This video stands to have an ancillary impact on your income if you were not included in any of the above professions.

Note that the impact is not zero for anyone.

To wit:

“Any of you in corporate America who use the word, ‘brand’, please stop. Now. And don’t use that word again. Because brand is people like me creating words that have no meaning, trying to sell things that people probably don’t need and trying to explain things that aren’t important. Brand is cheap, brand is fake. Trust is everything, trust is real.”

“The rule of expectations is probably the most important when it comes to business or politics, which is that it is better for people to expect less and get more than it is for them to expect more and get less.”

Those are just two examples of what’s in there.

The speaker is Frank Luntz, an occasional contributor to Fox News. If you have a problem with that data point, consider that his advice and research is applicable across the political divide.

And now I’m gonna drop an even bigger BUT on you: it’s an hour long. Suck it up. Today’s Friday. Consider it an hour you won’t spend watching [insert latest trendy TV hit show here].

Trust me, this’ll have a far bigger impact on your bottom line.

The source link is here.

Malaysia government bond yields fall post-elections:

While Indonesia government bond yields rise after S&P reduced its outlook on Indonesian credit from positive to stable:

Related reading: How Singapore’s currency club fell apart

This one was the leader, showing average real GDP per capita from 1980 to 2000:

Here we have slides showing variation in GDP per capita across the Middle East and North Africa since 2001. Notice the y-axis scale difference between the Gulf states in the rightmost chart versus North Africa and “core” Middle East:

An approximate comparison of just how miniscule FDI flows to the region relative to the world:

Of the FDI that does go to the region, we shouldn’t be surprised to find more of it going to the oil producers than to the non-oil producers:

And yet expected GDP growth for the coming few years is expected to be mostly uniform:

Finally, intra-regional FDI against total FDI to the region:

The link to the full hour panel discussion is here and embedded below. If MENA development is your gig, I guarantee there’s something in there for everyone, from diplomats to venture capitalists and anyone in between. For my time, by far the best bang for the buck commentary comes from Chris Schroeder, who starts speaking at approximately minute 36. This man talks way too fast for me to transcribe or bother quoting any of it, but suffice it to say he depicts in words far more illustrious than any of these charts the economic potential the Arab World possesses.

Sourced from the Economist, on a recent Boston Consulting Group study entitled, “Strategies for Improving Well-being in Sub-Saharan Africa”.

Seriously, how many slice of life stories do we really need to read about Manuel the carpenter/mechanic/cab driver in Toluca/Cali/San Jose who just paid for a new dishwasher in monthly installments with remittances sent from his 1/3/7 relatives in the US ?

Enter, unexpectedly, the World Economic Forum on Latin America, which just wrapped in Peru the week before last. I never expected a WEF gathering to nail it, but nail it they did in a panel entitled, “Unleashing the Power of the Middle Class“, whose commentary I promise you is far more compelling than the session title.

I don’t blame anyone for not having an hour to sit through this (that’s what I’m here for), so what we have here instead are two of the smartest things I’ve heard anyone say about the so-called “middle class” of Latin America since I don’t know when:

At about 16:00, Marcelo Cortes Neri, Brazil’s Minister of Strategic Affairs:

Just one small point with respect to this in terms of definition. I think when we talk about middle class, we talk very much about US or European definitions, where you have two cars, two dogs, two kids and I don’t think this is a good definition in my opinion.

I think we are having two kids which is important, gives you sustainability, but I think if we look at the US and Europe, we will see ourselves as poor–they are the richest in the world–so I am very much in line with the Minister’s idea, we have to look within our communities and countries, and I think if we do that, the world here…because Latin America actually in terms of its income and its very high inequality, but this is a very good picture of the world, so I don’t think we should import definitions from developed countries, otherwise we are not going to see ourselves moving; we are going from someone whose income changed from $1,000 to $2,000, and you look up, you say well nothing changed in this guy’s life, but there’s a revolution going on.

One last point: I think it would be very tough to respond to the aspirations of the Latin American middle class because we have very high aspirations. Latin Americans are very positive toward their future, it’s more…if you are controlling for income, nobody is more optimistic to the future than Latin Americans. So this is tough.

I’ve been saying this in some way or another for years now, but Minister Neri actually put it in far more eloquent language.

The second comment, which comes at 30:00, is Augusto de la Torre (no relation to yours truly) Chief Economist, Latin America and the Caribbean, World Bank. And disregarding the aforementioned inappropriateness of the phrase “middle class”, what he has to say could not be more true:

I’d like to add a dimension which we highlight in our report. We are excited about the growth of the middle class because people have a better life. But we are also excited because we believe deep down that the bigger middle class will make for better societies. So there is this correct perception that the middle class is associated with citizenry. That middle class people are more educated, they have better jobs, they have a better understanding of what the common good is, and they can push for better institutions, they can reduce the levels of corruption, monitor the government so they can produce better education, etc.

So we did some exercises on this and we found it is not so simple. When we look at the world as a whole and you do the statistics, you do find very good positive associations. Countries that have larger middle classes have lower corruption, better institutions, better government spending, quality, freer markets, better property rights. So these associations are what inspire us. But we have also found, and this is the troublesome part, that the Latin American middle class does not seem to be opting into a better social contract. In fact, what we found was evidence that the middle class in Latin America has a tendency to opt out of the social contract.

Let me give you a couple examples to explain what I mean. The moment a Latin American household becomes a middle class household, the first thing they do is take their kids out of public schools and put them in private schools. They no longer are concerned about the quality of public education as a result. You go to the Dominican Republic, the moment you are a middle class family, you buy your own electricity generator, because you don’t want to trust public electricity services. So once you have your generator, you don’t care about the quality of the public good of energy.

Or when you become a middle class in many Latin American cities, you try to buy a house in gated communities, they have walls, they have private security, because you’d rather not rely on the public police. So you could end up in a bad equilibrium.

So rather than what you would expect, which is a middle class which contributes to better institutions, more public goods, more cohesive society, better citizens, you may end up with a middle class that opts out and finds private ways of solving their own problems. And their interests may diverge from the public good.

Now let’s close this by going back  to the meta. It seems to me that so many people are so desperate for certainty that they resort to the flimsiest of evidence and the sloppiest of explanations to lean on for decision making. In short, sounding like you know what you’re talking about has in some ways become more significant than actually knowing what you’re talking about. And the pithier you sound, the more you’ll be quoted,  and the more you’ll be recognized, which just goes around and around until you wind up with some signalling phrase like “Latin America’s growing middle class” which really, when you get right down to it,  has absolutely zero meaning.

Some telling data points on the cost of the “experience” have come across my radar recently which I thought it appropriate to share here. The full extent of what I was sent actually covered a range of major US sporting events in the coming year and is likely more than what would be of interest to most people. To give you an idea, the second most extravagant on the list — the VIP package for the Masters Tournament at Augusta National — came in at not even 1/10 the cost of the Super Bowl package. Anyway, on to the dollar signs…

Bearing in mind the cost to air a 30-second television ad during this past January was $4 million and that the starting price of resale tickets to average fans was somewhere above $3,000, the following was sent to me as a solicitation for a “Luxury Suite Donor Program Investment” for the 2014 Super Bowl:

The total cost is $540,000. This includes the following:

• Private Luxury Suite – 30 people
• Taste of NFL Event tickets – 8 people
• Commissioner’s Lunch tickets – 4 people
• Donor Cocktail Party with NFL Owners – 4 people
• Golf Outing with NFL Owners – 4 people

As well as the following bells and whistles:

• Premium in-stadium venue (open 3 hours pregame and reopens for 90 minutes postgame)
• Full premium menu and top shelf open bar (pregame)
• Select menu items, beer, wine, and soft drinks (postgame)
• Player and cheerleader appearances
• Interactive entertainment elements and more
• Super Bowl XLVII Gift Bag
• Exclusive Stadium Collection Game Program Voucher
• Super Bowl XLVII Lanyard with Ticket Sleeve
• Dedicated security entrance to the stadium on Super Bowl Sunday
• Preferred on location stadium parking (parking fees not included)
• Exclusive Postgame Field Access – once in a lifetime chance to experience the Super Bowl the way the players do: from the field

The following firms have apparently already ponied up $1 million each for the above package: Bank Of America, BlackRock, BNYMellon, Bud Light, JP Morgan Chase, Citibank, Competitor Group, Dassault Falcon, Goldman Sachs, S.A.C. Capital Advisors, Honeywell, Hertz, Hess, Jeffries Group, Tiffany & Co, Morgan Stanley, NCR, NYSE Euronext, New York Times, Pepsi, PSE&G, Price Waterhouse, R.R. Donnelly, Starr Companies, Paul Tudor Jones and Verizon.

I suppose I should I feel grateful to have access to a 46% discount to the $1 million these other institutions paid?

I don’t have the data at the ready, but my understanding is that comparable VIP treatment for World Cup or Formula One events don’t quite reach this level.

Oh well. As my grandfather was fond of saying, “Every price has a reason.” Maybe some day I’ll be in business with someone who will benefit by footing the bill for these things.

Or maybe not.

Accompanying it is a rather lengthy article (here), not to be missed, detailing the evolving intelligence challenges since Enrique Peña Nieto took office.

Also not to be missed is David Agren reporting in USA Today on the Peña Nieto Administration’s apparent new strategy which can be essentially summed as: “If we stop talking about the murders, that must mean they’re not happening anymore.”

Do not be fooled.

Why to travel abroad while you’re young… or not so young

I was talking to about travel with a close friend of mine recently. I was showing him the twenty or so countries I’ll be living in or visiting in the next year or so, and I could tell he was intrigued.

His mind was blown when I said my hotel room in Siem Reap, Cambodia would cost $9 a night. Private room. Private bath. Free wi-fi and breakfast. No forced labor in the afternoons.

Then he went on to tell me how he had all the opportunities to travel when he was younger. He could have taken the summer after high school to backpack through Europe with friends. Then he could have taken a year exploring the world before going back to grad school. Then he could have taken time off from work to go to England with his friends.

But he never did.

When you’re young, the opportunities to travel are overwhelming. Yet so many people give up on their dreams to follow the herd. Whether it’s college, grad school, a job with a cubicle, or whatever else, we’re programmed by society to sacrifice what we want to fit in.

If I had to give advice to any young person about what to do with their life, I’d say one thing: travel.

It may sound odd to hear that. After all, aren’t we all different? Don’t we all have different goals? Yes we do. But travel transcends so many of those goals and offers so many unique benefits that will shape your life. It will help you see the world works outside of a classroom and a textbook. Let you experience other cultures firsthand. Reduce your sense of dogma. Give you lessons that can’t be learned anywhere else.

Because travel is the real world. Unfiltered. It’s raw.

I’m not saying to pack your bags for two weeks and go to Paris. That’s all well and good, and it will imbue a certain sense of culture in you. But I want you to take some serious time and go to the furthest corners of the world. Ride an elephant in India. Have tea in a hutong in China. Take the slow train in Myanmar. These experiences will not only provide a sense of adventure, but they will teach you unique lessons about life.

I believe travel is the best teacher. When you travel, history comes alive and makes you understand why the world is the way it is. You’ll see firsthand things that work, and things that don’t. And you’ll learn that there usually isn’t just one “right” way to do something.

As I’ve discovered myself, travel opens the door to amazing world of opportunities. We all tend to be indoctrinated in our country’s culture growing up. If you’re in the United States, that means a lot of “rah-rah America” talk that leads to believe your country is the best place on earth, bar none.

For me, spending some serious time in dozens of countries has taught me that opportunity is everywhere in the world. It’s not limited to the place you were born in. And you quickly learn that you don’t have to settle in life. If your country isn’t providing what you need, you have options. You don’t have to be a slave to a specific patch of dirt.

Right now, kids in the west – and especially places like Spain and Greece – are facing enormous challenges. Some of them are even being forced to leave their country, not of their choice, but out of necessity in that they need to seek work. I don’t want you to be in this position. I don’t want you to be forced to leave out of desperation and merely hope for the best.

In recent months, I’ve visited a number of places in Asia that are booming. The Philippines, for instance, is a beautiful country not only to visit, but to live. They have some of the best beaches in the world. The people are among the most friendly and gracious of anywhere I’ve been – perhaps even as gracious as people in Japan. And living there is practically dirt cheap.

If you’re an entrepreneur, having 6% GDP growth can’t hurt either. You might set up shop and never look back.

Yet places like this aren’t often on the normal American tourist map. Many in the west are dismissive towards them. They know not that of which they speak. If more people got out and experienced the world, they would realize just how much they have to learn.

Take the time while you’re young to explore the world. Go off the beaten path. Go to countries no one you know has ever heard of. Determine what you’re passionate about and use the time overseas to find the perfect opportunity for you. Whether that’s starting a business or being a famous artist, find new ways to accomplish your goals around the world.

Because staying in your country can only limit your beliefs.

I frequently tell prospective students to skip college and pursue their passion. As freeing as going to college may sound, most college is about reinforcing limiting beliefs and pushing a specific set of views onto you. It’s confining.

I’ve learned more about business and investing by simply talking to the right people on multiple continents than I ever would have learned in class at the party school I dropped out of. While my former classmates are now largely working at soul-sucking corporate jobs with an asshole boss, I have the freedom to spend my next year across four continents plotting my next moves and sharing my findings with you.

I can’t say you won’t have your doubts. Change is hard, and fighting convention can be hard, too. Last week in Singapore, I had dinner with two expats from India and Russia. I told them how I occasionally – just occasionally – wonder about the road not taken.

The Indian girl quickly replied that despite working on the 29th floor of one of the most city’s luxurious buildings, with a gorgeous view of Marina Bay, most of her co-workers never put up their window shade. Never looked out upon the beauty that stared them right in the face. They just kept their head down. Never challenging the belief system they followed. Never asking if this was really what they wanted out of life.

Use your youth to get out and see the world. Don’t just take photos of this tourist attraction or eat at that cafe. Make it your mission to learn from everything you see everyday. To uncover the wealth of opportunities. To challenge your most closely held beliefs.

I assure you the lessons you’ll learn are more valuable than that of any classroom. And as my upcoming six months in southeast Asia proves, you can do it with very little money. Certainly less than a semester or two at some overpriced college. And you’ll be taking control of your own destiny rather than relying on some sheepskin that may or may not get you what you want out of life.

All the things you say you want will still be there when you get back. Colleges and grad schools, potential husbands and wives, corporate jobs… none of these are going anywhere. But saying “I’ll travel later” is nothing more than an excuse to avoid the mildly uncomfortable in favor of conformity.

As to my friend, he’s turning forty this year and feels his opportunities for travel are behind him. He and his wife will start having children soon and he says the ship has past.

Even if you’re not young, you can’t allow yourself to be held back by limiting beliefs. So what if you have a child? So what if you have a job you hate? Those who have a motivation to seek something better will do so. Take the steps necessary to free yourself from your limiting beliefs. We’re trained to think of the worst case scenario, but when you really think things through rather than emotionalize, you’ll realize this is an unlikely outcome.

So what if your job isn’t available when you get back? By opening up your mind to a new reality, you’ll be able to make the best out of the new opportunities you find. Perhaps you’ll find somewhere you love and realize you want to start a life there. Or you’ll discover a new business to free you from your old life. As for your kids, you’ll be giving them the best gift you can – a view of the world that will serve them the rest of their lives.

Many people believe that a Nomad Capitalist would only care about money, and making as much of it as possible. That view goes against our true goal: finding that which affords us the most personal freedom and happiness.

To find that is akin to jumping into a swimming pool. It’s a bit cool at first, but you’ll warm up in no time. And you’ll likely not want to get out. Whether you’re young or old.

Originally published yesterday here.

Gregoire Haenni, Chief Investment Officer, CERN Pension Fund, on why Asia has and will continue leading EMs:

One of the main reasons why investors are beginning to allocate into EM is because of the Asian sovereign credit re-rating trend. Asian sovereign credit fundamentals have generally been on the up for the last six years which is in contrast to other developed countries. The fiscal discipline and underlying economy growth has capped government debt to GDP without exceptions and trade surpluses over the past decade have resulted in a build up of foreign exchange reserves.

For the last six years, we have shifted from a rebalancing scheme from developing markets with Asia. This is due to four reasons; favourable demographics, debt levels and deficits, sustainable economic growth and policy actions. In Asian markets we see a growing population which is very young. You’ve probably heard the consumer theme where EMs in Asia are shifting their economies from an export driven model towards a domestic consumption model – this is very true across most of Asia. This shows that they are going to be less inclined to keep their currency weak because their economic model becomes less export driven. Our fear is that over time, they may become less inclined to buy U.S treasuries possibly resulting in long-term risk. This young and growing population will soon have a buying power and this will change the dynamics in Asia and EMs.

Greg Saichin, Head of Emerging Market and High Yield, Pioneer Investments, makes a pitch for EM corporate debt, reminding us that a large portion of this asset class didn’t necessarily just come out of nowhere:

Before 2008, a preferred method of accessing capital for Emerging Market companies was via syndicated loans. This financial product was preferred for ease of access, as well as the relative lack of public disclosure required to secure reasonably priced capital. In 2007, banks wrote $400m in syndicated loans in Emerging Markets. Between 2009 and 2010, as the Chinese economy accelerated from 6.2% GDP growth in the first quarter to 11.9% in the first quarter of 2010, most international banks were effectively constrained, leading to a drop in syndicated loan volumes to $175m. That pushed emerging market companies toward the bond market. Between 2008 and 2012, total emerging market corporate debt stock doubled…

…In the last three years, markets have substantially reduced the available return in Emerging Markets sovereign bonds, by bidding up prices and thus suppressing the available spread between Emerging and Mature market risk. In 2012, the spread on Emerging Market hard currency debt traded inside the pre-Crisis low. This coincides with a general reduction in hard currency government bond issuance by Emerging Market sovereigns, thus accentuating an already acute shortage. This shortage in sovereign bonds simply underscores the appeal of corporate, which offers both a wider spread and a higher hard currency yield…

…With US insurance companies holding barely a 3% weighting in the asset class, versus a 43% weighting to corporate bonds overall, we think there is significant capital on the sidelines. Even if Emerging Markets are only approximately half weighted, relative to their contribution to global GDP, a rebalancing of allocations to global corporate bonds could see significant support to further deepen this market.

Brett Diment, Head of Emerging Market Debt, Aberdeen Asset Management, breaks down the asset classes:

In terms of the assets, there is sovereign hard currency (in U.S dollars), corporate hard currency, and local currency bonds. For the first two of these, investors are just taking credit risk because the bonds are not issued in the individual countries’ domestic currency; these bonds offer a yield spread over Treasury for this risk. In terms of local currency bonds, the credit risk is generally a lot lower because in the case of government bonds, as the vast majority are, governments can print money to satisfy their obligations so that the default risk is relatively low. The risk investors are taking is predominantly FX risk and domestic interest rate risk.

Harsha Patel, Investment Manager, Railpen Investments, parses who should go for which asset class:

Generally, the type of emerging debt exposure you choose varies according to your view on the economic environment. If you believe that growth is going to be strong, then it is best to buy local currency debt, as emerging market FX tends to appreciate and treasury yields generally rise. In periods of lower growth, the treasury component of the hard sovereign debt and corporate bonds generally falls favouring exposure to dollar-denominated debt.

Bernhard Koeck, Asset Manager, VBV Pensionskasse, describes market segmentation slightly differently:

Investing in hard currency debt is a pure play on improving emerging market fundamentals, or more specifically the credit quality of emerging markets, so it does not have exposure to emerging market currencies and therefore is a low nondollar currency risk. It is also a display of inflation expectations in the U.S.

Local currency debt has become a very big market with countries who are wishing to issue currency debt within the same way that they receive their revenues. It also offers exposure to currencies and emerging market yields, which provides investors with the benefit of two different sources of return within one strategy. This offers opportunities for active investors who might like the currency due to the central bank policy for example, but may not like long dated bonds for fundamental reasons. Emerging market currencies are expected to provide positive returns as emerging market fundamentals converge to those of the developed markets, which will likely lead to more currency appreciation over time. In addition, yields in emerging market currencies are still often higher than those of developed markets which potentially could add to the total returns.

Needless to say, there’s a lot more where all this came from. And mind you, I’m not fully convinced there’s not an Emerging Markets debt bubble in process. But what Clear Path Analysis has managed to do with this report is show me the best argument so far that there may yet be some room to run.

The full report is available here.

Full presentation begins here.

Equally important, this comment which came alongside it:

From an asset allocation perspective, one of the biggest positive differentiators of frontier market equities is their relatively low correlation with both developed and emerging market equities as well as commodities (see table 2). The asset class’ ability to “zig” when others “zag” is a function of its aforementioned limited integration into the global economy and its more domestically driven fundamentals, in our view.

Many of the economic and capital market linkages that connect more established markets simply don’t exist yet. In an increasingly synchronized environment that has seen equity correlations soar to the point where U.S. stocks of all sizes move in the same direction over 90% of the time while the MSCI EAFE Index of developed European and Asian shares offers little more in the way of diversification, the comparatively low 0.55 S&P 500 correlation of the MSCI Frontier Market Index is a breath of fresh air. As globalization has spread since the 1990s, even the once significantly less correlated BRIC markets have seen their correlation with the U.S. blue chip index rise to 0.75 while the MSCI EM Index now trades in directional lockstep with the S&P 500 82% of the time. Beyond the MSCI Frontier Market Index’s low correlation with the S&P 500, it also sports low correlations with U.S. mid-caps, small-caps, and other foreign markets, boosting its overall portfolio diversification appeal.

Also of note, its low 0.57 correlation with the S&P GSCI Commodity Index, which we think helps dispel the notion that FM equities are a “commodity play”. Many of the energy companies in the Middle East and elsewhere are state-owned, reducing the asset class’ commodity sensitivity. In addition, the average intra-market correlation of the 25 countries that comprise the FM index is only 0.3, which makes sense given the wildly disparate nature of these markets. After all, do interest rates in Qatar really have anything to do with beverage sales in Vietnam? And while we expect FM equity correlations to rise as they become more integrated into the global economy, we think this will take years to play out.

I haven’t had a chance yet to follow up with the author of the report, Alec Young, the specifics of just how “Frontier” was composed exactly, but at first glance I wouldn’t disagree with any of the above correlations.

Also noteworthy from this chart is that the major index with which Frontier Markets have the highest correlation is the EAFE, a Morgan Stanley index tracking 21 major indices in Europe, Australia and Southeast Asia.

Additional food for thought to consider here is the following index, which I first put up here in January:

For those interested in the rest, here’s the full S&P report:

Download (PDF, Unknown)

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young,  which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector. 

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you  can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

Preferably we should be doing it somewhere in a rapid growth economy:

Doing it from Sub-Saharan Africa to, I suppose, Latin America, should be fruitful:

Alternatively, from the Middle East to anywhere “Emerging”:

But here’s the king daddy of them all really – Turkey:

Am I the only one who suspects these charts were retro-fitted to data that would produce pretty curves and lines?

I grant that even if these aren’t going to be exact predictions, they’re probably going to roughly match the eventual trend line and the overwhelming  trends here do open a lot of questions, not all of which are necessarily hopeful.

Let me state that last thought a different way. Anytime you find someone trying to sell you on the bullish side of any of these rapid growth markets, see if you can find out the answers to the following questions:

1. Where is this huckster from?

2. What is their financial interest in the subject at hand? Who are their clients?

3. What is the extent of experience this person has in the market in question as it pertains to a) trying to get from point A to point B; b) procuring a government contract; c) relative ease of workaday obligations relative to its immediate neighbors? d) safely arranging a taxi from the airport at a reasonable price upon arriving in country?

I read a statistic recently from Morgan Stanley’s Ruchir Sharma, which said that according to some IMF study, moving freight via road from Abidjan to Bamako — a distance of 690 miles — can take 500 hours, or slower than walking speed.

Stop whatever else you’re doing right now and just think about that for a moment.  To the North Americans in the house, 690 miles is more or less New York to Chicago (711 miles). To the Europeans, 690 miles is 1,110 kilometres. So think Paris to Madrid (1,053 km).  To the Asians and Pacific folks — well you guys grew up with such massive distances anyway,  so you’re just going to have to be patient with us Westerners.

And 500 hours – well that’s three weeks.

The closest I can come to even conceiving of the Abidjan–Bamako freight path — and I’m going to say this already knowing it won’t measure up — is thinking of sweating it out on an overnight bus from Belém to São Luis in Brazil when I was in my mid-20s. That distance — 800 km, 500 miles — is not the longest I’ve ever traveled by ground transport in one shot, but given that it was mostly dirt roads and that I was coping with the onset of dengue fever, it may as well have taken forever.

Those of you unfamiliar with “Rapid Growth Markets”, or RGMs, are advised to see a previous discussion here.

If you think reading what’s between the charts above is worth doing, get the original report here.

The bottom line here…I don’t dispute the prospect of future growth or promise or potential. I just question the extent to which any of this will be accessible to anyone without the right connections, often government-related. If we’re talking about investing through some ETF…well realize that the ETF only comes into play because the smart money has already laid the groundwork for an ETF to even be possible and the days of triple-digit returns are long gone. Without those essential connections to be part of the action from ground level, you’re not even a spectator in the arena – you’re watching the game from some bar across town.

Oh well. See you in Istanbul in ’40!

For the rest of you not up to speed, the Mexican government is getting ready to put most of the new non-oil reforms up for a vote quite soon. The Economist has a pretty good recent summary here, and if you have more time I would highly recommend checking out extensive coverage of the annual Americas Society / Council of the Americas event just closed in Mexico City here.

And for those of you new to Diverging Markets, let me sum up my basic attitude toward the Peña Nieto Administration as being what I call “optimistic distrust.” This means that I have no ideological or financial stake in any of this (though I’m still waiting for the right moment to short iShares’ Mexico ETF), but given what I know of Mexican political history and Mexican society I am highly skeptical about a lot of the big reform promises made thus far for reasons repeated throughout here; at the same time, given that I spend more time in Mexico than anywhere else, I would absolutely welcome having my skepticism proven wrong. But the caveat here as always is that Mexican leadership has become increasingly adept at telling foreign investors what they want to hear and the Peña Nieto Administration in particular has proven itself quite remarkable in this capacity. Put another way, don’t believe everything you read about this country.

Now let’s get to Televisa. The chart above shows this stock’s performance since  Peña Nieto took office on December 1 last year, and its movement in the past week is not encouraging. One of the reasons is likely a disclosure Televisa recently made to the U.S. Securities and Exchange Commission in a form that was previously unknown to me, called form 20-F. According to Investopedia, this is a form meant for foreign companies who list American Depositary Receipts in U.S. markets. The entirety of Televisa’s recent 20-F is worth reading, but in particular the “Risk Factors” section under Item 3, which is chock full of warnings.

Here’s a slice of it from the bottom of page 9 to get everyone’s juices flowing:

Political Events in Mexico Could Affect Mexican Economic Policy and Our Business, Financial Condition and Results of Operations

It is possible that the new administration will pursue significant amendments to Mexico’s laws, regulations, public policies and government programs. Mexico’s current President Enrique Peña Nieto and the three main political parties of Mexico (i.e. PRI, Partido Acción Nacional, or PAN, and the Partido de la Revolución Democrática, or PRD) have signed the Pacto por México, or Pact for Mexico, in which they have agreed to pursue amendments to applicable laws in order to achieve, among others, the following purposes: (i) provide the Comisión Federal de Competencia, CFC, or Mexican Antitrust Commission, with the necessary authority to prevent and stop monopolist practices; (ii) achieve increased competition in the telecommunications business; and (iii) open public bids to grant new concessions to offer television broadcasting services. Consequently, changes in laws and regulations, public policies and government programs may occur in the future. Such changes may have a material adverse effect on the Mexican economic, social and political situation, and on our business, financial condition and results of operations. See “— Mexican Antitrust Laws May Limit Our Ability to Expand Through Acquisitions or Joint Ventures”, “—Existing Mexican Laws and Regulations or Changes Thereto or the Imposition of New Ones May Negatively Affect Our Operations and Revenue” and “— The Recent Constitutional Bill Being Debated at the Mexican Federal Congress, if Approved, May Have an Adverse Effect on Our Business, Results of Operations and Financial Condition”.

On page 10:

Imposition of Fines by Regulators and Other Authorities Could Adversely Affect Our Financial Condition and Results of Operations

A significant portion of our business, activities and investments occur in heavily regulated sectors. Recently, Mexican regulators and other authorities, including tax authorities, have increased their supervision and the frequency and amounts of fines and assessments have increased significantly. Although we intend to defend our positions vigorously when procedures are brought or fines are imposed by authorities, there can be no assurance that we will be successful in such defense. Accordingly, we may in the future be required to pay fines and assessments that could be significant in amount, which could materially and adversely affect our financial condition and results of operations.

From page 11:

The Recent Constitutional Bill Being Debated at the Mexican Federal Congress, if Approved, May Have an Adverse Effect on Our Business, Results of Operations and Financial Condition

If, as expected, the bill submitted in March 2013 by the House of Representatives (Camara de Diputados) to the Senate to amend the Mexican Federal Constitution with respect to the radio, television and telecommunications industries and the strengthening of the competition and telecommunications authorities (the “Telecom and Antitrust Bill”) is approved by two-thirds of the members in attendance of both Chambers of the Mexican Federal Congress and a majority of the State legislatures of Mexico and published by the President, some of these amendments and the implementing legislation may materially and adversely impact our business, results of operations and financial condition.

And there’s a lot more where that came from.

Personally, I really have no idea how to handicap this. Prior to this, the extent of  my experience combing through SEC submissions was limited mostly to documents associated with IPOs and the occasional 10-Q or 10-K. So I might be a bit too inured to how publicly traded companies generally disclose risks to authorities. But I’ve never considered the implications of this act for a foreign company to the US government, particularly one as controversial as Televisa, in an environment so politically charged.

Trying to look at this as objectively as I can, this seems to me more than just a boilerplate risk disclosure; Televisa leadership clearly saw the writing on the wall as far back  as last year — the network was absolutely instrumental in helping Peña Nieto get elected to begin with. But nothing of this sort comes without strings attached. And while Peña Nieto appears to be biting the hand that fed him, I have no doubt there’s another shoe somewhere waiting to drop.

• Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
• The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
• The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
• A secondary bond market will start this year to help develop a yield curve.
• South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
• Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:

The broad view considers Angola‘s estimated gross domestic product (GDP) of US$84.9 billion and the capitalisation of African stock exchanges relative to GDP (an average of 42%).

Also from that article:

“Botswana’s exchange has a market capitalisation of only US$4.18 billion, with Zimbabwe down at just US$3.6 billion, though Zambia is a little higher up the market capitalisation league table at US$15.23 billion.”

Here are a few other points on market cap elsewhere in the neighborhood I’ve managed to dig up:

• Zambia’s market cap has since fallen in dollar terms. Live market cap value in kwacha is displayed on the Lusaka Stock Exchange website here. At the moment, Zambia’s market cap is just a shade under US$10 billion.
• Kenya, arguably the most developed of Africa’s stock exchanges after Joburg, claims a current market cap of US$18 billion. Kenya’s nominal GDP this year is estimated at US$43 billion, putting it at exactly the 42% average market cap/GDP ratio suggested above.
• Egypt’s market cap as of this writing is US$52 billion, or 20% of its US$254 billion economy.
• Ghana: For a quick current market cap estimate on Ghana, a bit of triangulation is in order. How We Made It In Africa estimated Ghana’s market cap as of March 2012 to be 50 billion cedi; Bloomberg quotes Ghana’s composite index as having grown 67% in the past year, implying a current market cap of around 84 billion cedi; the cedi is fixed at 1.94 to the dollar; therefore, Ghana’s market is approximately US$43 billion, just larger than its US$39 billion GDP.
• Nigeria: The newspaper Leadership reported in January that Nigeria’s stock market cap reached 10 trillion naira, or US$62.5 billion, against a nominal GDP of US$300 billion, giving a market cap/GDP ratio similar to Egypt’s.
• Uganda: Stock market cap as of end of last year was US$5.81 billion, vs estimated 2013 GDP of US$22 billion.
• Libya: Stock market cap currently estimated at US$3.3 billion with 2013 GDP estimated at US$91 billion.
• Of Africa’s 29 stock exchanges, only Egypt, Madagascar, Morocco and South Africa are members of the World Federation of Exchanges.

So to sum up, expectations for Angola’s opening stock market cap to be US$11 billion does put it in sixth place on the continent, but just barely. Ahead of it, from largest to smallest, are South Africa, Nigeria, Egypt, Ghana and Kenya, with Zambia close behind Angola in seventh place. Furthermore, this is a drop in expectations for Angola since, as recently as three years ago, it was expected to open up as Africa’s third largest.

Now that we’ve got a sensible view of the data under our belts, a couple weeks ago I put the following question out to the twittering masses:

Angola, Africa’s #2 oil producer, w/ a $100 bln economy, isn’t included in #FrontierMarkets because it has no stock exchange. Should it?

— Diverging Markets (@DivergingMarket) April 4, 2013

Jakob Haentjes was the only taker and this was how the conversation turned out:

@divergingmarket how are you gonna invest in an economy without a bourse?

— Jakob Haentjes (@JInternationLtd) April 4, 2013

@divergingmarket true as well. But investing in Angola is basically going long on the oil price, right?

— Jakob Haentjes (@JInternationLtd) April 4, 2013

@divergingmarket Complicated. Bt I think frontier markets need to be investable by equities. Fixed income et al does not justify use f term.

— Jakob Haentjes (@JInternationLtd) April 5, 2013

@divergingmarket well two stocks is not really investable equity, right?

— Jakob Haentjes (@JInternationLtd) April 6, 2013

No, two stocks are not really investable equity. And for what it’s worth, neither Angola nor Laos is currently included in any exchange-traded fund. But Laos tends to be included in any bona fide frontier markets discussion I’m aware of today, even if in the margins. Angola doesn’t even rise to that level, though the Bloomberg article that started this all seems to be entirely unaware of not only the lengthy history of Angola’s attempts to form a stock market, but how it stacks up relative to its comparable peers.

Funny how arbitrary categories can be. Even funnier is how malleable expectations are. Ever since Angola joined OPEC, I’ve been wondering how long it would take for it to assume a footprint commensurate with its potential. And what this exercise here today tells me is that the basic perspective on Angola is no different than any other developing market: believe nothing until you see it.

Additional related reading: the IMF’s view of African stock markets as of 2007 here.

I guess what strikes me the most about this map is the huge blank spaces among the world’s global shipping routes: the Bay of Bengal, southern Australia, the west coast of South America, and pretty much all of sub-Saharan Africa that isn’t connected to either South Africa or the Gulf of Guinea. Of these, Australia at least has a viable road network. Relative to the entirety of the world, these don’t look like large spaces, but the increased costs for closing these gaps via land are not insignificant.

Another thing that comes to mind here is imagining how the shifts in shipping patterns may have happened over the centuries. Never mind the obvious growth in gross number of journeys; what I’m thinking of here is the opening up of new routes.

I’m not a shipping person, but I try to be as much of a history person as I can. Off the top of my head, I would venture that China’s periodic bouts with isolationism over the centuries have had material effects on the Asia routes, the most recent probably being a massive dropoff during the 1950s through sometime in the 1970s as China re-opened and Japan started coming online. And transatlantic development from the Industrial Revolution forward has kind of been done to death.

There’s also this book, which I’ve yet to read but has been on my to-do list since it came out. I suppose where this all leads is, what’s the future of this map? More specifically, how much of south-south trade development will any of us live to see?

In recognition of today as that annual rite of American citizenship–Tax Day–Mr. Mond has graciously offered us a piece of his mind.

Ladies and Gentlemen, Mustafa Mond: 

The first person to correctly identify all the references here will receive a prize to be determined at a future date.

So I’ve been looking at the site metrics for the first year of operation from March 4, 2012 to March 3, 2013.

Here’s the breakdown of where readers are visiting from:

The “Others” category I have the full list of but it’s too long to put here. What I can say is that it runs 169 countries and territories long. Of the 193 member states of the United Nations, I suppose it’s easier to count the countries not on there, a task I may take up next year at this time.

Also, it seems there are a quite a lot of visitors from the “not set” category. Someone more familiar with the inner workings of Google analytics and firewalls could probably explain this better, but I’m willing to bet China comprises a fair proportion of this category.

Looking at the city breakdown is way too unwieldy to do in its entirety, but here are the top 20, in order:

New York
London
Mexico City
Stockholm
Sao Paulo
Toronto
Hong Kong
Colombo
Washington
Singapore
San Francisco
Chicago
Montreal
Los Angeles
Bangkok
Paris
Sydney
New Delhi
Vancouver
Mumbai

Most Viewed Pages

After the home page and the “About” page, these are what readers found most compelling in our first year, in order of popularity:

1. Aug 23: Photo of the Day: Vladimir Putin and Silvio Berlsuconi Discuss Pussy Riot

2. July 10: UNCTAD Releases World FDI 2012 Report

3. May 2: Myanmar Investment Options For US Investors

4. May 25: What Peru’s electricity market says about its economic prospects

5. July 26: Implications of the Big Mac Index 2012

6. Aug 28: The Most Badass Brazil v Mexico Economy Chart You’ve Ever Seen

7. May 17: How to Think About China-Africa Trade

8. April 27: Renewable Energy is #1 for Foreign Direct Investment

9. Jan 28: Hype, Truth and Something in Between For Mexico

10. Sep 26: Street Markets 101: Ground Zero in Argentina

11. Aug 29: Theory vs. Practice: Confessions of a Microfinance Heretic

12. June 21: Ranking Soft Power Among Emerging Markets

The SEO Verdict

As you can imagine, phrases involving words like Africa, emerging markets, FDI, frontier markets, political risk, black market and the like make up the vast majority of words and phrases that bring readers here. But I find more fascinating the less obvious ones. So here, finally, an assortment of the more colorful search terms visitors used which landed them here. I seriously could not make any of this up if I tried:

Pussy photo

I hate argentina

“when bad people do good things”

double double toil and trouble fire burn and cauldron bubble

Santissima muerte

“economic development’s projects are being planned, or already constructed, to take advantage of the country’s geostrategic location and boost connectivity between regional economic powerhouses. these include : a deep-sea port being constructed on the indian ocean near the rakhine state capital of sittwe” (Seriously?)

word star

1 (Yes, this is its own line item on the SEO report)

3 stooges chavez castro

a basic rule or truth

a king, a queen, a prince, a princess

any relation between de la Torre and griselda blanco (For those of you unfamiliar, Griselda Blanco, better known as “The Cocaine Godmother”, was a drug lord for the Medellin Cartel in the 1970s and 1980s who was assassinated last year. Wikipedia page here. And no, no relation to me.)

argentina economy is a joke

argentina told you so

argentines are lazy

badassbrazil

batman, james bond, macgaiver, ladi gaga, jimmi carter and john kennedy run for office

beat a dead horse said more eloquently/better

bigger weakness

bling bling event

brics, civets and the next elevens are gimmicky marketing terms

cat is out of the bag on inflation

Chinese worker

ethic double bottom line

golden bling bling

good night all out chart

hey kool aid

I hate junkies

I hate kirchner

I told you twice

Kool aid mexico economy

Measure pussy depth

Mexican kool aid

politician master

rear view blind spot mirror

relevant

same as migrant

screw spain

soft

supermarkets competing against each other

thai fun chart

the practice of hypocrisy

we love bernie lo

why is argentina such a bad country?

would you be card

surgeons

There’s a lot more, but I think the randomness should be clear by now. What this all tells me is that there are some things you just cannot plan. But hopefully a year from now I’ll still have the time to do this with some sort of regularity. In the meantime, thanks to everyone who has stopped by and taken the time to get in touch with me (including the incoherent Marxists and spinmeisters, whom I will address more directly in due course). And as always I’m open to more guest contributors, so if you think you’ve got something that fits into the vibe here, you know where to find me…

“Reserves jumped $130bn to $3.44tn – roughly equivalent to the size of the German economy…”

Really?

Yes. Really. You can look it up here.

This now raises some other basic questions: what else is worth $3.4 trillion? Or: what could China buy with that kind of money? How else can we even conceptualize this number?

In the spirit of my previous conceptualization of Facebook’s $100 billion IPO, here are some other ways to conceptualize $3.4 trillion:

Considering Apple’s current market capitalization is $409 billion, China’s central bank reserves could buy Apple 8 times over. Alternatively, it could buy the top 10 largest publicly traded companies in the world, the top 10 wealthiest individuals in the world, and still have a couple hundred billion – with a B – to spare.

At the current market price of $94 per barrel, China could buy the entirety of Nigeria’s proven oil reserves right now.

According to one estimate, $3.4 trillion is about $300 billion, or 10%, more than the US government has spent on both the Iraq and Afghanistan wars from 2001 to date.

If you took $3.4 trillion in $1 bills and placed them end to end, you could make a paper trail 3.5 times longer than the distance from the Earth to the Sun.

Ah, but $1 bills are child’s play. Let’s talk about Benjamins. Thanks to Robert Hallberg, here’s what $100 million, made up of 1 million $100 bills, looks like:

And this is $1 billion:

Which would make this $1 trillion:

Now think of three and half of those. You might fit that on two football fields.

It can be cause only for celebration that the world’s largest developing economies are regularly talking to each other and establishing common initiatives. Nonetheless, it is disappointing that they have chosen to focus on infrastructure finance as their first major area of collaboration.

This approach represents a 1950’s view of economic development, which has long been superseded by a more variegated perspective that recognizes a multiplicity of constraints – everything from poor governance to market failures – of varying importance in different countries. One might even say that today’s global economy suffers from too much, rather than too little, cross-border finance.

What the world needs from the BRICS is not another development bank, but greater leadership on today’s great global issues. The BRICS countries are home to around half of the world’s population and the bulk of unexploited economic potential. If the international community fails to confront its most serious challenges – from the need for a sound global economic architecture to addressing climate change – they are the ones that will pay the highest price.

Yet these countries have so far played a rather unimaginative and timid role in international forums such as the G-20 or the World Trade Organization. When they have asserted themselves, it has been largely in pursuit of narrow national interests. Do they really have nothing new to offer?

Read the rest here.