Investment Insights Podcast – Brazil: Does Instability Bring Hope?

Stuart Quint, Investment Insights PodcastStuart P. Quint, CFA, Senior Investment Manager & International Strategist

On this week’s podcast (recorded March 21, 2016), Stuart weighs in on all things Brazil especially on the current political climate and its economic impact.

Why talk about Brazil?

  • It’s the eighth largest economy in the world.
  • It’s the largest economy in Latin America.
  • For the last several years, it’s been a large drag on emerging market economic growth.

So, what’s been happening?

  • Brazilian markets shifted from a bear to a bull in March, as currency rebounded and markets followed.
  • There is increased hope for major political change as the current administration under President Dilma Rousseff faces potential impeachment.
  • Rousseff’s approval rating has plummeted (62% now disapprove) since her reelection in 2014 amid political scandal and economic stagnation.

Let’s talk about this scandal

  • In what has been labeled “Operation Car Wash”, the two-year investigation centers around corruption between oil giant Petrobras involving dozens of corporate executives and political figures.
  • Rousseff was head of Petrobras until 2010, prior to taking office.
  • Former Brazilian President Luiz Inácio Lula, who was to be Rousseff’s Chief of Staff, has been implicated on bribery charges.
  • Encouraged by massive protests, opposing politicians have called for a formal impeachment process to begin.

How does this begin to shape the Brazilian economy?

  • The prospect of a new start in Brazil bodes well for markets–Brazilian index has risen over 27% in 2016, currency has appreciated 10% in March alone.

That’s great, but there’s more to it

  • The path to impeachment is murky and should not be taken for granted.
  • Operation Car Wash has indicted politicians from both the current regime and the opposition.
  • Even with the possibility of a new government, political consensus on structural reform appears evasive for Brazil.
  • Pensions, infrastructure, and autonomy of the central bank are important to address in order to revive the Brazilian economy.

 Where does Brazil stand now?

  • Overall, the economy is in a difficult situation–GDP declined in 2015 and is set to decline again in 2016.
  • Inflation continues to rise and exceeds targets set by Central Bank.
  • Unemployment and bad credit also continue to rise.
  • Given that Brazil represents over half of the GDP and total population of Latin America, economic prospects are important for growth.

Please click here to listen to the full recording.

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, a Registered Investment Advisor.

Investment Insights Podcast – Hope Springs Eternal

miller_podcast_graphicBill Miller, Chief Investment Officer

On this week’s podcast (recorded February 11, 2016), Bill addresses the current market climate and why there is reason to remain hopeful:

What we don’t like: Stocks are down around 10% in general; European stock markets are down even more; Asian markets down the most; it’s a tough environment for investors

What we like: We don’t believe this is a long-term bear market and don’t see a recession hitting the U.S.; labor and wages are positive; auto and housing is good as well; economy seems sturdy despite volatile market behavior; China poised to finalize five-year plan including lowering corporate tax rates and addressing government debt levels; ECB should start to show more support for its major banks

What we’re doing about it: Most of the damage is done; more sensible to see what we should buy or rotate into; hedged pretty fully in tactical products; staying the course in more strategic products

Click here to listen to the audio recording

The views expressed are those of Brinker Capital and are not intended as investment advice or recommendation. For informational purposes only. Holdings are subject to change. Brinker Capital, Inc., a Registered Investment Advisor.

Central Bank’s Sway Stock, Market Commentary by Joe Preisser

Aided by a broad based reassessment of comments issued by European Central Bank President, Mario Draghi on Thursday, and the release of better than anticipated employment figures for the month of July in the United States, stocks rallied strongly on Friday to reverse the losses suffered earlier in the week and reclaim their upward trajectory.

Following a meeting of the American Central Bank’s policy making committee this week, the decision to forbear enacting any additionally accommodative monetary policy at present was announced in tandem with indications that measures designed to stimulate the world’s largest economy may be forthcoming.  The Federal Open Market Committee said in its official statement that they, “will provide additional accommodation as needed to promote a stronger economic recovery and sustained improvement in labor market conditions.”  As the recovery in the world’s largest economy has continued at a frustratingly slow pace, hope has pervaded the marketplace that increased liquidity will be provided by policy makers in order to encourage growth should they deem it necessary.  In its most recent communiqué, the Federal Reserve has reinforced this belief thus offering support for risk based assets.  Brian Jacobsen, the Chief Portfolio Strategist for Wells Fargo Funds Management was quoted in the Wall Street Journal as saying, “They probably are closer to providing, as they say, ‘additional accommodation as needed’, but I still think that they want more data before they actually pull the trigger.”

Investors across the globe registered their disappointment on Thursday with the decision rendered by the European Central Bank, to refrain from immediately employing any additional measures to support the Eurozone’s economy, by selling shares of companies listed around the world.  Hope for the announcement of the commencement of an aggressive sovereign bond buying program, designed to lower borrowing costs for the heavily indebted members of the currency union, which blossomed in the wake of comments made by Central Bank President Mario Draghi last week were temporarily dashed during Thursday’s press conference.  Although Mr. Draghi pledged to defend the euro, and stated that the common currency is, “irreversible” (New York Times), the absence of a substantive plan to aid the ailing nations of the monetary union was disparaged by the marketplace and precipitated a steep decline in international indices.

Friday morning brought with it a large scale reinterpretation of the message conveyed by European Central Bank President, Mario Draghi the day before, as investors parsed the meaning of his words and concluded that the E.C.B. is in fact moving closer to employing the debt purchasing program the market has been clamoring for.  The release of better than expected news from the labor market in the United States combined with the improvement in sentiment on the Continent to send shares markedly higher across the globe.  According to the New York Times, “on Friday, stocks on Wall Street and in Europe advanced as investors digested the announcement alongside data showing the U.S. added 163,000 jobs.”  Although the absence of immediate action served to initially unnerve traders, further reflection upon the President’s comments revealed the resolve of the Central Bank to support the currency union and fostered optimism for its maintenance. A statement released by French bank Credit Agricole on Friday captured the marked change in market sentiment, “Mr. Draghi’s strong words should not be understated, in our view.  The ECB President made it perfectly clear that the governing council was ready to address rising sovereign yields…Overall, notwithstanding the lack of detail at this stage, we believe the ECB will deliver a bold policy response in due time”(Wall Street Journal).