Ian Bezek retweeted
Before the election, Brazilians told me a Lula defeat would be good for $INTR on the macro side, but could also become dangerous for the company. The reason: the Menin family, Inter's controlling shareholder, is seen as close to Lula, and under a Bolsonaro government Inter could have faced political headwinds. On top of that, Inter's fastest-growing product, private payroll lending through eSocial, is itself a programme of the Lula government.
Now the opposite has happened. The macro outcome is negative, with long-term rates rising and the real falling. But the company-specific political risk for Inter is off the table.
The stock now trades about 15% below where it stood before the first round.
I own shares of $INTR. No financial advice
Ian Bezek retweeted
The fact that Brazilian markets panicked and crashed the three times Lula was previously elected (and are doing so a fourth time now), only to boom during his terms in office, poses a real challenge to the efficient market hypothesis.
Ian Bezek retweeted
🚨 8-BAGGER UNLOCKED 🚨
Who followed @irbezek and @gnribeiro on Lula?
We have a DISAGREEMENT.
Prediction markets and Brazil experts are not aligned.
Experts like Lula. Markets like Bolsonaro.
@irbezek: It’s “at least 50-50. And I would say personally that Lula is favored.”
@gnribeiro: Bolsonaro “has massive fragilities around his image,” including corruption scandals.
Who's wrong?
Ian Bezek retweeted
We have a DISAGREEMENT.
Prediction markets and Brazil experts are not aligned.
Experts like Lula. Markets like Bolsonaro.
@irbezek: It’s “at least 50-50. And I would say personally that Lula is favored.”
@gnribeiro: Bolsonaro “has massive fragilities around his image,” including corruption scandals.
Who's wrong?
Ian Bezek retweeted
Thursday's 10-year Treasury yield decline of 0.193 percentage point (to 4.952%) is the largest single day yield decline since March 10, 2023, which is the day Silicon Valley Bank failed.
Ian Bezek retweeted
Dinner with an exec/friend at a large national property management company tonight. This person oversees ~150k apartments; access to an insane amount of data.
Current multifamily market in most of the country is worse than S&L, .com bust, or the GFC. Worst they’ve seen.
Class A mostly fine, decent rent growth. However:
- credit scores at class A have gone down meaningfully over the past 3 years.
- more people are paying rent via credit card.
- average bank account balance noticeably lower than even 2 years ago
- class A tenants stretched thin, living beyond their means. 20k comes in, 20k goes out every month.
- starting to see these renters move down a tier
Class B:
- simply too many apartments, we built too much new stuff. Ripple effect is enormous.
- fewer renters tomorrow than today. Same store foot traffic noticeably down year over year. Some markets down 40-50%
- considering dropping rents below $700 a month on some 1beds in major southern markets.
Class C:
- looking at degrading NOI. Rents aren’t growing for a long time, but expenses keep creeping up
- more renters are one missed paycheck away from disaster than they can remember seeing in decades
- tenants aren’t paying rent because they simply don’t have it
- wage growth has not kept up
Lenders:
- some major investment funds, household names, haven’t paid their mortgages in 2-3 years. Banks won’t foreclose because “X is a big client.” Mexican standoff.
- a roof leak gets ignored, becomes water damage, then mold, then a down building. Buildings are rapidly deteriorating as some owners choose cash preservation over funding losses.
- number of pre-foreclosure and REO deals is the highest as a % of total units they can recall.
- data providers know it’s bad, but they’re paid to sell optimism to owners/lenders. So every forecast is “it will probably get a little better next year maybe” and that gets regurgitated at investment committees all over.
I asked “how do you think this ends?”
“Not sure. My gut says slowly then suddenly, and things will get really bad. Been doing this 40 years, you can feel it in the air. But, there’s a chance it’s just a decade of tolerable pain. I’m praying for that.”
All-time insanely bad take.
Remind me in five years if any AI slop is on par with an Elden Ring/GTA.
Ian Bezek retweeted
I'll put it this way: hats off to you. I couldn't have said it better myself.
As someone who lived in Paraguay for six years, I honestly get a headache every time I read the bullshit people post about that country, painting it as some kind of paradise on Earth.
For fuck's sake, they manage to present every single flaw as a virtue.
You go to a supermarket and the cashiers move at a snail's pace? Oh, how wonderful! That's because nobody is in a hurry in this country!
The quality of services is absolute shit? Turns out that's another massive advantage! Because everyone's so laid-back, nobody gets stressed, there's no rat race, and above all, steak is cheap and you don't have to pay those horrible 50% taxes!
You constantly read about how Europe has supposedly become a Muslim continent, completely overrun by Muslims, and how it's basically finished. Meanwhile, thousands of Paraguayans dream of moving even to the poorer European countries, let alone those who would give their right arm for a chance to move to Germany, France, or Italy.
The reality is that Paraguay is a country with virtually no meaningful infrastructure, a dysfunctional healthcare and educacional system, and practically nonexistent human capital.
It's a country built for and around a narrow elite that knows exactly how to extract maximum profits from a tax system optimized for their benefit and a quasi-feudal social structure that keeps most of the population in a state of extreme ignorance. And here, I strongly recommend taking a look at Paraguay's PISA test results.
Meanwhile, a tiny group of beneficiaries makes an absolute fortune precisely because the vast majority of society consists of complete idiots who apparently need nothing more than empty slogans to get through life.
And then I come across some guy from a developed civilization - Spain, the United States, or some other developed country - singing Paraguay's praises to the heavens, absolutely ecstatic about how wonderful life there supposedly is.
The cognitive dissonance is so extreme it makes my head explode.
That's why, without wanting to sound too modest, quite a few people consider me Paraguay's number-one hater.
But really, I'm just trying to restore some kind of balance to the universe, because it drives me absolutely fucking insane to read the bullshit these people keep posting - bullshit that has absolutely nothing to do with reality.
Ian Bezek retweeted
Brazil's election result reaches $INTR through several channels. Over time it can lower cost of risk. Right now it moves the stock and resets expectations, and Inter is up 15% pre-market.
Few stocks are better placed to benefit. The business itself stands to gain: lower long-term rates mean cheaper new loans, cheaper funding and customers who find it easier to keep up with payments. And the share price hit a new 52-week low only last week, so expectations were already at the floor.
Inter doesn't have a growth problem. It has a profitability problem. Its return on equity barely clears what investors demand from a Brazilian bank, so the market has refused to pay for its growth. This election could start to change that.
At around $6, the stock trades at 7.8x this year's earnings, 6.1x next year's and about 1.4x tangible book.
Nothing is decided yet, though. The runoff is on 25 October, and in 2022 the first-round surprise didn't hold.
Anyone valuing $INTR like a normal company will look at $NU’s stock price in disbelief. $INTR is a bank. Value it like one. EPS, revenue growth, the P/E multiple, none of it tells you much until you understand the cost of risk.
I got this wrong myself in the past, but I learned.
Right now, I think $INTR is priced about right. But the inputs that actually drive a bank’s valuation can turn on a dime, and the stock usually moves before the reported numbers do. There’s a lot you can infer about $INTR from $NU’s earnings report.
I still own shares of $INTR, and I’m not surprised the stock is where it is. But I also know where it can go if certain things happen, both to the upside and the downside.
Understand that, and you can hold the stock without second-guessing every move. Read the risk better than the market does, and that’s where the real money sits.
I covered this topic on my Substack last week.
