Jan 6, 2018

ANNOUNCEMENT

Note: My last post was in September, 2017. I had serious computer problems that are still being fixed, and I took advantage of what appeared and appears to be a “holding pattern” in the process of  globalization to fix the problems and catch up on the global economy.

2018 promises to offer opportunities with presidential elections in Brazil and mid-term elections for Congress in the USA. I will be building a website during the first half of the year on which I will post my regular business risk report (also dormant since August  for the reasons cited above). I hope I will see you back as readers to both the blog and the report. 

Many thanks for your readership over the years. I hope continue to provide you with “actionable” economic and political intelligence.

Sep 26, 2017

GLOBAL TENSION: Kim Jong - Un vs. Donald J. Trump

The Pre-schooler sbouting match


“Oh yeah?” Yeah!” Well oh yeah to you, too” “I’m gonna shoot down your airplanes!” “You do and I will get back to you with total destruction!” “Oh yeah?” “Yeah”!

The banter beween Donald Trump and Kim Jong-Un reminds me of two pre-schoolers arguing over access to a sandbox! The danger is simply that the pre-schoolers are armed with loaded machine guns!

I have baptized this exchange as The War Between the Weird Haircuts in honor of the tonsorial decorations of each. It increasingly appears that the rest of the world would appreciate it if they both would just shut the hell up!

The USA is one of most powerful and richest nations in the world and North Korea is one of the weakest and poorest. A pre-emptive strike by the USA would look rather bad if based solely on North Korean THREATS. An attack by North Korea on a US ally or a US military base in the region would be sheer suicide. It could also create serious domestic problems for Kim Jong-Un from local kleptocrats whose fortunes would be seriously interrupted by a US retaliaton. Neither China nor Russia want to see a conflict in the region that would cause them to divert from their current geopolitical strategies simply to benefit No. Korea.

Moreover, North Korea’s claim to want access to nuclear weapons is already a given. It has the bombs and a delivery capability. It’s already a member of the “gang”.

However, the rhetoric and Trump’s knee jerk reactions on Twitter serve to further erode the image of the USA in the international community. This makes both China and Russia look better and more serious by comparison. As long as they (individually) can keep the banter going but avoid the military conflict, Trump and the USA continue lose influence. 

Trump, as the more powerful antagonist in the exchange would do well to just leave his last words as they were, and concentrate on more immediate and important international and domestic matters (e.g climate change, the election in Germany, Macron’s proposal for labor reform, May’s request for a two-year “adjustment period” for Brexit, and recovery from the recent hurricane damage in the US).  

Unfortunately, this is all unlikely so the shouting match is likely to continue to keep uncertainty at the forefront!!

Sep 24, 2017

BRAZIL: The war continues

News from the front

War in Rio continues to rage on and is expanding into other favelas and middle and upper middle class neighborhoods. The weapons employed are almost exclusively military-grade with long range lethal power.

The Army has returned to the fray to join the various police battalions involved. Numerous weapons and some nasty bad guys have been picked up and this has led to power struggles within the criminal drug gangs as well. The sound of gunfire echoes throughout the day and night and sounds as bad as any that has been heard in Iraq or Syria.

There is no way to know where the next confrontation can or will occur.  The bad guys are negotiating support from other gangs on the fly so the dominant strategy of those living near favelas are advised to not venture out and batten down until peace has been restored or the fighting has moved elsewhere.

Rio’s miserable financial situation heavily burdens the police. Roughly half the fleet of police vehicles and patrol cars awaits repair and is currently immobilized. The favelas occupy the high ground along the mountain chain behind the city and the bad guys can duck into the hillside forests and traverse the city without having to come down from their “perch”. The favela streets are narrow and the homes often made of wood or weak brick and mortar that cannot stop high-powered rifle fire so collateral damage and injury to civilians is a major issue. It’s urban guerrilla warfare pure and simple. And it is ugly!
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Recommendation: Stay out of Rio!  If you are already there do NOT venture out and stay away from windows. Find a safe haven in your home away from the street and set up your housekeeping there. 

Sep 22, 2017

BRAZIL: A new battle begins and the uncertainties change.

The “Glacier of Reform” inches very slowly forward

“Climate change” is not simply the purvey of the physical world as the supplier of pressures. The political climate in Brazil is also affected by the heating of the reform proposals of the Temer administration. The Supreme Court has caused a slight tremor in the block of ice that has held forward progress in check.

The Court (wisely in my view) reviewed and submitted to the Lower Chamber the final set of accusations prepared by the recently departed Attorney Generral, Rodrigo Janot.  Janot that substantially widened the net in this, his last paroxysm of anti-corruption fervor, including not just his favorite target of Michel Temer but numerous others as well to include members of Temer’s Cabinet as well as Lula and Dilma Rousseff and “supporting actors” of the enormous corruption scheme. In its opinion, the Court simply decided that it was not its function to “investigate” and endorse Janot’s allegations but rather to assess and exercise the constitutionality of  the “process” and to eventually judge the evidence and arrive at a verdict in each case.

Sending Janot’s document to the Lower Chamber thus heats up the debate will now have to begin that in the Chamber as all interested parties from the reform-minded to  the cynically motivated kleptocrats employ their strategies.

So, Michel Temer has safely passed the first and perhaps the least worrisome of the obstacles to now have to negotiate the plethora of “quid pro quos” to ensure that sending the document back to the Cour for eventual adjudication dos not occur..

Temer has already negotiated what pockets of support he could count on from the “dedicated reformists”, it remains only to deal with the demands of the kleptocrats, which we can expect increased pressures given the stakes of this final round of Janot. If Temeinr is successful, the debates will eventually heat up even further as certain reforms now require more discussion and more “actors” will be affected.

Lava Jato will continue the prospect of going to the slammer for still others in the Legislature will increase. Temer still has to walk the razor’s edge because of his low popularity rating among the voters but as it becomes apparent that he addressing popular concerns and Lava Jato will continue pressures for his removal might diminish (regardless of whether or not Temer likes what he has to do)
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You can expect the remaining kleptocrats in the Legislature to fight tooth and nail to retain the power of confiscation cum impunity that previously ruled the system.

With the increased performance of the economy and the slow but persistent return of jobs, Temer will be able to rely increasingly on those improvements to further pressure the kleptocrats. Simply stated, you can’t steal what simply ain’t there or that is guarded by some rather fierce “watchdogs”. The kleptocrats will have to “go along to get along”
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None of the above necessarily argues for increasing short-term stability. Rather it is the equivalent of a hurricane reaching landfall. The damage will be a function of how quickly the storm loses force and it moves over terrain.

It’s gonna take time and Temer has precious little remaining. Watch it all very carefully and protect the enterprise.
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More later!



Sep 14, 2017

BRAZIL-The Last Arrow

Not likely to be a fatal shot

True his promise to continue firing arrows until he runs out, Attorney General (PGR) Rodrigo Janot, fired the last arrow in his quiver before stepping down from his post (17 September). As in his first writ, he accused President Michel Temer of obstruction of justice and passive corruption. In fact, much of this second writ is a rehash of many of the issues raised in the first one.

However, there are some additions. Most notable is the inclusion of Joesley Batista, owner-manager of JBS, Brazil's largest meat packing company and the world's largest supplier of animal protein. It appears that Batista "snookered" Janot by playing on Janot's apparent obsession to "get" Temer, to negotiate a plea bargain that included the pardon of ALL of the crimes of which he was accused. Some legal sources informed that if found guilty of all of the charges against Batista, he would be looking at a cumulative sentence on the order of 2,000 years!! Janot's generosity in this particular plea bargain was the subject of no small amount of controversy as well as embarrassment as the range of crimes committed by Batista and his brother, Wesley, became public knowledge.

The procedure for filing the accusatory writ is to first run it trough the Constitution and Justice Committee for approval of its conformity with the Constitution. If approved, it then is voted in a plenary session requiring a 2/3 majority for approval. In the case of the first writ, Temer sailed through with a comfortable margin for disnissal and this second writ appears to be even weaker in content than the first.

Sources indicate that Temer has already promised the requisite "quid pro quos' to shore up his allied party base. This does not  necessarily mean  that he will "beat this rap" (as we say in New Jersey) on this second round. It is also important to note that this second writ includes two of Temer's closest advisors and that most of those on the list of accused are already in the slammer and, consequently, have little to offer those who will vote the fate of the writ.

So, while the odds favor Temer "walking" from this second accusatory writ it is not necessarily guaranteed. One thing that IS guaranteed is that Janot looked a bit naive and foolish in the original plea bargain with Joesley Batista. He is not leaving his job "on a high".

Lava Jato is assured of being able to continue its investigatory work and more cases keep turning up. When I first came to Brazil I was aamazed at how "small" was the "ruling elite" opposite the size of the country. I was given to commenting that everyone in Brazil who knew how to read and write know everyone else who could also read and write and was probably a cousin, extended family member, or linked to someone who was a relatie or friend of a relative of someone in power. Everyone else was left to their own devices to solve their day-tp-day problems. From the continued new accusations, it would appear than not much has changed socially over my many years in Brazil. But much has changed politically. Some of those now in power were student leaders when I first arrived. I would see them at their universities, on the beach, or frequenting some of the bars and luncheonettes in Rio de Janeiro.

This second accusation is likely to be Temer's final challenge from his enemies. He will still have to worry about his "friends" if he hopes to get at least a modicum of reforms through the legislature. He's got less than a year to make it work!

It's still gonna be a long and winding road to the status of a well-governed, open access society in Braizl. The economy continues to hobble along but is at least now part of the "walking wounded". GDP is exepected to advance by a mere 0.6% this year and is forecast for 2% in 2018 - a tenuous forecast in what is likely to be a difficult election year.

Sep 8, 2017

BRAZIL-Total madness

Gotta getta get this to the laundromat!

This picture was taken in an apartment used by former cabinet member, Geddel Vieira Lima to "store some personal stuff". The total amount of cash in the picture is R$51.1 million.

I couldn't resist publishing the picture because it reminded me of a time-worn game in which a bunch of marbles are put into a fishbowl for people to guess how many marbles are in it, and the closest approximation wins a trip to Disney World or a new car.

Meanwhile the battle between President Michel Temer and Attorney General Rodrigo Janot rages on. Janot plans to submit yet another accusatory writ to be judged by the Supreme Court accusing Temer of obstruction of justice. Temer, just back from a trip to China where he managed to negotiate some investment, is now in the throes of reorganizing his base in the Congress and with the Supreme Court to thwart the forward progress of the writ. It's all about as exciting and productive as watching paint dry!

In the interim, the proposed reforms remain on hold. The legislature is scrambling to find ways to impose a political reform that will not result in reformation and continue to ensure the re-election of the traditional kleptocrats. The result is a collection of heretofore unheard of poltical regimes such as "semi-presidentialism", "semi-parliamentarianism", crazy districting rules, etc.

The debate and vote of the social security reform bill have been moved forward to October so Temer has some time to re-build his base of support

The feds have taken a deposition from Antonio Palocci, former Chief of Staff in Lula's first term, in a plea bargain testimony. Palocci has put some more nails in Lula's political coffin, accusing him of having negotiated a pact with Odebrecht to make him the owner of the rural property in Atibaia, the beachfront triplex apartment in Guarujá, and assorted kickbacks and bribes. It doesn't look good for Lula!

Things don't look a whole lot better in the global economy. The USA is about to have to deal with the landfall of 3 large hurricanes at the same time and the Federal Emergency Management Agency (FEMA) is out of money!! France is about to undertake a labor reform which will at least be interesting and troublesome. The UK seems to be still a bit uncertain as to how to deal with Brexit and Angela Merkel has "gone to ground" and has not been heard from recently. Trump, on the other hand, has been heard from ad nausea. It's a dog's breakfast virtually everywhere except in Scandinavia where people seem happy and unconcerned.

Fortunately, for Brazil, the economy appears to have bottomed out and the timid recovery is beginning to show some animus. In August, the local auto industry showed a 45% increase in output over August. 2016. Workers have been recalled. The base interest rate (SELIC) was reduced a full percentage point at the last meeting of the Monetary Policy Committee. A recent survey of some 44k consumers indicated significant debt reduction, which accompaied by lower interest rates should help beleagured retailers. Exports continue to shore up the economy and inflation remains under control in spite of impending deficit pressures. So, it ain't all bad!

It would appear in a broad conttext that as Chris Patten observed in his excellent book What's Next? that we have entered what he called a "counter-Enlightenment" world in which to emphasis on reason has been set aside in favor whim, myth, fake news, and fantasy.

If you are one of those responsible to designing your company's strategies, you have your work cut out for you! Trying to figure out what things will look like next quarter seems tantamount to playing darts blindfolded. I continue to hypothesize that the long-term outlook is for a return to globalization but, as Keynes observed, in the long term we are all dead! Risk management and the existence of substantial systemic risk continues to plague the global economy. I guess we will simply have to take one day at a time for a while before we can build any reasonable scenarios.

Sep 3, 2017

BRAZIL-Moving in circles

Tener’s troubles

In my recent blog posts I alluded to Michel Temer’s presumed strategy for governing. It is important to note that not only is the strategy probably an effective one in view of the circumstances, it is also Temer’s only real option. The concern of Brazil’s politicians for ensuring their hold on power and privilege has dissipated in the face of another concern that is considered more urgent: avoiding the slammer.
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Partisan and even personal loyalties have been dissolved by the continued Lava Jato investigations and the relative certainty that they will continue. Every reform proposal that reaches the legislature is held up for negotiation to see if the players can somehow get Temer to influence the Judiciary.

The only discernible result of such behavior is to slow down the rate of recovery of the economy and to worsen the fiscal deficit as tax revenues fall short of expectations. Temer’s trip to China allowed him to shake loose some US$ 5 billion much of which is likely to go back to China in the form of “tied” purchasing of Chinese goods. China’s interest in Brazil is both economic and strategic. For decades Brazil’s major trading partner was the USA – now hampered by the shenanigans of Donald Trump who seems to lack any strategic focus as he bounces from issue to issue of solar energy which will put it even further ahead of the US in terms of competitiveness. And Brazil will reap the benefits by having an alternative to its current energy matrix. (However, the pre-salt oil deposits will be quickly their value as reserves).

Temer’s political reform bill continues to be threatened by an inability to achieve consensus in the Lower Chamber where confusion reigns. As I mentioned above, partisan and personal loyalties have disappeared and ambition, pure and simple, has taken their place. The politicians want to simply be assured that they will be returning to their jobs in the next election. Because the bill is to effect a reform of the system every proposal seems to hold some disadvantage for one politician or another. The result has been some totally absurd proposals such as a “semi-presidential” political system. It’s damned hard to get one’s mind around the concept of a “semi-president” or a “semdsi-system”. But explanations of how such a system would work are not lacking. They just seem always to come back to getting someone re-elected.

A telling example of  the difficulty negotiating a compromise is that when Temer traveled to China the president of the Lower Chamber, Rodrigo Maia, assumed the interim presidency as called for in the Constitution. Maia’s first vice-president was traveling and unable to assume Maia’s position so it fell to the second vice-president – a freshman congressman of the tender age of 28. That’s hardly the kind of person who is going to twist the arms of the older foxes in the chamber! Maia had to exercise both the presidency and his role as president of the Lower Chamber just to ensure that nothing would go wrong. Nothing went wrong because nothing happened!

As we move closer to 2018, the reforms will most probably move to the back pages of the Congressional agenda. Lula continues to affirm his candidacy. He has already been sentenced to 9 years in the slammer and there are more charges to be analyzed. Nevertheless, he continues to enjoy the uncritical support of 28% to 30% of the electorate and this concerns many who would rather see him in the slammer than standing on a stage and holding a microphone.

Virtually every institution designed to regulate political behavior has been subject to criticism, to include even the Judiciary and the Supreme Court. The argument sometimes reduces to the observation that “See? They are no better than we are!” used to justify continued kleptocracy. It’s not working but it certainly increases the confusion.


It’s gonna be a bumpy ride for the next couple of years and maybe even more as the fights continue and Lava Jato continues to do its work. 

Aug 27, 2017

BRAZIL-There is no such thing as a "free lunch"

Well, what about a “free snack”?

As I noted in my last blog post, many analysts and pundits are concerned that the proposed political “reform” could wind up being worse than the status quo ante. There are a plethora of issues that could justify their concern.

One is the campaign financing fund for which an allocation of 0.5% of the official forecast net budget revenues has been proposed. That would become a permanent policy. Alternatively, a proposal of a fixed amount for 2018 is for a flat allocation of R$3.6 billion to the same end. That figure is 3.6 times the allocation in the 2016 election. Both are currently on hold first because the electorate is hopping mad about both proposals and second because the economic team says the money just isn’t there.  In any case, many of the parties who receive the campaign funds for TV and radio time wind up “selling” their time allocation to parties that actually have candidates.

Another, related proposal, and considered an alternative to the campaign funding proposals is to increase the “party” fund – monies allocated to each political party regardless of whether it has elected representatives in the legislature. Some parties depend on those funds simply to exist. The funds are often used for the personal benefit of the party’s “mucky mucks” rather than for partisan purposes. Rather than increase the campaign fund, it has been suggested that the party fund be increased. Since the party benefits in either case, either by selling allocated TV and radio time or via the party fund is really not even an issue – it probably depends on which one better serves those who dip into the till.

In rather passive opposition to both proposals is the voting public that does not want to see any money going to the pockets of the politicians other than their relatively generous salaries. (And even those are contested). In my previous post I reported that 94% of the public feels that it is not represented by those elected to do so. Perhaps the remaining 6% are those who benefit directly from the rake offs? (Just a thought: asking the question offends no one!)

Another issue is that of representation. There are a number of proposals, each of which is designed in one way or another to ensure that the elector is not represented. The closest proposal to some representation is the simple district vote in which each candidate is elected to represent a specific geographic or demographic population. Each voter has his/her own representative in the legislature. It at least increases the amount of pressure that a voter can apply. Other proposals involved the party hierarchy’s choices of candidates and the allocation of votes to each. Those virtually ensure that no candidate will have to suffer direct pressures from voters. The power essentially remains with the party leadership.

The recent decision of the Supreme Court to disallow corporate campaign donations is also up for discussion. There is a search for the proper rules of governance for such activity but the regulatory agency responsible for compliance argues that it would  not be able to properly enforce proper governance rules without additional personnel and some clear reporting rules.

Also a matter of concern is that if corporate donations are permitted, what sources of funds will be allowed. There is pressure to allow for “cash drawer #2” funds, which are essentially non-booked or non-bookable transactions because they derive either from tax evasion (i.e. legitimate sales revenues that are simply not declared, and this is sanctioned under the  tax code) or illegal revenues (e.g. such as the sale of contraband which are sanctioned under the criminal code). The two activities are the subject of two distinct code systems which some analysts conclude that “cash drawer #2” funds have no definition in law and are therefore not illegal because they derive from different sources and activities.

The list goes on and it is hardly illuminating to discuss everything. Simply stated, trying to devise an open political system that is really not open is an impossible task. Accountability is hardly the hallmark of Brazilian political or social values. Paraphrasing Historian Sergio Buarque de Holanda, in a country in which every man is a baron an enduring collective agreement is not possible unless imposed by an external power that is both respected  and feared. The flip side of the “sovereign” side of life is “accountability” or “responsibility” for one’s actions. It’s the essential combination for a democracy to work, the basis for checks and balances, and the reason for relying on institutions rather than personality to regulate society.

The political crisis has overwhelmed the economic crisis, which interestingly shows signs of abating. However, the government is constantly scraping for funds. It has announced that it will privatize a number of state-owned firms, one of which is the Eletrobras company – a hotbed of corrupt inefficiency. Politicians are opposing the privatization program not on any ideological basis but rather on the fact that many of their appointees to jobs in those companies will almost certainly be out on the street. (If in fact they are not already on the street because they never have to show up for work anyway!)

I suppose we can sum up the entire crisis as either The Last Hurrah of the kleptocrats as the doors to opportunity close, one-by-one or if we are watching a Renaissance of the old model of clever confiscation and tilting of the playing field for “friends of the king”.

If the latter, Brazil’s days of being a “player” are over and it becomes a “country of the future” once again. Paraphrasing Humphrey Bogart’s farewell to Ingrid Bergman in Casablanca, “We’ll always have the Real Plan!”




Aug 26, 2017

BRAZIL-From indignation to resignation?

Too many cooks DO spoil the broth

Some editorialists and pundits appear to have come to the conclusion that the debate in the Lower Chamber on the political “reform” proposal could actually result in proposing a system that would be worse than what existed before. Kleptocracy has been a characteristic of Brazil since it was first colonized. Tiny Portugal could not field an army to subjugate a future colony so it usually reverted to treaties and contracts; As we observed in other Portuguese colonies it tended to work reasonably well. Lisbon was one of the richest monarchies in all of Europe (for a brief period of history).
It was not until the elections of Lula and Dilma Rousseff that Brazil had to absorb a surfeit of kleptocrats. The system proved unable to carry the load.

The ensuring fight between the “traditional” kleptocrats and the “neo-kleptocrats”) was eventually won by the “traditionals” but with the emergence of Lava Jato and a Judiciary that could flex its muscles, the voting public could see some light at the end of a long, dark tunnel of five centuries duration.

However, the “traditionals” saw it as one more opportunity to restore the “game” as it was prior to Lula assuming power.

The result has been proposals of the most unusual type, some involving forms of government that had never even existed – e.g. “a semi-presidential” system” (does that mean a “semi-system” or a “semi-president”?), a “modified parliamentary system” (with the suggested result that Brazil could wind up with 102 political parties!). Imagine trying to form a coalition from that mix!

Lava Jato, in its fervor to “moralize” Brazil’s “kleptocratic legacy” has committed some excesses and the “traditionals” pounce on them like a dog on a bone –conveniently ignoring their own excesses over 513 years.

The press recently reported that 94% of the electorate consider they are  “un-represented” by the Legislature. Perhaps the remaining 6% are the kleptocrats who seem to have been very well represented.

Given the current situation, I expect that it is going to take a long, long time to work it all out. Unlike his US counterpart, Trump, Temer seems to know that one cannot “drain the swamp”. The dominant strategy is to learn one’s way through it – mindful of the dangers therein. It IS possible. But it takes considerable time and learning. Not everyone espouses corruption but few are able to avoid it. The solution is “micro” – i.e. up to the individual firm to “manipulate” the manipulators. Corruption won’t go away, but  miscreants will be more highly limited in their actions and in many cases prosperity will overcome the gains from malfeasance.


But the solutions will not rain down from heaven like manna. If you or your company lacks the patience, or the learning curve negatively affects your ability to earn a decent rate of returm, you should consider seeking your fortunes elsewhere. If the returns to your efforts seem adequate, then stay, but spend some time monitoring the system and building a highly skilled management team.

Aug 23, 2017

BRAZIL-What goes around comes around

The 360Reform

If it were not so important, it might almost be funny! The political reform currently being discussed in the Lower Chamber seems to be designed precisely to take Brazil back to the system that existed before but wearing a “new suit”
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The central question for the politicians appears to be how to ensure re-election while seeming to have reformed the system to ensure greater representation of voter concerns and demands.

Some truly imaginative concepts have been floated : “semi-parliamentary government”; a “semi-presidential” system; a return to allowing financing of campaigns; total public financing of campaigns;; various forms of district voting; various forms of proportional voting;  and so on – all of which serve to bring the political system  back to the fundamental principle of ensuring re-election.
Perhaps the single best term to describe the proposals collectively is “institutionalized kleptocrracy”.

The problem is compounded by Brazil’s highly interventionist posture with regard to economic development. If the system were organized around the role assigned to the state by Adam Smith – i.e. maintenance of a level playing field for producers and consumers; maintenance of the market system as a guide to  the allocation of economic resources and policies; proper regulation and enforcement to ensure compliance;  defense of the country’s borders; domestic public security; and little else – stability, sustainable growth and prosperity would be a helluva lot easier. When combined with an educational system to create an informed electorate capable of critical thinking (e.g. South Korea), the overall Smithian “system” functions pretty well.


Brasilia or Washington D.C. for that matter are meant to be only where policies are discussed.

 Legislators, like everyone else, have two eyes and two ears and only one mouth, suggesting that they are perhaps designed to see and hear twice as much as they talk!! They are supposed to be talking to and listening to the voters who put them in their jobs.

That is the essence of the system as designed but not as practiced. Furthermore, I don’t believe that it is as difficult to achieve as the politicians seem to wish to make it. Kleptocracy will never be eliminated – who doesn’t like a free lunch if possible? However, we know from experience that it can be controlled and mitigate via appropriate checks and balances and rational governance rules.

It’s principally a question of substance over form!!

Aug 17, 2017

BRAZIL-Ho hum! More of the same

They just don’t get it!

The arithmetic is highly inconvenient! That seems to be the consensus in the Congress with regard to the reform of the social security system.

The administration (Government Accounting Office) has just uncovered a R$30 billion difference in the deficit of the system between what the federal government has on its books and the what the state have actually spent. (The feds were working with a R$55 billion deficit while the actual number is R$85.)

It’s a maxim of management that you can’t manage what you can’t measure and you can’t measure what you can’t see!

Brazil’s nominal debt (the figure that should really count when managing the fiscal accounts) is currently 75% of GDP and is expected to reach 92% by 2023. That means 6 more years in second gear.

The timeline to reach stability and return to a “decent” rate of growth gets longer and longer, while the rest of the world is gradually picking up speed.
The rating agency Standard & Poors has announced that while considering another downgrade, it will hold off to see what happens to the social security reform proposal. A word to the wise…..!


Aug 11, 2017

BRAZIL-More on Temer's apparent strategy

Additional comment re Temer’s apparent strategy

Today’s daily "Estado de São Paulo" featured the headline that Temer’s Congressional base is now demanding federal appointments and threatening to block the retirement reform bill if their demands are not met.

Today’s press also announced that Temer just won another battle against AG Janot with the decision of Supreme Court Justice Fachin to accept Temer’s request to get Janot “off his back”.

The opposition and its threats are soluble either in money or the threat of going to jail. Temer knows who those folks are. He knows who has the power and who does not. He knows he is going to encounter opposition and threats up to the very end and he has expressed no interest in running for office ever again. And finally, Lava Jato continues and he will soon have a new Attorney General. And he knows that there are no "stand up guys" out there. Plea bargains are almost automatic and those accused are not given to "honor among thieves" or omerta. In short, he’s got moxie and leverage.

I have no idea as to the veracity or the evidence of Temer’s innocence of any of the charges against him. It doesn't matter right now. Bluntly stated, he’s got the POWER.

Furthermore, the economy continues to do well. Job growth continues, inflation is low, and investment could increase on the heels of increased confidence in the private sector. Why should he cave in at this point?


Aug 9, 2017

BRAZIL-Temer's apparent strategy

Can Temer pull it off?

When Lucky Luciano got involved in the Castellamarese Wars in the 1930s, he pursued a strategy much like what I believe Temer is now using. When the rival Mafia Siciliano took on the Mafia Napolitano for control of organized crime in the USA, Luciano had worked for the US “bosses” of each group. It is believed that he was behind the assassinations of both.

That left Luciano with the power to run the game from that point forward. He systematically set about restructuring the management of the mob, organized a commission of the five major families in NY, and put in some controls to keep them from simply “whacking” each other for “turf”.  Luciano astutely refused the title of “cappo de tutti cappi” to avoid getting whacked himself.

He created the framework and then stepped back to work from the sidelines to continue eliminating the wise guys that he considered untrustworthy in the “lower clergy”. The “clean up“ lasted several years (into the 1950s) as lower-ranking regional “bosses” were eliminated while the mob expanded into labor unions, garbage and trash collection, gambling, prostitution, the “numbers racket” and illegal drugs as well as in its traditional lines like usury and money laundering.

Knowing that his success depends more on “numbers” than “patriotism” or “nationalism”, Temer is simply looking for the lowest cost deals he can make to get his reforms through the Congress. With each reform bill passed, he gets more “leverage” and has to pay out less patronage.

It’s a risky strategy but it is his best bet when dealing with a Congress with a large collection of kleptocrats. He cannot afford to worry about WHO supports his initiatives, he needs to worry about HOW MANY support them!

When he knocked down Attorney General Janot’s motion to remand him over to the Supreme Court for an investigation that would require him to step down, the mainstream press condemned his tactics. But he won the contest with a considerable margin. Within a few days he started “whacking” some of those who voted against him and announced yesterday that he was filing a motion to the Supreme Court to get the Attorney General (who will leave his job on 17 September) off his case. Odds are that he will win or the AG will step down before he can retaliate!

As I mentioned in a previous post, Temer has indicated that he is not interested in continuing in public life. He is now 75 years old and appears anxious to retire and do so as a “winner”. Whether he is motivated by “patriotism” or “ego” is moot! He is playing  the odds. He knows how the system works from the inside and he knows who the regional bosses are and which ones he can trust and which ones he might have to “whack”
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That’s about as good as it’s gonna get for the time being. Hang in there and hedge your bets!

Aug 6, 2017

BRAZIL: And now?

So, is he or is he not?

Attorney General Rodrigo Janot was quoted in the press with the accusation that Michel Temer is the “cappo de tutti cappi” of the largest corruption scheme in Brazil’s long history.

Was Janot simply smarting from the defeat of his motion to forward his allegations of criminal behavior (i.e. passive corruption and obstruction of justice) to the Supreme Court, or is he correct?

What do you think?

Temer is a veteran of 35 years in the fetid swamp of Brazilian politics. The swamp is inhabited by all manner of political “animals” – poisonous snakes, aggressive crocodiles, jaguars, flesh-eating fish, etc. It is also replete with political quicksand pits and labyrinthine streams through dense vegetation.

He is also 75 years old and has indicated that he has no further plans for remaining in public life.
In short, he is a survivor.

He clearly knows the swamp and its denizens 
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Having defeated Janot’s motion, he is now in the process of eliminating those who attempted to usurp his power.

He will emerge with more power.

So, what’s he gonna do with his power?

On one hand, Janot has suggested that Temer, being the accused “mastermind” of a nefarious schemes, can now take Brazil back to the kletptocracy that existed before the reforms that will place Brazil on a new footing and mitigate the thievery that has plagued Brazil for centuries.

You can’t find the answer by simply asking around because the public, the pundits, and the press are also divided on the question. Temer’s popularity is a mere 5% and he claims indifference to whether he is “loved” or not.

As in the Castellamarese War that shook up the US Mafia, the answer lies with the actions to be taken. WHO gets “whacked” and who takes their place(s) is the key to figuring out which way Brazil will go.

The answer is vital to your business interests in Brazil.
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Temer is the antithesis of his US counterpart, Trump. He appears to have no intention to “drain the swamp’”.  It’s an impossible task. He acts as if he intends to make it easier to identify the dangers so as to avoid them and survive. Trump is a loudmouth braggart who runs through the swamp willy-nilly and carelessly. (It would appear that he has now stepped in a quicksand pit and is thrashing about to extricate himself. That is NOT the proper way to get out of quicksand!)

For what it may be worth, my own view is that Temer is concerned for his legacy. He has recognized that things have changed, that Brazil cannot prosper with the continuation of “kleptocracy as usual”, that new rules are needed to ensure the survival of the “system”.

I have suggested in my reports and in this blog that Brazil has entered the “chronic” stage of a crisis. Some measures will work, some will not. There will be occasional “sub” or derived crises that will have to be dealt with via new policies and procedures – i.e. governance. 

Lava Jato will continue, perhaps with somewhat less “religious fervor” but it will continue to sanction the more egregious violations of sound government. “Perps” will henceforth be put in jail for such behaviors. The assurance of impunity has been dealt a fatal blow.

Your challenge now is to closely monitor the measures, verify the “bona fides" of the replacements who assume the vacancies left by those “whacked”, and decide your survival and growth strategies accordingly.

It’s gonna take a while so be prepared! And whatever you do, don’t go to sleep hoping to awaken to a “drained swamp” of wildflowers, baby deer munching contentedly on grass, and peace and harmony. It don’t work that way - anywhere!!




Aug 5, 2017

BRAZIL: Temer wastes no time

The "hits" have begun

Michel Temer has already begun his ideological cleansing of the government. He has begun firing those appointees to office who represent the parties that voted against him in the recent motion suibmitted by the Attorney General, Ricardo Janot (as reported yesterrday).

If you want to try to form a profile of the government and its policies going forward, you simply need to watch who replaces those who have been "whacked". Once the "cleansing" has been carried out, the political reforms will be proposed and implemented. Even Lava Jato will be affected. If your expectation is for greater integrity in the political system you will either be satisfied or not depending on who comes in. This will be the definitive "shake up" of the system prior to the 2018 presidential election.

The PT may have been dealt a fatal blow followed by a ritual suicide at the most recent congress of the party. The left-wing Marxist-oriented members of the party spouted in loud voice the battle cries of the 1950s and 1960s. It was a loud defense of what has proven to be a busted flush for decades. It didn't catch on then and it won't now.

As an amusing aside, I remember an encounter with one of those leftist types during the military regime. She lived in a spacious apartment along the shores of the "Lagoa" in Rio - a very high-rent district. She was railing on about how the military had "compromised" Brazil and Brazilians. She claimed the lower classes had been "bought off" by the sports lottery, the middle class "bought off" by inflation indexing of their financial savings, and the upper classes "bought off" by the creation of the overnight financial market.

After listening to her long diatribe against the "perfidy" of the military government I asked her what was wrong with a government that managed to satisfy the concerns of all three major classes of a society. Her only answer was that it was "wrong" - i.e, "wrong" to address what members of society wanted when SHE seemed to feel that she had something better to offer. Her "champagne socialism" has been a permanent characteristic of Brazil's political left for as long as I can recall. It never worked and it never will.

So, I recommend that you begin to take note of who starts filling the vacancies created by Temer's "clean-up" campaign. It will tell you if kleptocracy is about to be re-instated as before, or if something new is about to emerge.