Brazil’s Far-Right Is Surging — Investors Love It

Prof G Markets

This episode examines three distinct economic and political developments: Brazil's recent election results and their market implications with Monica de Bolle, the September U.S. jobs report and labor market trends

Key takeaways

• Senator Flavio Bolsonaro won Brazil's first-round presidential vote with 47%, forcing a runoff against incumbent Lula, while the far-right PL party swept congressional and gubernatorial races.
• Monica de Bolle notes that Brazil's stock market rally is speculative, driven by expectations of deregulation and fiscal spending rather than concrete economic plans from the far right.

Main topics

• Brazil election results
• U.S. labor market data

Notable quotes

"It's not really an election about who is favored or who the public likes the most. It's actually an election about who the electorate can stomach at this point or who do they dislike the least."

Conclusion

The episode underscores how political polarization and regulatory rollbacks are

Transcript preview

Speaker 1 (0:00) Hey, it's Sue Bird. I'm back this week with a brand new episode of Bird's Eye View. I am joined by Portland Fire head coach Alex Sarama to discuss bringing his unique coaching style to the WNBA and channeling this year's momentum into the Fire's next season. But first, Coach Sarama and I break down the action from round one of the playoffs. Make sure to check out Bird's Eye View on YouTube and wherever you get your podcasts. Speaker 2 (0:25) Megan Rapinoe here. This week on Why Are You Like This, I am talking with Jaden Shaw. We're diving into the highs, the lows, the unexpected turns the Gotham midfielder has gone through in her career. I'm also weighing in on the latest USWNT roster to drop on their road to the World Cup next summer. Check out the latest episode of Why Are You Like This wherever you get your podcasts and on YouTube. Speaker 6 (0:52) Support for the show comes from Alpha Space by Yahoo Finance. Alpha Space by Yahoo Finance is the advanced investing platform you've been waiting for. My co-host Scott Galloway is a fan of the platform. Here is what he had to say. Speaker 4 (1:06) So I have been using Yahoo Finance as my portal for finance for, I'm not exaggerating, about 30 years. I think they do a great job. You Speaker 6 (1:15) can explore Alpha Space with a Yahoo Finance Gold subscription. And right now, your first year is 50 % off. Head to yahoofinance.com slash profg. That's yahoofinance.com slash profg. Bill, there's $239.70 for the first year, then $479.40 thereafter. offer valid for new subscribers in the US. Offer ends October 31st, 2026. Speaker 6 (1:49) If money Speaker 4 (1:50) is evil, then that building is hell. The Speaker 6 (1:52) show Speaker 2 (1:52) goes on! So Speaker 6 (1:58) Welcome to ProfitGMarkets. I'm Ed Elson. It is October 6th. Let's check in on yesterday's market vitals. A rally in big tech drove the Nasdaq to a record high. The S &P 500 and the Dow also climbed. The yield on 10-year treasuries hit its highest level since 2002. Brent crude dipped below $100 per barrel. And finally, Nvidia shares rose more than 2 % to hit a record high. Okay, what else is happening? Brazil's election just sent its stock market to a record high. The Ibavespa, Brazil's main stock index, jumped as much as 9 % yesterday, making it the index's biggest intraday gain since April 2020. The real also rose more than 4 % against the dollar, and it's now trading below five reals per dollar for the first time in about a year and a half. Now, what were they actually reacting to? Well... Lula, Brazil's left-wing incumbent, was projected to finish first, and every final poll had him ahead. Instead, Senator Flavio Bolsonaro, the right-wing candidate who is the son of former President Jair Bolsonaro, won 47 % of the vote on Sunday. Lula won 45%. Neither candidate cleared 50%, though, meaning the two will now face each other in another election on October 25th. 25th. At the same time, the far right also achieved major victories in congressional and gubernatorial elections across the country. So here to break down what happened, we are speaking with Monica de Bol, Senior Fellow at the Peterson Institute for International Economics. Monica, great to see you. Thank you for joining us on the show. Let's just start. from the very basics here, because we haven't talked about Brazil in a long time. I guess the first question is, what happened in this election? What are the important things to be aware of? And then maybe we can get into the market's reaction. Speaker 7 (3:58) There are three things that are very important about these elections. So first of all, yeah, it was a presidential election. But more than that, it was also an election for governors in Brazil and an election for Congress. So really, it's an election with a three-part story. So there's the story of the presidential election. There's the story of what happened to the gubernatorial races. And there's the story of what happened to the congressional races. And all three stories are very compelling. The least compelling of them is actually the presidential race, because the presidential race, there's nothing there that we didn't already kind of foresee. Yeah. Speaker 6 (4:38) Tell us a little bit more about this, the presidential race here, because we obviously know the name Bolsonaro. His father is obviously pretty controversial. What do we what did we learn about the presidential race so far? Speaker 7 (4:53) Both of those candidates, so both the current president, Lula, who's running for reelection, as well as Flavio Bolsonaro, who is former President Jair Bolsonaro's son, both of them had very, very high rejection rates from the outset at about 45 percent. So about 45 percent of voters who had been. polled throughout the campaign were saying, we're not going to vote for either one of those candidates. So it's not really an election about who is favored or who the public likes the most. It's actually an election about who the electorate can stomach at this point or who do they dislike the least. So it's important to contextualize that because then when you look at the actual numbers and what happened, one important story here is that Brazil had in the first round of the elections yesterday, the highest abstention rate that it has ever had in an election. It was at about 21. point something percent. So let's say 21 percent. That's one fifth of the of the country that did not vote. And in Brazil, that's very high because voting and elections are mandatory. People have to vote. They do not have the option to opt out. And yet a fifth of the country did. So that already tells you a lot about what's going on in terms of voter sentiment in the country and how people actually feel about these candidates individually. Speaker 6 (6:25) How did Brazil end up in a place where the two options to be president are two people that a fifth of the nation have decided that they hate? I mean, that's pretty wild. Speaker 7 (6:35) So this comes back to the extreme, really extreme. I don't even know if the word polarization fits anymore, but let's use it for now. So this all comes down to the extreme polarization that Brazil's been under. It's been like this for the last... well, this being the third, the last three elections. So back in 2018, we had an election between, not Lula, because Lula was in jail at the time, but the person who he appointed to be his successor against Jair Bolsonaro. And Jair Bolsonaro won that election. Then in 2022, Lula had been released from jail and there was an election between Lula and Jair Bolsonaro. Lula won that election. And now we're back to the same situation, a different Bolsonaro, but the same Lula running against each other. So it's almost like people have seen this movie over and over again, and it's kind of running on replay. And the reason is Brazilian politics at this moment does not have the bandwidth because of polarization to offer up any other candidate. The other options that came out and that you know, ran in the first round of the elections, they were broadly rejected as well because they didn't even come to 3 % of the total vote, the other candidates who were in the running. So at the end of the day, the only two recognizable names in Brazilian politics are Lula and Bolsonaro. And so it's yet another election that pits the two names against each other. I Speaker 6 (8:11) mean, the situation sounds pretty terrible. You got both of these candidates who have both of their own ties to corruption. You've got Lula, who has his own history, and of course, they went to jail himself. You've got Bolsonaro, who's the son of the guy who plotted a coup and got a 27-year sentencing. But at the same time, investors are pretty happy about this. They're reacting to something. The stock market is up. It's actually been doing really well. The index is up 30 % year to date. It's up 45 % in the past year. So I guess we'll get into what's happened over the past year. But what exactly are they reacting to? Are they reacting to something better in terms of those gubernatorial races and that congressional race? Speaker 7 (8:58) So exactly. This is where the story is much less about the presidential election than it is about what happened in the gubernatorial races as well as in the congressional ones. And there, there was a very clear story. So whereas in the presidential elections, you know, the story is the same as it's been in the past several years. The story for Congress and governors is completely different. And there what we saw was a very clear win, practically a landslide by the Brazilian far right, represented by a party called the PL. That's the acronym. It stands for Liberal Party, but do not understand liberal in any terms that are recognizable to a U.S. audience or even to a European audience. Liberal has a completely different. connotation in Brazil. That is the far right party. They were able to elect. 121 deputies to the lower house. That's the most any party has ever had in Brazil's democratic history. The house has 573 deputies. So they have quite a big chunk of that now, a little over 20%. In the Senate, they were able to grab a lot of seats. So currently they represent the PL, the far right party, represents about a third of the Brazilian Congress. And they also managed to elect in the first round, five governors and two more are likely to win in the runoff. So they'll have seven governors out of 20 plus little big states in Brazil. So it's a lot. It's a huge sweep. And it's a far right with the far right doesn't properly have or they don't really have an economic plan as such for the country. But what they have been saying is that they will toe the same line that Millet has toed in Argentina. So they're positioning themselves as libertarians, so to speak, as free marketeers, so to speak, and as people who simply do not like big government. whatever that means. And this is why I think we can say to some extent that markets are happy today. I don't think that happiness is going to last, to be honest. Yeah, Speaker 6 (11:18) talk more about why the happiness weren't lost. I mean, it sounds like investors are saying, hooray, no regulation. But I guess our view on this podcast is that isn't necessarily always a good thing for business. Maybe you agree. Why do you think this weren't lost? Speaker 7 (11:33) So