Macro Minute - Synching the Clocks
10 years ago, during the IMF annual meeting in Washington DC, I remember this seminar where Professor Beny Parnes, a partner at SPX and former BCB Deputy Governor, talked about the importance of “synching the clocks”.
I can’t remember the details of the debate, but this concept stuck with me and it’s ringing a bell again.
As domestic assets faced another round of stress and stop-orders across the board, there are a lot of clients (passionately) discussing extreme outcomes either negative (e.g. When Haddad is gonna fall, etc) or positive (e.g. There is no way out now. The gvt will have to minimally address the fiscal spending and mkt is gonna pivot).
Synching the clocks help us avoid exaggeration/dramatization
The financial market operates on a fast-forward clock, usually acting like an extrapolation machine which naturally puts investors behaving like we are always on the edge of a make-or-break event.
The real economy clock is slower. Moves along the business cycle.
“Events” usually materialize not in minutes/days but over quarters/years.
In this sense, the Brazilian economy is just fine.
For now, it is running at a solid 2%, with real wage expanding, low unemployment, and sub-4% inflation.
Then comes the political clock. It is the last one to come in this chain.
Lawmakers and some political leaders surely feel the heat of news flow and the FX level but it is hardly any trigger for material action to take place.
Except rare occasions when hell breaks loose. Which is not the current case (yet)
On the one hand, it is positive that we are observing some attempts to talk about the need to address the spending side of the fiscal equation.
Talk is cheap but it’s the first move anyway.
It shows that the current administration pays attention to the signals, pushing away the risk of “double bet” (for now)
On the other hand, I believe this falls too short of what markets need to pivot.
Adjust your clock.
At the end of the day, unlike the markets, Brasilia feels no urge to have to desperately present some fiscal measure/plan to address the spending.
At least not yet.
If anything, some mild measures should be revealed only in late August when the Economic Team must send the 2025 Budget.
Until then, it should be only talking the talk where we don’t see any appetite in the streets to buy it in advance.
To the contrary
Talking to our client base as of late, with no flows and catalysts expected in the short-term, even the propensity to buy the dip seems to be fading.
I would love to hear your thoughts!
Cheers