Financial markets have expressed surprise at the discovery that Brazilian voters were choosing a president rather than providing guidance for the next quarterly investment call.
Following Lula’s election victory, the entirely fictional brokerage Firm Expectations issued an urgent note explaining that the electorate had departed from its base case. The note did not establish whether the electorate had received a copy.
“We had priced in a different result,” said an invented strategist, in the injured tone of a man whose restaurant booking has been ignored by the sea. “Naturally, we assumed this had been communicated to the relevant voters.”
The firm’s election model had drawn on polling, prediction markets and conversations with twelve people who all described themselves as close to the real economy. Eleven worked in investment banking. The twelfth owned the restaurant where they met.
A junior analyst suggested that people might have voted according to their wages, public services or memories of previous governments. He was asked to put these factors into a spreadsheet so the team could establish whether they were material.
The resulting document contained several million households whose principal exposure to Brazil was living there. This was considered an unusually concentrated position, particularly among people with no obvious plan to diversify into Switzerland.
In the fictional morning meeting, a portfolio manager called for reassurance that democracy remained committed to stability. By stability, he clarified, he meant the continued stability of the investment thesis he had circulated on Thursday.
The research department has since introduced a distinction between political risk and model risk. Political risk occurs when voters do something unexpected. Model risk is when the department admits it expected the wrong thing. The latter remains exceptionally rare.
Clients were advised to take a long-term view, an investment horizon beginning immediately after any awkward questions about last week’s recommendations.
For the next election, Firm Expectations plans to broaden its research. Alongside its existing market contacts, it will interview a Brazilian voter, provided one can be found with an investor-relations department.
