I don’t know where September went. I always heard that when we get to the months that end in “ber”, the year is finished. It certainly looks that way. I have the feeling that it went even faster because we had so many events and we were busy trying to figure out what would happen next.
Brazilians were anxious waiting for the Supreme Court decision in regards to the “mensalão”- cash for votes scheme- the biggest corruption scandal that has been dragging for almost 10 years. With the Supreme Court decision to “re access” the case, we sadly found out that the Supreme Court in Brazil is not Supreme, that its decisions can be reverted. Theoretically, the Court’s decision is final but as almost everything in Brazil, there was a loophole, a way out so that the law is not enforced. Impunity is in fact the biggest problem in Brazil and with the “mensalão" ruling we can put a face on impunity and a precedent was created: the Supreme Court rules economic, criminal, financial cases. Now we learned that everything can have a second round, everything can be contested. This was a disturbing decision, one that discredits the Brazilian judicial system once and for all.
Then the Americans spying on the Brazilian government and on the Brazilian president became public. Without discussing the merit, the Brazilian reaction was poor. The President cancelled her visit and meeting with Obama, a populist gesture, aimed to satisfy the PT electorate and to stimulate the “hate” towards the USA. Then President Dilma Roussef came to the USA for the UN meeting. Instead of using the privilege of the opening of the UN assembly to reiterate Brazilian standing on important issues such as wars, intervention on chemical weapons, climate change, and poverty, she went on and on in her critique of the USA. She opted to talk to Brazilians, this time using an international pulpit, and ignore the audience. Very sad. In the meantime, we have daily surprises in the Eike Batista’s saga: on October 1st, OGX missed a US$44, 5 million interest payment, one of the biggest defaults in Latin America history. One can just hope that the CVM ‘investigation (equivalent to SEC) shed some light on what really happened and how so many investors lost a lot of money while managers and others made a lot of money.
In the USA, it was painful to watch President Obama dealing with the Syrian crisis: all the back and forth, all the uncertainty, made it look like he was thinking out loud about what to do next. The stock markets mimic each of the announcements coming from the White House, with increased volatility. To end the month on a high note we had the battle of the budget that ended with the Government shutdown. Beyond the economic impact in the short term, I think this threatens the American legal and democratic system in the long term and it is disturbing. The Affordable Care Act (ACE, aka Obamacare) is a law. It is a law that was approved by the Congress, signed by the President, upheld by the Supreme Court and, in a way, voted by the American population. For those who don’t remember, one candidate – the loser- promised to repeal Obamacare if he won, and the other- the winner- promised to keep it. So, those members who want to change the law now either don’t believe or respect the democratic system, the legal system, or both. You cannot change the result of a game after it was played. Move on, stop being sore losers.
To my surprise, the market didn’t react negatively on the first day of the shutdown. Given that the economic fundamentals remain the same, it looks like either the market believes that the impact in the economy won’t be big or that there will be a fast resolution. To be sure, the loss for the economy of the shutdown is estimated in US$300 million a day, or 1, 6 billion a week or 5 billion per month, against a GDP of more than 16 trillion, which is really small. The market probably believes that the resolution will come before a major damage to the economy is done. Maybe my disbelief in the politicians is greater. As long as the shutdown continues, companies will not be able to IPO- once the SEC is not working- consumers will not be able to buy houses as they won’t be able to access their income report because the IRS will be closed and so on and so forth. Friday there will be no jobs report since the labor department will be closed. How will the market react to that?
In two weeks, the stakes will be higher: when the Government reaches its debt limit and Congress doesn't act, the US government, like Eike Batista, will miss payment of its obligations and will set a horrible and shameful precedent in the history of the country.
I will finish with a history, a real one, for those who missed it: Jimmy Kimmel went on the streets of LA asking people if they prefer Obamacare or the ACE. As seen on TV, they said they didn’t like Obamacare but liked the ACE!!!! Disturbing…..