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Friday, May 9, 2014

A tale of two Latin Americas

Argentina & Venezuela versus everyone else. This is the tale that keeps on giving. How different are they!

Picture 1;  Foreign exchange. Over the last five years the price of the USD has gone up 200% in terms of Venezuelan Bolivares and over 100% in the case of the Argentine peso. The rest of Latin AMerica has remained very stable. Chile, Peru and Brazil exhibit changes of less than 10%. (Data from Oanda.com). Stable FX=> stable prices and volumes of international trade. A depreciating peso means cheap (and very good) Argentinean wine for USA but expensive CAT tractors for Argentine farmers.



Picture2; Sovereign Spreads. Sovereign spreads measure how much (above US treasury bonds) do countries have to pay to borrow money. Low spread = good, high spread = bad. Spreads are measured in basis points. For example, If the governments of Chile, Brazil or Peru need money to finance short term programs, or any other projects, they can borrow for 1 year at less than 30 basis points of spread. If the US treasury is say 3%, this means that the total cost for the above countries would be around 3.3%. For Venezuela and Argentina the same borrowing would cost them 10% and 25% respectively.  Data from Factset.



Tuesday, August 27, 2013

On why Finance must be combined with IB and political science..

or any other similar degree...

M&A used to be easier... the era of domestic deals is over. Nowadays many small and medium sized firms have a global footprint. This makes any deal very like to touch upon different legal and political systems.

Targets are ever more likely to be global. We now seem be in the era of "born global" firms. These are firms that from their inception have their "eyes" on foreign markets.

Consider Warren Buffet's (plus Brazilian Mr. Lemann) offer to take Heinz private. A recent article in the Financial Times shows how much red carpet needs to be covered from a number of countries to secure regulator's approval... In their case, they need Russia and China... Not easy

Don't know about you... I will be looking at GRE scores for law school

Tuesday, August 20, 2013

How hard should you work in an internship?

I am not one to post sketchy topics, but this very tragic one one caught my attention.

Apparently (cause not clear) an intern at BofA died after pulling one too many all nighters...
See article here

As a professor and supervisor of many internships I have to ask my self
Can this be true? I mean does this reflect a hidden trend?
Are students so desperate to impress that would risk their health?
What should companies do?
What should universities and professors do?

Tuesday, August 13, 2013

Adult Diapers

OK. I get it. Not precisely dinner table topic. Japan's largest diaper maker already sells more for adults than babies... I am not making this up...It gets worse... See this Huffington Post article if you don't believe me.


The World Bank estimates that fertility rate (births per woman) needs to be around 2.2 to simply "replace" the current population. Any number below means negative growth.



Highly correlated is the issue of age dependency*... Do you have a clue about what any of this means for the future?
All I know is that Japanese workers will have to work a lot harder





*Age dependency ratio is the ratio of dependents--people younger than 15 or older than 64--to the working-age population--those ages 15-64. Data are shown as the proportion of dependents per 100 working-age population.

Wednesday, August 7, 2013

Are living wages bad for companies (and investors)?

Feeding into the debate of living wages, a recent article from CNN money shows the great disparity in entry level wages at flagship companies. The contrast seems to be between miserly Wendy's & Walmart ($7.35 and $9.40 per hour respectively) versus generous Costco with almost $23 per hour on top of benefits.

Paying more than double for something can't be good. Can it?  If I pay double I expect double. Over the last five years Costco employees have been able to generate twice as much revenue than their Walmart counterparts. However, these higher sales have not translated into profits... What do investors think? Forward PE ratios seem to say that Costco will do just fine...

What do you think?




Thursday, March 28, 2013

How to calculate long term exchange rates


Imagine you are interested in estimating the exchange rate between the Chilean Peso and the USD in say...   20 years. Using Interest RateParity, we can easily tackle this question. Imagine the current spot rate is 500CLP=1USD.  Assume you are given the following rates and yield curve.









Recall that Interest Rate Parity states that   



This means that the future exchange rate is a function of the interest rate differentials between the two countries. It is VERY important to be aware of what is home and what is abroad…
Our spot rate is given in CLPs per USD. This implies that home is Chile.   With this in mind, we can calculate that the exchange rate 20 years from now should be  813.29 CLPs per 1 USD.



Thursday, March 14, 2013

Bilinguism... Moving along, far from destination

An excellent article in today's (3/13/2013) Financial Times shows some the benefits of being bilingual; flexible thinking;              
"...enhanced awareness of other people’s points of view, born from their deeper understanding, from an early age, that some people have a different perspective. They are also better than monolinguals at giving selective attention to specific features of a problem, while ignoring misleading elements, and at switching between different tasks."

This follows a March posting by the New York Times stating that "bilinguals are more adept than monolinguals at solving certain kinds of mental puzzles."  






It is very informative to see that despite the above, the US is far behind Europe.

Obtained from the DANA foundation


A great summary of benefits is below. I obtained it from the Ecole Bilingue de Berkeley website.


Cognitive

  • Bilingualism increases mental flexibility for children. Bilinguals will have two or more words for a single object, concept or idea.
  • Bilingual children are more willing and able to learn a third language, and show an increased analytic orientation to language.
  • Children who study a second language score higher on verbal standardized tests conducted in English. Bilingual children also perform better in math and logic skills than children with just one language.
  • Learning a second language helps children build self-esteem, creativity, problem-solving skills, and math ability.

Social/emotional/interpersonal

  • Bilingual children maintain a strong sense of their own identity while developing sensitivity towards other people and cultures.
  • Since bilinguals need to be aware of which language to speak in which situation, a bilingual child is more aware of the needs of the listener.

Professional

  • Being taught in two languages gives children a head start in competition for universities and jobs.