Patience in Affliction

There are certain weaknesses in which I have difficultly showing patience. One of these is when people show a very low pain or physical distraction threshold. I had a colleague once walk in from outside to an important working session. He had been rained on. By his attitude you would think that either he was allergic to water (he was not) or it was raining acid (it was not). He excused himself for over 30 minutes because he had been rained on.

At another point, a very important deal preparation session with a large team as well as an external legal team. A mandated fire drill then occurred in the building. The law firm politely had their office excused because of the "essential nature of their business." (I do not buy that either, but we were the beneficiaries.) However, during this fire drill the building's air conditioning had been turned off. The temperature rose to just over 80 F (28 C). It's a slightly uncomfortable temperature, but one of my colleagues who was heading the deal brought up the temperature of the room about every 30 seconds for the next 20 minutes. Nearly nothing moved forward.

When I see this, I question the passion and interest of those who exhibit this behavior. When the situation is important and time is of the essence, I am not that concerned that your sweat glands turned on.

Important caveat: Now, because I did not have much of a choice, I've to put up with the elements, rain, snow, sun, heat, and cold, for many years of my life. Accordingly, I am probably not the most fair judge of this behavior. Glass houses and such.

Currency Swings in Brazil

In a recent conversation with a non-Brazilian colleague concerning strategy in Brazil she said, "Yeah, the Brazilian Real has weakened a lot, but that's just temporary. Exports will increase and it will stabilize." Because we had to move on to another topic, I did not have the opportunity to explain why I think that viewpoint is incorrect, especially for Brazil.

Take the macro equation: Trade Deficit = Capital Inflow. To balance out that equation, the exchange rate must adjust. For example, too much capital outflow coupled with a trade deficit or weak surplus causes a currency to weaken.

However, there is a big lesson to note in these situations: "Cash runs faster than boats." When people decide to pull their capital out of a country, it's a pretty quick process. The best example of this was Thailand and the 1997 financial crisis. Cash flees, but the advantage in exports takes months if not years to shake out. Also, the initial negative abrupt adjustments can delay the advantages in exports. With this backdrop, let's look at Brazil. Since the facts below are non-controversial, I'll be linking minimally.

First, the economy is doing poorly. Real GDP is about zero.
Second, 6-8% inflation has a direct weakening effect on the currency.
Third, Brazil is/was relatively expensive. Even basic commodities were comparable in cost to some of the most expensive cities / countries in the world.
Fourth, Brazil has pretty stringent capital controls for both inflow and outflow. If money decides to leave, it probably won't be coming back soon, as those involved probably had to bite a big bullet to get it out of the country.
Fifth, and this is the primary point of the rest of this post, even though cash is faster than boats, in Brazil cash is far far faster than boats.

I once had an extended and very interesting conversation with a banker who works in Brazil's import/export area. He explained that the ports were essentially all "effectively" operating at 100% capacity, and the amount of excessive demand would determine the number of day wait and/or peak pricing. For example, during the soy spike (and various other commidity spikes) in 2012, agriculture was trying to export everything possible. However, the net effect was a drastic increase in rail freight costs, shipping costs, and trucking costs. Essentially, little made it through, and what did make it through had it's economic rent extracted primarily by the distributors. Afterward, to avoid a "someone once told me," I poked around a bit more on Brazil's ports. The best article I could find in English also hit on the same points as the banker.

- Bureaucracy: "Every ship that arrives in the country waits at least 5.5 days to have the goods delivered by agencies such as IRS, the National Sanitary Surveillance Agency, the Ministry of Agriculture and the Docks. The world average is three days."
- Logistics: The physical ports in and of themselves are okay. However, the rail system is abysmal and access by road is limited. "The logistical problems of access are evident, the bottleneck of access from the cargo container terminals generate unproductive periods, which are highly detrimental to the foreign trade and financial activity of Brazil. It is a fact that the rail network and roads in the vicinity of the ports are insufficient."
- Union issues: not only are there occasional strikes, but many workers are only present during business hours on non-holidays. "In Brazil, the organs responsible for clearance of goods run only during business hours. It is the only country among the world's major economies which does not have these services available 24 hours."

Perhaps the Brazilian Real will rebound significantly, but it's difficult to foresee that happening over the medium-term.