Plato's Bunker

Its no news that FX market is probably one the of the hardest to "predict". Maybe that's why I like it most, so I can be wrong very often and use this excuse..."its hard". Seriously, "predict" is not the perfect word to use for most of the financial assets because its a impossible task and carries a burden of a exact value, as many expect it to be. Instead, what is possible is to access all important variables and estimate the likely path, the odds,  levels and so on. Even so its nto easy, but we do it. We need to (at least to answer those friends and relatives that always ask "Should I buy USD now or later". I like to compare the FX market with weather forecast - now weather seems to be a more exact science!!!  We have longer term forecasts that has to do with cyclical factors like the 4 seasons. For the time horizon of weeks and months they measure pressure, currents, water temperature and many others to gauge what the weather will likely...

There has been a very big ongoing disconnection lately between stocks and the real economy in Brasil. If in on hand we have seen stocks making new highs (nominal in BRL) and business confidence improving, on the other hand jobs, industrial production and IBC-br, a gauge for the GDP, seems to all have stalled. We could discuss if prices and expectation leads the economy or the other way around, and in fact looking for the historical data both things happen. Sometimes expectations and stocks are high and lead, sometimes not, specially if we add political risks that strongly affect how the economy will be five or ten years form now, which pretty much seems to be the case right now with the pension reform still ahead in the pipeline. The reform (or not) could affect future prices and the economy in many ways. Country risk (and CDS) could sky rocket affecting the currency, treasury rates, corporate funding, depressing investments and so on if not approved. On the other side if approved we c...