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.

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...

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)