Nicholas Vardy

“Wow! Brazil is big!” exclaimed George W. Bush, when shown a map of Brazil during a visit by Brazil’s president to the White House. In fact, you could fit 12 of his home state of Texas into Brazil. Brazil’s population of 201 million makes it the fifth-most-populous country in the world — and equal to the United Kingdom, Germany and Italy combined.

With Brazil playing host both to the World Cup in 2014 and the Olympics in 2016, this Latin American giant’s coming-out party onto the world stage has the potential to be bigger than China’s was during the 2008 Beijing Olympics.

A Primer on Brazil

“Brazil is the country of the future… and always will be,” observed a wry Charles de Gaulle about Latin America’s largest economy. That statement epitomizes the roller coaster that has been Brazil’s economic fortune over recent decades.

Half a century ago, Brazil was one of the most rapidly growing economies in the world. It experienced another growth spurt in the early 1970s, growing a China-like 9.8% a year between 1970 and 1974. Alas, each period of rapid growth was followed by sharp economic slowdowns and dizzying inflation. Fast forward to the 1980s, and Brazil grew by less than 1% a year.

Then in 2002 — the year left-leaning President Luiz Ignicio Lula da Silva was elected — Brazil went on a roll. Once a poster child for the Latin American debt crisis of the 1980s, inflation has plummeted from 70% per month in 1990 to single-digit percentages each year. Its budget was in surplus by 2010.

Then, like a young teenager with too much sudden success, too soon, Brazil got cocky. By July 2011, President Lula da Silva was attributing his country’s newfound success to a “higher power.”

Gushing statements like that are textbook signs of a bull-market top. Sure enough, Brazil’s stock market has been in a slow downward trend ever since.

Brazil versus the U.S. S&P 500

Booming Brazil: What Happened?

So why did the wheels come off the Brazilian economy and stock market?

Credit President Lula da Silva’s successor, Dilma Rousseff, whose combination of unorthodox economic policies and fiscal manipulations derailed the Brazilian economy from what up until then had been steady progress.

Nicholas Vardy

Nicholas Vardy is currently editor of the monthly investment newsletter, The Alpha Investor Letter, which provides longer-term global investments. He also writes two weekly trading services, Triple Digit Trader and Bull Market Alert, which focus on making short-term profits in the hottest markets in the world.