CRISE TOTAL OU RALLY HISTÓRICO: OS ÚNICOS CAMINHOS PARA O FUTURO DO BRASIL | Market Makers #311

Episode Overview

• This episode features Carlos Woelz and Bruno Licht of Kapitalo, a major Brazilian hedge fund, discussing their bearish but nuanced view on Brazil's economic future amid rising fiscal debt and political uncertainty.
• The central thesis challenges the market's "muddle through" consensus, arguing that Brazil faces a binary outcome: either a severe orthodox correction (good long-term) or a slide into financial repression (bad long-term) due to the compounding "snowball effect" of debt.
• The conversation covers deep technical analysis of asset classes, explaining why private credit is dangerous, why the stock market is driven by "technicals" rather than fundamentals, and why gold and real assets are becoming essential hedges against fiscal dominance.
• Beyond macroeconomics, the guests share valuable mental models for decision-making, specifically the distinction between the "Soldier" mindset (defending a position) and the "Scout" mindset (seeking truth), and how to structure a partnership for generational longevity.
• This content is critical for investors looking to protect capital in high-interest rate environments and for anyone seeking to understand the mechanics of sovereign debt crises and policy risks in emerging markets.

Key Concepts

• The "Muddle Through" Fallacy vs. Binary Outcomes The prevailing market view assumes a "Lula 4" term would result in mediocre but stable continuity. The speakers argue this is mathematically impossible due to debt velocity. The future is binary: the government must eventually choose between a painful orthodox fiscal adjustment (unlikely) or unorthodox measures like financial repression. Therefore, the outcome will likely be either very good (post-adjustment) or very bad (crisis), but not "average."

• Debt Trajectory & The Snowball Effect Absolute debt levels (e.g., 80% Debt-to-GDP) matter less than the velocity of accumulation. With high real interest rates and a fiscal deficit, debt grows at 3-5% of GDP annually. This creates a compounding "snowball effect" that forces a crisis regardless of the starting number.

• Financial Repression This is the likely tool for a government that refuses to cut spending but cannot service debt at market rates. Instead of defaulting, the government uses regulations to force capital into bonds at below-market rates, caps interest rates artificially, or restricts capital flight. This erodes wealth slowly through negative real returns rather than a sudden crash.

• The Fiscal Feedback Loop If fiscal adjustment is delayed, the eventual cuts required become so massive that they depress GDP more than the savings from lower interest rates can compensate. This trap makes late-stage adjustment politically suicidal, increasing the probability that a government will choose inflation or repression instead.

• Market Asymmetry & Mispricing The market is pricing risk as if the downside is capped (a "benign" scenario). The speakers argue the downside is much deeper (crisis/repression) while the upside is also higher (structural reform). Currently, credit spreads and implied inflation do not adequately reflect this "tail risk."

• Real Assets vs. Nominal Assets In a scenario of fiscal dominance, nominal assets (like the CDI rate) are risky because inflation can outpace the return. "Real assets"—investments protected against inflation (like IPCA+ bonds)—are the true safe haven. Even if the government inflates away debt, these assets maintain purchasing power.

• The "Technical" Driver of Markets Brazilian asset prices are currently driven more by supply and demand ("technicals") than economic fundamentals. The stock market has held up because of share scarcity (buybacks/delistings), while fixed income has suffered due to a massive oversupply of debt issuance.

• Duration vs. Credit Risk Strategy In a binary environment, "middle-ground" assets are dangerous. The suggested strategy is to avoid medium-duration corporate debt (high sensitivity to repricing) and instead barbel the portfolio: hold very safe, short-term assets for liquidity, or long-term real-rate bonds for structural protection.

• The "Scout" vs. "Soldier" Mindset A critical behavioral finance concept. A "Soldier" defends a position or thesis against attack (common in ideologically driven investors). A "Scout" explores the terrain to map reality accurately, regardless of whether the news is good or bad. Successful investing requires the Scout mindset to recognize when a thesis is broken.

• Regime Change in Commodities & Gold Traditional correlations (e.g., high rates kill gold) are breaking. Gold is becoming a structural hedge against fiscal dominance and geopolitical instability, not just a tactical trade. Similarly, oil prices are dislocated from physical reality (supply deficit) due to geopolitical fears, creating a "shadow price."

Quotes

• At 0:07:56 - "A grande questão é: se tiver uma continuidade desse governo, o que acontece? E é isso que está gerando uma diferença de expectativa." - Identifying the core divergence between their bearish thesis and the market's complacent consensus.
• At 0:11:23 - "Hoje ninguém fala de um número mágico de dívida... todo mundo fala em trajetória, qualidade, reação." - Explaining that the speed of debt accumulation is now more dangerous than the absolute debt number.
• At 0:14:35 - "Você corta gasto numa magnitude que os efeitos positivos da queda de juros e da queda de prêmio de risco... não compensam totalmente os efeitos negativos fiscais." - Defining the "Fiscal Trap" where austerity hurts the economy more than it helps the debt ratio.
• At 0:17:00 - "Uma das coisas que vai estar nesse novo mandato é mudar a política econômica... não dá para ficar crescendo gasto e crescendo receita dessa forma para sempre." - Noting that 2027 will require a forced change in economic model, regardless of ideology.
• At 0:22:15 - "Se você continuar nesse nível de juro real, a dívida não vai subir 3% ao ano, vai subir 5% ao ano." - Quantifying the "snowball effect" that makes the current path unsustainable.
• At 0:27:06 - "A criatividade ela fica solta para tentar encontrar maneiras... de que o problema do Brasil não é o déficit, é os juros." - Explaining how governments use financial repression ("creativity") to blame interest rates rather than spending.
• At 0:27:52 - "O CDI é arriscado porque... em vários países, por exemplo na Argentina durante décadas, você teve um CDI que não acompanhava a inflação." - Challenging the Brazilian belief that the CDI is risk-free; in a crisis, it loses to inflation.
• At 0:29:39 - "O bônus de delta de juro real vai te mais do que pagar a conta do teu ajuste fiscal." - Highlighting the immense upside potential for Brazilian assets if the government actually commits to orthodoxy.
• At 0:36:20 - "Ou você vai ajustar o seu fiscal, ou você vai fazer repressão financeira... ou você vai ter juro baixo [via inflação]. Você tem que escolher um." - Describing the "Impossible Trinity" of indebted populism.
• At 0:38:05 - "A gente não compra esse cenário de 'muddle through'... Eu acho que o cenário mais provável parece mais uma repetição do que aconteceu, mas é menos provável." - Rejecting the "middle road" scenario; the economy will likely force a decisive change.
• At 0:45:15 - "Esse título público pagando inflação mais 7, inflação mais 8, é um negócio maravilhoso... deixar uma oportunidade para o investidor final enorme." - Identifying the historic opportunity in real interest rates for capital preservation.
• At 0:50:47 - "Eu acho pouco provável... de que ele tenha o Congresso para fazer as medidas que você necessita para fazer uma restrição financeira... eficiente." - Explaining why Brazil's Congress acts as a buffer against extreme "Argentina-style" measures.
• At 1:01:07 - "In today's prices, I wouldn't have credit. Private credit... I wouldn't have credit, no way." - Warning against the poor risk/reward ratio currently seen in private credit markets.
• At 1:01:43 - "The problem is that we have a binary scenario ahead... I have more fear of how the mark-to-market of this process [works]." - Highlighting that liquidity panic is often more dangerous than the default itself.
• At 1:12:49 - "The technical [aspect] is very bad. There was a lot of placement, public and private, last year... that leaves this game... know that there is a risk." - Warning about the oversupply of debt issuance suppressing bond prices.
• At 1:37:38 - "Se continuar esse reme-reme... eu acho que não deveria sair totalmente a chance desse cenário de pânico." - Explaining how macro managers read the yield curve to determine recession probabilities.
• At 1:43:31 - "Tudo mais constante, a gente tá com um gap de oferta enorme. Eu tenho convicção, assim, enorme de que isso está acontecendo." - Articulating a high-conviction thesis that oil markets are physically tighter than financial prices suggest.
• At 1:56:51 - "Esse negócio [Ouro] shiftou de preço, virou meio que um 'self-fulfilling prophecy'... Caramba, governança americana piorou? Buy gold." - Describing gold's evolution into a universal hedge against systemic instability.
• At 2:07:01 - "A armadilha que é você pensar como soldado. Você tem um time, você tem um viés... e as diferentes formas de você pensar como uma pessoa que é um 'Scout'." - Summarizing the "Scout Mindset" as a tool to avoid confirmation bias.
• At 2:23:31 - "Uma empresa, quando ela não tem vida... e ficam sempre os mesmos sócios para sempre, ela necessariamente fica presa às pessoas." - Philosophy on partnership structures: firms must allow founders to exit for new talent to thrive.

Takeaways

• Diversify Away from the "Status Quo": Do not structure your portfolio assuming the current economic stability will last. The math dictates a binary outcome (crisis or reform), so position yourself for volatility, not continuity.
• Prioritize "Real" Assets Over Nominal: Shift allocations from pure CDI or fixed-rate instruments into inflation-linked assets (IPCA+). In a fiscal crisis, nominal returns are often wiped out by inflation, while real assets preserve purchasing power.
• Avoid the "Middle" of the Credit Curve: Do not hold medium-duration corporate credit (6-7 years). It carries maximum repricing risk with insufficient upside. Stick to very short-term liquidity or very long-term structural hedges.
• Beware of Private Credit Risks: Be extremely cautious with private credit funds right now. Spreads are too tight to justify the risk of a "binary" economic downturn where liquidity could evaporate instantly.
• Hedge with International Assets: Protection against financial repression involves holding assets that the local government cannot easily manipulate. Diversify a portion of the portfolio into foreign currencies or assets linked to the real global economy.
• Use Gold as a Structural Hedge: Treat gold not as a trade dependent on interest rates, but as insurance against "fiscal dominance" and global systemic instability. It has become a distinct asset class for portfolio protection.
• Look for "Technical" Dislocations: Analyze markets based on supply and demand (flow), not just economic theory. For example, Brazilian stocks may rise due to scarcity (buybacks) even if the economy is weak.
• Invest in the "Physical" Reality of Commodities: Consider exposure to oil or commodities based on physical supply deficits (inventories), even if financial sentiment is bearish. The physical reality eventually forces the price action.
• Adopt the "Scout" Mindset: Actively monitor your investments for evidence that you are wrong. Do not "defend" your thesis like a soldier; be willing to reverse course immediately when the data changes (e.g., shifting from long to short).
• Monitor the 2026 Election Cycle Early: Do not wait for 2027 to adjust for political risk. The market will price in the fiscal reality during the election cycle, creating volatility well before the new government takes office.
• Watch the Debt Velocity: Ignore the absolute Debt-to-GDP number. Watch the speed of debt growth. If it continues rising at 3-5% per year, the breaking point is accelerating.
• Understand the "Fiscal Feedback Loop": Recognize that if the government waits too long to cut spending, the necessary cuts will crash the economy. This makes a "soft landing" less likely the longer the adjustment is delayed.