High Holy Holidays: Super Bowl and Carnaval

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Brazilian and US holy days seldom fall on the same weekend. This year is different. Carnaval has it apotheosis today and Saints Rihanna and Manning provided their expected and unexpected entertainment miracles in the Super Bowl on Sunday, as Denver, the underdog, beat the Carolina Panthers.

It remains to be seen if Dilma, who un-impeached, still pedals her bike (note for newbies, this is an reference to the President’s frequent bike rides and more obliquely to her use of questionable economic fiscal measures) and whether the economy can maneuver more favorably. The weakening of the Real has led to improvement in the balance of payments and according to Bloomberg, (http://www.bloomberg.com/news/videos/2016-02-08/are-we-missing-a-bright-turnaround-story-in-brazil), “Brazil reported the best trade numbers since records began” and the dollar has held at 4 Reais or a bit less. Either this is prescient or just a stab in the dark by a journalist with little foresight. I’m not sure.

But can we envision green shoots as the Brazilian work year officially begins after Carnaval? I would like to be optimistic and believe that the economic cycle is bottoming. Here’s an earlier blog regarding this:(https://allabroadconsulting.wordpress.com/2015/12/02/brazil-to-the-bottom-and-no-bounce/)

The trouble is that the political environment remains totally unstable with unresolved major questions. While Dilma’s impeachment appears extremely remote, the country still needs to deal with both Eduardo Cunha (President of the House Representatives) under investigation for corruption and undeclared dollar holdings in Switzerland. Renan Calheiros, Dilma’s erstwhile ally in the Senate, also faces an ongoing investigation into his illicit dealings. Marcelo Odebrecht, the President of Brazil’s largest multinational construction company continues in jail without trial, while his cohorts from Andrade Gutierrez (the second largest builder) have been released on a plea bargain and an “acordo de leniência”. Cutting the construction companies some slack is important, as they are potential powerhouses for boosting any growth. Ideally, Judge Moro – the driver behind the main Lava Jato (Petrobras) investigations – can bring this major case to some kind of conclusion this year.

Still Petrobras, suffering from the double whammy of corruption and falling oil prices, has reached the $2 per share range (PBR 2/9/16 on the NYSE at US 2.90). While the PT and nationalists rage against privatizations, the oil company’s solution rests in the sell off of assets. Effectively, the corruption scandals associated with the PT management have driven the company in the direction that party ideologues are loath to admit. The electrical energy sector also continues to see reductions in its valuations, although energy rates are beginning to move up. Despite all of this, the Bovespa has amazingly done a bit better than the Dow so far this year.

I continue to predict rough 2016 of economic lows. Any recovery will depend on better political leadership from Dilma. This might be too much to expect, as the Zika virus crisis seems to demonstrate. Dilma’s tweets on the virus have been insipid (see the Twitter Dilmabr).

On another note, the municipal elections this year are a positive. And the successful staging of the Olympics will give Brazil a bit more breathing space.

Brazil has so much strength and potential that it will indeed survive and even eventually thrive. Unlike Argentina, with its secular decline or Venezuela, which suffers from its dependency on oil (plus the Chavez-Maduro debacle), Brazil will recover if the people can only get past their leadership and the weight of history.

It is a difficult journey but one that the saints (and sinners) of Carnaval might help along once the festivities end on Feb. 10.

(The lead picture is actually from the Argentine carnaval of 2015-Here is the link:http://misionesonline.net/2015/01/16/una-carroza-homenajea-al-papa-en-el-carnaval-de-gualeguaychu/)

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