Tuesday, August 11, 2009

Astrology Blogging: Ibovespa Index

Click on the graph for a much better image. (NOTE: Does anyone an easy way to post stock charts?)

WARNING: Assume that markets are efficient Yes, I still believe they are most of the time.

I hate trying to forecast the future (don't all economists do...), but this is something that I find odd. Below is the latest graph on the Brazilian stock market index (IBOVESPA) from early 2005. From the 72,000 peak in May-08, the index had fallen more than 50% by Nov-08. Since then, it has gone up by more than 80% and is now around 56,000. The index is about 20% below the probably overoptimistic levels of May-08, but getting close to its value in Jan-08 (still about 10% to go).

My point is: Aren't prices highly overvalued again? Are the prospects for the Brazilian economy really as good now as they were in January 2008? Most of the good news were already known (the new gigantic oil fields, macroeconomic polic stability, etc.). Alas, we now have a bunch of worries on the negative side: smaller domestic growth, big uncertanties about the speed of global recovery, deterioration of public-sector finances, smaller commodity prices upside potential, presidential elections in 2010, etc...

Those that know me, know that I'm no fan of the current goverment and its usual lack of rationality to analysis policy issues (to be honest, almost all). Let's just hope that we are not up for huge disappointment later. If it does, at least I hope it happens before the elections...

What do you think? Am I the pessimist about Brazil? Perhaps living abroad for such a long time has made me even more skeptical...


  1. Viu que estão aventando um imposto sobre junk food? Boa ideia mas inimplementável (e vivam os neologismos). Saiu na Economist mês passado.

  2. I will not share my point of view, since I am more pessimist than anyone else. There is one explanation though ... that Russia-China-Iran-South America are doing the same as during the cold war but without any threat or supervision, and they are helping each other, financially. Beat that pessimism, and I´ll share my thoughts on Brazillian market.

    Janio A. Caio

    PS. Congrats on the blog. Awesome!