Brazil Election - 5 October 2014

[jaichind]

Ibovespa Would Fall to 44,600 With Rousseff Victory: XP Survey.  Index would rise to 66,200 if Aecio Neves elected president, according to survey of clients by Rio de Janeiro-based XP Investimentos.
NOTE: Ibovespa -3.9% to 52,152.05 at 4:24pm in Sao Paulo.

[jaichind]

Moody's just downgraded Petrobras' credit. It's also been learned the investigation into Petrobras wrongdoing reached the US as the SEC is supposedly looking at it.

I saw that.  Since the market cap of Petrobras is still pretty high this did not really affect the market prices of the bonds I hold which I really plan to hold until maturity anyway.  Of course going forward if these trends continue the price will fall which does not matter to me giving I am holding until maturity but will make it costlier for Petrobras to borrow money in the international market.

[jaichind]

I'm sorry, but this is coming into a dangerous ground. Many personal facts (including, but not only, private religious convictions) are simply not relevant to someone's performance as a politician, as evident in many examples of past and present leaders. And I don't like an idea of people's votes being determined by such reasoning as "hmm, he's a Catholic (or whatever else), so it may theoretically affect his policy". I know it's not what you said, but many other people would be inclined to follow this path.

You might very well be right on how we should evaluate a politician.  On the flip side a politician has put himself or herself in the public domain and his or her religious beliefs are part of profile to be scrutinized by the public.  One can say all day that the general public should not not certain parts of the profile in making their judgement but it is reasonable to ask about it and it is reasonable for the politician to reuse to answer and the voting public draw their own conclusions about that behavior.

[jaichind]

Incumbent Dilma Rousseff’s lead over Aecio Neves will be bigger than margin of error, Veja columnist Lauro Jardim reports today without saying where information was obtained.

[jaichind]

Just to echo Paleobrazilian

Brazil’s Real Drops to Nine-Year Low on Election Runoff Outlook
By Paula Sambo
Oct. 23 (Bloomberg) -- Brazil’s real fell to a nine-year low on concern new voter poll results will indicate that Senator Aecio Neves is struggling to overtake President Dilma Rousseff three days before the election runoff.
The real declined for a fourth straight day, sliding 1.1 percent to 2.5144 per dollar at 3:14 p.m. in Sao Paulo, the weakest level on a closing basis since April 2005. The drop was the biggest among 24 emerging-market currencies. The Ibovespa tumbled 3 percent, leading losses among major stock benchmarks and erasing this year’s gain.

[jaichind]

If Dilma wins the next big blowup might be the emerging fiasco from the central bank $101 billion derivatives position.   14 months after Brazil began selling massive amounts of derivative  swaps contracts to shore up BRL, the strategy is proving ineffective and raising concern in financial markets. BRL fell to a six-year low yesterday and is the world’s most volatile currency. Some analysts say the swaps, which are equivalent to selling dollars in the futures market and now amount to 27% of foreign reserves, are approaching critical levels. Aecio has indicated he’d discontinue their use.  BRL has weakened 11% versus the dollar since the end of August, the second-worst performer among 31 major currencies after the ruble, even as the central bank boosted the sales to $101 billion.   Declines in BRL will probably accelerate in the short term should Dilma win re-election in this weekend’s runoff vote, prompting the central bank to increase the use of swaps.  In such a case the losses might be quite significant and might force the central bank to eat the loss before it gets worse.  This will have an affect of pushing down BRL even more making the losses even worse and could also worsen inflation.  I guess only the 1% in Brazil electorate would understand how a bad situation this is. 

On the flip side, it seems that options traders have and equal number of calls and puts in the equities markets which implies they are still seeing this election as a tossup. 

Whoever wins Brazil’s presidential runoff election this Sunday won’t have much good news to deliver on the outlook for the world’s second-largest emerging market. Brazil is in recession, and annual inflation is above the ceiling of its target range. A widening budget deficit threatens the country’s investment-grade status, and business confidence hovering around five-year lows has driven investment to a low rate by emerging economy standards.  Regardless of who wins, you’re looking at a bleak post-election environment for the average Brazilian. 

[jaichind]

A Sensus poll published today on the website of magazine IstoE showed Neves has support of 54.6 percent among valid votes compared with 45.4 percent for Rousseff.  Ibovespa Futures Climb after this polls comes out.  I wonder if the Ibovespa Futures traders understands the concept of house effect.  It seems clear that Sensus seems to have a pro-Neves bias relative to the other polls. But all of them seems to be moving in the same direction, away from Neves.  So not sure why this is seen as good news in light of the results of other polls that came out yesterday.

[jaichind]

It seems the rumors are based on my google translate of

http://blogs.estadao.com.br/sonia-racy/matematica-12/

Where private polls by banks suggest technical tie after Ibope, Datafolha results Thur. indicated 6-8ppt Rousseff lead.  Then Sensus poll this morning showing 9ppt Neves lead also fuels argument of 50/50 chance.  

[jaichind]

I assume polls close 7 PM Brasília Time this sunday.  Where can I watch streaming video feed of news coverage and where can I see results posted online ?

[jaichind]

I wonder how PT and Dilma justify to themselves and their supporters how the market has reacted these last few weeks.  The fact is the market surges when there are signs Dilma will lose and falls when there are signs that Dilma will win.  And this is during a period of great market turmoil in the world with respect to oil prices, as well as speculation of possible economic slowdowns in USA, Europe and PRC. But none of that seems to matter relative to Dilma election chances.  This level of correlation between market shifts and perceived chances of political change is the largest I have seen.  The fact is that people with a proven track record of judging economic value has voted thumbs down on Dilma.  Dilma and PT could just say that is just a knee jerk reaction of the wealthy reactionaries who are out to stop her progressive agenda.  But the fact is that financial markets all over the worlds always tend to rally when the incumbent wins or is about to win and drops when there are signs of a political change, regardless of if the incumbent is center-right or center-left.   

[jaichind]

Ibope

Dilma 49%, Aécio 43%
valid votes: Dilma 53%, Aécio 47%


Datafolha

Dilma 47%, Aécio 43%
valid votes: Dilma 52%, Aécio 48%

This represents a small shift toward Aecio from a few days ago.

[jaichind]

Prediction

Dilma 51%, Aécio 49%

[jaichind]

Polls at the areas under Brasilia time (the Federal District + Goiás + South and Southeast states) close at the top of the hour.

So polls close 5pm local time right ?  Is the reason why the election is extended out to 8pm Brasilia time because of places like Rio Branco  ?

[jaichind]

Both sides are concerned about abstention.

What is the penalty of not voting?

[jaichind]

Lets say Aecio manages to win. How will be able to deal with a pro-PT coalition majority in the National Congress.  Will he able to peal off various parties like PMDB, PSD, PP, PR, and PRB to have them join a PSDB alliance ? It always struck me as weird that parties like PP and PR which I view as more right wing are allied with PT.  

[jaichind]

A prediction I am going to make is that as soon as polls close at 8PM Brasilia time and results of votes counted so far are released, Aecio will be in the lead.  It is possible that he will lose that lead as votes from the North and North-east comes in but he should be in the lead for the paces where the polls have closed for a while.

[jaichind]

It is interesting that in Pará, Barbalho is behind 53.4% vs 46.6% with 56% of the votes counted when in the first round there was a clear center-left majority votes in the first round.  My understanding is that Pará is sort of a swing state.   

[jaichind]

A prediction I am going to make is that as soon as polls close at 8PM Brasilia time and results of votes counted so far are released, Aecio will be in the lead.  It is possible that he will lose that lead as votes from the North and North-east comes in but he should be in the lead for the paces where the polls have closed for a while.

Over 75% of the presidential ballots have been counted already. This election will probably be called exactly at the top of the hour.

Is it not possible that with 75% counted there is a small Aecio lead and it is not possible to call the election ? Of course if Aecio is behind when the 75% result comes out we should be able to call it for Dilma. 

[jaichind]

Exit poll in Rio Grande do Sul

Sartori (backing Aécio) 58%
Tarso Genro (backing Dilma) 42%

The yestersay poll predicted 60-40 to Sartori.
Not so relevant, but good news for Dilma

Sartori wins with around 61.2% of the vote.  I guess in theory based on what you indicate above this is a slight bad news for Dilma.

[jaichind]

I just read that 90% of the ballots have been counted.  If so then I guess at 8pm it is very likely we can make a call.

[jaichind]

51-49 Dilma

[jaichind]

Given what we know about the post-election Brazil and how close this election was, as someone else mentioned here, this will be a Pyrrhic victory.  

[jaichind]

The Ibovespa futures market will open way down.  BRL will be down significantly once FX trading starts.

[jaichind]

Dilma seems to be still gaining and is up to 51.26% now with 96.73% of the vote counted.  Most likely the result will be something like 51.5 vs 48.5, a 3% gap. 

[jaichind]

My prediction:

Dilma 51,5%
Aécio 48,5%

I will now accept my accolades.

Congrats.  Although my prediction of 51-49 was not that bad either.