Over the weekend, Brazil held the second round of general elections for its next president.
The first round of the elections held earlier last month saw no candidate winning an outright majority. The top two candidates, President Jair Bolsonaro and former President Luiz Inácio Lula da Silva, proceeded to the second round.
Even though Lula da Silva appeared to have secured 50.9% of the votes and would emerge the winner, many are disputing the election outcome. In a manner like the US 2020 election, President Bolsonaro’s lead shrank until almost two-thirds of the votes were counted when Lula da Silva took the lead. It was also very strange that Bolsonaro’s coalition bolstered its majority in both the lower and upper houses, given that President Bolsonaro clinched a decisive victory in 2018.
Across the country, supporters of the incumbent president took to the streets in defiance of what they believe was a rigged election. There’s footage showing a large crowd surrounding the headquarters of the Brazilian military demanding its intervention. President Bolsonaro has stated that he will follow the Constitution, seeking calm from his supporters while holding back from conceding defeat.
Whatever will emerge, time will tell.
But regardless of who ends up taking the presidency, there’s two things that won’t change.
The first is the rise in the importance of Brazil and Latin America in driving the future direction of global world order.
The second is the global shortage of resources, which could lead to a commodities supercycle.
Recognising how these two issues will impact the future and positioning yourself ahead of it could deliver you significant reward.
The rising influence of BRICS
Brazil is the world’s fifth-largest country by land mass, seventh most populous, and ranks seventh regarding the number of natural resources by value, according to Statista. It’s the world’s largest producer of sugar (second to India, according to some sources), coffee, and niobium (a rare earth metal), the second-largest producer of iron ore (after Australia), the third-largest producer of aluminium, and the 10th largest producer of gold.
It’s also part of the BRICS financial and economic bloc that includes Russia, India, China, South Africa, and several allies of these nations. While the Western world dominates the global economy, geopolitics, and culture, some of us may live to see the BRICS bloc eclipse it in the coming decades, owing to its massive resource riches.
And where will Australia sit among this?
Australia and China — A cosy trade relation no more
For more than two decades, the Australian economy has enjoyed relative economic stability due to our trade relations with China. The massive appetite of the Chinese economy for our vast resource riches to help them modernise and convert into the factory of the world shielded us from the worst of the 2008–09 subprime crisis.
However, putting aside trade relations, Australia and China are almost diametrically opposite in political ideology and social values.
Australia’s natural alliance lies with the US, the UK, and the EU. With them, we share a Judeo-Christian heritage as well as personal liberty (eroded over the last three years), and a democratic governance structure.
Tensions with China escalated with the outbreak of the Wuhan virus, when former Prime Minister Scott Morrison called for an investigation into the virus’s origins. This led to trade sanctions from China on our exports as well as an exchange of hostile rhetoric.
The irony in China imposing trade sanctions was that it was selective in what it barred from its ports. The Chinese Government halted exports of our coal, iron ore, red wine, and lobster, among other things, but continued to buy our copper, wheat, wool, and other resources used in construction and industry!
What does that tell you?
When it comes to spitting the dummy, it’s important to not do so at the expense of your own economic growth. Australia has the upper hand against China when it comes to trade.
However, with the 20th National People’s Congress in China behind us, President Xi Jinping has firmed his position in the party. The regime is likely to adopt a more hard-line stance on the global stage. This could see China and Western nations clash more in political rhetoric and economic terms. Should push comes to shove, military confrontation could ensue.
While political and business leaders in Australia are trying to talk down the cooling relationship with China due to their not wanting to lose a huge revenue source, many are quietly looking for alternatives. And I believe that things could shift quite quickly when the need arises.
See past inflation and prepare for the commodities boom!
Your head might be reeling from what you’ve just read.
That’s fine. Politics and foreign trade aren’t for everyone.
The good news is that no matter who our government and business leaders choose to trade with, our natural resources will be in high demand.
In other words, all you have to do is pick which commodity and company to invest in.
Sounds pretty neat, doesn’t it?
And with inflation hitting the economy hard, you’d expect that commodities would be the place to make the big bucks. Alas, rising interest rates from central banks has kept a lid on that.
This spells an opportunity to get in early. Many companies are feeling the pressure of rising costs, so they’re trading at an attractive discount.
Buying now, even if you start small, could be a prudent thing to do.
The rewards can be huge; there’s no denying that! Hence, it’s no wonder why the wealthiest individuals in our country are mining investors. But remember that investing in resource companies is also fraught with risk.
Some of you may’ve ventured into mining stocks in the past, gotten badly burnt, and have since avoided them.
I’ve been through that too.
But I learnt my lesson and decided to follow those with experience and know-how.
My fortunes changed as a result.
And here’s the good news for you: we’ve recently welcomed a new editor, James Cooper, to our team.
James is a geologist with many years of experience. He’s been on the ground, kicked many rocks, and has several mine project starts under his belt.
He’ll soon launch a new service here at Fat Tail Investment Research that’s all about resource investing.
Talk about great timing!
A commodities boom of epic proportions could come once society picks up pace and inflation eases.
Stay tuned and watch this space!
God bless,
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Brian Chu,
Editor, The Daily Reckoning Australia
