Tuesday, October 9, 2018

Brazil, the security vote

The results of the first round are in, and they represent a major rupture with the past.  While many commentators stressed that these reflected a rejection of traditional politicians tainted by corruption, I would suggest that, more importantly, these elections are a cry, or a scream, for security.

No doubt Brazilian voters sent many political tenors home, including Dilma Rousseff, a former president, Eduardo Suplicy, a co-founder of the PT; of nine returning candidates for the senate who had been under a cloud, only three were reelected.  Voters desire to clean up Congress triggered an historical turnover, with more than 47% new faces coming in.
 
The door was also shown to moderate presidential candidates who were not viewed as corrupt and who had fared well in prior national campaigns: Geraldo Alckmin, a former governor of Sao Paulo got 4.8% vs. in 41% in 2006; Marina Silva, a former minister, 1% vs.  19% in 2010.

Voters, who had remained undecided for the longest time in years (45% vs. 20% to 30% in the past), or perhaps had not disclosed their preferences, sent a clear message: we want big change, now, and we don’t think regular politicians are up to it. 

And the biggest change that Brazilians are clamoring for is security.  In a 10/2/18 Datafolha poll, 88% of respondents declared to feel unsafe; that is a staggering number and was their No.1 concern.  This time around, incoming military-related congressmen are double the number of those in the current assembly.  Bolsonaro is a former military himself and has made security the focus of his campaign.  Today, Jaques Wagner, a PT grandee, was reported[1] to have advised Haddad to do likewise ahead of the second round.

Military and ex-policemen and women are not elected to tackle public budgets.  They are elected to reestablish law and order.  Except for G. Alckmin, presidential candidates spent very little time presenting an economic program.  When Paulo Guedes, a free-market Chicago Boy[2] tried to present a possible future tax reform, he was promptly shut down by his boss, Bolsonaro. 

Economists will lament the lack of a serious discussion of the dire state of the Brazilian economy.  But in truth, there can be no sustained and vigorous economic development without, first, public security.

Which private business, small or otherwise, will invest large financial and human resources into projects that have a three to four year payback period if its owners, managers and staff feel under constant danger for themselves or their families, and occasionally think about emigrating in search of a better life?

In the 1980s and 1990s, Colombia lived through similarly difficult times.  People in the big cities and the countryside felt under constant threat from narco-guerillas, gangs and petty thieves.  In 2002, incoming President Alvaro Uribe initiated his key Policy for Democratic Security (PSD).  It was carried out within the framework of a functioning democracy, it succeeded and the economy soared.

I believe that both Bolsonaro and Haddad understand that this is their biggest challenge and what the people want.  They must also understand that the people will give either one a wide berth on other policy issues as long as security is returned.


[1]  In the Folha de Sao Paulo.
[2]  A 1979 PhD in economics from the University of Chicago.

Monday, October 1, 2018

Latest back of the envelop look at GE?


Yesterday evening, after having witnessed the GE stock price tank for a week, I decided to take another look at the company and try to come up with a rational “back-of-the-envelop” valuation.  My basic premises were that (1) the company had valuable businesses, (2) the world appetite for electric energy would keep growing, and (3) for the foreseeable future, renewables couldn’t displace fossil fuels, in particular natural gas.

My conclusion was that, under this set of assumptions, GE seemed undervalued by a wide margin.  The announcement today that a new CEO with successful experience at running an industrial conglomerate had been appointed only reinforced my views.

The valuation methodology was as follows:

·        Using market value for Baker Hughes  A GE Company since its stock is publicly traded,

·        Looking at competitors for the Aviation, Healthcare and Renewable Energy divisions,

·        Taking a mixed approach for the Power division,

·        Valuing GE Capital at zero.

Baker Hughes

I applied a modest 15% control premium since GE owns 61% of the company.  This yields a $26 billion value for GE’s stake.

Aviation

The comparable here was Safran, the French company which is also a 50/50 partner with GE in the commercial jet engine business.  The benchmark used was Enterprise Value (that is market capitalization + debts – cash) to Revenues.  For each division, I had to come up with an estimate of each division’s debt.  I am sure that my allocation of GE’s debts of $34 billion, ex-GE Capital, among each division was wrong, but overall, it probably doesn’t substantially change my conclusions.  Aviation was thus valued at $74 billion.

Healthcare

This was the most critical valuation, as it assumes that GE will successfully develop its imaging, life science and IT activities.  If it does and commands the same kind of valuation as companies such as Baxter International, Medtronic or Stryker, then I put its potential value at $82 billion.

Renewable Energy

Real difficulties start here as international competitors such as Vestas, Siemens Gamesa and Nordex carry widely different valuations.  In the end, I chose Siemens Gamasa as the more comparable given its size and low profitability.  This gave me a $4 billion valuation.

Power

The most difficult division to value given its gloomy medium-term prospects and the excessive price that GE paid for the power assets of Alstom.  Still, the assets of that division were listed at $71 billion.  Today GE announced that it was writing off $23 billion of goodwill, a good deal related to the Alstom acquisition.

Possible valuations using estimated book value, multiples of revenues and p/e multiples based on future estimated normalized profits range from $49 billion to as low as $8 billion.  In the end, I thought $15 billion was a reasonable number.

This sum of the parts exercise gets us to $201 billion, or $23/share.  Again, this is not a measure of GE’s performance today, or of its best long-term potential; it is a rough estimate that incorporates a moderate turnaround at Power and a market valuation for a stand-alone Healthcare.

Indeed, if I am correct, there may never be a spinoff of Healthcare; for that reason, and unless the new management can convince investors that they will be very successful at allocating capital and running a multifaceted company, the market may impose a conglomerate discount of 10% to 15% on GE.

I also didn’t make any adjustment for yet unfunded pension liabilities, but I didn’t take into account any cash holding either.  Could this and other as yet unidentified pitfalls subtract from our estimate?  Yes.  Would a $20 billion provision cover such “unknown”, I would think so.

In summary, GE’s reasonably optimistic medium-term valuation should range between $201 billion ($23/share) and [$201 bn - $20 bn]x85%, i.e. $153 billion ($17.6/share).  The current share price of $12 seems low to me.

Saturday, September 15, 2018

The Country of the Future?


In 1960 the Gross Domestic Product per capita of South Korea was US$158.  By 2016 it had grown to US$27,539.  Over the same period, the numbers for Brazil were US$210 and US$8,650[1]. 
Adjusting for purchasing power parity doesn’t change the picture much. Over the 1990-2017 period, and in constant US dollars of 2011, the results were US$11,633-US$35,938 for South Korea and US$10,345-US$14,103[2] for Brazil.

Discounting the drag caused by its much larger population and looking at overall country GDP data, Brazil still underperformed: over the 1960-2016 period, its GDP grew from US$15.2 billion to US$2.05 trillion (+13,453%) while South Korea’s grew from US$4 billion to US$ 1.53 trillion (+38,576%).
Fast forward to 2018.  Brazil is in the last stages of the biggest corruption scandal of its history, the so-called Lava Jato/Car Wash, which sent a former president and many political leaders from the left, right and center to jail; for the first time in years, active and retired military leaders are raising their voices to warn against further institutional and judicial drift; crime and personal security are foremost among the population’s concerns; and a key presidential election is less than two months away.

What next?  Is the wheel about to turn, and if so, which way?
Two polls reveal the true dimension of the next president’s challenge:

§  92 % of Brazilians believe that the judicial system treats the rich better than the poor, and
§  As recently as August 22, former president Lula, who remains in jail for corruption, led voting preferences with 39%[3].

In September, two events shook the already atypical presidential campaign: 1) former president Lula was ruled ineligible and his party, the PT, named Fernando Haddad as his replacement, and 2) Jair Bolsonaro, the rightwing candidate who was running second to Lula, was the victim of an attempt on his life and will remain hospitalized for several weeks.
Most candidates have a familiarity deficit with the population.  As of September 9, the following table shows that less than 1/3 of the population knew the main candidates “very well” and about half knew them “very well” or “a little”:
 

 
Geraldo Alckmin
Jair Bolsonaro
Ciro Gomes
Fernando Haddad
Henrique Meirelles
Marina Silva
Knows very well
30%
29%
25%
17%
13%
27%
Knows a little
29%
23%
29%
21%
19%
32%
TOTAL
59%
52%
54%
38%
32%
59%
Source: Datafolha.

The PT and Fernando Haddad face a challenge: how to make the candidate from Sao Paulo nationally known without having him appear as a mere stand-in for Lula.
The other candidates face another kind of challenge: better known because they have been in politics longer and/or have already ran for the presidency, they also represent the “political establishment” which many voters distrust.

A relatively new comer on the national stage, Bolsonaro is now enjoying a rise in sympathy for having been stabbed, but over the next few weeks his ratings will likely suffer from diminished exposure and his inability to campaign in person.
The absence of a clear leader in the polls also reflects voters’ indecision:  55% of respondents declared themselves set in their choices vs. 80% in 2010 and 2006 and 70% in 2002 and 2014[4]. 

Political cleavages and history make it difficult to imagine the right or the left easily uniting behind one candidate in the second round.  Bolsonaro and his small party, the PSL, haven’t much in common with Alckmin and his traditional center coalition; the PT has historically refused to join any coalition that it didn’t lead, and Ciro Gomes so far has not been welcome. This also leaves Marina Silva, the best presidential candidate from the left in my view, out in the cold.
Can we make the outlook hazier for investors? Sure we can!

There is evidence that voters are ambivalent regarding needed economic reforms.  While Alckmin appears set to privatize many the state-owned enterprises, unions have often gone to court to block past privatizations, congress has been loath to let go of its patronage, and the public appears reluctant to see Petrobras privatized, even after the massive scandal that nearly bankrupted the company.
Apart from the PT, party discipline is weak in Brazil, making governing difficult and reforming very difficult.  This is unlikely to change this time around.  Even if Haddad wins, there will inevitably be tensions between him and Lula and their respective followers as the new leader seeks to establish himself[5].

More importantly, the diverging economic paths followed by Brazil and South Korea over the last 50 years reflect profound differences in history and culture.  These two factors are powerful and resilient, and not limited to these two countries.  For a while, leaders can overcome them, as FH Cardoso did in Brazil or Kemal Ataturk did in Turkey, but the forces to undo or blunt deep reforms are strong, ever present, and in the end often overwhelming.
The operating horizon for traders and even most investors in emerging countries is short; in Brazil, not everything is negative.

For example, the Lava Jato scandal is fresh in every memory and one can expect governments and politicians to be more careful with public assets for the foreseeable future.
Most candidates must realize that they lack broad popular support and that further dividing the population once in office would be a national disaster and politically risky.  With Lula absent from the ballots and Bolsonero in the hospital, it is close to 60% of the voters’ first choices which are gone or in jeopardy.

The presidential elections will be decided by October 28 at the latest.  While the race is wide open, it wouldn’t surprise me if Fernando Haddad, with the well-organized support of the PT and of Lula himself, were to reach the second round and face Jair Bolsonaro.  If he failed, it could be because Ciro Gomes rallied more of traditional voters from the Left.
In a second round, the outcome of a Bolsonaro/Haddad or Bolsonaro/Gomes race is a toss-up at this stage.

These are two among several scenarios, though unless the campaign dynamics change appreciably, they are the most likely for me. 
Brazilian stocks are not off-limit in the absolute, but either current prices fall further to reflect the inherent risks of this election or any buying decision should be delayed until after the second round is over, in my view.

The future always appears unclear, but the past is not and is as good a guide of things to come as any.  Days of Future Passed as the Moody Blues would say.     


[1]  Source: World Bank, Trading Economics.
[2]  Source: World bank
[3]  Source: Datafolha.
[4]  Source: Datafolha.
[5]  A good example of unhelpful tensions between a former president and his anointed successor was on display in Colombia between Alvaro Uribe and Juan Manuel Santos.

Friday, August 24, 2018

How much is Tesla worth?


This is a question which investors and analysts alike have been wrestling with for several years.  Some think Tesla will collapse, others that it is at the build-up stage of a brilliant future.  Its founder just twitted that $420 per share was a price he would “pay” to take it private.  So we’ll take a shot at the question.

At the current stock price of $320, Tesla is worth over $54 billion.  Its enterprise value (market cap. + debt – cash) is around $60 billion, depending on the accounting treatment of certain operating leases.  By comparison, General Motors has a market value of under $51 billion.

Is Tesla really more valuable than GM?  There is no question that Tesla, under the guidance of its CEO and founder Elon Musk, has become synonymous with advanced, stylish and expensive electric cars. Half a century ago, an environmentally driven buyer, wanting to make a small dent into our national thirst for oil, would have bought a small and thrifty Honda Civic.  Today, his wealthier counterpart will buy a Tesla S, park it next to a Mercedes S class, and feel that his car looks and performs better and is more socially responsible.

That Tesla has gained unique brand status, recognized globally, is undisputable.  What’s more, this was achieved by developing new technologies which are often years ahead of competitors like BMW and Chevrolet according to a recent report by UBS.  There is both style and substance behind Tesla’s success.

The problem is that Tesla has not been able to make such technology cheap enough to make a $35,000 car (Tesla 3) profitable; and according to the same UBS analysts, progress towards bringing unit costs further down has been very slow.  Another observer noted that the battery components were expensive, limiting further cost savings, while production volume was much too low to reduce powertrain production costs.

So, what if Tesla were to limit itself to the production of luxury electric cars like its S and X models, selling anywhere between $70,000 and $130,000 a piece?

There is one comparable car company with unique brand name, Ferrari.  Ferrari sells 10,000 cars a year at an average price (to it) of $300,000+.  Its current market value is over $24 billion (and enterprise value around $25 billion).  Today, Tesla sells around 90,000 models S and X per year.  A spectacular Roadster is in the works which will retail at a starting price of $200,000. 

I would think that the luxury car business of Tesla could be worth as much as Ferrari, $24 billion, because both share three unique characteristics: exclusivity, style and performance.

That’s great except that it leaves a $30 billion gap in valuation.  Can this gap be filled?

One logical place where to look would be businesses whose technology is complementary or close to that of the cars.  Actually, Tesla has such businesses: its energy storage and solar energy. 

The solar generation offers integrated generation and storage systems for both residential and commercial customers.  The energy of the sun is captured via low profile panels or roof tiles which look like regular ones.  Batteries are used to store the energy and release it later.  To commercial buyers, Tesla offers batteries to manage loads or turnkey solar panels and batteries to meet communities’ energy needs.

Those businesses generated revenues of $370 million in 2Q18 with a modest gross margin of 11.8%.  How much can they be worth?  The Solar City company which developed most of this technology and which was founded by Musk, was bought by Tesla for $2.6 billion in 2016.  First Solar (FSLR:NASDAQ) sells at 2.5 times revenues.  The energy businesses of Tesla are growing at close to 30% p.a.  Based on that and the Solar City and First Solar valuations, they could be worth $3.5[1]-$4.5 billion.

If Tesla focuses on luxury cars (which is not the case at present) and its energy business grows healthily, Tesla could be worth $28 billion or $164/share.
That still leaves us a gap of some $26 billion.  How can it be filled?  Will Elon Musk suddenly find a way to massively expand his energy business or discover yet another need that Tesla technology can fill?  Call it the Musk factor.  He could add another $4-$5 billion, particularly if the country gets back on the clean energy path.  That would get us in the region of $190/share.

In sum, Tesla seems to be overvalued at current levels by a significant margin.  Then again, nobody expected an individual to start a car company from nothing and build it into the epitome of great electric cars.  It will be a dizzying but fascinating ride.




[1]  Looking at the trailing last quarters.

Friday, June 29, 2018

Switching to wind and solar, a closer look at policies and costs


Global warming has been a major topic of discussion in recent decades, and it has entered the political debate in a big way, both at the national and international levels.  The 2017 decision by the US to withdraw from the Paris Agreement on Climate Change[1] was perhaps the most visible development.

But France has experienced vigorous debates on climate change: in 2011, candidate Hollande promised that, if elected, his government would reduce the share of nuclear in electricity generation from 75% to 50%, and his successor, Emmanuel Macron, is wrestling with the same goal.  It is worth noting that, given its massive nuclear footprint, France already has perhaps the cleanest electricity generation sector, both in terms of CO2 and other emissions.

As part of the public debate on French energy strategy, the ACSPV, a non-profit organization for the promotion of scientific culture, uniting communes from the Alpine region and members from the prestigious CNRS[2] made a very interesting presentation which I summarize below.

It recalls that France started to articulate a program for CO2 emission control in 2003, mainly by providing energy price subsidies in favor of renewables[3] and securing a share of electricity demand for them.  From 2003 to 2017, these subsidies totaled €28 billion, €5.2 billion for 2017 alone (+10% over 2016).  Given that these agreements have a 15 to 20 year maturity, such a policy is very costly.  Presently, wind and solar, in the aggregate, cost €143 more per MWh than the average.

ACPSV contrasts the French cost of switching to renewables with the cost of CO2 emission.  The latter is as low as €11/ton in the European market and as high as €100/ton in Sweden which set a CO2 tax in that amount.  Yet according to the RTE (government operated electricity grid) the cost of decreasing CO2 emission in France in recent years has been €250/ton!  Furthermore, as fossil-fueled power plants disappear, the CO2 gain from switching to wind and solar diminishes, disappearing totally in 5 year time at the current pace.

ACPSV further criticizes the inefficiency of the “switch to renewable” policy by pointing that, with the same €28 billion spent on subsidies over the 2003-2017 period, France could have subsidized the purchase of  4.5 million electric cars (€6,000 per car) reducing CO2 emission at a lower cost of  €190/ton[4].  Or the money could have gone to upgrade the thermal insulation of 3 million homes; this could have saved 1 MWh from fossil energy origin per home, lowering CO2 emissions by 7.5 million tons/year at a cost of only $100/t[5].

While such alternative policies would be more beneficial than mere subsidies and forced renewable energy purchases, the long term nature of contracts makes it very difficult to change tack: current commitments in favor of wind farms extend until 2036 and total €100 billion.

The criticism of current policies by ACSPV extends to the industrial and economic spheres:  The government effort didn’t result in the creation of viable French manufacturers of wind turbines or photovoltaic panels as these are imported[6]. 

As for the sharing of the subsidies which are financed by a tax on all electricity consumers[7], ACSPV notes that it is socially and economically unfair: only the better offs can afford the initial investment needed for solar panels (and they are later reimbursed via the CSPE, but that CSPE is paid by all customers); with regard to wind, ACSPV regrets that the sector is dominated by the industry union (SER) which carries a lot of weight and influence, yet spends very little on research and development, happy instead to live off guaranteed revenues.

In conclusion, ACSPV recommends to acknowledge the failure of current policies and to abandon subsidies and their unintended adverse consequences.  Instead, it recommends redirecting efforts towards the transportation sector and better home thermal insulation.

France is a special case, in that it already has a very clean electric energy sector, yet the French Green movement has been determined to push for a massive shift towards renewables which, in my opinion and that of ACSPV, makes little sense.  Unfortunately, their votes were needed in the previous socialist government and their advocacy for clean energy as appealing as it sounds, is ineffective and potentially ruinous[8].

Clearly the situation in the US is different, but the basic policy issues are similar.  Unfortunately, the public debate is reduced to a simplistic litmus test:”Do you believe in global warming?  If you do, then money is no object as far as remedies are concerned and wind and solar are the only way out.”

Hopefully, this French debate may spread beyond its national borders.



[1]  Such withdrawal would take effect in 2020.
[2]  Center for National Scientific Research.
[3]  In this article, renewable will refer to wind and solar.
[4]  Assuming non-electric engine emissions of 150 g/km of CO2 and total car life of 200,000 km (124,000 miles).
[5]  Assuming a 20 year depreciation period.
[6]  Leading French manufacturers having either being rescued by EDF, the dominant electric utility, or a financial buyer.
[7]  CSPE.
[8]  Shifting from 75% to 50% nuclear and having  renewables making up the difference means quadrupling the contribution of renewable, doubling the average French utility bill.  The CSPE would rise to 15 to 20 billion per year, and long term commitments would rise to 400 billion, all that for ever diminishing gains as fossil fuelled power plants would soon no longer exist.

Friday, June 8, 2018

When history may rhyme…in Brazil


If you are in your sixties like me, and particularly if you were born in France, you remember 1968.

How did it start?  Sociologists and politologists have come up with involved theories to explain the so-called “Events of May ‘68”.   Call me a skeptic.  Yes, there had been months of student protests in Nanterre, then the most politically “progressive” campus in Paris, but frankly, that was no news.  The temperature rose when the authorities decided to put an end to the disorders, and student unions called for demonstrations on other campuses and in lyçées (high schools).  But that was hardly earth shattering or critical for what turned out to be the most impactful event in France’s last half century.

From my own perspective, a key factor was that May was the month that preceded life-defining tests for millions of French youths: the dreaded baccalaureat which is the necessary key to enter university, the concours (competitive exams) to enter the top universities (so called grandes écoles), and the year-end university exams.  We were all stressed and apprehensive, and for many, the possibility of postponing these scary trials, even temporarily, AND having fun in doing so, was appealing.

Sure, student protest had gained international visibility, mostly in the US against the Vietnam War, but many American trends and influences came to France without threatening the stability of the country.  

It is also true that the French may have been tired of the quasi-regal leadership of President de Gaulle and at first may not have minded students poking him in the eye so to speak.  The initial government reaction lacked coordination, and the authorities quickly second-guessed themselves, thus increasing confusion.  None of that is very unusual or likely to trigger what turned out to be a quasi coup.

But when the French government started to look and act weak and disheartened, and its leader failed to appear (he even disappeared for a while), then several dissatisfied groups and political opportunists felt emboldened to act: unions called for national strikes and some of them for industrial sabotage[1], opposition parties called for large demonstrations and even tried to force a change in government at the famous Charlety mass meeting.

As we know, all the disorder came to an abrupt end when President de Gaulle reappeared and forcefully declared on TV that he wouldn’t leave power.  Overnight, political and social calm were restored.  But as we also know, de Gaulle resigned the following year and the fallouts of May 68 endure to this day.

In retrospect, I still believe that the huge upheaval of May 1968 didn’t have to happen.  It all started with students defying authority and trying to postpone dreaded exams, and enjoying what at first was frat house partying and horseplay.

History doesn’t always unfold according to vast socio-economic Marxist trends.  More often than not, it does, but now and then major tremors and changes can be traced to the acts of an individual or to an improbable chain reaction.

Which brings us to Brazil.  What is happening in Brazil today is not a repetition of May 68, but as Mark Twain once said, history rhymes. 

The unexpected uncovering of the so-called Lava Jato corruption scandal and its consequences have dealt very severe body blows to Brazilian democracy and I would say it is weaker than it has ever been in the last half-century.  To wit:

-         One president was impeached and forced to resign[2], her successor is currently in jail and the current president is under a corruption cloud and commands a record low 6% approval score;

-         Dozens of congressmen have been indicted and jailed, including both leaders and rank and file, governing coalition and opposition members;

-         While the judiciary branch, in the end, did allow justice to be done, the heavy lifting (investigative work and sentencing) was carried out by the Federal Police and state-level judges, and the highest federal judicial instances vacillated more than once.

The public is rejecting main stream political parties and their leaders, it rejects the president, it is divided about the judiciary system as many either distrust it or positively reject its condemnation of ex-president Lula.

In the middle of this rising chaos and polarization, some actors are starting to test the system.

One is the PT, the party of ex-President Lula.  It is interesting to remember that Lula has often believed that a chaotic situation would help the PT take power.  As Lula still leads all opinion polls by a wide margin, Gleisi Hoffmann, the president of the PT, this week warned that keeping Lula in jail would lead Brazil to chaos.  The PT is also launching a Lula presidential campaign despite him being ineligible.

In doing so, she sets on a direct collision course with General Villas Boas, the Chief-of-Staff of the Brazilian Armed Forces, who twice publicly warned[3] the Supreme Court that the law must be respected and nobody is above the law.  The general’s Twit received the support of several high ranking generals, some in active duty others retired.

Truck drivers have been the second, unexpected, and much more immediately damaging force.  As Petrobras had won the right to set prices daily in accordance with world markets, truck driver unions organized massive road blockages last May to protest diesel price hikes[4].  The government quickly capitulated, forcing a price freeze by Petrobras, then offering gas price cuts to be financed by the government, then backtracked again, then offering truck drivers a pricing table for the freight that they carry.

In the span of a few weeks, the PT and the truck drivers have exposed the extreme weakness of the government, the former by brazenly demanding immunity for its leader, the latter by strong-arming it and hurting the economy.  In the meantime, criminality has surged in Rio de Janeiro and elsewhere, and no high caliber presidential candidate has risen from the field to offer people hope that the turmoil will soon be over.

There might be a respite in the above struggles, but I doubt they will end well.  The pricing table proposed by the government to the truck drivers and the compensation offered to Petrobras (but not to other fuel importers) have little chance to work in a country as vast and an economy as segmented as Brazil.  To make things worse, the drivers threw the first punches and clearly hit their mark.

As to the PT, it has the most popular leader (Lula) and the most effective organization of any Brazilian party.  As I wrote above, I think it is convinced that it will fare better than anyone else should chaos develop; it also sees that the current government can be pushed around with impunity.

Brazilians have a culture of moderation, but events can unwind faster than expected, or take an unexpected direction.  In the current climate, the system offers little in terms of guardrails, so that an unlikely possibility can quickly become reality, a moderate skid can develop into an uncontrollable crash.

History doesn’t repeat itself, but it does rhyme.





[1]  Interestingly, the communist-affiliated CGT union was proactive in safeguarding equipment and machinery that other unions wanted to damage.
[2]  President Dilma Rousseff was impeached for public accounting faults but she was also widely criticized for the endemic corruption at Petrobras while she presided over its board of directors and afterwards while she headed the government.
[3]  The first warning came on the eve of the Supreme Court’s decision as to whether to incarcerate or not President Lula.
[4]  It is ironic that taxes represent a higher percentage of gas prices than Petrobras’ profit margin.  As such, they were the main factor in pushing gas prices to high levels.