Episode summary
‘System Doesn’t Survive’: Interest Rates Push Economy To Brink | Tavi Costa
The David Lin Report
· · 32 min · Hosts: David Lin · Guests: Tavi Costa
Summary
Tavi Costa argued that Brazil’s election shock did not invalidate his broader thesis, but it did wipe out the political premium that had built up before the vote. He said the market had been expecting Bolsonaro with high probability, so Lula’s win triggered a severe selloff in Brazilian equities. Still, he pointed to a more conservative upper and lower house as a counterweight, and he argued that Brazil remains attractive because of its hard-asset base and long-term commodities case.
He said the bigger issue in Brazil is not Lula alone but the cost of capital: high interest rates, in his view, are choking small businesses and forcing the country toward financial repression. Costa expects the central bank to eventually face pressure to lower rates, even if that weakens the currency. He also said he is cautious but not fully out of Brazilian exposure, while adding that the election may mark the beginning of the end of Lula’s political dominance.
On the U.S., Costa called the Fed’s tightening path “suicidal,” saying the system cannot tolerate current rates indefinitely. He argued long-term rates and the dollar are rolling over, which should support gold and silver, and he framed precious metals as part of a secular bull market that is now being tested, not broken.
Key takeaways
- Costa said Brazil’s post-election selloff erased the prior political premium, but he still sees the country’s commodities and hard-asset base as the core investment case.
- Costa expects Brazil’s high rates to force some form of financial repression, which could be bullish for local equities but bearish for the currency.
- Costa called the Fed’s tightening cycle unsustainable and said the U.S. system cannot survive current interest-rate levels for long.
- Costa thinks long-term rates and the dollar are rolling over, which in his view strengthens the case for gold, silver, and miners.
- Costa said precious metals are in a secular bull market, but this year’s pullback is a normal consolidation rather than a thesis break.
Notable quotes
“If any country cannot afford interest rates at these levels, that is the US”
“the system doesn't doesn't, you know, doesn't survive”
“This is not about elections, it's about the commodities trade”
“I think this is the beginning of the end of Lula, personally”
“The Fed is in the final stretch of this suicidal tightening cycle”
How the episode opens
If any country cannot afford interest rates at these levels, that is the US. These levels of rates uh the system doesn't doesn't, you know, doesn't survive. And I think we're we're in a very important turning point of the market right now.
All eyes are on the midterm election results in the US. So, it's important to understand exactly how political events like elections will impact not just the economy in the short and long run, but also the market. The immediate market impact of of elections is often very clear.
Take a Brazil as an example. Last week's Brazilian election saw the uh Brazilian ETF our stock market index rather drop the most double digits in years. I think it was the biggest drop since the pandemic.
So, we're going to find out what happened and what's next for not just the Brazilian economy, but also the US economy. And we'll go over an overview of precious metals and markets overall. So, we have today Tavi Costa, co-founder and CEO of Azurite Capital.
Welcome back to the show, Tavi. Good to see you.
Thanks for having me, David. Looking forward to talking about markets with you.
Tavi, you're Brazilian. And as a Brazilian, you have a lot to say about what happened in your home country last week. So, I'll just show on my screen right now the EWZ Brazilian stock market ETF dropped 20% in one day following the result of the Brazilian election, which saw uh the sitting president who is uh Luiz Inácio Lula da Silva win for the fourth non-consecutive term.
He beat his opposition leader uh conservative leader Bolsonaro by quite a narrow margin, 51.8% of the votes to 48%. But, the markets did not like that. Like I said, 20% drop in the drop in the stock market in one day, the worst I think since the pandemic.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- brazil election shock
- interest rates and economic slowdown
- us dollar moves
- precious metals outlook
- fed tightening cycle
Companies and tickers mentioned
- Azuria Capital LLC
Watch the episode
Watch “‘System Doesn’t Survive’: Interest Rates Push Economy To Brink | Tavi Costa” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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