Gustavo Loyola, a former Brazilian Central Bank chief, writes an op-ed today (in Portuguese) about the increasingly irresponsible legislative pieces enacted or proposed by our Congress. In a nutshell, he goes back to the ages-proven concept that success breeds failure and vice-versa and applies it to Brazil’s current situation. We’ve been mentioning these risks in our latest reports and it’s part of our reasoning to keep a relatively high cash stake. While it has been somewhat tempered since our last report, some prices still imply a “blue-sky” scenario that we’re not comfortable with.
The key point Mr. Loyola touches on is the lack of accountability of our congressmen. There are very little “checks and balances” in the current system other than the elections themselves.
Another key point, and something we will never get tired of saying, is that one cannot forecast that the good times will go on indefinitely and assume that one can increase costs because the income is rising, incur in debt, and so on. There are always downturns, and they are made more troublesome precisely because one has loaded up the costs before the income melts away. This is an ages-old, proven concept that is apparently extremely difficult to accept and work with, and one doesn’t get more popular by saying “calm down, let’s save up instead of spend away our new-found wealth” in politics – yet that’s precisely the commendable conduct.
We try to do it with our money, which is invested alongside our clients’. It tends to make us go up less than the market in euphoric times, but it also tends to dampen setbacks when things go south. “To finish first, first you need to finish”.
Tags: legislation, macro, pensionfunds, portfoliomanagement, riskmanagement
[...] This post was mentioned on Twitter by Isabella Saboya, InvProf. InvProf said: Gustavo Loyola's column today at Valor is worth the read: http://www.buysiders.com/2010/.....nsibility/ [...]