WEBVTT - How Brazil's Corruption Crises Are Roiling Markets

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<v Speaker 1>Welcome to the Bloomberg p m L Podcast. I'm Pim Fox.

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<v Speaker 1>Along with my co host Lisa Bramowitz. Each day we

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<v Speaker 1>Podcast on Apple Podcasts, SoundCloud, and Bloomberg dot com. Right now,

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<v Speaker 1>I want to get a sense of what's going on

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<v Speaker 1>in up markets. We are dealing obviously with the fallout

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<v Speaker 1>from a Brazilian political crisis, and to give us more

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<v Speaker 1>color on what exactly happened there, Vivian Rodriguez is joining us.

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<v Speaker 1>She's a Latin American economy and government editor for Bloomberg.

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<v Speaker 1>Also here with us is Dave Wilson, Bloomberg Stocks editor,

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<v Speaker 1>columnist and blogger m Live Go on the Bloomberg Vian,

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<v Speaker 1>I'd like to start with you. Can you just give

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<v Speaker 1>us a sense of what actually happened? We do know

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<v Speaker 1>that on Wednesday, a major uh newspaper in Brazil reported

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<v Speaker 1>that the current president, Michelle Tamare, was embroiled in u

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<v Speaker 1>or sort of endorsing some kind of Briberry scheme. Can

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<v Speaker 1>you explain in the library. Sure, it is quite a

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<v Speaker 1>shocking development that that really, you know, sent the country

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<v Speaker 1>back into a crisis that we've seen last year. Right. Basically,

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<v Speaker 1>what we know is that there is a tape, I mean,

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<v Speaker 1>a couple of very high profile executives, I mean recorded

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<v Speaker 1>a conversation with Tamor in March in which basically Tamer

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<v Speaker 1>you know, again, this is all allegedly the newspapers that

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<v Speaker 1>transcripts are not out, but in this recording, Tamor just

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<v Speaker 1>basically gave the okay or endorsed some briberries in a

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<v Speaker 1>big covert up scheme involving the former leader of the

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<v Speaker 1>of the House, which was a mastermind behind the impeachment

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<v Speaker 1>of his predecessor, decept. So it's pretty bad. Yeah, this

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<v Speaker 1>is pretty bad. And the response in markets has been

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<v Speaker 1>pretty fierce. Dave, Can you give us a sense of

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<v Speaker 1>just you know what we are seeing? Oh? Absolutely, I

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<v Speaker 1>mean you look down to Brazil. You see the vestment

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<v Speaker 1>index down ten and a half percent. In early trading.

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<v Speaker 1>A circuit breaker kicked in in the local market that

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<v Speaker 1>basically put off buying and selling for half an hour.

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<v Speaker 1>There's possibility of other circuit breakers if you get a

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<v Speaker 1>steeper decline, and it's showing up here in the US

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<v Speaker 1>in terms of what's going on with for example, the

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<v Speaker 1>Ice Shares MSCI Brazil Exchange Trading Fund, which is down

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<v Speaker 1>sixteen percent at the moment, and then you look through

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<v Speaker 1>the American depository receipts of Brazilian company to trade here

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<v Speaker 1>and they're taking quite the hit as well. Uh. One example,

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<v Speaker 1>the government controlled the energy company petrol Bra, which is

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<v Speaker 1>down about fourteen and a half percent at the moment. Yeah. Well,

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<v Speaker 1>and remember that Petro braw is also involved with some

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<v Speaker 1>allegations of a scandal and taking and having some kind

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<v Speaker 1>of corruption probe is ongoing to this day. Vivian, can

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<v Speaker 1>you give us a sense of what the fallout could

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<v Speaker 1>be from the allegation from Michelle Tamayor and how this

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<v Speaker 1>would bleed out into markets in a practical sense. Okay,

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<v Speaker 1>So I mean bottom line, I mean the government. We

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<v Speaker 1>don't know if we're going to have a government in

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<v Speaker 1>this shape and form a week from now. So in

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<v Speaker 1>markets are really responding I mean to that reality, right,

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<v Speaker 1>if Timer is found, really, if these tapes you know,

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<v Speaker 1>are proving to be legitimate, and if the Supreme Court

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<v Speaker 1>opens an investigation. I mean pressure will mount for him

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<v Speaker 1>to potentially I mean at the bottom line of all this,

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<v Speaker 1>he might even have to resign. We are too far.

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<v Speaker 1>I mean, there's there's a lot of things can happen there,

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<v Speaker 1>but it is a possibility. What is what is tragic here?

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<v Speaker 1>You mentioned Petro Bras, right, Yes, it was involved in

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<v Speaker 1>all that corruption scandal. They started cleaning up the company.

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<v Speaker 1>It posted a very good quarter recently, but now you

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<v Speaker 1>just sent them all back down again. And it's worth

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<v Speaker 1>reminding that some of these Brazilian companies are some of

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<v Speaker 1>the especially in agrie business in emerging markets, are some

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<v Speaker 1>of the largest companies in the world. So yes, he

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<v Speaker 1>has the potential for a ripple effect in emerging market

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<v Speaker 1>dedicated funds. Yes, and Vivian to that point, I was

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<v Speaker 1>looking at the biggest emerging markets bond et F today

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<v Speaker 1>it's an eleven point three billion dollars I shared JPMorgan

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<v Speaker 1>U S dollar emerging markets bond et F and it

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<v Speaker 1>is down the most since December. And you know, I

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<v Speaker 1>was just looking at the composition and Brazilian assets or

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<v Speaker 1>the fifth account for the fifth most UH of any

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<v Speaker 1>nation in this particular e t F. So you could

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<v Speaker 1>potentially see ripple effect. Are you seeing that, Dave elsewhere? Well,

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<v Speaker 1>I mean to an extent, but when you turn to

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<v Speaker 1>the stock market. We actually got a reminder on the

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<v Speaker 1>Markets Live blog earlier from Cameron christ who's a macro strategist.

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<v Speaker 1>Just when you go through the MSc I Emerging Markets Index,

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<v Speaker 1>you see that nine of the ten biggest companies are

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<v Speaker 1>based in Asia. We're talking about the likes of you know,

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<v Speaker 1>Ali Baba Group, for example, and they had earnees out

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<v Speaker 1>that word so great, But then there a whole lot

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<v Speaker 1>of others, you know, Samsung, Electrocs and so on, so

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<v Speaker 1>to that ext and I mean sure there was going

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<v Speaker 1>to be a knock on effect, it may not be

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<v Speaker 1>quite what you might expect, given that, you know, while

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<v Speaker 1>Brazilian companies are certainly substantial and market value, it's not

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<v Speaker 1>like they dominate the index in the same sense that

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<v Speaker 1>you know, you think about you know, Apple or Facebook

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<v Speaker 1>here in the US. Thank you so much for for

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<v Speaker 1>that perspective. I'm sure we'll be talking again about this.

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<v Speaker 1>This isn't going away anytime soon. Vivian Rodriguez, Latin American

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<v Speaker 1>Economy and Government editor for Bloomberg as well as Dave Wilson,

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<v Speaker 1>Bloomberg Stocks editor, columnist and Bloggert m Live go on

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<v Speaker 1>at the Bloomberg Thank you so much. We want to

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<v Speaker 1>take a moment to let you know about something new

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<v Speaker 1>more at Bloomberg dot com slash lens. Max Abelson has

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<v Speaker 1>been listening to the testimony. Max Abelson as a finance

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<v Speaker 1>reporter for Bloomberg News and Business Week, and he joins

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<v Speaker 1>me here in our Bloomberg eleven three oh studio. Is

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<v Speaker 1>quite a wide ranging testimony, from everything from tax reform

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<v Speaker 1>to banking regulations. What stood out most to you? You know,

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<v Speaker 1>as a reporter, we're trained not to ever express opinions,

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<v Speaker 1>but I think it's probably fair to share this opinion that,

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<v Speaker 1>you know, hearings in the Senate can sometimes be boring,

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<v Speaker 1>But when we just saw something that was definitely not boring.

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<v Speaker 1>It was Stephen Mnuchin versus Elizabeth Warren one on one,

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<v Speaker 1>and then you can tell they just really see the

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<v Speaker 1>world differently, and they really want at it, and they

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<v Speaker 1>want at it on a subject that is absolutely central

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<v Speaker 1>to the shape of the American banking system, which is

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<v Speaker 1>Glass Stiegel. Right. They basically we're arguing she was saying,

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<v Speaker 1>how can you say that you support a modern Glass

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<v Speaker 1>Steagle while not supporting a breakup of the major banks. Yeah.

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<v Speaker 1>I mean I have seen a bunch of Senate hearings

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<v Speaker 1>in my time, and I think I've never heard a

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<v Speaker 1>more memorable quote than what Stephen Nuchin told Elizabeth Elizabeth Warren,

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<v Speaker 1>which is, we've been very consistent, we support century glass Stiegel,

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<v Speaker 1>but not Glass Stegl. And that is going to be

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<v Speaker 1>a really hard, hard needle for these for this administration

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<v Speaker 1>to thread, because what they want to say is that

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<v Speaker 1>they are populous who support reining in dangerous banking. But

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<v Speaker 1>on the other hand, the people who make up the administration,

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<v Speaker 1>like Steven Manucin himself form a partner from Goldman Sex

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<v Speaker 1>or Wall Street alumni who don't want to hurt the

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<v Speaker 1>big banks. They want to they want to cut back

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<v Speaker 1>back rules, not add to them. And obviously, when Elizabeth

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<v Speaker 1>Warren says the century Glass egle, she's talking about something

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<v Speaker 1>very different. Well, you know, I thought that it was

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<v Speaker 1>interesting and a lot of the questions there seemed to

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<v Speaker 1>be a divide, and as sort of a quest to

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<v Speaker 1>find out whether Treasury Secretary Manuchin has talked with anyone

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<v Speaker 1>other than banking elite, right, I mean, because that was

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<v Speaker 1>sort of one question that that someone just asked you,

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<v Speaker 1>who are you surrounding yourself by When you talk to

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<v Speaker 1>people on Wall Street, do they feel like they have

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<v Speaker 1>a pretty direct line to Treasure Secretary Manuchion, Lisa, you

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<v Speaker 1>better believe it. And if it's not Stephen Manton himself,

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<v Speaker 1>it's Craig Phillips, who comes from I believe it's Blackstone,

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<v Speaker 1>it's um Justin musen It who comes from. I think

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<v Speaker 1>it's Morgan Stanley. Wall Street is really really excited that

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<v Speaker 1>instead of sort of fighting with their regulators and fighting

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<v Speaker 1>with the officials in Treasury and the federal Reserve and

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<v Speaker 1>the o c C and the f d i C

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<v Speaker 1>and the sec. The people that Donald Trump is putting

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<v Speaker 1>in those positions and the Stephen Manuchin is putting in

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<v Speaker 1>those positions come from Wall Street. And the crazy irony

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<v Speaker 1>here is that the phrase century glass segel comes from

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<v Speaker 1>Elizabeth Warren. She used that phrase in her in her

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<v Speaker 1>bill with McCain, which and of course what does she

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<v Speaker 1>want to do. She wants to break up the big banks,

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<v Speaker 1>and that exact phrase was adopted by the Trump administration,

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<v Speaker 1>and they mean something entirely different. But I just have

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<v Speaker 1>to add in that, like a curveball. On top of

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<v Speaker 1>that curveball, is that breaking up the banks is something

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<v Speaker 1>that Trump himself has talked about. It was part of

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<v Speaker 1>the Republican platform, right, and I think that they brought

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<v Speaker 1>that up trying to say, how can we correlate these

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<v Speaker 1>two Max Abilson, thank you so much for the instant

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<v Speaker 1>reaction to what we've been hearing with the testimony of

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<v Speaker 1>Stephen Nuchin, head of the Treasure Department in front of

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<v Speaker 1>the Senate Banking Committee. Thanks for listening to the Bloomberg

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<v Speaker 1>p m L podcast. You can subscribe and listen to

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<v Speaker 1>interviews at Apple Podcasts, SoundCloud, or whatever podcast platform you prefer.

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<v Speaker 1>I'm pim Fox. I'm on Twitter at pim Fox. I'm

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<v Speaker 1>on Twitter at Lisa Abramowitz. Before the podcast, you can

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<v Speaker 1>always catch us worldwide on Bloomberg Radio