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Tuesday, November 27, 2012

Chile, economic success political failure

President Pinera at the FT
In a time of easing, Chile thinks of tightening.

When central bankers of the world struggle to find way to inject some life in their ailing economies  authorities in Chile try to find way to cool its economy. The economy is expected to grow around 6% this year and 5% in 2013. Chile's debt has the same rating as Japan and South Korea. FDI in 2012 is up 63% compared to last year.

Unemployment stands around 6.5%, the lowest levels since the late 90s.

The list can go on...see this Bloomberg article for details

Government approval rate?  36% See president Pinera's explanation to the Financial times here.

Government as employer: the good, the bad and the ugly

Federal Government as an employer, In order to look into this issue I looked in the historic data series from the FRED.

The Bad
At the begging of 1966 there were 10.61 million people working for the Federal government, by 2012 this figure had more than double to 21.99 million people. In the 185 quarters, the total number of employees grew in 151 out of 185 quarters in my sample, an astonishing 82%.... The chart below is worth a thousand words...

We can clearly see the recessions of 1980 and the current one. We can see how little impact the recessions of 1990 and 2000 had in federal government employment. Interestingly there seem to be major increases in employment pre crises just to be followed  by drastic cuts... go figure...
The picture is not complete if we simply

The Good
Looking at raw employment figures is misleading. If we look at the federal government jobs as percentage of the population we get a much less frightening picture...
In 1966 around 5% of the populaiton worked for the federal government. This figure climbs to around 7% in the 80s and remains there until 2009. Since then we may be experiencing a decline.

The Ugly

In 1960 only 30% of women worked. As their participation increased, the inactive population shrank.
By the 90s close to 60% of the population was employed... By 2010 the trend seems to be reversing. Think baby boomers and the massive fiscal deficit... more work to do, fewer people to get it done!

Draw your own conclusions. I am going to rest. I need to work hard tomorrow.

Tuesday, November 20, 2012

Dark pools and unintended consequences

More on the law of unintended consequences

So the story goes something like this... Before computers, all trading was manual, literally, traders would receive a paper list of orders (what to buy and sell) they would take that list to the pit and find counter parties .. Not ideal, not transparent, ... I know... Along came computers and financial derivatives and we thought that the more we traded the better prices we could get... (Better as in more efficient, (more information embedded in the price)).  And trading exploded... 24 x 7 around the world, every possible asset.

Along came HFTs, high frequency traders who use sophisticated computer algorithms to trade securities on a very rapid basis, as in thousands of orders per second... (yes per second). Check this great NYT article about them.  

If more trading was good for the market... then HFT must be very good... right? Wrong! At least that is what some of the big players are saying... It turns out that dark pools (trading that takes place outside regular markets) are growing.  In fact, an estimate says around 30% of all trading volume in the US is conducted in these pools. Very well explained in this FT note.

If the big guns don't like it, why should I?

Maybe we are going back to the human trader...

Thursday, November 15, 2012

Chilecon Valley; business climate in Chile versus USA

How refreshing to read a Chilean newspaper...(at least the business section).  Instead of fiscal cliff in the US and austerity in Europe, the news today are about the finalists for Common Pitch 2012 (check their website)...

Chile must be doing something right... So often Latin America is in the news for the wrong reasons. At a time when the US and Europe are closing their borders to immigration, Chile is opening not only the border, but also its wallet. Entrepreneurs from the world are lured to Chilecon Valley with visas, money (USD 40,000) and connections with local venture capital funds. Startup Chile (a global business incubator) is going for its third year. More than 900 entrepreneurs from 37 countries have participated.

Is everything perfect? Far from it, In the article The Lure of Chilecon Valley. the Economist rightfully points to many deficiencies...

With so much darkness around the world.. it is sunny in Chile.

Want to start a business?  Consider Chile! That is not me but Steve Wozniak  saying it.