Brazilian Markets Crash and Energy Shines as Yields Break Higher

Published on
February 22nd, 2021
Duration
36 minutes

“Is Everything a Bubble?” Wrap-Up – Highlights and Takeaways for Today’s Markets (LIVE)


Brazilian Markets Crash and Energy Shines as Yields Break Higher

Daily Briefing ·
Featuring Jack Farley, Weston Nakamura, and Ed Harrison

Published on: February 22nd, 2021 • Duration: 36 minutes

Real Vision editor Jack Farley and managing editor Ed Harrison break down how rising yields are impacting risk assets such as growth equities and high-yield bonds. The pair review today’s price action, looking at everything from strength in oil and U.K. travel stocks to the significant sell-off in U.S. tech. Ed gives a primer on how rising yields dilute the value of assets with high duration and tells Jack why vaccination efforts in Europe are lagging behind the rest of the world. Later, Jack is joined by Weston Nakamura, former derivatives trader and head of the Real Vision Exchange, to analyze today’s price action in the Brazilian Real and Brazilian equities, which both plummeted as President Bolsonaro removed the CEO of Brazilian oil giant Petrobras. Ed and Jack close by looking at European fiscal as well as taking a sneak peek of tomorrow’s interview with John Hussman and Milton Berg. For Weston’s post about Brazil in the Exchange, click here: https://exchange.realvision.com/post/short-brazil-ibovespa-ewz-brl-long-usdbrl-6033ada823e0bfbd5c319289.

Comments

Transcript

  • DK
    Danny K.
    23 February 2021 @ 14:13
    There was another thing I meant to mention.. I'm not a 'chartist' ha.. I don't wanna be a trader either.. but is there a simple programme I can use to plot graphs? Emphasis on simple... Nothing heavy.. just to compare prices against other time periods and against other assets maybe.. wouldn't really know where to start. Or is it less hassle to just pay for somebody else to do it?
    • DK
      Danny K.
      23 February 2021 @ 14:32
      I've got a free version of an app called Simply Wall St... It definitely looks the part and the info is deep but I've got trust issues ha.. is it accurate? Do I pay for it? Help me out.
    • DK
      Danny K.
      23 February 2021 @ 14:45
      Just been to the website... maybe I don't need to bother on reflection.. more a trader thing eh. Anyway ha.
    • DK
      Danny K.
      24 February 2021 @ 10:21
      Messari.io if anyone's interested... Does the trick.
    • MG
      Maxime G.
      25 February 2021 @ 02:51
      tradingview
  • RT
    Richard T.
    24 February 2021 @ 00:44
    Mr. Berg's voice sound like Harvey Keitel?
  • RC
    Reese C.
    23 February 2021 @ 00:11
    I don't know if I'm a fan of this particular format with video cut ins. Less is more. I love how you all experiment though. Keep it up.
    • JF
      Jack F. | Real Vision
      23 February 2021 @ 00:31
      Hi Reese, thanks for sharing your perspective. By "video cut-ins" you mean the switching from Ed, to Weston, to back to Ed? Would you have preferred to see Ed's two segments looped together, and then Weston? Or a full 30 minute interview with either one of them? Would your opinion on any of this change if a few of the segments featured Raoul? Also, what would your "DREAM" RVDB look like? As you have noticed, we are experimenting with new formats, and I would really appreciate your input. Thanks, Jack
    • MS
      Mark S.
      23 February 2021 @ 02:31
      @Jack I still liked that old intro with Peter/Nick/Jack where you'd focus on 1-2 themes instead of a market recap. Also any chance in the future you can include links to the exchange in the show notes so we can go directly to Weston's discussion
    • JF
      Jack F. | Real Vision
      23 February 2021 @ 03:39
      here is the link to Weston's post: https://exchange.realvision.com/post/short-brazil-ibovespa-ewz-brl-long-usdbrl-6033ada823e0bfbd5c319289 interesting, thanks Mark. So it seems like you want us to hone in on some specific news before broadening out, at least in the intro. Curious to see if we can try and incorporate that going forward
    • RD
      Russell D.
      23 February 2021 @ 05:25
      Hi Jack. My slight preference would be to stick with Ed until he's done, then cut to whomever else, though perhaps you wanted to finish strong with Ed and that's understandable. Weston's vol observation the other day was interesting and worth sharing. Worth a heads up reminder a day or two in advance before the next expiry. Would love to see Travis pop in with some prescient chart magic once in a while. I'd be into seeing Ed talk with Steven Van Metre about bonds and rates sometime soon. OK with me if you want to discuss a good moment from another video, especially if it's not just a tease but a tease apart. Always happy to see Raoul's ideas any day!
    • RC
      Reese C.
      23 February 2021 @ 23:46
      Hi Jack. Yes, by "video cut-ins" I mean switching from Ed, to Weston to back to Ed. That felt a little forced to me. However, to me, there's nothing wrong with 30 second snippets that tease other RV conversations. I'm a big fan of Raoul but I don't think my opinion on this format would change if it featured him instead. My "DREAM" RVDB would be you or colleague doing the traditional market news intro, followed by commentary from a RV thought leader, such as yourself, and a guest. I think group conversations are great too. It would also be fun if you had two people, with opposing viewpoints, duke it out once a week for 30 minutes :) I'm a video editor so I know it's a lot easier critique videos vs edit them! Keep breaking things!
  • Mv
    Matthias v.
    23 February 2021 @ 17:46
    Probably I am looking at the wrong data but I don’t see any evidence for the BRL : USD to change very much upon the election of Bolsonaro on October 28, 2018 as Nakamura mentions. Anyone?
  • SH
    Steve H.
    23 February 2021 @ 07:09
    Great show as always, and interesting innovations with the format. I rarely comment - after all, who should care what I think - but I'm now getting a tad weary of Ed's unrelenting vaccine 'optimism'. The fact is we simply don't know how all this is going to play out. Ed, I'll overlook your forecast of a couple of months ago that folks in DC will be out partying by April, and instead stick closer to home with some mild pushback on the UK and Europe comments: 1/ Boris Johnson did NOT say that the UK will be back to normal by mid-June - although that was the spin many market participants chose to put on his 'plan'. He said that IF ALL GOES WELL mid-June is the soonest some semblance of normality will return. (The population will not all have been offered vaccine until late July at the earliest.) Because the UK has exceptionally porous borders - notwithstanding the half-hearted and operationally ineffective arrivals quarantine system introduced only last week - it will remain exposed to vaccine-resistant variants that might crop up elsewhere. So 'if all goes well' introduces reasonable caution into a debate prone to extreme mood swings. 2/ You say that Scottish data establishes that vaccines practically eliminate hospitalisations. I have no idea whether or not that's the case, but if it is I'd like to know how the author(s) of those findings distinguish between the impact of vaccinations and the impact of a near-total lockdown. (The same can be said for Israeli data.) 3/ I totally agree that Europe is a sclerotic, bureaucratic fiasco with a potentially dark economic and social future, but that doesn't mean every decision taken in Brussels is wrong. Sure, whoever drafted or approved their vaccine procurement contracts should go back to law school. On the other hand, waiting on additional data before approving vaccines for use could arguably be seen as sensibly cautious when set against the indecent haste in the US and the UK to approve whatever came along first. 4/ You compare the sceptical European approach to Astra-Zeneca unfavourably with the full-throttle UK approach. Can you cite any credible studies that establish European scepticism to be incorrect? (Incidentally, it's worth checking out Astra-Zeneca's history of regulatory sanctions over the last decade or so.) 5/ The 'news' coming out of the UK is very heavily managed in line with the preferred government narrative. Those outside the UK might not know that the government has immense media censorship powers under the 'D-notice' system, and we can never know when these powers have been applied. It's on the public record that GCHQ is involved in shaping the narrative - the government announced this openly last year. I don't pretend to know what the truth is, but I'm not alone in finding the endless stream of good news on the vaccine front with barely a setback mentioned along the way to be a little suspicious. Also suspicious is how big pharma and the medical establishment quickly fall into line with government policies - such as widely spacing first and second shots, which initially was strongly advised against by the manufacturers and the WHO, until suddenly it became a totally acceptable practice. 6/ No, I´m not an 'anti-vaxxer' - just an agnostic on these very fast-to-market covid shots that have made many big pharma executives so rich and yet in respect of which they refused to move forward without full government indemnification. Would you get on an airplane if the airline refused to fly without a government indemnity? I'd rest easier if there were a few believable independent studies which revealed: a/ How long the supposed immunity offered by the shots will last. b/ Whether the shots bestow immunity or simply suppress symptoms. c/ What the long-term side-effects might be. (I presume the commenter below who referred somewhat flippantly to the thalidomide tragedy is not old enough to have seen any of those unfortunate children in later life.) So Ed - optimism is good and Europe-bashing is always a fun sport but, despite all the hype and narrative management coming out of the markets and certain governments, the fat lady is a long way short of singing on this one.
    • EH
      Edward H. | Real Vision
      23 February 2021 @ 16:40
      Steve, thanks for the extended response. I suspect you haven't read me right on 'vaccine hopium'. Yes, vaccines are driving share prices and yields higher due to hopes about the reflation trade. But this is happening against a backdrop of US share prices at a level higher than they were a year ago before the pandemic took hold in the west, with yields now at the same levels a year ago. That's not a very good place from which to start an extended bull market in equities. In terms of the fat lady singing, I think of it in terms of bonds. What we're seeing right now is reminiscent of 2018 when the US tried to get off zero and failed. Markets forced the Fed into submission. The difference is that this time markets are doing this without any overt central bank tightening. And it's happening globally. In my book, the fat lady hasn't sung yet in terms of the long bond bull market.
  • MS
    Mark S.
    23 February 2021 @ 02:21
    I didn't understand the the comments about nationalizing Petrobras since it is already a state owned entity. I have been traveling to Sao Paulo 3-4 times a year for the last 10 years (I was there in Aug-Oct 2020). I am going to take a stab in the dark and say that Brazil has slowly entered a recession over the last 1/2 decade or so and like the US, Covid was gasoline on a worsening economy. The BRL has risen over time from roughly 1.5 to 5.4 per USD. The last 6 years I have noticed a steady increase of for rent or for sale signs (Aluga-se Vende-se). When I returned in August, I noticed about 15% of the store fronts in Moema vacant (one of the upscale sections) when in January 2020 I saw none. I eat several times a week at one particular Argentine steakhouse over the last 10 years and have noticed the effects of inflation. The small chocolate with after dinner espresso was replaced with a cookie, then removed. An appetizer I love to order has gotten smaller and the price has gone from 28R to 45R over this time. A final note: Can we defer to the titles of heads of state. Not sure if any of this helps, but I believe Brazil has similar systemic problems as the US, with the additional hinderances of being isolated from the developed world in South America.
    • AH
      Arjan H.
      23 February 2021 @ 14:57
      Hi Mark, What is your view on the real estate market in Brazil? I was there last year and wondering if it would be a good investment to buy property. Thanks!
  • DK
    Danny K.
    23 February 2021 @ 11:44
    Spent a few years in South America.. never got to Brazil but it's gonna be first stop next time. The thought of all those bits jiggling about on the Copacabana is giving me the strength to endure lockdown.
  • DA
    David A.
    23 February 2021 @ 06:03
    How responsible is it of Real Vision to give Weston slots on the Daily Briefing to present his theories? I am not an expert on the structure of ETFs and the Vix but his thesis seems full of holes and to claim that his prediction is playing out because of a pull back in companies that largely are not part of the S&P is illogical. What we have seen is a sharp rotation amongst stocks and not a broad S&P sell off. A couple of other points: The UVXY rolls its Vix futures contracts gradually, so that the mean duration is constant. There is no roll-over cliff edge. And even if there were, an expiring Vix futures contact is cash settled based on the level of the Vix index (which is itself a measure of volatility based on S&P index options over 30 days, so it is constantly rolling). There is no urgent need to sell illiquid contracts. And to suggest that a medium sized etf ($1.3 billion) could direct the travel of the world's primary stock market index ($32 trillion) defies all common sense. Weston has spotted a correlation and assumed causation. But the reason why a buoyant S&P seems to go hand in hand with a wide gap between the near and far Vix contracts is simply because there is less demand for short term protection when markets are rising, so the near Vix contract is relatively cheap.
  • MH
    Muddshir H.
    23 February 2021 @ 05:58
    Good to see weston often
  • PB
    PHILLIP B.
    23 February 2021 @ 03:26
    Wow! Hussman on deck! Can't wait. (no sarcasm)
  • AK
    ASHAY K.
    22 February 2021 @ 23:43
    I am not sure whether I agree with Weston on the VIX futures rolling causing this QQQ sell-off. It seems the story is more about rising real rates that disproportionately affects the high growth stocks. If it were a vix issue, the sell-off would have been more broad.
    • GW
      Greg W.
      23 February 2021 @ 02:50
      Great format. Loved the back and forth with the “cut ins”. Since the DXY is 65% Euro should we assume that the dollar short is in jeopardy? Euro still seems like a mess from what you are saying.
  • mf
    massimo f.
    23 February 2021 @ 01:55
    Anyone else getting ed’s camera flickering on and off?
    • MS
      Mark S.
      23 February 2021 @ 02:32
      yep
  • DJ
    Dennis J.
    23 February 2021 @ 01:44
    Ed nailed it. Whichever country wins the vaccine rate, wins the capital flow...for 6-9 months anyway. We have to move past the variants. They're likely everywhere by now if they're that contagious. Bought some puts on Brazil with Exchange write-up and if it works, I'll push for new nickname, Dub Naky for Weston. In case he DJ's on the side. Again, money will flow out of countries that don't vaccinate hard and fast (Brazil). That's the new (immediate) financial moon race. In Bolsy's defense, new guy is a general running petrol company....soooo
    • DJ
      Dennis J.
      23 February 2021 @ 01:45
      pronounced "nacky"
  • PV
    Pietro V.
    23 February 2021 @ 00:14
    Ed's comment re the Italy's situation and the inevitable upcoming crisis in the EZ, is probably the most underestimated downside risk to global instability.... Italy's debt is beyond repayment and can only be monetized. Only question is; will it be the ECB to do that (historically not likely) or will it be the Bank of Italy with new issued Liras?
    • RC
      Rafael C.
      23 February 2021 @ 01:14
      Very good point - the EZ is in dire conditions and the Brussels burocrats do not react to problems as quickly as Washington. Everything is done by consensus....
  • MR
    Michael R.
    23 February 2021 @ 00:24
    I think one point re the Euro COVID issue that was not specifically mentioned, is that they did not move forward with ordering as aggressively as the other big blocks. I think I read somewhere that the Eurozone bureaucracy held off until there was more history? But Ed's point was correct: History, short of the next "thalidomide crisis", does not matter when the alternative or the existing base case is majority shutdown.