Cumberland Advisors Market Commentary – Brazil & Amazon Fires Part 2

Author: David R. Kotok, Post Date: September 20, 2019

Many wrote in response to our discussion of the Amazon fires and Brazilian policy. In our original piece,, we were careful to cite sources. We thank all those who sent references and facts and thoughtful answers. A few readers lashed back at us.

Market Commentary - Cumberland Advisors - Brazil & Amazon Fires Part 2

What I care about in this instance and in others is how we search for truth and how we deal with complex issues. In my view, exposure and disclosure are the key elements along with citation of sources. At Cumberland Advisors we attempt to cite everything we can when we publish. If we miss a citation, that omission is inadvertent. And if we give an opinion, we say so.

Let’s get to the issues as a follow-up to Brazil and the Amazon fires.

1.   There is an absolute business and investment issue underway. Worldwide, businesses are reacting to the policies of Jair Bolsonaro and the damage they are causing. There are regional and global environmental concerns. All those who responded, with a single exception, recognize that the increase in fires will have an impact on the global supply of oxygen. (For a succinct explanation as to why fewer trees would mean less oxygen, see The debate is over how much or how little impact the fires will have, not over whether there will be an impact.

2.    Brazil’s president is under political attack now that the damage has been revealed and the smoke from the fires has impacted heavy population centers like Sao Paulo. For striking images and reports, see “Amazon fires created a smoke eclipse in the skies above Brazil’s largest city, 2000 miles away” ( and “Smoke from Amazon rainforest fires causes blackout in Sao Paulo” (

3.    Here is a recent (September 6) Reuters story on the fires and the results through end of August: I will excerpt this one factual item (bolding the text for emphasis): “In the eight months through August, Amazon deforestation rose 92% to 6,404.8 square kilometers (2,472.91 square miles), an area larger than the U.S. state of Delaware, according to preliminary data from the National Institute for Space Research (INPE). In August alone, deforestation more than tripled to 1,700.8 square kilometers (657 square miles).” Readers are advised to study the entire Reuters story. It is full of citations and references and attempts to report with scrupulous accuracy.

4.    Bolsonaro was scheduled to receive a “person of the year” award on May 14 in New York. After his social views were revealed, major sponsors dropped the support, and an enraged Bolsonaro then canceled. The list of American and global business backlash to Bolsonaro grows, and the fires have accelerated that rejection. Here is a report by The Guardian, dated August 30, which describes how “asset managers, pension funds and companies” are halting business with Brazil:

5.    Focus is also sharpening on Blackstone and what it does, given the newest revelations. A Blackstone investment list includes a stake in Hidrovias do Brasil SA made through the Pátria fund. Here is the September 29, 2010,  press release by Blackstone announcing that partnership: Here is the official information citation about Hidrovias:, along with a short Reuters report about Hidrovias do Brasil’s vision for expansion in the Amazon basin and beyond: Here is the official information link to Pátria Investments: Note that there are mountains of documents filed, and a meticulous investigative journalist will have a challenge to sort through them and unravel the ownership links. I will leave that to others. For us, the simple investment policy is to avoid trouble when controversial developments like this start heating up, generating backlash.

6.    We can quickly see how the tension intensifies as the economics of agricultural expansion in Brazil play out in the building of roads and bridges, threatening the rainforest itself, those who call it home, and even regional and global climates. This YouTube link shows what trucking is like in Brazil in the Amazon along BR-163:

Road conditions along unpaved sections of the road have sometimes stymied efforts to get soybeans to the port at Miritituba ( According to a report published by Reuters in January, however, remaining unpaved portions of BR-163 are to be paved by the end of the year (

7.    The issues raised by Brazil’s replacing the United States as a soybean supplier to China are very complex. We know what the trade war and soybean impacts are in the United States, though China is now prepared to buy more US pork and soybeans with US tariffs postponed, in hopes of an interim trade agreement ( How much of China’s appetite for soybeans (largely for animal feed) has increased the demand for Brazilian soybean production remains to be determined. We know there is some increase ( We know there are capital flows as China replaces sourcing in the US with sourcing in other countries. Many economists believe this is a permanent shift and a predictable response to the Navarro-Trump Trade War policy. I believe that is so. But proof will be years away and after the evidence is measurable. We do know that the US was one of the most cost-efficient suppliers of agricultural output and that we are now seeing rising bankruptcy rates and economic stress in US agriculture. We are also seeing the Trump administration redirect taxpayer money to subsidize farmers who were negatively impacted by the Trump Trade War policy. All this makes no sense to us. Using the national security argument about soybeans is a flawed policy in our view. Linking that policy to the reduction of the world’s oxygen supply because Brazilians are burning the Amazon so as to plant more soybeans is a much harder case to make. And until the smoke was visible, and chokingly so, in Sao Paulo, the world ignored the events.

There is much more evidence to consider, but we hope we have provided sufficient citations so that readers may now do the rest of their homework on their own. The issues are complex. They include agricultural business growth in the Amazon, who is funding it, and what the conflicting economic interests are. What is the policy of the country? What will the Bolsonaro regime now do since it has been threatened by business interests who are responding to the fires and rain forest destruction? What will major investors like Blackstone and their global clients do?

From an investment professional’s perch, the issues surrounding the Amazon fires become a question of where to allocate funds. We don’t like the risk profile when this type of controversy erupts. We don’t trust the Bolsonaro government. And we see some global environmental risk that we cannot measure yet. We don’t know how much or how little damage the fires are doing to the planet. We do know that they are doing damage.

Lastly, there is the matter of speaking out as a concerned citizen and as a professional. Many criticize us for straying away from earnings and interest rates and taxes and deficits as we touch on social and political issues. Well, that stance in itself becomes another issue. Many of my professional colleagues privately say they wish they could be more forceful, but they are restrained by their business organizations. Thus they remain silent.

At Cumberland, we allow voices to discuss serious issues. We ask all writers to attempt accuracy and to offer citations. We invite opinions on policy and provoke discussion. The result is a 45-person firm that is better informed and more thoughtful. Sometimes the exchanges in our private morning meetings and investment discussion are intense. We ask that all views to be aired when we are working internally. No idea is unworthy and dismissed. All views must be defended and can be criticized by peers within the firm.

In my personal view the climate change debate and the subtexts of melting ice or human-caused fires or rising sea levels or more Cat 5 hurricanes are major longer-term economic issues that we face. Climate change impacts rival war and rampant disease as a global threat. Who caused what is not the issue, although it seems that the finger-pointing gets more political attention than corrective action or preventive strategy does. For us, what to do now and tomorrow and how to accomplish the task is paramount. In the case of burning the Amazon rainforest, there is a possible business response. It requires each business participant to make a decision.

We saw that a result is possible when the gala sponsors pulled out of the Bolsonaro award event. We are seeing a business response regarding the fires. Will a series of responses translate into change in Brazilian politics? We cannot say. But, for me, the use of an economic lever is an option that each market agent can determine for him or herself.

We again thank all readers for their thoughtful replies. We try to answer them or at least say thank you for taking the moment to respond. Meanwhile, we will continue to speak out as best we can and to do so with researched and cited sources as best we can.

David R. Kotok
Chairman of the Board & Chief Investment Officer
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