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.

My candidates for the Nobel 2012

I want Carmen Reinhart and Ken Rogoff to win. See their book "This time is different, Eight Centuries of Financial Folly"

Their work helping us understand international financial crises is very important to policy makers and the lay people alike. Their work can be applied, their work can be understood and explained to most people. Their work should be discussed by politicians in this election.

It would be cool to see Steven Levitt  (Freakonomics) win

I would be happy with Stephen Ross or Robert Shiller. One them probably will.

On correlation and LATAM arilines

Fuel up airlines down right?   Let's look at Delta airlines....

Not bad ... USO (the ETF) is used as a proxy (i know,... a bad one) for oil prices.  One up the other one down... moving together otherwise.

But how about this one...  The following chart is for LFL: LATAM airlines, formerly Chilean airlines.

Historic returns

In the stock market as in baseball, is all about odds, below are the numbers...

You make your own decisions,

*I annualized daily returns using 250 trading days

Let's begin with the Dow Jones... by 2012, we had over 100 years of daily observations, close to 30,000 trading days. Two massive global recessions and countless cycles of boom and bust.
The breakdown?

15,208 days the market went up, compared to 13,938 losing days. This means that winnings days are 52.18 percent of the sample.  On average you should expect to make 0.027% per day... It is important to note that on average a negative return is higher than a positive return. You make up the difference because of the extra wining days.



Monthly returns offer a similar picture... there are more positive months than negative ones.. same for years. Interestingly the "winner" percentage goes up as the average return

The DJ is a very narrow index, and not indicative of a diversified portfolio... The next picture is the S&P 500, 1950 to present

Same patterns...

Our parents and grandparents could only dream on international diversification the way we have it now... What do you think would happen with the world in your basket?

Here it goes (dates vary from roughly 10 - 25 years)

Yet another reason to be optimistic on the USA

Not only we are becoming more competitive (thanks to cheap natural gas, rising labor productivity and increasing labor costs abroad)...

Here is a more compelling reason. We are the most competitive in beer!

According to the Economist chart of the day it takes an american worker about 6 minutes of labor to get a beer...

We should be done for the day in about an hour!!!  Life in India or the Philippines pales in contrast..

Seriously now... The low cost advantage of China is fading.

The prestigious BCG (Boston Consulting Group) projects that by around 2015, the U.S. will have an export cost advantage of 5 percent to 25 percent over Germany, Italy, France, the U.K. and Japan in a range of industries. Among the biggest drivers of this advantage will be the costs of labor, natural gas, and electricity. As a result, the U.S. could capture 2 percent to 4 percent of exports from the four European countries and 3 percent to 7 percent from Japan by the end of the current decade. This would translate into as much as $90bn in additional U.S. exports per year, according to BCG's analysis.

Look at this video from Hal Sirkin at the Boston Consulting Group.

So... How much do companies pay in taxes?

Now that we know how much Mr. Obama and Mr. Romney pay in taxes, one should ask how much do firms pay...

In textbooks, it is always assumed a flat 40% tax rate.

It turns out that this figure is far from realistic. The following chart from FRED, Federal Reserve Bank of Saint Louis shows that the number is much more likely to be in the late teens (17 to be exact).

The picture is not much better on the personal side....Textbooks say it is 35% for top earners and 10% at the bottom.  Look at the following chart prepared using IRS data for 2009, on taxes paid by citizens

Who (besides me off course) is paying taxes?

Use this information wisely.

PIGS vs. BAM !!

Much has been written about the debt levels of the PIGS (Portugal, Ireland, Greece and Spain). THere is not a half decent blogger/economist who has not predicted their collapse.

Here is another angle.. Compare the PIGS against the BAM... (Brazil, Argentina and Mexico)

Look at this chart... Manufacturing labor costs ..I added the US and Germany for reference.

Source: Bureau of Labor Statistics, Division of International Labor Comparisons, International Comparisons of Hourly Compensation Costs in Manufacturing, 2010