The World’s 7th Largest Economy Is Junk – Who’s Next?

Fitch just downgraded Brazil (EWZ) to near-junk.

Brazil’s economy is the 7th largest in the world at $2.4Tn – that’s above Italy, India, Russia, Canada, Australia and just under France ($2.8Tn) and the UK ($2.9Tn), yet Americans know very little about Brazil, who had their credit rating dropped to BBB- by S&P last month as well.  Having one credit agency mark you down is a warning, having two mark you down triggers massive cash outflows(tune in next week!).  

Obviously, things are pretty grim in Brazil, who’s economy is close to 60% of South America’s output.  Is this just another thing the markets will choose to ignore as they rally back to new highs?  Frankly, I don’t know as this week’s move is already insane – so we don’t bet on irrational markets to suddenly behave rationally but TG we’re in CASH!!! 

Cash has let us have a really fun week at PSW, playing the Futures in both directions while our portfolios were generally locked in neutral.  We flipped a bit bearish overall but our Long-Term Portfolio (LTP) is still bullish (and 90% cash) and gained a whopping $3,400 this week while our paired Short-Term Portfolio (STP) lost $3,200 so, all in all – a week we could have just taken off.  

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I sent out an alert this morning updating our lines and you can see that here (3 hours later!).  Keep in mind that we are in CASH!!!, so we don’t give a Friday but, aside from Brazil (the World’s 7th largest economy) we had TERRIBLE news out of India (the World’s 9th largest economy), where both Imports and Exports are 25% BELOW LAST YEAR’s LEVELS.  

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How many bits of bad news can we ignore?  Well, the answer has to be more than that because I’m not even done with this morning’s bad news yet.  It seems that Japan (the World’s 3rd largest economy) has had to halt trading in several Nikkei Index Funds due to liquidy concerns that are destabilizing the index.  As now noted by Bloomberg:

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Author: Travis Esquivel

Travis Esquivel is an engineer, passionate soccer player and full-time dad. He enjoys writing about innovation and technology from time to time.

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