The Darling Of The Emerging Markets...

Brazil has been taking massive hits in the last 2 days. The currency is down over 5% since rumors about the resignation of the finance minister Palocci surfaced (and proved to be correct). The new guy, Mantega, has some whacky ideas about interest rates and is making some investors very nervous. I had already pointed out that the end of the carry trades is near, and I continue to believe this to be the case, especially now that the ultimate carry trade darling, Brazil, seems to have fallen out of favor, at least in the short term. Risk reduction seems to be the theme of the day. I expect this to continue into month-end [this Friday], which also coincides with the Japanese fiscal year end -- one more reason why volatility (across all asset classes) should pick up between Ben's Fed announcement tonight and Friday.