How to Fix Brazil’s Broken Economy

October 24, 2014

Joshua Kempf and Mark Kennedy – Foreign Policy, 10/23/2014

The last two decades made obvious a life’s-not-fair fact: Big countries can get away with bad economic policy. Size matters to investors, global corporations, and entrepreneurs because a winning payout is large and can justify the costs of bureaucracy, compliance, and corruption.

China, India, and Brazil attract big investor dollars not because they are business paradises — check out their World Bank’s “Doing Business” rankings. To understand how business leaders think, let’s imagine you built a company with 85 percent market share in more business friendly Estonia. Congrats, they’ll say, those size revenues are in a multinational’s second footnote once removed.

Which brings us to Brazil. Despite its numerical advantages, Brazil has stagnated, and is expected to have just 0.4 percent economic growth this year. What’s wrong? Many analysts have pointed out the obvious: Brazil needs to improve its education, healthcare, and infrastructure. Few economists would disagree, but these are deeply rooted problems with decades-long solutions. Brazilians go to the polls on Sunday to select a president. What reforms can be done during one term to unleash Brazil’s charmed bequest, its size? Here’s the policies we think should be on the agenda.

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What Will Happen Monday, After Brazil Election?

October 24, 2014

Dimitra DeFotis – Barron’s, 10/23/2014

The Brazil equity market has tumbled nearly 8% this week and has slipped into negative territory for the year.

The iShares MSCI Brazil Capped ETF (EWZ) is down more than 8% this week, and has fallen more than 7% year to date. Among Brazil equities, even shares that should be somewhat more immune to Sunday’s election have been hit hard in recent days, including airplane maker Embraer (ERJ) and meat producer BRF (BRFS and BRFS3.Brazil).

The odds are with Brazil’s incumbent Pres. Dilma Rousseff, if ever so slightly, to win Sunday’s runoff presidential election and defeat Aecio Neves, a former governor who is more conservative and the investor favorite. Here’s Societe Generale’s Benoit Anne on anything denominated in Brazil’s currency. He is on the sidelines at this juncture, even if the election outcome is a binary one:

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Market Forecasting Dilma Win In Brazil On Sunday, Turns To Post-Election Scenarios

October 24, 2014

Kenneth Rapoza – Forbes, 10/23/2014

The market is now forecasting that incumbent Dilma Rousseff will be re-elected president in a squeaker on Sunday. Although rival Aécio Neves could pull off an upset if enough of Marina Silva’s voters choose him or opt-out of voting for anyone, his victory would now be seen as a surprise. Downside risks remain in Brazilian equities.

Neves came from polling in third place behind Marina Silva to clobbering her in the first round on Oct. 5, thus guaranteeing him the No. 2 contender spot against Dilma. Polls have suggested that at least 60% of Marina’s voters would chose Neves on Sunday, but he needs a little more than 65% providing the rest of Marina’s voters choose Dilma. So far, that has not been the case as only around 20% of Marina’s voters said they would vote for Dilma on Sunday, meaning the current crop of undecided voters will call the shots.  Recent polls show a technical tie.

It is worth noting that the market’s forecast is not exactly the market’s preference.  At this stage, investors are broadly looking for change in Brasilia, even more so than the average Brazilian.

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The start-up firm which wants to put Brazil to sleep

October 23, 2014

Luana Ferreira – BBC News, 10/22/2014

Brazilian entrepreneur Marcelo von Ancken remembers the dilemma which inspired his new business – he had nowhere to take his afternoon nap. The 51-year-old has a daily ritual at his office in downtown Sao Paulo – after eating lunch he likes to lean back and take a 30-minute siesta.

Mr von Ancken says he finds that having the little sleep gives him a renewed energy for the remainder of the day. Yet one lunchtime back in 2010 he was across town waiting for an afternoon meeting.

Unable to get back to his office, he instead tried, and failed, to take a power nap in his car. An attempt to sleep on a shopping centre bench was equally unsuccessful. The frustration was the spark of inspiration for a new company – a drop-in centre where members of the public can go for a quick sleep.

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The cashmere revolution

October 23, 2014

J.P. – The Economist, 10/23/2014

Business barons and financiers are not known for taking to the streets. Yet on October 22nd thousands turned out in the centre of São Paulo in support of Aécio Neves, the centre-right challenger to President Dilma Rousseff, of the left-wing Workers’ Party (PT), in a tight run-off election on October 26th. Together with spouses and children they sauntered down São Paulo’s Avenida Faria Lima, a thoroughfare conveniently located close to many of their offices.

It was a sight to behold—perhaps unprecedented in election history, and not just in Brazil. Besuited types with crisp, initialed shirts toting “Aécio” flags. Snazzily clad socialites, wrapped in pashminas to keep out the unseasonable chill, chanting anti-PT slogans. Everyone snapping selfies with pricey iPhones (most Brazilian rallies are cheaper Samsung affairs). The only thing missing from this “cashmere revolution” was champagne flutes—and Mr Neves himself, campaigning in his home state of Minas Gerais.

“Most of Brazilian GDP is here,” observed one private-equity boss with four Aécio stickers on his checked shirt, shortly after bumping into a pal from a big American technology firm. In that sense, the event played right into PT propaganda, which relentlessly paints Mr Neves as a pawn of the rich elite. On October 21st Luiz Inácio Lula da Silva, Ms Rousseff’s popular predecessor and political patron renowned for his earthiness, went so far as to compare Mr Neves’s Party of Brazilian Social Democracy (PSDB) to the Nazis for its apparent intolerance of the less advantaged. (Mr Neves had previously compared Ms Rousseff’s formidable marketers to Joseph Goebbels.)

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Brazil Stocks Sink As Jim Chanos Slams Petrobras

October 22, 2014

Kenneth Rapoza – Forbes, 10/21/2014

Sometimes all it takes is a celebrity investor to say something bad about a market and the investor riff-raff go running for the door. On Monday, famed investor and regular CNBC guest Jim Chanos said Brazilian state owned oil company was not an investment, but an investment scheme. He was referring to what most Petrobras watchers already know — that the company is used by the government as a revenue stream, and as a means to control inflation as it keeps a lock on gasoline prices.

Chanos said this on a day when Petrobras shares had down their usual mega-drop, falling 6% in a day. Less than 12 hours later, the stock opened 6% lower on Tuesday following Chanos’ guidance. He’s laughing all the way to the bank this week.

And while every broker and trader on the Bovespa floor in São Paulo needs something to tell newswire reporters about the wild drop in Brazilian equities today, it is very unlikely that the recent poll by Datafolha showing incumbent Dilma Rousseff neck and neck with challenger Aécio Neves is any reason for investors to sell Brazil. Business Insider gets it. Linette Lopez wrote in a headline today that Chanos Tanked Brazil.

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Economic Affairs Dominate Brazil’s Latest Presidential Debate

October 20, 2014

TeleSUR, 10/20/2014

Candidates Dilma Rousseff and Aecio Neves held their third televised presidential debate late on Sunday, a week before the second round run off election. Both candidates avoided personal attacks and addressed key issues on the economy.

​One week before Brazil’s presidential election run-off, current President and candidate Dilma Rousseff held a televised debate with her rival right-wing candidate Aecio Neves, late on Sunday. Both candidates centred the discussion on inflation, unemployment, and the economy in general.

Rousseff attacked Neves for his plans to appoint, a former president of the Central Bank, Arminio Fraga, as Finance Minister. Fraga headed the Central Bank the last time Neve’s Social Democratic Party was last in power, headed by Fernando Cardoso. Dilma reminded Neves that Fraga had been partly responsible for the high inflation levels during that government.

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