Newsletters
What is next?
October 27, 2014

Untitled Document

One day after the elections in Brazil, in a divided country, where the president was elected with 51% of the votes and the opponent had 48%, we have more questions than answers. Normally, when a president is elected, there is a set of proposals, and we elect the person who is more capable to deal with the challenges and problems ahead. In this case we don’t know because according to Dilma, there are no problems to be addressed. We can work with scenarios but we can’t say for certain where Dilma’s second term will bring us. Or do we?

Those who heard the debates and the propaganda over the last month saw two completely different countries: on Dilma’s country there aren’t any problems, everything is all right. The only thing that is not all right is the world economy and the financial crisis of 2008 is still to be blamed for the Brazilian problems. We should presume that once the world economy recovers, Brazil will recover. Hence no action is necessary, let’s just wait for better days.

On Aecio’s country there are growing inflation, low confidence, low investment, low growth and increasing fiscal problems. So, there are problems and they need to be addressed. I didn’t see Aecio promising miracles, but I saw a proposal to return to the tripod - inflation, exchange rate, fiscal surplus – as a way to bring confidence and investments back, therefore economic growth. Inflation would be controlled not via price control as it is today (although he did not get in the specifics), the exchange rate would be flexible again, and fiscal discipline would substitute accounting practices that masks the deficit.

Dilma’s victory means no problem will be addressed as there aren’t any problems. She spent the campaign and used the debates to repeat PT’s mantra: in the last 12 years minimum wage reached the highest level in history and unemployment reached the lowest, at a time where millions of people were elevated to the C class.

The workers’ party and Dilma’s vision of the country was made clear in the debates: for instance, talking about the state banks- Banco do Brazil, BNDES and Caixa- Dilma said that Aecio’s party in the past, reduced the size of the banks , which is true. It is true and shows two different approaches for the role of the State in the economy. Dilma’s victory will consolidate a gigantic and dysfunctional state, one that is been built over the last 12 years.

We already know there are two counties, one is the North/Northeast and the other is the South/Midwest ( with some exceptions); I never thought I was going to use this expression but one is the country of the takers and the other, the country of the makers; one is the more rich country and the other, more poor. At the end of the newsletter there is a table with the winner in each state, with the richest – in terms of income per capita-on top, going down to the poorest. It is no surprise (again with the exception of Rio and Minas), that Dilma won in the poorest parts of country and Aecio in the richest. Maranhao and Piaui, the poorest states of the country, gave Dilma 80% of the votes.

In her speech after being declared the winner, Dilma called for reconciliation and cooperation. By the way, Aecio did the same in his speech. How come? Cooperation on what exactly? How to conciliate two projects and visions so different of the economy and the state? How to conciliate a vision that prioritizes interventionism and do not recognizes problems with a vision that prioritizes the market and recognize a problem? With Dilma’s victory we don’t know if we are going to have more of the same- that is the more probable outcome- or if she is going to surprise us with a change of course- we can only hope. If a signal of change is not given quickly we could see a surge on inflation and in the exchange rate in the short term. Monday October 27th could turn out to be our own black Monday.

North of the Equator line, October was a crazy month also. On Monday, September 29th the Dow Jones was at 17,701 points. On October 16th it had drop almost 6% to 16,117 points. On October 24th it was back to 16,805 points, an increase of almost 4%. The volatility in the markets were caused by the fall on oil prices with the subsequent fear of deflation, by the economic slowdown in Germany and Europe; at the same time other factors were still present generating fear of a disaster: from Ebola to ISIS, and the ongoing problems with Russia. All have contributed to the semi panic that possessed the markets for a week. It was very hard to keep the focus on the fundamentals in the midst of a generalized sell off.

In the USA we are going to have midterm elections in few days and there is a great possibility that the democrats loose the majority in the Senate. I am no political analyst but I think that people gives more credit to the Congress than it really deserves. The Congress didn’t do anything relevant in the last few years: no relevant bill to help the economy was passed. On the contrary, the shutdown, debit ceiling and others only made things worse. So, it is possible that a republican Congress tries to repeal Obamacare (again) but the President can veto or the democrats in the Senate can filibuster. In the remote possibility that the republicans pass a bill that is good for the country or the economy….so be it, it will be great.

The economic indicators of the American economy are still good, the companies are too. We are again in earnings season and so far so good: 70% of the companies that released earning thus far beat the estimates. That being said and unless one more fears virus arises, the stock market should have another end of the year rally.

As for Brazil, fasten your seat belt and get ready for turbulence.

 

State

Income per capita

Winner

São Paulo

1.036,51

Aécio

Rio de Janeiro

993.21

Dilma

Santa Catarina

967.45

Aécio

Rio Grande do Sul

940.28

Aécio

Paraná

870.59

Aécio

Espirito Santo

795.33

Aécio

Goiás

785.17

Aécio

Mato Grosso do Sul

784.97

Aécio

Mato Grosso

735.32

Aécio

Minas Gerais

733.24

Dilma

Rondônia

646.78

Aécio

Roraima

578.38

Aécio

Amapá

575.42

Dilma

Tocantins

571.51

Dilma

Rio Grande do Norte

531.56

Dilma

Pernambuco

508.82

Dilma

Amazonas

508.28

Dilma

Sergipe

508.20

Dilma

Acre

497.44

Dilma

Bahia

481.18

Dilma

Paraíba

462.29

Dilma

Ceará

445.88

Dilma

Pará

429.57

Dilma

Alagoas

421.32

Dilma

Piauí

408.27

Dilma

Maranhão

348.72

Dilma

November 23, 2015
Much ado about nothing
October 27, 2015
Brazil, we can only pray (or hope)
August 18, 2015
Looking back, looking forward
June 30, 2015
Lack of good news
April 14, 2015
What if...
February 24, 2015
What to expect in 2015
November 17, 2014
The American conundrum or just plain stupidity?
September 09, 2014
Lessons we should have learned
August 12, 2014
US and Brazil: 2014, what to expect next
June 26, 2014
Headwinds ahead but still optimistic
April 26, 2014
Roller Coaster
March 14, 2014
Brazil in perspective
February 07, 2014
Stay the course. Change the course.
January 17, 2014
Diversification. Or not.
November 25, 2013
Who buys a US$ 500 pillow?
October 02, 2013
Disturbing
September 03, 2013
What a mess...
July 31, 2013
Of Protests and Stocks
June 19, 2013
Betting in the future
April 30, 2013
Nowhere else to go
March 26, 2013
Cyprus: not enough to stop the US market
February 25, 2013
The Sequester
January 23, 2013
2013: what is ahead for investments
December 07, 2012
Brazil: uncertainty and mixed signals
November 05, 2012
It is not about the economy!
September 20, 2012
The Country is better off
July 05, 2012
The New Normal
May 30, 2012
Half empty, half full
April 30, 2012
How to restore prosperity
April 21, 2012
Brazil became poorer
February 27, 2012
Romney, Obama and the American Imbroglio
January 25, 2012
On storms and calmness, waiting for next round
December 22, 2011
Happy Holidays!
November 23, 2011
Impasse and Paralysis
October 24, 2011
The rally has legs. Or not
September 23, 2011
Preparing for the crisis
August 24, 2011
Kicking the can down the road: is there an end in sight?
July 24, 2011
Can the politicians be rational?
June 24, 2011
Global Economy: where are the world leaders bringing us?