Emerging Markets Index comes down, as predicted

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

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.

They ain't no fools

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).

Sobre el colapso de la economía argentina en el siglo XX

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

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)

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 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

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!

My picks for world's scariest stocks

The Motley Fool (fool.com) has an entertaining contest going on right now, to find the "World's Scariest Stock":

http://www.fool.com/investing/general/2009/10/30/the-worlds-scariest-stocks.aspx

My own vote:

SCARY: Crocs, Fannie Mae/Freddie Mac, Palm, Research in Motion and Sirius XM Radio (Palm and RIM basically because, in the long run, they will not be able to compete with Apple and Google).

SCARY AWESOME: Baidu, First Solar, Goldman Sachs and Pfizer.

It is interesting to note that of last year's top 10 scariest stocks, only Citigroup and First Solar underperformed the market. Starbucks actually returned 80 %, whilst Dendreon (a biotech company) returned nearly 500 %!

Happy Halloween!

Mexico, Argentina and Venezuela in severe recession; Peru and Uruguay still growing

The IMF has published its World Economic Outlook (October 2009).

http://www.imf.org/external/pubs/ft/weo/2009/02/pdf/text.pdf

It is forecasting a contraction of -2.5 % for Latin America (on average), and a recovery of 2.9 % in 2010.

The only two countries forecast to show growth in 2009 are Peru (+1.5 %) and Uruguay (0.6 %).

On the other hand, Mexico will fall by -7.3 % (and that might be an underestimation.

Argentina will contract by -2.5 %, and Venezuela by -2.0 %. Although these, again, could be underestimates.

"Especially significant export revenue losses were experienced by the energy-intensive economies of Bolivia, Ecuador, and Trinidad and Tobago".