PBR, Corruption, and why timing matters

Over the years I’ve made a fair amount of money off of Brazil and in particular, Petrobras. During the last market ‘bad times’ I managed to give back some of it, before I dumped it all. Here’s an image of the last 10 years for the Petrobras PBR chart vs a variety of other tickers. Both market indexes and non-stock tickers (commodities and bonds.

This is fairly typical of “story stocks”. Rise to a “blow off top” peak, then a long, wobbling decent into obscurity. In this case the “story” was that oil had no price direction but up, Brazil was the new Wonder Child, and the Brazilian Socialism was “different this time”. For a while, each of those was true. But “There’s always a story. -E.M.Smith” and that story always changes and fades. “Never marry a story. -E.M.Smith”. Always be ready to dump and run. This image shows why:

PBR Pops on a Story, and drops on graft and corruption.

PBR Pops on a Story, and drops on graft and corruption.

So what’s “The Story” now? Well, the Different Socialist got voted out a few years back, and the New Socialist just could not keep his hands of the market driven parts of the economy. (As all Socialist Central Planners feel compelled to do…) The result was the inevitable. Real market forces were prevented from working. Money was sucked out for “better things”. Friends Of Government got special jobs, perks, and payoffs. The Brazilian Wonder turned into the Brazilian Flounder. Here’s a couple of links on the current “story” for PBR. Graft and corruption in Central Authority Planning land. Same old story as always. Coming soon to a US Government Agency near you… if the present occupants of the Democratic Leadership get their way (already in process with Solindra, GM bailout (wet kiss to unions), subsidy to wind and solar and vilification of coal and gas…)

From a quick search:

Why the Petrobras scandal is shaking Brazil
Energy giant Petrobras is engulfed in a corruption scandal that could prove to be Brazil’s biggest, threatening to engulf the country’s most senior politicians—including its president.
http://www.cnbc.comcnbc.com/id/10221204

Energy giant Petrobras is engulfed in a corruption scandal that could prove to be Brazil’s biggest, threatening to engulf the country’s most senior politicians—including its president.

Even the company is not downplaying the events. In a news release last week to explain why it had delayed its upcoming financial report, Petrobas said it was “undergoing a unique moment in its history, in light of the accusations and investigations of the “Lava Jato Operation” (Portuguese for “Operation car wash”) being conducted by the Brazilian Federal Police, which has led to charges of money laundering and organized crime.”

CNBC takes a look at the facts behind the scandal and the implications for other oil companies and Brazil itself.

Alledged Petrobras Kickback Scandal Shakes Up Presidential …
Petrobras Kickback Scandal Shakes Up Presidential Race. By Lise Alves on September 9, 2014. Former Petrobras director names senators, politicians and government officials in kickback scheme.
http://riotimesonline.com/brazil-news/rio-politics/petrobras-kickback-scandle-shakes-up-presidential-race/

By Lise Alves, Senior Contributing Reporter

SÃO PAULO, BRAZIL – With less than a month to go before Brazil’s Presidential elections, illegal kickback accusations made by a former Petrobras director, Paulo Roberto Costa, are shaking up the presidential race. Reportedly, Costa mentions more than thirty names, including politicians, congressmen, governors and state ministers, who he says benefited from kickbacks from contracts with the state-controlled petroleum giant.

Brazil charges 35 in Petrobras scandal – Yahoo Finance
Brazil charges 35 in Petrobras scandal Brazil prosecutors file charges against 35 in kickback scandal at state oil company Petrobras
http://finance.yahoo.com/news/brazil-charges-35-petrobras-scandal-191128617.html

SAO PAULO (AP) — Prosecutors investigating a sprawling kickback scheme at Brazil’s state-run oil company Petrobras filed charges Thursday against 35 people, including executives from some of the nation’s biggest construction firms.

The formal charges cap a months-long investigation dubbed “Operation Car Wash,” which is proving to be one of Brazil’s biggest corruption schemes yet uncovered with authorizes saying they’ll seek the return of nearly $400 million from the accused.

scandal at the state-owned oil giant Petrobras
Brazil’s largest company, Petrobras, … is due to testify that dozens of senior politicians received kickbacks from oil contracts as part of a scheme … But the latest scandal has added to longstanding fears that the company is treated as a tool for politicians to reward loyalists and generate …

http://www.theguardian.com/world/2014/sep/17/brazil-petrobras-scandal-oil-general-election

The brutalist headquarters of South America’s biggest company, Petrobras, offers a harsh riposte to those who try to romanticise Brazil as a land of golden beaches and endless forest. This week, the concrete edifice in central Rio de Janeiro was the focus of a pro-oil rally by thousands of petrochemical workers amid a presidential election debate dominated by how to manage the nation’s vast fossil fuel reserves.

It is a question that has opened up the biggest gap between President Dilma Rousseff, an old industry champion of the Workers Party, and her main challenger Marina Silva, a former environment minister who has pledged to shift priorities towards alternatives energies like wind, solar and ethanol.

This is more than just a Brazilian rerun of George Bush and Big Oil versus Al Gore and climate concern, because state-run Petrobras is no ordinary company and – with the company also mired in a massive corruption scandal – this is no ordinary time.

So pick your link and have a nice read…

Notice that this “news” is in the last few months, but the stock did the “pop and plunge” a few years ahead. The market reacts to all things known by all players, long before it hits the news.

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
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5 Responses to PBR, Corruption, and why timing matters

  1. philjourdan says:

    I think you might have the CO2 before the temps. The payoffs are long, but as the market dropped, they became harder to keep up, so someone got shorted and squealed. The pop was indeed before the scandal aired, but it caused the scandal to air.

  2. p.g.sharrow says:

    It would appear that the Brazilians have a wonderful choice! A beleaguered Fascist or an Ecoloon Communist. Two flavors of Socialist manipulators. Seems like nothing changes there, Too bad. Brazil is a richly blessed country robbed into poverty by it’s Elite. Catholics have always been enamored by the communal concept and obedience to authority. Devout religious people are far too easy to being mislead by USERs. pg

  3. tom0mason says:

    Yes corruption in all its guises is robbing the poor in all nations as well as Brazil. On the bright side though some report that overall the wealth of the world improved.
    http://ktwop.com/2015/01/21/wealth-inequality-the-poor-are-not-poor-because-the-rich-are-rich/

  4. E.M.Smith says:

    @P.G.:

    Why I’m more aligned with the Gnostics and Druids than the Catholics (Roman or Eastern…)

    @Larry Ledwick:

    If money is involved, Soros is near… especially if it has a socialism hook…

    @TomOMason:

    Overall wealth improves at the rate of technical advance. About 3% / yr, year over year. The distribution of it varies widely.

    One of the “issues” with “redistribution” is the Propensity To Save and the Propensity To Invest. Without investment, that 3% growth goes away. Rich folks have a much higher propensity to invest. Poor folks have a negative propensity to invest.

    So any significant redistribution of wealth from the rich to the poor will kill investment and stifle overall economic growth. Moving the middle class to the poor has the same effect (due to turning moderate to nil propensity to invest into negative propensity…). So BOTH the socialist redistribution ethic and the elite quashing of the middle class cause LESS total economic improvement.

    What does work is to lift the poor into a growing middle class via economic growth and jobs that make real goods and services coupled with a work ethic and savings & investment being safe (i.e. not a ‘too big to fail’ but a Glass-Steagall_break up of the banks). Oh, and keeping the government out of the people’s piggy banks and pockets…

    Now a case can be made that a modest “progressive” tax system that bleeds the super rich down to the level of the simply obscenely rich ought to have little impact since at some level over oh-my-god-rich folks are already maximally investing… but it is nearly impossible to prevent any progressive tax system from being slowly mutated into a social welfare slush fund that bleeds the middle class too.

    This one little economic fact of life is something that every generation in every country seems to need to learn all on their own, anew each time, via economic collapse. Sigh. In the ’70s it was South America. In the ’40s it was National State Socialism vs Communal Socialism in W.W.II. In later years it was the UK dabble with Socialism (about the ’80s? or earlier?). Now it looks like the USA is giving it a whirl. But eventually we will run out of “Other people’s money to spend”…

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