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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