Economics And Investment

More CAPS stock picks

2011-06-29T08:12:00.001-07:00

I thought I would share some more of my "Motley Fool" CAPS stock picks:

Weyerhaeuser Company (WY): High dividend, low P/E, growing sector. Have to watch the debt leverage, but otherwise seems undervalued.

First Solar (FSLR): Sunny future!

Tesla Motors Inc. (TSLA): SHORT: May not be burning gas, but is burning money. Cars too expensive, cannot compete with the Toyota Prius or Chevy Volt.

SanDisk Corp (SNDK): Low P/E, growing earnings, buying solid state memory technology.

Petroleo Brasileiro S.A. (ADR) (PBR): Low P/E, expanding reserves and production, high oil prices.

Infinera (INFN): Technological breakthroughs, low valuation.

CenturyLink, Inc. (CTL): Low P/E, high dividend, high cash flow.

Toyota Motor Corp (ADR) (TM): Eventually, will overcome earthquake and recall woes, and go back to being the most innovative and well run auto company in the world.

Activision Blizzard (ATVI): Fabulous portfolio of games. Moving into new media.

Consolidated Edison, Inc. (ED): High dividend yield, stable yield, relatively low P/E.

Banco Santander Central Hispano SA (STD): Spain's public debt with respect to GDP is low. They are reducing the public deficit. Other than being part of the PIGS acronym, there is no similarity with Greece, Ireland, Italy or Portugal. Santander itself is expanding in Latin America and other markets. [also, today the Greek Parliament approved the adjustment plan, paving the way to calm the euro market].

Terra Nitrogen Company, L.P. (TNH): High dividend yield, low P/E. [you may be catching a trend here: I like high dividends and low P/Es!].

Hatteras Financial (HTS): Great yields, great growth, intelligent bet on ARM mortgages, what's not to like?

Chimera Investment (CIM): Despite its chimerical name, another company with an outstanding yield, low P/E, and obligated to pay out dividends.

Pacific Biosciences of California (PACB): Is gearing up for explosive growth in demand for its low-cost DNA sequencing machines.

Stratasys (SSYS): Huge growth potential in its revolutionary 3D printers (really, customizable micro-manufacturing plants).

Winnebago Industries, Inc. (WGO): Retiring baby boomers.

Aeropostale, Inc. (ARO): If some intelligent people picked it at $30, I guess there is not much risk in picking it at $17.

Claymore/AlphaShares China Small Cap ETF (HAO): investment in medium (small cap) enterprises in China, explosive growth potential. Also, currently undervalued.

Cisco Systems, Inc. (CSCO): Low P/E, good fundamentals, this stock will recover.

Most of these are beating the S&P 500 index since I picked them.

The usual disclaimers apply.

Highly Indebted Rich Countries (HIRC)

2011-06-21T08:05:00.000-07:00

In the previous two decades, there was great concern about the "Highly Indebted Poor Countries" (HIPC), and great (and successful) efforts made to provide debt relief. This involved mostly low-income countries in Africa, Asia, and five countries in Latin America and the Caribbean (Bolivia, Guyana, Haiti, Honduras and Nicaragua).

Now, in contrast, the sovereign borrowers with highest levels of debt (with respect to GDP) are mostly advanced, industrialized, high-income countries.

The public debt to GDP ratio is highest in Japan (225.8 % of GDP in 2010), and among the top 20 are several OECD countries: Greece (142.8 % in 2010, and growing rapidly), Iceland (123.8 %), Italy (119 %), Belgium (96.8 %), Ireland (96.2 %), Portugal (93 %), Germany (83.2 %), France (81.7 %), and Hungary (79.6 %).

Also among the top 20 are some of the basket-cases, failing states (such as Zimbabwe, Lebanon, Sudan, and Nicaragua), and several Caribbean islands (Saint Kitts and Nevis, Jamaica, Dominica).

Of the PIIGS, only Spain does not make the HIRC list: a relatively respectful 60.1 % of GDP.

The United States comes in at 58.9 % (only including the Federal government); if you include all public debt, according to the IMF, it goes up to 92.7 %, which would land the USA at the 11th slot worldwide.

For the European Union as a whole, the average public debt is now at 82 % of GDP, compared with only 21 % for Latin America.

Obviously, this time around it will not be possible to provide debt relief to the HIRC (who would provide it?). Perhaps there will be some rescheduling in the worst cases (Greece, Ireland, Iceland, Portugal), or even a slight "haircut" for private sector bondholders. And I also expect a lot of real debt dilution through inflation.

A few more stock picks

2011-06-16T02:17:00.000-07:00

A few more of my stock and ETF picks on Motley Fool's CAPS.

I am currently ranked in the 75th percentile :-)

Ameresco (AMRC): It has fallen too far.

Honda (HMC): Eventually, Japan will overcome the blahs!

iShares MSCI Japan Index ETF(EWJ): Like I said, Japan will recover.

Costco (COST): It sells high quality goods and services at an unbeatable price. Seems like a good business model to me.

PowerShares Lux Nanotech ETF (PXN): It is the future. It has been underperforming.

Market Vectors LatAm Small-Cap Index ETF (LATM): Small cap sector tends to outperform, more so in the Latin American and Caribbean region, where access to capital is relatively scarce.

Resource Capital Corp. (RSO): Stable 14 % dividend.

The Procter & Gamble Company (PG): Solid fundamentals, solid dividends, solid market share, clearly undervalued.

T. Rowe Price Group, Inc. (TROW): Got in early at Facebook, Groupon, Zynga, etc. It is our own DST (mail.ru).

Intel Corp (INTC): Growing dividends, piles of cash, recovery in IT. Plus, all the "tablets will replace PCs" arguments are way overblown.

iShares Silver Trust ETF (SLV): Metals vs. paper money, inflation coming up.

On the short side, Pandora (P) cannot keep the stratospheric IPO valuations with its current losses.

Some of the Internet 2.0 and social networks stocks deserve their rich valuations, others are obviously bubbling up.

Congratulations to Motley Fool Rule Breakers

2011-06-16T02:15:00.000-07:00

Congratulations to Motley Fool's "Rule Breakers" newsletter for being the "number-one performer over the year to date through May according to the Hulbert Financial Digest, up 22.3%, versus 7.99 % for the dividend-reinvested Wilshire 5000 Total Stock Market Index".

http://www.marketwatch.com/story/car-ownership-and-market-timing-racket-2011-06-09

I have to say I have enjoyed (and profited) from being a subscriber for a couple of years now.

Their mutual funds are up 26 and 20 % since inception (FOOLX, TMFGX).

Kudos!

My top stock picks (and a comment on the movie Limitless)

2011-06-10T01:53:00.000-07:00

I thought I would share with you my top picks in Motley Fools CAPS.

Overall, my rating is not too shabby, in the top third of all participants.

LIFE: This stock will resuscitate my IRA :-)

MVC: Venture capital is back.

IRBT: What can I say, robots are the wave of the future.

STP: Growing company in a growing industry in a growing country - what's not to like? Also, currently low P/E ratio.

VPRT: Up 40 % since I picked it in August 2010.

VITA: Well, now that it is being bought out, I guess my winning streak will end. Still, not bad (up 103 % since August 2010).

AKAM: This is an excellent long-term investment opportunity.

SRZ: Even though it has already increased 20-fold since I bought it, I think it still has room to grow.

ALU: It still has a long way to go back to its fundamentals level.

PBW: Solar energy is becoming competitive with gas-fired electricity. Enough said.

GOOG: They are great at everything they do (especially fostering innovation).

On another note, was I the only one that found it ridiculous that in the movie "Limitless", the main character, "Eddie Morra" (played by Bradley Cooper) suddenly is able to double his investments every day after taking a fictitious "smart designer drug". In essence, it would require that one individual (no matter how smart) can out-smart the entire market. Ludicrous!

Donations for the victims of the earthquake and tsunami in Japan

2011-03-22T09:40:00.000-07:00

Some options to donate for the victims of the earthquake and tsunami in Japan:

a) List of charities on CNN Impact your World.

b) Donate to the American Red Cross and get American Advantage frequent flyer miles.

c) Donate through the Salesforce.com Facebook Causes page, and the company will match your donation dollar for dollar.

Best stocks in 2010 and 2011

2011-01-23T03:30:00.000-08:00

My best performing stocks in 2010 (performance since they were bought) were:

SUNRISE SENIOR LIVING INC (SRZ), 2015 % (yes, a 20 bagger!).

CITIGROUP INC (C) (bought post Lehman Bros. crisis) + 130 %

FEDEX CORP (FDX) + 121 %

PANERA BREAD CO CL A (PNRA) + 114 %

UNIVERSAL DISPLAY CORP (PANL) + 86 %

WHOLE FOODS MKT INC (WFMI) + 85 %

For 2011, my picks (that is, what I am buying now) are:

LIFE TECHNOLOGIES CORP. (LIFE)

NATIONAL GRID (NGG)

WISDOMTREE TRUST EUROPE SMCP D (DFE)

VERIZON COMMUNICATIONS INC COM (VZ) (mostly on the opening up of the iPhone to other carriers in the U.S.). However, Apple (AAPL) is still too rich for my taste, and will probably suffer with Steve Jobs leave of absence.

I also agree with some of Motley Fool's picks for 2011, in particular:

Altria Group (MO)
Dendreon (DNDN)
Gammon Gold (GRS)
Intuitive Surgical (ISRG)
Range Resources (RRC)
Valero Energy (VLO)

But definitely not Yahoo! (!)

Happy hunting!

Impact of capital gains tax on U.S. investments

2010-10-31T06:44:00.000-07:00

The reduced 15% tax rate on qualified dividends and long term capital gains is currently scheduled to expire on December 31, 2010.

Unless the U.S. Congress extends the reduction (which seems increasingly unlikely, given the lack of a bipartisan consensus on this and other tax reduction extensions), this means that in 2011, dividends will be taxed at the taxpayer's ordinary income tax rate, regardless of his or her tax bracket; and the long-term capital gains tax rate will be 20%.

All eyes will be on the lame-duck session of Congress after the November 2 elections. Even though President Obama and the Democrats have indicated this is one tax reduction they might consider extending (as well as the tax reduction for those earning less than $200,000, or $250,000 for couples filing jointly), it is possible that gridlock and partisanship will set in.

Thus, if you have been considering selling shares or other investments that have a considerable capital gain, it might be to your advantage to do this before December 31st.

There is a similar situation with the estate tax, which will jump from 0 % on Dec. 31st to 55 % on Jan. 1st, barring Congressional action. Other than emulating the plot of "Through your Momma off the train", the only option to get around this is through a donation, which is taxed at a 30 % tax rate.

It is possible that avoiding the increase in the capital gains tax will lead to a significant bear market in the coming two months in the United States, as investors rush to sell before the tax increases. Of course, if the fall in the share price exceeds the difference in the tax rate, it would not be to your advantage to sell.

How to buy shares in Facebook, Zynga, Groupon, ICQ and other new stars

2010-10-30T12:53:00.000-07:00

The hottest social networks and other new media stars have not yet launched an IPO (I am talking about companies like Facebook, Twitter, Zynga, LinkedIn, etc.).

However, there are two ways to buy pre-IPO shares:

1. Through the secondary market, as this Financial Times article spells out. You have to go through private equity firms, through investment funds, or through a secondary market, such as SecondMarket.

2. Or, you can buy shares in companies that, in turn, own shares in such new companies. Some examples are Microsoft or Google, but a greater exposure can be had through mail.ru Group (formerly known as Digital Sky Technologies), which itself will be launching a London-based IPO for global depositary receipts on the LSE under the ticker ‘MAIL’. mail.ru Group holds 10 % of Facebook, owns ICQ, and has large stakes of shares in Zynga, Groupon, and Russia’s biggest social network, vKontakte.ru

Further details on the MAIL IPO in techcrunch.

Interesting IMF study on housing prices

2010-10-08T08:47:00.001-07:00

Interesting IMF study on housing prices.

In particular:

house prices in the United States and other advanced countries have already undergone substantial corrections since 2008. So in most countries, house prices have moved much closer to their economic fundamentals (see Chart 3). Our econometric estimates indicate that if the remaining adjustment were to happen over five years, house prices would fall modestly—an average annual rate of between 0.5 percent and 1.5 percent.

For countries such as Spain and Ireland there is an additional reason to expect slow recovery. In these countries, the construction sector grew much more rapidly than other sectors of the economy and became the engine of growth. The housing bust has thus brought severe contraction in construction output and employment. The unemployment rate is now three times its 2000–07 average in Ireland and twice its 2000–07 average in Spain, compared with a 20 percent increase on average among euro area countries.

and problems in the housing market and the labor market are intertwined: U.S. states where the house price bust was more pronounced are also where employment has fallen the most

(that is, Nevada, Arizona, Florida, California).

In sum, in my opinion, prices should fall a little in the U.S. (particularly in States with high unemployment, and in which the prices have not fallen as much yet, such as Michigan and Rhode Island), and a more in Great Britain, Austria, France and Spain (where the actual adjustment has been significantly less than the IMF-predicted adjustment).

Great magazine on Latin American Investments

2010-10-06T09:44:00.000-07:00

Looking for information on investments in Latin America, I came across this fantastic magazine: "Alternative Latin Investor"

http://www.alternativelatininvestor.com

In the most recent issue (No. 6, September 2010), these articles might be of particular interest:

Infrastructure
Municipal Bonds in Latin America

Emerging Markets
Investment Flows and Stock Market Returns

Art
Pinta: The Contemporary and Modern Latin American Art Show

Philanthropy
Ashoka: Inspiring and Supporting Tomorrow’s Leaders

Renewable Energy
Opportunities in Argentine Biodiesel

Hedge Funds
The Spectrum of Investors for Latin American Hedge Funds by Merlin Securities

Goldman's VIP list

2010-09-22T08:50:00.000-07:00

Fascinating list of stocks predominantly owned by hedge funds, prepared by Goldman Sachs.

The Goldman Sachs 'Very Important Positions' list aggregates the top 50 positions held by hedge funds that utilize fundamental investment strategies.

Among those new additions to the list this quarter are: Tyco International (TYC), Cognizant Tech Solutions (CTSH), Barrick Gold (ABX), Viacom (VIA.B), Covidien (COV), Freeport McMoran (FCX), Covanta (CVA), Davita (DVA), Schlumberger (SLB), US Bancorp (USB), Halliburton (HAL) and General Electric (GE).

Several of them are gold and mining-related.

High-yield dividends

2010-08-25T06:06:00.000-07:00

I came across this excellent note on companies with a high-yield in dividends.

Many of the companies are REIT or Business Development Companies (BDC), which are required to distribute most of their earnings in the form of dividends.

Among those mentioned are:

Company Yield %

PDL BioPharma (Nasdaq:PDLI) 16.89
Anworth Mortgage Asset Corporation (NYSE:ANH) 15.02
Annaly Capital Management (NYSE:NLY) 15.47
Frontier Communications Corporation (NYSE:FTR) 13.33
Alpine Total Dynamic Dividend (NYSE:AOD) 12.11
Apollo Investment Corporation (Nasdaq:AINV) 11.65
MFA Mortgage Investments (NYSE:MFA) 10.48

Another note has an interesting overview of the Business Development Companies.

Business development companies are similar in some respects to a REIT in that they must pass on 90% of their income to shareholders. In addition BDCs may not place more than 5% of assets in one company, can't own more than 10% of the voting stock and can't invest more than 25% of their assets in companies that are considered to be in the same industry. This provides a modicum of diversification.

Of particular interest, perhaps, Apollo Investment Corporation (AINV), which allows retail investors to invest in a quasi-private equity environment.

According to the Morningstar Equity Research Profile,

Externally managed by the private-equity firm of the same
name, Apollo is a closed-end business-development
company that invests in the debt and equity issuances of
middle-market companies. Subordinated debt, second-lien
loans, equity, and preferred stock make up 58%, 26%, 13%,
and 3%, respectively, of its investment book.

Brazil is (probably) coming down

2010-08-24T01:19:00.000-07:00

The iShares MSCI Brazil Index ETF (EWZ) is probably coming down.

It has already fallen from its 52 week high of 80.93 (reached in January) to 68.3 (with a fall of -1.7 % just yesterday).

However, it is still probably over-valued, for several reasons:

a) the Brazilian real is over-valued.

b) Emerging Market stock indices are over-valued in general, including Brazil's (the EEM Emerging Markets index ETF is down from 46.66 to 40.65 in the same period).

c) Many commodities that Brazil exports are over-valued (including agricultural and mineral products), and will probably fall in price given China's slowdown.

d) the Brazilian economy is slowing down, posting a negative growth (or fall) of -1.0 % in industrial production in June 2010 (the third consecutive fall).

e) Lula's handpicked successor, Dilma Rousseff, is gaining in the polls, and may prove to be more populist and leftist than Lula (particularly in economic policy).

Other than shorting EWZ, another way to benefit from this fall would be to buy ProShares Ultrashort MSCI Brazil (BZQ).

Doing well by doing good

2010-06-22T03:38:00.000-07:00

These three SICAV (the European equivalent of an ETF) offer the opportunity of obtaining a fairly good performance by investing in development-oriented and socially responsible funds.

1. responsAbility Global Microfinance Fund, ISIN: LU0180190273, has managed to have a positive return in each of the past five years!

Overall it is up an annual average of 3.83 % in the past five years; not much, but much better than the markets! The fund's objective, according to its fact sheet, is "To invest its assets in securities with which financial service companies in less developed countries are financed and/or refinanced".

2. CHOIX SOLIDAIRE (C) SICAV, FR0010177899.

This one has had a less smooth ride (2008 was a bummer year), but overall it has also achieved a positive return in the past 5 years (+3.11 %).

According to Google Translate (a great tool!), "The Fund aims to beat its benchmark (75% EONIA + 25% DJ Eurostoxx) by allocating diversified equity and fixed income products selected in consideration of ethical criteria".

Does being ethical mean never having to say you are sorry?

Here is a Guide to Ethical Investing. "These charts show that you don’t necessarily have to sacrifice investment performance when investing ethically", it claims.

3. DWS Invest Africa LC, LU0329759764.

After a very bumpy start, this fund that invests primarily in Africa has had a gangbusters ride. It's "Tax Year Return" was 78.9 %!

It's investment objective is: "At least 70% of the sub-fund’s total assets (after deduction of liquid assets) are invested in shares, share certificates, participation and dividend-right certificates, and equity warrants of issuers which have their registered offices or their principal business activity in Africa or which, as holding companies, hold the majority of interests in companies registered in Africa, particularly in South-Africa, Egypt, Mauritius, Nigeria, Morocco and Kenya".

Africa may be the flavor of the month, but if you consider that it is a Region that has a huge need for capital investments, and a long way to go in developing their capital markets, there are many opportunities ripe for the picking.

In any case, I would advise you to devote at least part of your portfolio to socially and environmentally sustainable investments (also known as SRI).

Here is the definition from EUROSIF: "Socially Responsible Investment (SRI) combines investors' financial objectives with their concerns about social, environmental, ethical (SEE) and corporate governance issues. SRI is an evolving movement and even the terminology is still very much in the evolving phase. Some SRI investors refer only to the SEE risks while others refer to ESG issues (Environmental, Social, Governance). Eurosif believes both are relevant to SRI. SRI is based on a growing awareness among investors, companies and governments about the impact that these risks may have on long-term issues ranging from sustainable development to long-term corporate performance".

Considering the recent BP oil spill, and the huge liabilities faced by tobacco and chemical companies, perhaps they have a point.

Emerging Markets Index comes down, as predicted

2010-05-26T05:39:00.000-07:00

In January, I had forecast that the EEM (iShares MSCI Emerging Markets) would "come down to at least 35 within the next 6 months".

As of this writing, it has come down to 36.9.

Feels good to be right :-)

Lithium stocks revving up

2010-05-26T05:21:00.000-07:00

Lithium stocks have taken off, as forecast several months ago.

Rockwood Holdings - up from a low of 11.96 to 24.35 per share
Western Lithium - up from 0.53 to 0.95
Lithium One Inc. - up from 0.73 to 1.35
Lithium Corporation - up from 0.50 to 0.77
American Lithium - up from 0.31 to 0.88

With the Gulf of Mexico oil spill, continuing troubles in several oil-exporting countries, and the subsidies to green growth, hybrid and electrical-car related stocks should continue to do well.

Spanish stocks and Greek bonds

2010-05-10T05:40:00.000-07:00

As of this moment, Spanish stocks have rebounded 13 %

Can't say I am surprised.

The immediate cause is the 750 billion euro "emergency fund" created by the European Union and the IMF to bolster the euro and the European economies.

But the truth is that, as always, markets had over-reacted to the Greek debt crisis, and the rumors of contagion (to Portugal, Ireland, Spain and even the UK) had grown out of hand.

In any case, I would recommend purchasing Greek bonds and Spanish stocks, at least until they recover their January levels.

There are several Spanish index ETFs. Essentially, buy European and national stock ETFs: http://www.marketoracle.co.uk/Article19050.html

They ain't no fools

2010-05-05T01:59:00.000-07:00

I am starting to believe that these Motley Fools are no fools.

Since I bought VMWARE and Akamai, based on their advise, they are up 40 and 83 %, respectively!

I think I am going to try to buy into their new mutual fund, FOOLX.

I had been thinking of buying some of the stocks they own any way, such as Berkshire Hathaway Inc. B (BRK.B) and Yum Brands, Inc. (YUM).

Euro-denominated bond with a 12.71 % yield?

2010-04-26T08:35:00.000-07:00

As of this writing,

The Greek two-year bond yield jumped 258 basis points to 12.71 per cent – a fresh high since the country joined the euro in April 2001. The premium investors demand to hold Greek bonds over German bunds also rose to 12 percentage points.

I find this completely absurd.

While the Eurozone + IMF financial rescue package will take a few days to put together, Greece will not default any time soon (and by any time soon, I mean in the foreseeable future).

Thus, essentially, you can get a 12.71 "pretty secure" yield on the two-year bond; or, better yet, purchase the 2019 Greek bond (GR0124031650), with a coupon of 6.000, and a current yield of 9.7 %.

Even less likely to default is Spain (which has a lower debt-to-GDP ratio than the U.S., the UK, Italy and Japan, not to mention Greece).

But don't take my word for it:

Finance Minister George Papaconstantinou warned investors they will “lose their shirts” if they bet the cash-strapped nation will default.

Sobre el colapso de la economía argentina en el siglo XX

2010-02-16T03:47:00.000-08:00

Escribi esta breve nota en respuesta a un comentario de un amigo:

- es cierto que la inestabilidad ha generado problemas en la conducción de la política económica, pero más grave aún ha sido la orientación de la misma (populismo económico). Esto ha llevado a la economía argentina a caer de la octava de mundo en 1900 al puesto No 84 en el 2008 (ingreso per capita en el 2008, ligeramente superior al de Panamá).

- Aquí una interesante comparación del crecimiento en Argentina y Australia: http://www.cei.gov.ar/revista/06/parte%204beng.pdf

- EL PIB per capita de Argentina no creció en absoluto entre 1975 y 2001.

- Este articulo de Isabel Sanz compara el crecimiento económico en Argentina, Australia y Canadá (http://www.ekh.lu.se/ehes/paper/IsabelSanz-mayo2007%20(2).pdf). Destaca que el PIB per cápita de Argentina superó a Canadá hacia 1900, y se aproximó al de Australia. El declive más pronunciado del PIB argentino se produjo tras 1950 (no coincidentemente, Perón tomo el poder en 1946).

- Para el 2008, los PIB per capita respectivos son: $41,730 para Canadá, $40,350 para Australia y $7,200 para Argentina (según el método Atlas; según el método de Paridad de Poder de Compra, $36,220 para Canadá, $ 34,040 para Australia; $14,020 para Argentina. (http://siteresources.worldbank.org/DATASTATISTICS/Resources/GNIPC.pdf)

- El artículo de Isabel Sanz, atribuye el colapso económico en Argentina al deterioro de un “índice de libertad económica reducido”, igualmente tras 1950 (y nuevamente en 1970-75; no coincidentemente, Perón y su esposa volvieron al poder en 1973-76). “This index consists of a series of macroeconomic variables – including the relative weight of public consumption compared with total consumption, the real depreciation rate of the currency, the level of nominal protection and the difference between the official and the market rates of exchange”.

- En términos generales, discrepo con quienes piensan que se puede “aumentar la competitividad” devaluando o depreciando el tipo de cambio. La productividad real solo aumenta mediante inversiones en capital físico y humano.

- La devaluación o depreciación monetaria se traduce, a mediano plazo, en mas inflación, y por ende no altera los precios relativos (excepto, quizás, puede disminuir los salarios reales y los ingresos erales de los pensionistas).

- Manejar un esquema de tipos de cambio múltiples es una receta para la catástrofe económica (demostrado, empíricamente, en el estudio de Sanz citado).

The cointegration analysis carried out between this index for Argentina relative to Australia and Canada and the respective series of relative Argentinean GDP per capita lead us to the conclusion that Argentina’s comparative economic performance may have been shaped and caused by the different level of economic freedom present in this country throughout the period under consideration. Consequently, this study identifies macroeconomic results as being responsible for Argentina’s economic failure and her relative loss of ground

Donate to Haiti earthquake victims today

2010-01-21T02:25:00.001-08:00

Please donate what you can to provide immediate and urgent assistance to the victims of the earthquakes in Haiti.

Some reputable organizations which are already working on the ground, are the following:

American Red Cross:

http://www.redcross.org/

(you can also receive frequent flyer miles on some airlines for your donation; for example:
http://american.redcross.org/americanairlines-pub)

Doctors without Borders:

https://donate.doctorswithoutborders.org/

Oxfam

http://www.oxfam.org/haitidonate

(through Facebook Causes: www.causes.com/haitiquake)

World Food Programme:

https://www.wfp.org/donate/haiti

(through Facebook Causes: www.causes.com/feedhaiti )

Give a loved one a Gift donation:

http://exchange.causes.com/

UN Foundation

http://www.unfoundation.org

Other options:

http://www.google.com/relief/haitiearthquake/

Find a charity with a proven track record of success in providing disaster relief and one that has worked in Haiti; avoid possible scams. Start with the list of charities on this list:

http://www.charitynavigator.org/index.cfm?bay=content.view&cpid=1004

Detailed information about the emergency response available at:

http://www.reliefweb.int

Please donate what you can today!

Ten money-making ideas (and comments)

2010-01-12T02:41:00.000-08:00

In general, I like Marketwatch's "Ten money-making ideas for 2010", by Jonathan Burton.

A few comments:

1. Some asset classes are clearly entering into a bubble, as highlighted by The Economist in this week's cover story. This would include Chinese, Argentine and Brazilian stock markets, among other emerging markets.

2. I agree that some pharmaceutical stocks are undervalued, including Pfizer.

3. In contrast, some tech stocks are clearly overvalued, including Amazon, Apple and Google. I do like Microsoft, IBM and Oracle, as Mr. Burton does.

4. I always recommend "plain vanilla" index funds, such as those tracking the S&P 500.

5. Although oil prices have been rising in response to the cold front in most of the Northern hemisphere, this is probably not sustainable. Other indicators suggest that - the current freezing temperatures notwithstanding - 2010 should be the hottest year on record.

6. I do have to disagree with the "bullish sentiments" on the U.S. dollar. The sky-high deficits do not bode well for the greenback, and already it has fallen back compared to the euro and the yen.

7. I completely disagree with the advise on emerging market index funds (such as iShares MSCI Emerging Markets, EEM). This encapsulates the bubble in emerging market stocks, and will clearly collapse in the coming months. Currently, EEM is trading near its 52-week high of 43.47, and it should come down to at least 35 within the next 6 months.

The main problem with the note is that it does not factor in a very likely rise in inflation and interest rates (except in the recommendation to avoid long-term government bonds). Alternative investments, as mentioned before on this blog, are gold and other commodity ETFs, as well as TIPS (Treasury Inflation-Protected Securities), and some staple goods ETFs.

Happy New Decade!

The Year of Living Dangerously

2009-12-01T06:40:00.000-08:00

2009 will enter the history books as the first time that global GDP contracted.

It is possible that there was a world-wide fall in production during the Great Depression, but global statistics were not yet estimated at the time (as the IMF and the World Bank had not yet been created).

Another way to view it is that in 2009 more than 80 % of the countries of the world were in recession, something that had not occurred since the Great Depression.

The IMF’s World Economic Outlook (October 2009) estimates a fall in global GDP of -1.1 %.

The collapse in production would have been even worse, had it not been for the relative stability in China (GDP growth rate estimated at 8.5 %) and India (5.4 %).

The former “world economic engine”, the United States, had already entered in recession in December 2007, and will end 2009 with a -2.7 % contraction.

The contraction will be even more pronounced in Europe and Japan. In the euro zone, production will fall by -4.2 %; in UK by -4.4 %; and in Japan by -5.4 %.

The worst-performing economies worldwide are the Baltic states: -18.5 % in Lithuania, -18.0 % in Latvia, and -14.0 % in Estonia. These countries, together with Iceland, suffered a spectacular bursting of the real estate bubble, together with high levels of euro-indebtedness. Other countries with double digit contractions (depression?) were: Armenia (-15.6 %), Ukraine (-14.0 %), and Botswana (-10.3 %).

The stellar performers, apart from the aforementioned Chindia, were: Afghanistan (15.7 %), Qatar (11.5 %), Bhutan (8.5 %), Ethiopia (7.5 %), Azerbaijan (7.5 %) and Congo D.R. (7.4 %). However, in some of these cases (Afghanistan, Ethiopia, and Congo) this growth corresponds more to a recovery from their war-wracked economies.

Among the 30 OECD countries, only Poland (1.4 %), Australia (0.8 %) and South Korea (0.1 %) showed a (barely) positive growth.

The oil-exporting countries contracted by -2.1 %, whereas the net exporters of other products expanded by 2.6 %.

Latin recession

Latin America and the Caribbean are expected to contract by -2.5 % (after growing by 4.2 % in 2008). Mexico suffered a collapse of -7.3 %, as it was particularly affected by the fall in trade with the U.S.

Some Caribbean countries also suffered a severe recession (Antigua -6.5 %, Granada -4.0 %, Bahamas -3.9 %, Jamaica -3.6 %, Barbados – 3.0 %), due to the fall in tourism and the impact of hurricanes and other natural disasters.

Other Latin American countries with a dismal performance are Paraguay (-4.5 %), Argentina (-2.5 %), and Venezuela (-2.0 %; industrial production has already fallen in Venezuela by -12.4 % until June).

While quarterly GDP estimates are not yet available for the third quarter in Ecuador, GDP had fallen by -1.8 % until the second quarter, and more recently there have been severe energy shortages; thus, the contraction in GDP should reach 2 %. Unemployment in Ecuador has increased from 6.4 % in June 2008 to 9.1 % in September 2009, while investment (gross fixed capital) had fallen by 4.5 % until the second quarter.

Recovery, except for the Bolivarians

The IMF estimates a global growth rate of 3.1 % for 2010.

Among advanced economies, the best performers will be Singapore (4.1 %) and South Korea (3.6 %). China should recover a 9 % growth rate, and India 6.4 %.

The average for Latin America in 2010 will be 2.9 %. The stars in the Region will be Peru (5.8 %), Chile (4 %), Guyana (4 %), Paraguay (3.9 %) and Brazil (3.5 %).

However, the Bolivarians will continue to contract (Venezuela -3.4 %, Antigua -1.5 %) or show paltry growth rates (GDP declines in per capita terms): Nicaragua 1 %, Ecuador 1.5 %.

The four horsemen of the Apocalypse

A lingering effect of the crisis will be the increase in unemployment, together with an increase in poverty, hunger and malnutrition.

For the 30 OECD countries, average unemployment is expected to rise from 5.6 % in 2007 to 9 % in 2010 (8.6 % was already reached in September 2009). The recovery has a lagged effect on employment generation, as the initial effect is an increase in productivity, and reluctance by firms to hire long-term workers.

Latvia has reached a 19.7 % unemployment rate, and Spain is not far behind, with 19.3 %. The United States has breached the two digit barrier, at 10.2 %, the highest rate in 16 years.

The International Labor Organization (ILO) estimates that global unemployment could increase by 50 million workers, reaching a total of 230 million worldwide (a historical record). This is equivalent to 7.2 % of the workforce.

In Latin America and the Caribbean, the ECLAC and ILO estimate an average urban unemployment rate of 8.5 %, an increase of 2.5 million unemployed, for a total of 18.4 million urban unemployed. The highest levels observed were Colombia (12.6 %), Chile 10.2 %, Ecuador (9.1 %) and Argentina (9.1 %).

The increase in unemployment is reverting the significant decline in poverty rates that had been observed in recent years. Based on a daily $1.25 poverty line (adjusted by purchasing power parity, PPP), extreme poverty had declined from 1.8 billion in 1990 to 1 billion in 2008, thanks mainly to reductions in China, Brazil, India and East Asia.

Based on a $2 per day poverty line (PPP-adjusted), poverty should increase to 39 % in 2009, or 2.2 billion people, an increase of 64 million people.

In Latin America, poverty ($2 PPP per day poverty line) is likely to increase by 1.1 %, an absolute increase of 8.3 million people. This also reverts a downward trend: from 240.6 million in 2002 to 181.3 million in 2008.

The World Food Programme (WFP) estimates that hunger will afflict more than 1 billion people world-wide, an increase from 846 million in 2007.

The crisis in developed countries has also led to a reduction in remittances to Latin American and Caribbean countries, estimated by the Multilateral Investment Fund at 11 % in 2009. This is the first time that remittances have fallen since the MIF began to track them in 1999.

Stimulating policies

The OECD countries adopted a variety of stimulus packages, including the financial system bailouts; increase in public investment in infrastructure; subsidies to create (or conserve) jobs; extension to unemployment insurance; subsidies for investment in R&D, and in particular “green technologies”.

Six advanced economies (South Korea, the US, Australia, Japan, Turkey and Canada) introduced fiscal stimulus packages for 4 % of GDP or more. China (19 %) and Russia (8 %) went even further.

Part of the stimulus packages were geared towards “green technologies”, aimed at reducing greenhouse gas emissions. Among other countries, this included Australia (AUD 5.7 billion, 0.48 % of GDP); Canada (CAD 2.8 billion, 0.18 % of GDP); Germany (5.7 billion euro, 0.2 % of GDP); and the US (US$ 59 billion, 0.41 % of GDP).
Brazil, Chile and Mexico also extended unemployment insurance or subsidies to generate jobs.

Argentina, Brazil, Chile, Mexico and Peru also launched stimulus packages of fiscal investment in public works, worth a total of US$ 25 billion (or nearly 1 % of GDP).

The IMF indicates in its Regional Economic Outlook that Argentina, Ecuador and Venezuela did not have the capacity to adopt counter-cyclical polices as Brazil, Chile, Mexico and Peru did), because they had observed a pro-cyclical expansion in public expenditures before the crisis struck (Ecuador, for example, dismantled in 2007, under Correa, its “rainy day fund” based on oil income; in stark contrast with Chile’s copper sovereign wealth fund).

Venezuela and Ecuador, in particular, did not have fiscal space to launch a counter-cyclical policy. According to the World Bank, they suffered from an initial fiscal deficit; high dependence on exports of commodities; public expenditure rigidity; restrictions in access to external finance; and high financial costs.

Investment competitions in France

2009-11-19T07:28:00.000-08:00

I have entered two investment competitions sponsored by the magazine "Capital", capital.fr, in France.

One is to invest a fake 5 million euro portfolio in different currencies. In order to do so, you create a "demo" account in RTFX, through the magazine competition page, and buy or short seven different currency combinations (only major currencies, unfortunately - otherwise, I would be buying Australian and Canadian dollars :-)

The accounts with the top 20 performances win a total of 27,000 euro each month, which is then placed in a real account.

At the end of the competition, 100,000 euro is divided amongst the best 15 performers.

It is fun, and after a couple of hours of competition, I have won about 3,000 (fake, alas) euro - betting against USD, GBP and JPY, and in favor of EUR and CHF - no great science, there.

The same magazine has another competition, in which you invest 1,000 real euro in French stocks and bonds. The top 20 investors each month share 40,000 euro in prizes. To participate in this competition, you have to fill out a long questionnaire, and send a check (or transfer) for 1,000 real euro.

This is a fun way to practice your investment skills.

By the way, why is the plural of euro "euro"? In other languages, euros is used!