Brazil Is Turning a Corner and Nobody Seems to Care
Cheap Valuations, Terrible sentiment, & Paid to wait — High Yield + Asymmetry
As investors with a penchant for value are experiencing all too well, the market just does not seem to care about much of anything these days. The world of memes and speculative momentum presses on unabated, and financial nihilism seems to only grow. And yet notable shifts in both fundamentals and narratives are underway. I have long believed that a trending chart is just the visualization of the spread of an idea, and as an idea spreads, the chart looks better and better. People lose their senses in herds, and only come to their senses one by one. That is why “tops are a process but bottoms are an event” — it takes time for people to come to their senses.
While on the one hand bitcoin/$trumpcoin/memes are taking an awful long time to reflect a gradually draining liquidity outlook, the far other side of the spectrum has to be Brazilian risk assets. I know I have been early (wrong) in laying out a bullish view on Brazil (original note from September here, with a follow-up in November here), but these sorts of inflections can take time precisely because the bear trend in Brazil has become so intense and run for so long. Today’s note will provide some background, a renewed look at valuation multiples and sentiment, a look at upcoming catalysts, the yield + asymmetry combination, and the potential nature of the turn higher if (when) it comes.