Raphael Kassin: markets in the line of fire

The Citywire Global columnist Raphael Kassin runs the consultancy firm Mirage Capital and advises on emerging market investment.

Europe

The eurozone soap opera continues, Latin style. Mario Draghi showed us he is well versed in the art of drama by suggesting the euro is ‘irreversible’. When central bankers begin using such words, my faith in bureaucratic creativity is restored to some degree.

But, I begin to fear the ship’s captain has lost control and is now ‘talking’ rather than ‘doing’.

Markets have calmed down, at least until the next weakest link breaks or tighter conditions prove too harsh. The move to EUR/USD 1.30 in the last few sessions does not take the precarious condition of the Greek and Spanish economies into account and most of those who were short the euro remain that way.

They are just waiting for the German line in the sand to be reached – and then what? How about George Soros’suggestion that Germany leave the euro?

Clearly, currency speculation is still in his DNA but this is as likely as him beating Bolt in the 100m. Why would Germany give up the golden eggs? For emerging bonds, more QE and fuel to the fire translates into renewed risk appetite, so let the party continue.

Venezuela

October promises to be festive in Venezuela, politically speaking. Hugo Chavez remains the likely winner of showing in the polls up to now. It is important to remember that polls in Venezuela are hardly the most reliable, so let’s take them with a pinch of salt.

We should note instead that Venezuela is on a high. The country was admitted to Mercosur in July and is rated among the best in income equality in the Americas. The government’s use of oil profits to fund health and educational programmes guarantees many votes from classes D and E.

So, if Chavez wins, the party continues, unless supporters of Capriles attempt some type of‘Venezuelan Spring’, which I would not recommend.

Stability would be good for the country. If Capriles wins, one would hope that he does not rock the boat, so as to avoid revolutionary  excitement. The best outcome remains peaceful elections, with all parties accepting the result as being legitimate. Bonds remain well bid.

Brazil

In Brazil, another festive event is likely to bring us soap-opera-like entertainment this month. Judgement of the ‘Mensalão’ scheme has been going on for a couple of months. In the first stage of the court analysis, a few members of the Workers’ Party were found guilty by the Supreme Court as expected.

Next, the Court will begin judging the top echelon of Lula’s government, including Jose Dirceu, for their involvement in the alledged vote-buying scheme. Not finding them guilty would be a surprise, so let’s stay tuned in.