BRAZIL-The three "calendars"

...each with a particular duration

This post considers the discussions of some top-level pundits on one of those ubiquitous Sunday morning panel discussions on TV. The guests have suggested three distinct calendars for Brazil as follows:

• A political calendar: the timeline over which the political gridlock will continue to prevail or be dismantled;
• An economic calendar: the timeline over which the economy can continue to decline or stabilize;
• A social calendar: the timeline over which the Brazilian population can continue to endure continued decline of the economy, rising inflation and rising unemployment.

The three “calendars” do not suggest synchronism. Each appears to differ from the other and this is notgood news.

The “political calendar” could extend all the way to 2018 depending on circumstances.

The “economic calendar” is potentially longer since it involves new governance rules, the reduction of kleptocracy, and a new way of governing Brazil and the recovery of the private sector;

The “social calendar” is the wild card. How long will the population tolerate or be able to tolerate the continuous rise of inflation, a worsening of the economy, increasing job loss, etc.?

The fact that the three “calendars” are not synchronous suggests a potentially explosive situation. 

The “economic calendar” is constrained by the length of time required to recover the effects of the lost investment, infrastructure deficiencies, and productivity of the economy. This differs from the other two “calendars” that are less subject to time constraints and more dependent on decisions. 

It is sufficient to make concessions or harden positions to affect the timeline of the “political calendar”. 

The “social calendar” is unpredictable because the pulse of the electorate is relatively poorly monitored. 

Only the “economic calendar” is a function of measureable variables such as the level of excess capacity, evaluation of the potential market, the cost of money, etc. etc.

The upshot of the TV interviews and panel discussion is that things are very much in the air in Brazil. As investors, your decisions regarding the future of the enterprise depend on how each of the three calendars either converge or diverge. The “calendars” are three sub-systems of the same economy and at present any one of the sub-systems could dominate the other.

You have little choice but to put your management team to work to build scenarios for the range of outcomes!

If you need help, contact me via e-mail. I’ve been through this before!