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    Brazilian Assets Soar as Bolsonaro Starts to Deliver on Promises

    This article by Mario Sergio Lima and David Biller for Bloomberg may be of interest to subscribers. Here is a sectionBrazilian Assets Soar as Bolsonaro Starts to Deliver on Promises

    In a speech at his swearing-in ceremony in Brasilia on Wednesday, Guedes promised a sweeping overhaul of the country’s state apparatus and business environment to unleash corporate potential and free future generations from debt.

    "Private-sector pirates, corrupt bureaucrats and creatures from the political swamp have conspired against the Brazilian people," he said. "Excessive spending has corrupted Brazil." Bolsonaro has tapped Guedes, a graduate of the University of Chicago, to manage economic policy in a country hamstrung by rising debt, a gaping fiscal deficit and slow growth. Bolsonaro won the October election by a wide margin as part of a popular backlash against crime, corruption and economic malaise.

    In his comments Wednesday, Guedes highlighted the urgency of the task ahead. "Our business class is chained down by interest rates, high taxes and labor costs," he said, adding that he believed the ideal tax burden would be around 20 percent of gross domestic product, rather than the current rate of 36
    percent.

    Earlier in the day, the new energy minister, Bento Albuquerque, said Brazil would deliver on plans to capitalize Eletrobras, prompting shares in the state-run company to jump as much as 9.7 percent. He added that he would seek a lower tax burden and few subsidies in the electricity sector.

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    To Help Put Recent Economic & Market Moves in Perspective

    Thanks to a subscriber for this note from Ray Dalio which may be of interest to subscribers. Here is a section:

    For all of the previously described reasons, the period that we are now in looks a lot like 1937.

    Tightenings never work perfectly, so downturns follow.  They are more difficult to reverse in the late stage of the long-term debt cycle because the abilities of central banks to lower interest rates and buy and push up financial assets are then limited.  When they can’t do that anymore, there is the end of the long-term debt cycle.  The proximity to the end can be measured by a) the proximity of interest rates to zero and b) the amount of remaining capacity of central banks to print money and buy assets and the capacity of these assets to rise in price.  

    The limitation in the ability to print money and make purchases typically comes about when a) asset prices rise to levels that lower the expected returns of these assets relative to the expected return of cash, b) central banks have bought such a large percentage of what there was to sell that buying more is difficult, or c) political obstacles stand in the way of buying more.  We call the power of central banks to stimulate money and credit growth in these ways “the amount of fuel in the tank.” Right now, the world’s major central banks have the least fuel in their tanks since the late 1930s so are now in the later stages of the long-term debt cycle.  Because the key turning points in the long-term debt cycle come along so infrequently (once in a lifetime), they are typically not well understood and take people by surprise.  For a more complete explanation of the archetypical long-term debt cycle, see Part 1 of “Principles for Navigating Big Debt Crises” (link).

    So, it appears to me that we are in the late stages of both the short-term and long-term debt cycles.  In other words, a) we are in the late-cycle phase of the short-term debt cycle when profit and earnings growth are still strong and the tightening of credit is causing asset prices to decline, and b) we are in the late-cycle phase of the long-term debt cycle when asset prices and economies are sensitive to tightenings and when central banks don’t have much power to ease credit.

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    Dollar Weakness Is Coming, or Is It? A Familiar Call Returns

    This article by Austin Weinstein and Katherine Greifeld for Bloomberg may be of interest to subscribers. Here is a section:

    If you look at outlooks published by the sell-side, I think that 80-85% percent of what I read is looking for a weaker dollar,” said Ed Al-Hussainy, currency strategist at Columbia Threadneedle Investments. “And in my experience, when all the forecasts are looking the same way, the currency generally doesn’t behave the way these forecasts predict it will.”

    The narrative for dollar bears is roughly as follows: The U.S. can’t keep up its better-than-everyone-else economic performance. America’s growth rate will get closer to the rest of the world, the Fed will stop or slow interest-rate hikes and the advantage an investor gets from holding dollars will diminish.

    However, this story of global growth convergence may sound familiar to those who have seen it trip up forecasters before.

    Around this time last year, the prevailing view was bearish on the dollar for similar reasons, and the median forecaster in a Bloomberg survey thought the greenback would slide to $1.21 against the euro from $1.18, the spot price at the time.

    Instead, the dollar rallied to $1.14. (For the record, Norddeutsche Landesbank and Sumitomo Mitsui Trust Bank predicted a move to $1.14 late last year.)

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    Here is the text of a bulletin from Bloomberg on today's Fed Meeting.

    Here are the Key Takeaways from today's FOMC events:

    The FOMC hiked rates a fourth time this year to a decade high, ignoring President Trump’s criticism, and lowered its outlook to two hikes from three next year.

    Powell specifically endorsed the dots, citing them in his press conference as a guideline for the committee and a useful tool.

    The committee tweaked its guidance to ``some further gradual increases’’ -- a more hawkish development compared with the alternative of dropping the guidance.

    Powell said all meetings are live for possible moves next year, but gave no strong hints as to when the Fed would raise next.

    There was unanimous support for the hike.

    Powell said that Trump's comments had no impact on policy and that the Fed is committed to doing what it thinks is best.

    Powell said financial conditions caused a slight downgrade in 2019 forecasts but no real change in the outlook.

    Markets took FOMC and Powell as hawkish, with the yield curve flattening and stocks falling.

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    Low Coffee-Bean Prices Brew Trouble for Farmers

    This article by Julie Wernau and Robbie Whelan for the Wall Street journal may be of interest to subscribers. Here is a section:

    “When the price is good, we have work, but when it isn’t, we have no money to pay the rent, no money for food, no money for the doctor,” said Ms. Poló, 56, standing on the side of the road in Baja California state, where the bus she was riding had broken down about three hours from the border.

    Coffee prices have been stuck below the cost of production for the longest stretch since the global financial crisis, leading some producers to abandon crops and some to migrate for new jobs. The shift is being driven by currency fluctuations that are encouraging sales and production in Brazil, the world’s largest coffee producer, spurring a record crop that is driving down prices for other coffee-growing nations.

    “We’re now back in real terms to where we were 20 years ago, when farmers abandoned land because they couldn’t make ends meet,” said Paul Rice, president and chief executive of Fair Trade USA, which works with 1 million coffee producers in 42 countries.

    A 2017 study by Cornell University for Fair Trade USA placed the average cost of coffee production at $1.40 a pound. Coffee prices have been below that price for 20 straight months, the longest stretch since 2008, according to FactSet data.

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    Oil Crashes to 1-Year Low as Dark Clouds Envelop Demand Outlook

    This article by Alex Nussbaum for Bloomberg may be of interest to subscribers. Here is a section: 

    “Oil has gotten caught up in all the panic you’re seeing,” said Bill O’Grady, chief market strategist at Confluence Investment Management LLC in St. Louis. “This is all about fears of a recession. It’s risk-off everywhere.”

    A U.S. government report Monday forecast surging shale-oil production, adding to worries about a glut. In Moscow, Russian Energy Minister Alexander Novak said production is rising, although the country is preparing to implement output curbs to conform with an OPEC+ accord.

    Crude’s mired in a bear market amid growing skepticism that cuts by the Organization of Petroleum Exporting Countries and its allies will be deep enough to prevent a surplus in 2019. The group’s efforts to balance the market have been undermined by the relentless growth in U.S. shale, which veteran crude trader Andy Hall said is making it harder to predict global supplies.

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    Platinum price gets $6 billion shot in the arm

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section:

    Korean carmaker Hyundai on Tuesday announced a $6.7 billion program to raise production of fuel cells 200-fold going from 3,000 this year to 700,000 per annum by 2030.

    The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful 

    Toyota was the first to back the technology for passenger vehicles, launching its Mirai – "future" in Japanese – back in 2015. Honda is bringing the Clarity back to its line-up and Hyundai’s Nexo SUV is launching in North America next year. Hyundai also inked a collaboration on fuel cells with Volkswagen in June.

    The hydrogen society is probably further into the future than its promoters want you to believe, and detractors are plentiful. (Elon Musk was not only talking his book when he called fuel cell cars "extremely silly".)

    Alongside Hyundai's announcement, the Korean government also made a commitment to roll out a fuel cell fleet and charging stations. But Canada, for example, got its first and so far only public hydrogen fuelling station only in August and California’s years long backing for fuel cell cars have hardly moved the needle on consumer and business uptake.

    Nevertheless, the impact on platinum could be enormous.

    There’s a simple reason – today's fuel cell cars need a full ounce of platinum versus a 2 – 4 grams PGM loading for your average gasoline (primarily palladium) or diesel vehicle.

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    Uranium price: best performer of 2018 set for more gains

    This article by Frik Els for Mining.com may be of interest to subscribers. Here is a section: 

    Struggling French nuclear giant Areva (rebranded as Orano this year) slashed production more than a year ago. In August Paladin put its Langer Heinrich mine in Namibia on care and maintenance, although this week the Sydney-based miner said it's working on a possible restart of operations with vanadium as a byproduct (vanadium is trading at record highs and the only metal outperforming uranium).

    In a research note on Kazatomprom, BMO Capital Markets says the production discipline from top miners will break the trend of rising global uranium inventories following the Fukushima nuclear disaster in Japan in 2011 and prompt the first production deficit in more than a decade.

    And

    China has 42 operating nuclear reactors, 16 reactors under construction and a further 43 planned. At the end of November, the country's national uranium corporation bought control of the Rossing uranium mine in Namibia. China is also behind the only sizeable uranium mine to come into production in the past few years, the Husab mine in Namibia, although ramp there has been slow.

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    One Fed official suggested on Friday delaying a December rate hike, the first to do so

    This note by Thomas Franck for CNBC may be of interest to subscribers. Here is a section: 

    St. Louis Federal Reserve President James Bullard reportedly said on Friday that the central bank could consider postponing its widely anticipated December rate hike because of an inverted yield curve.

    “The current level of the policy rate is about right,” Bullard said in a prepared presentation to the Indiana Banker’s Association, according to Reuters.

    Bullard is the first member of the Fed to speak publicly about a delay in December. The Fed president — while not a Federal Open Market Committee voter in 2018 — will be able to participate in rate hike decisions in 2019.

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