Let’s start with the recent protests in Brazil. There were many articles about these protests, and each one helped shed light on the issue. Probably the most important aspect is the fact that, unlike the Arab spring or the Turkish unrest or the demonstrations in Greece, the economic situation in Brazil is not bad. Also, Brazil is a democracy; there is freedom and no religious issues. The increase on bus tariffs was really just an excuse to vent all the injury suffered for many years by the portion of the population that depends on public transportation. In a very good article, Marcos Poggi, former Secretary of Transports of Rio de Janeiro, explains how the Government bluntly ignores the quality of transportation in the big urban areas and the deterioration of the mobility conditions. The real problem is not the cost of the fare, but the cost of time, the valuable time which people lose going back and forth to work. Maybe people are finally tired of spending 5 hours a day to go to work. They also realize that the government is not giving enough attention to the matter. The same thing applies in regards to ethics and politics; maybe they are done with the lack of accountability. Look at what is happening with the “mensalao” scandal: after 8 years, the Supreme Court- which is supposed to be the highest court in the country- finally ruled its verdict for the politicians and businessmen involved in the scheme. Although guilty, none of them is in jail.
I’ve been to South Africa recently and the comments I heard while talking to locals perfectly fits what is going on Brazil in regards to the World Cup. I could just change the names and the sentence would hold true; the tour guides showed me the white elephants (stadiums that cost billions of dollars and will never be used again), the favelas along the roads and the lack of transportation, the bad health care system, and so on and so forth. They complained about how much money was spent to host the World Cup and how it could have been used to improve the population’s quality of life.
The Pope’s recent visit brought even more doubts in regards to the organization of the World Cup next year. Although the Pope’s visit has been planned for 2 years, there were several problems, such as extra-long lines, bad transportation, and errors in the Pope’s route, all exposing him to safety issues. The ability to plan and execute, despite the enormous amount of money spent, is once again a question mark.
I don’t think the economic situation in Brazil is that bad, but the growth of the middle class, although much celebrated by the Government as an endorsement of its social policies, might prove to be a double-edged sword; it will bring this class more information and more demand for transport, education, health, safety and others. The question that remains is how the government will respond. Will it continue with its populist policies and practices, or will it instead act effectively? And how will the population respond if there is no action and only populism? Will it be like OWS – Occupy Wall Street- where there were no specific demands, no leaders and eventually it faded away, or will it become a force capable of provoking change? Place your bets. Mine is that it will go away.
Now, on another note, let me clarify about my optimism with the United States so nobody will think that I am ignoring global risks, or that I think they are gone. The risks and problems are still around: geo politics risks, slowdown in China, quantitative easing and the exit policy, shadow banking system, hard roads to recovery in Europe and Japan, and more.
In the USA we might face another budget crisis, maybe as early as September, given the upcoming negotiations about the debt ceiling and the difficulty to reach a deal with Republicans. Nobody wants to go back to the summer of 2011, but that is always a possibility. Also, who knows who will be the next FED chairman (or chairwoman, I hope), and how that will impact monetary policy?
So, where does my optimism come from? It comes from the underlying forces and texture of the American economy, its business class. It comes from the fact that the US is still considered a safe place for foreign investments. It comes from the fact the business class is active enough to overcome a mostly dysfunctional Congress. It also comes from the numbers; in the last six months, on average, 200.000 jobs have been added monthly; inflation is under control; and as we just learned, GDP rose at a 1.7 percent annualized rate, more than 1% above estimates. Of course there are risks ahead but so far, so good. There is also why I think that unless you are a real estate developer in the US, particularly in New York, stocks in a diversified portfolio are still the best way to go. A long term investor, as in other aspects of life, should focus on the positive and pay attention to what is going on to avoid common traps. That being said, I leave you with two charts that speak for themselves.