? I think with most of you guys in Ag, especially the land owners, most of you won't even know your country collapsed. Stay out of debt, look at the big picture and keep your head down. And I'm not saying Canada is going to avoid this. Our resource picture is certainly a blessing up till now, but our banks are swimming in dubious paper, their TCE ratios are the worst in the world. Could get a real mixed bag up here with a lot of vicious cross currents blowing out the unaware.
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Post by Hobbyfarmer on Sept 4, 2011 17:03:32 GMT -5
;D Yup. With the loonie at par with the US dollar the canuck economy has never been better. A little devils advocate here.... if the dollar is being driven into the ground/oblivion why is tying the Loonie to par with the dollar a good thing? Kind of like going down with the Titanic ?
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Post by jrtheoriginal on Sept 4, 2011 18:45:53 GMT -5
You guys all need an exault for this series.... ? is where do we go from here if you are caught in this downward spiral the dollar is in. Except for thirsty the rest are in this trap, is there an escape hatch or safety net in sight? I'll respond later my wife is talking to me right now and I can't think about such indepth stuff while she is talking to me. SHe looks really hot tonight and I would rather do something else than talk to farmers! LOL
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