The Caipirinhas Crisis

In the four-month period beginning on December 20, 1994, the Mexican peso lost 50 percent of its value. Some wag dubbed it the Tequila Crisis. The name stuck. I don't think anything so severe will happen in Brazil, but there are warning signs that Brazil's boom needs a breather. A caipirinhas crisis, perhaps.

For all that there is to like about Brazil from an investment point of view, it has problems, too, some of which might surprise you.

For instance, Brazil's boom has been fueled in part by the free flow of credit, which is a warning sign all its own. Its major banks had all reported loan growth of more than 20 percent. As the Financial Times reports: “Brazil's economy has been riding a consumer credit boom as millions of new middle-class consumers borrow money at high interest rates to pay for everything from liposuction to cars.”