There doesn’t seem a day that goes by without a political scandal in some emerging market rocking the tape. Check that. Add also developed markets. Brazil, Pakistan, Mozambique, and, yes, even the United States.
But today’s nine and half year prison sentence handed down by a Brazilian court to former, and very popular, President Luiz Inacio Lula da Silva, widely known as “Lula”, was, what Bloomberg called “seismic.”
The Brazilian judge who ordered the imprisonment of former President Luiz Inacio Lula da Silva set off a seismic event in a culture accustomed to impunity for its rich and powerful, and battered the resurgent left.
Judge Sergio Moro on Wednesday gave the man universally known as Lula nine and half years for taking 3.7 million reais ($1.1 million) worth of benefits from a construction company in exchange for favors. The three-year Carwash probe swept scythe-like through Brazil’s ruling class, and came to focus on the former factory worker who once was the nation’s most popular politician — and a strong contender to regain office.
… Investors welcomed the prospect that Lula may be out of the race. Brazil’s real and benchmark stock exchange accelerated gains after the decision was announced, each closing up about 1.5 percent stronger. Meanwhile, Brazil’s five-year credit default swap spread, a gauge of investor risk perception, dropped to the lowest in nearly two months. –Bloomberg
Recall President Obama saying to Lula, “you are the most popular politician on earth,” at the 2009 G20 Summit. Go to the 42 seconds mark in the video.
The markets are trying to guess what and when will prick the global asset bubble. We are starting to think it will be some sort of Black Swan geopolitical event.
Central bank tightening? Necessary, but not sufficient. It is going to take a lot more rate hikes to reach a tipping point, where yield seekers return to their caves. Furthermore it will take a long period of draining the overflowing reservoir of central bank global base money — a major difference from the 2007 excess credit based “money”, which evaporated overnight with the “Lehman Moment” — before “global liquidity” in markets reach drought conditions.
Polical risk analysis, all the rage.