...Dark Days for Corporates: Brazilian corporates are on the ropes. More than one of every four Brazilian corporates rated by Fitch has a negative rating bias. Cash flow trends will be negative in 2015, and default risk is high. The high probability of water shortages and power rationing bodes poorly for an economy that stumbled to grow by only 0.3% in 2014. The economy will likely contract in 2015, as consumer and producer confidence remain depressed. Huge Inflation and FX Depreciation Differential: Cumulative inflation in Brazil has been 72% during the past decade and has wreaked havoc on exporters' cost structures. In contrast, inflation in the United States has been about 26% and the Brazilian real (BRL or real) has depreciated by only 18% to offset this 46% inflation differential. In contrast, the inflation differential between the U.S. and Mexico was 25% during this time period, while the Mexican peso (MXN) depreciated by 40%. This is a key reason Mexican manufacturing is thriving. Exporters...
