The First Rule Of Fighting Narcos: You Do Not Talk About Fighting Narcos

Regular readers know it isn’t very often that I re-publish in full something from elsewhere, but this is too important and I have no doubt that the majority of you are not in the habit of reading the Dallas Morning News with any regularity.

Alejandro Hope, who blogs here, tweets here, and works here, had the following op-ed in the Dallas Morning News at the end of last week which should not be missed and which would not be fair to simply excerpt here since every sentence matters. The long and short of it, which David Agren first touched on here, is built on the premise of not talking about drug war-related murders as part of a multi-prong public relations strategy.

If that sounds vaguely familiar, allow me to refresh your memory with this:

You think I’m joking? Read on:

Alejandro Hope: In Mexico, obfuscating crime numbers

Two months ago, a gunbattle erupted between rival drug gangs in Reynosa, Mexico, right across the border from McAllen. The shootout lasted several hours, killing as many as 40 people, according to a newspaper on the U.S. side of the border. Even in Mexico, scarred by seven years of relentless violence, this was big news.

But not big enough to make headlines in Mexican media. With some exceptions, coverage of the Reynosa firefight was scanty. Mostly, newspapers buried it in the police section, while TV and radio news shows virtually ignored it. Social networks were abuzz with information, but almost none was picked up by media outlets.
This was not an isolated shutdown. As a result of threats and violence from criminal gangs, many local news organizations in Mexico have long limited their reporting on the drug war. Now the practice has extended to the national media.

According to a recent report from the Observatory of Violence in the Media, an independent watchdog group, coverage of organized crime and violence in the Mexico City press took a dive during the first three months in office of President Enrique Peña Nieto: The use of the words homicide, narcotrafficking and cartel declined by half from the year before. Similar results were found for TV and radio.

The national media pullback is not the product of intimidation by criminal gangs; it is a response to government policy. Since Peña Nieto took office in December, his administration has made every effort to keep violence out of the limelight. This has not been a heavy-handed operation. Some journalists and outlets may have been pressured; most have not. Rather, the government has tried, successfully, to shroud the issue in silence and confusion.

Some of the administration’s new policies have been positive: For instance, alleged drug gang members are no longer paraded in front of the media, which had been an almost daily ritual while Felipe Calderón was president, one long condemned by human rights groups.

However, other practices are more questionable. According to official sources, 52 top or midlevel operatives of the various drug gangs have been arrested or taken down since December. No one outside government knows their names or any details about their so-called neutralization. All information flows are tightly controlled by a greatly empowered Interior Ministry. The fog of war has thickened.

Most troubling, there is a policy of deliberate obfuscation on crime data. A number of government agencies jointly produce a monthly report on the security situation. According to the latest release, homicides declined from December through April by 14 percent from the same period a year earlier, and by 18 percent compared with the final months of the previous government.

Those numbers are highly problematic. First, they do not refer to total homicides, but to so-called organized-crime-related homicides. The practice of singling out drug gang hits from run-of-the-mill murders — begun by, and later suspended for public consumption under, Calderón — is deeply flawed. Including or excluding an incident is an inferential process, not the result of sound police investigation. If a homicide meets a set of arbitrary criteria, it is counted as organized-crime-related, no further questions asked.

Nor do the data meet consistency standards. Total homicides, as reported by state law enforcement agencies, have declined at a much slower pace. If the government’s numbers are correct, then, by implication, other types of murder must be increasing. Has there been a rise in domestic violence or bar fights? Unlikely. A far better explanation is a change in the criteria for defining a homicide as organized-crime-related.

Second, homicides have indeed gone down from the 2011 peak. But the drop happened before Peña Nieto took office Dec. 1. After 18 months of decline, the curve flattened in late 2012. Last month, Mexico recorded an average of 50 homicides a day — the same number as in October and every month since, plus or minus 4 percent. The rapid decline reported by Mexican authorities is a statistical artifice.

Mexico still faces serious security challenges. The situation has improved somewhat since 2011, but the amount of violence remains staggering. With one-third the population of the U.S., Mexico has 50 percent more homicides. A meaningful reduction in crime will take many years and many reforms. But the task is made even more difficult when public debate and oversight are inhibited by the absence of reliable information.

The Peña Nieto administration wants, legitimately, to change the narrative about Mexico, both at home and abroad. But the best way to improve the country’s image is by changing its reality, not shutting down information flows, fudging numbers and pretending that violence can be willed out of existence.

Alejandro Hope is director of security policy at IMCO, a Mexico City-based think tank. His email address is alejandro.hope@imco.org.mx. Follow him on Twitter at @ahope71.

Street Markets 101: On Money Laundering, Foreign Exchange and Counterfeit US Dollars

I’ll begin with the spoiler for those of you who should have been somewhere else five minutes ago:

The Mexican peso trades at a 50% discount on the streets of Peru and I believe this is somehow related to Peru being the top source of counterfeit U.S. dollars in the world.

That’s the basic thesis.

What is about to come next is a series of observations, some postulations, an educated guess or two, and a some rough idea of where to go next.

Contained nowhere in here is actual proof, in the Euclidean sense of the concept. But I’ll defend that by saying that what this brain dump is about is so off the radar that the only possible proof to have is to be an actual perpetrator. So, not being a perpetrator, what I can spell out here is my thought process, and I wholeheartedly welcome comment from anyone who can fill in any of the gaps I’ve left, or better yet, prove me wrong.

With that out of the way, let’s get to the data.

This whole idea began with a simple observation: upon landing in Lima’s airport, the first currency changers available—the ones you see before even clearing customs—offer to sell Peruvian soles in exchange for travelers’ American and Canadian dollars, Japanese yen, British pounds, euros, Swiss francs and Mexican pesos, quoted in terms of how many soles you can expect to receive per unit of your foreign currency. Considering that the first currency changers available upon landing at any airport anywhere in the world will never give the best exchange rate, the rates in Lima’s airport do not depart from current market rates as much as they could.

The single exception is the Mexican peso.

The number of Peruvian soles one can expect to receive per Mexican peso in the Lima airport is quoted as “0.1”. What does this mean?

To equate this to something understandable, we can use the old cross-canceling technique of multiplying fractions with different units. Here’s what happens when we do that:

1 Mexican peso            2.5 Peruvian soles           25 Mexican pesos
——————–         X    ———————-            =      ———————-
0.1 Peruvian soles        1 US dollar                       1 US dollar

Yes, you’re reading that correctly: that’s 25 Mexican pesos per dollar. Look up the going market rate for Mexican pesos, and you’ll see them trading, as of this writing, somewhere in the neighborhood of 12.3 to the dollar.

So, anyone landing in Lima wanting to change Mexican pesos for Peruvian soles at the airport will do so at an implied devaluation of the peso on the order of 50%.

Put another way: you’re going to spend twice as many Mexican pesos as you should to acquire Peruvian soles.

Granted, this is in the airport. Clearly the next step was to see if any casa de cambio in central Lima takes Mexican pesos. The answer to that question is yes, as should be expected of any fully convertible currency in world markets. The rate I was quoted at the casa de cambio around the corner from my hotel was 20 Mexican pesos per dollar. This is better than 25, but not by much; the implied devaluation here is still nearly approaching 40%.

Now, one could argue there is fault in my sample size, that the data only came from the Miraflores neighborhood, which skews it this way or that way…in short, there are always more data points to gather. But for these purposes, for what I’m trying to establish, I do not believe more evidence beyond the airport and the wealthiest neighborhood in Lima is going to materially alter the findings.

Meanwhile, changing US dollars on the street in Lima can be done for very little, if any divergence from the market rate. The single data point I have here—drawn from the casa de cambio that was willing to take 20 Mexican pesos per US dollar—was receiving 258 Peruvian soles for $100 on April 23, which, according to oanda, was exactly the market rate that day.

To further demonstrate the relative demand for US dollars in Peru, my hotel bill for a recent three-night stay there was quoted as payable with 1,386 soles or US$462, which implies a USDPEN rate of 3.0. Given the market rate of 2.58 Peruvian soles per dollar, this means the hotel was willing to devalue its own currency by 14%.

I don’t know if the hotel would have been willing to take Mexican pesos, but that’s unnecessary for a preliminary conclusion here. The 50% devaluation penalty for changing Mexican pesos in Peru is more than just statistically significant. It’s basically the Peruvian foreign exchange establishment saying, “You’re either stupid or a drug dealer.”

As it so happens, Peru is the largest producer of counterfeit US dollars in the world. Coincidence?

Suppose it is. An alternative conclusion here could be that the more convertible a country’s currency is on an international scale, the less it will charge you when you try changing more “exotic” currencies for the local money.

On that front, I’ve since checked so-called “street” FX rates for Mexican pesos in New York, London, Toronto and São Paulo. In every one of those markets, the implied USDMXN rate ranges from 13.0 to 14.5, with the 13.0 rate coming unexpectedly from Sao Paulo. That São Paulo’s rate for pesos is actually better than New York, Toronto or London kind of goes against any theory that greater convertibility reduces the peso spread.

Where this goes next:

It’s probably worth checking Mexican peso rates in Bogotá as another frame of reference, not just for another Latin American country, but another transit point of known narco-related money laundering in the hemisphere. I have no idea what to expect here but am looking into it.

Drunkeynesian, who aided me with the São Paulo data, additionally offers this comment:

“I like your thesis, and I would add to it a premium for the difficulty to convert Mexican pesos in another “liquid” currency. In a country where there are many Mexicans (or people traveling to Mexico), rates should be better, since if you’re a FX broker and you get some Mexican pesos you won’t have to wait long until you make some profit. If this is valid, this premium should grow with the local interest rate (to compensate for the opportunity cost).”

To be continued.

Plain English: It’s Not What You Say, It’s What People Hear

This video stands to have an immediate impact on your income if you have anything to do with politics, journalism, public relations, branding, marketing or communications of any kind.

This video stands to have an ancillary impact on your income if you were not included in any of the above professions.

Note that the impact is not zero for anyone.

To wit:

“Any of you in corporate America who use the word, ‘brand’, please stop. Now. And don’t use that word again. Because brand is people like me creating words that have no meaning, trying to sell things that people probably don’t need and trying to explain things that aren’t important. Brand is cheap, brand is fake. Trust is everything, trust is real.”

“The rule of expectations is probably the most important when it comes to business or politics, which is that it is better for people to expect less and get more than it is for them to expect more and get less.”

Those are just two examples of what’s in there.

The speaker is Frank Luntz, an occasional contributor to Fox News. If you have a problem with that data point, consider that his advice and research is applicable across the political divide.

And now I’m gonna drop an even bigger BUT on you: it’s an hour long. Suck it up. Today’s Friday. Consider it an hour you won’t spend watching [insert latest trendy TV hit show here].

Trust me, this’ll have a far bigger impact on your bottom line.

The source link is here.

A Tale Of Two Bond Curves: Malaysia vs Indonesia

Thanks to Denise Law for drawing my attention to this…

Malaysia government bond yields fall post-elections:

Govt bond curve - Malaysia May 2013

While Indonesia government bond yields rise after S&P reduced its outlook on Indonesian credit from positive to stable:

Govt bond curve - Indonesia May 2013

Related reading: How Singapore’s currency club fell apart

Charts Of The Day: Economic Potential In MENA

The most recent Milken Global Conference in Los Angeles featured a panel entitled, “Two, Three, Many Middle Easts: A Region’s Economic Prospects”, whose commentary is really only for the hard core MENA geeks, but I thought these charts were worth drawing attention to:

This one was the leader, showing average real GDP per capita from 1980 to 2000:

MENA Economic Development Variation 1

Here we have slides showing variation in GDP per capita across the Middle East and North Africa since 2001. Notice the y-axis scale difference between the Gulf states in the rightmost chart versus North Africa and “core” Middle East:

MENA Economic Development Variation 2

An approximate comparison of just how miniscule FDI flows to the region relative to the world:

MENA Economic Development Variation 3

Of the FDI that does go to the region, we shouldn’t be surprised to find more of it going to the oil producers than to the non-oil producers:

MENA Economic Development Variation 4

And yet expected GDP growth for the coming few years is expected to be mostly uniform:

MENA Economic Development Variation 5

Finally, intra-regional FDI against total FDI to the region:

MENA Economic Development Variation 6

The link to the full hour panel discussion is here and embedded below. If MENA development is your gig, I guarantee there’s something in there for everyone, from diplomats to venture capitalists and anyone in between. For my time, by far the best bang for the buck commentary comes from Chris Schroeder, who starts speaking at approximately minute 36. This man talks way too fast for me to transcribe or bother quoting any of it, but suffice it to say he depicts in words far more illustrious than any of these charts the economic potential the Arab World possesses.

Chart of the Day: Economic Growth vs Well-Being in Africa

I haven’t read the report yet and I’m not even sure I buy the premise, but this chart format is interesting, isn’t it?

Economic growth vs well being

Sourced from the Economist, on a recent Boston Consulting Group study entitled, “Strategies for Improving Well-being in Sub-Saharan Africa”.

The Latin America “Middle Class” Cliche: Why It Doesn’t Work And How To Fix It

If we wanted to go totally meta with this, we could talk about how people’s shrinking attention spans preclude meaningful conversation and understanding about subjects too complex to be crunched into 140 characters or even 1,200 words.

Seriously, how many slice of life stories do we really need to read about Manuel the carpenter/mechanic/cab driver in Toluca/Cali/San Jose who just paid for a new dishwasher in monthly installments with remittances sent from his 1/3/7 relatives in the US ?

Enter, unexpectedly, the World Economic Forum on Latin America, which just wrapped in Peru the week before last. I never expected a WEF gathering to nail it, but nail it they did in a panel entitled, “Unleashing the Power of the Middle Class“, whose commentary I promise you is far more compelling than the session title.

I don’t blame anyone for not having an hour to sit through this (that’s what I’m here for), so what we have here instead are two of the smartest things I’ve heard anyone say about the so-called “middle class” of Latin America since I don’t know when:

At about 16:00, Marcelo Cortes Neri, Brazil’s Minister of Strategic Affairs:

Just one small point with respect to this in terms of definition. I think when we talk about middle class, we talk very much about US or European definitions, where you have two cars, two dogs, two kids and I don’t think this is a good definition in my opinion.

I think we are having two kids which is important, gives you sustainability, but I think if we look at the US and Europe, we will see ourselves as poor–they are the richest in the world–so I am very much in line with the Minister’s idea, we have to look within our communities and countries, and I think if we do that, the world here…because Latin America actually in terms of its income and its very high inequality, but this is a very good picture of the world, so I don’t think we should import definitions from developed countries, otherwise we are not going to see ourselves moving; we are going from someone whose income changed from $1,000 to $2,000, and you look up, you say well nothing changed in this guy’s life, but there’s a revolution going on.

One last point: I think it would be very tough to respond to the aspirations of the Latin American middle class because we have very high aspirations. Latin Americans are very positive toward their future, it’s more…if you are controlling for income, nobody is more optimistic to the future than Latin Americans. So this is tough.

I’ve been saying this in some way or another for years now, but Minister Neri actually put it in far more eloquent language.

The second comment, which comes at 30:00, is Augusto de la Torre (no relation to yours truly) Chief Economist, Latin America and the Caribbean, World Bank. And disregarding the aforementioned inappropriateness of the phrase “middle class”, what he has to say could not be more true:

I’d like to add a dimension which we highlight in our report. We are excited about the growth of the middle class because people have a better life. But we are also excited because we believe deep down that the bigger middle class will make for better societies. So there is this correct perception that the middle class is associated with citizenry. That middle class people are more educated, they have better jobs, they have a better understanding of what the common good is, and they can push for better institutions, they can reduce the levels of corruption, monitor the government so they can produce better education, etc.

So we did some exercises on this and we found it is not so simple. When we look at the world as a whole and you do the statistics, you do find very good positive associations. Countries that have larger middle classes have lower corruption, better institutions, better government spending, quality, freer markets, better property rights. So these associations are what inspire us. But we have also found, and this is the troublesome part, that the Latin American middle class does not seem to be opting into a better social contract. In fact, what we found was evidence that the middle class in Latin America has a tendency to opt out of the social contract.

Let me give you a couple examples to explain what I mean. The moment a Latin American household becomes a middle class household, the first thing they do is take their kids out of public schools and put them in private schools. They no longer are concerned about the quality of public education as a result. You go to the Dominican Republic, the moment you are a middle class family, you buy your own electricity generator, because you don’t want to trust public electricity services. So once you have your generator, you don’t care about the quality of the public good of energy.

Or when you become a middle class in many Latin American cities, you try to buy a house in gated communities, they have walls, they have private security, because you’d rather not rely on the public police. So you could end up in a bad equilibrium.

So rather than what you would expect, which is a middle class which contributes to better institutions, more public goods, more cohesive society, better citizens, you may end up with a middle class that opts out and finds private ways of solving their own problems. And their interests may diverge from the public good.

Now let’s close this by going back  to the meta. It seems to me that so many people are so desperate for certainty that they resort to the flimsiest of evidence and the sloppiest of explanations to lean on for decision making. In short, sounding like you know what you’re talking about has in some ways become more significant than actually knowing what you’re talking about. And the pithier you sound, the more you’ll be quoted,  and the more you’ll be recognized, which just goes around and around until you wind up with some signalling phrase like “Latin America’s growing middle class” which really, when you get right down to it,  has absolutely zero meaning.

The Cost of VIP Status, Super Bowl Edition

Vince Lombardi super-bowl-trophyNorthern winter is finally over, which means it’s time to start thinking about — what else? — next year’s Super Bowl, which will be the first in the New York area and the first in outdoor cold weather (as well as a number of other firsts which I leave to the archive-obsessed).

Some telling data points on the cost of the “experience” have come across my radar recently which I thought it appropriate to share here. The full extent of what I was sent actually covered a range of major US sporting events in the coming year and is likely more than what would be of interest to most people. To give you an idea, the second most extravagant on the list — the VIP package for the Masters Tournament at Augusta National — came in at not even 1/10 the cost of the Super Bowl package. Anyway, on to the dollar signs…

Bearing in mind the cost to air a 30-second television ad during this past January was $4 million and that the starting price of resale tickets to average fans was somewhere above $3,000, the following was sent to me as a solicitation for a “Luxury Suite Donor Program Investment” for the 2014 Super Bowl:

The total cost is $540,000. This includes the following:

• Private Luxury Suite – 30 people
• Taste of NFL Event tickets – 8 people
• Commissioner’s Lunch tickets – 4 people
• Donor Cocktail Party with NFL Owners – 4 people
• Golf Outing with NFL Owners – 4 people

As well as the following bells and whistles:

• Premium in-stadium venue (open 3 hours pregame and reopens for 90 minutes postgame)
• Full premium menu and top shelf open bar (pregame)
• Select menu items, beer, wine, and soft drinks (postgame)
• Player and cheerleader appearances
• Interactive entertainment elements and more
• Super Bowl XLVII Gift Bag
• Exclusive Stadium Collection Game Program Voucher
• Super Bowl XLVII Lanyard with Ticket Sleeve
• Dedicated security entrance to the stadium on Super Bowl Sunday
• Preferred on location stadium parking (parking fees not included)
• Exclusive Postgame Field Access – once in a lifetime chance to experience the Super Bowl the way the players do: from the field

The following firms have apparently already ponied up $1 million each for the above package: Bank Of America, BlackRock, BNYMellon, Bud Light, JP Morgan Chase, Citibank, Competitor Group, Dassault Falcon, Goldman Sachs, S.A.C. Capital Advisors, Honeywell, Hertz, Hess, Jeffries Group, Tiffany & Co, Morgan Stanley, NCR, NYSE Euronext, New York Times, Pepsi, PSE&G, Price Waterhouse, R.R. Donnelly, Starr Companies, Paul Tudor Jones and Verizon.

I suppose I should I feel grateful to have access to a 46% discount to the $1 million these other institutions paid?

I don’t have the data at the ready, but my understanding is that comparable VIP treatment for World Cup or Formula One events don’t quite reach this level.

Oh well. As my grandfather was fond of saying, “Every price has a reason.” Maybe some day I’ll be in business with someone who will benefit by footing the bill for these things.

Or maybe not.

Map Of The Day: Mexico Drug War Update

The Washington Post published this the other day:

Mexico Drug War Cartel Map

Accompanying it is a rather lengthy article (here), not to be missed, detailing the evolving intelligence challenges since Enrique Peña Nieto took office.

Also not to be missed is David Agren reporting in USA Today on the Peña Nieto Administration’s apparent new strategy which can be essentially summed as: “If we stop talking about the murders, that must mean they’re not happening anymore.”

Do not be fooled.

 

A May Day Special: Why To Travel When You’re Young

terraqueous-globeI rarely republish in full something from another source, but excerpting this would really not do it justice. Fortunately, Andrew Henderson of Nomad Capitalist has granted us permission to do just that:

Why to travel abroad while you’re young… or not so young

I was talking to about travel with a close friend of mine recently. I was showing him the twenty or so countries I’ll be living in or visiting in the next year or so, and I could tell he was intrigued.

His mind was blown when I said my hotel room in Siem Reap, Cambodia would cost $9 a night. Private room. Private bath. Free wi-fi and breakfast. No forced labor in the afternoons.

Then he went on to tell me how he had all the opportunities to travel when he was younger. He could have taken the summer after high school to backpack through Europe with friends. Then he could have taken a year exploring the world before going back to grad school. Then he could have taken time off from work to go to England with his friends.

But he never did.

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Chart Of The Day: How 37 Banks Merged Into 4

Thanks to Alan Haggard, we have this quite striking chart today:

How 37 banks merged into 4

How Much More Can Emerging Markets Debt Grow?

EM versus US High Yield Bonds riskLondon-based Clear Path Analysis has an excellent report detailing investment considerations for Emerging Markets debt and FX investing. So good, actually, that it’s forcing me to second-guess my previously held view that Emerging Markets debt is in a bubble approaching crisis proportions. It’s a long-ish report (32 pages) and it’s all important, so let’s get straight to some of the notable commentary they’ve put together. I think these quotes really speak for themselves.

Gregoire Haenni, Chief Investment Officer, CERN Pension Fund, on why Asia has and will continue leading EMs:

One of the main reasons why investors are beginning to allocate into EM is because of the Asian sovereign credit re-rating trend. Asian sovereign credit fundamentals have generally been on the up for the last six years which is in contrast to other developed countries. The fiscal discipline and underlying economy growth has capped government debt to GDP without exceptions and trade surpluses over the past decade have resulted in a build up of foreign exchange reserves.
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Chart of the Day: Mexicans More Efficient Than Americans In Gun Murders

Business Insider, which I generally consider to be the equivalent of People Magazine for business, actually has an interesting presentation on gun ownership in the US. I haven’t had a chance, nor will I, to verify the many claims this presentation makes, but I thought the following chart was striking. If true, this implies Mexico has more murders per capita than the US with just 20% as many guns:

Gun deaths versus gun ownership

Full presentation begins here.

Chart of the Day: Frontier Markets Correlations, Round 2

S&P Capital IQ slipped this press release out last week, which I’m glad I followed up on since it led me to the following correlation chart:

Frontier Markets Correlation vs Major Indices

Equally important, this comment which came alongside it:

From an asset allocation perspective, one of the biggest positive differentiators of frontier market equities is their relatively low correlation with both developed and emerging market equities as well as commodities (see table 2). The asset class’ ability to “zig” when others “zag” is a function of its aforementioned limited integration into the global economy and its more domestically driven fundamentals, in our view.

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Charts of the Day: The Future Of Emerging And Frontier Markets

CarnacTheMagnificentThanks to Ernst & Young, I’ve got my retirement destination all picked out: Turkey.

Because, you see, in 2040, when I’m 67 years old, forget the BRICs or Mexico or Dubai or South-South anything; Turkey’s gonna be an export boomtown. Or at least that’s one of the forecasts E&Y is touting in its new Rapid Growth Markets forecast. And if, come 2040, I’m not rolling G-style through the souks of Istanbul, I’m definitely suing the crap out of the 2040 incarnation of Ernst & Young,  which by then might be better known as ErnstPWCDeloitte-Slim/Gates LLC dot unit D sector. 

In all fairness E&Y does a dependable job of summarizing the main economic characteristics of developing markets for those who don’t plug into this stuff every day.

And they also have a nifty online interactive tool you  can play with here.

For the rest of us…the thing is I really just have a hard time taking seriously any forecast that goes out to 2040. But let’s try anyway. According to the charts, those of us lucky enough to still be alive in 2040, assuming there’s still a human race by then, should probably be doing something with exports. But definitely not anything between the Eurozone and the US:

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Assessing Televisa’s Political Risk in Mexico

Televisa Since Dec 1Mexico watchers up to date on the landmark reforms underway in Mexico can skip straight down to the section below where the block quotes begin.

For the rest of you not up to speed, the Mexican government is getting ready to put most of the new non-oil reforms up for a vote quite soon. The Economist has a pretty good recent summary here, and if you have more time I would highly recommend checking out extensive coverage of the annual Americas Society / Council of the Americas event just closed in Mexico City here.

And for those of you new to Diverging Markets, let me sum up my basic attitude toward the Peña Nieto Administration as being what I call “optimistic distrust.” This means that I have no ideological or financial stake in any of this (though I’m still waiting for the right moment to short iShares’ Mexico ETF), but given what I know of Mexican political history and Mexican society I am highly skeptical about a lot of the big reform promises made thus far for reasons repeated throughout here; at the same time, given that I spend more time in Mexico than anywhere else, I would absolutely welcome having my skepticism proven wrong. But the caveat here as always is that Mexican leadership has become increasingly adept at telling foreign investors what they want to hear and the Peña Nieto Administration in particular has proven itself quite remarkable in this capacity. Put another way, don’t believe everything you read about this country.

Now let’s get to Televisa. The chart above shows this stock’s performance since  Peña Nieto took office on December 1 last year, and its movement in the past week is not encouraging. One of the reasons is likely a disclosure Televisa recently made to the U.S. Securities and Exchange Commission in a form that was previously unknown to me, called form 20-F. According to Investopedia, this is a form meant for foreign companies who list American Depositary Receipts in U.S. markets. The entirety of Televisa’s recent 20-F is worth reading, but in particular the “Risk Factors” section under Item 3, which is chock full of warnings.

Here’s a slice of it from the bottom of page 9 to get everyone’s juices flowing:

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Making Sense Of Angola Stock Exchange Plans

Africa Stock Market Cap FiguresBloomberg had a story out late last week about plans for an Angola Stock Exchange, entitled, “Angola Plans 6th-Biggest Africa Bourse With Value at 10% of GDP”. Since we (and by we, I mean you and me, in an apparently small minority) are resolved to have a realistic approach in discussing economic prospects anywhere, here are the main points of interest from the article once we strip away all the spin and optimism:

  • Angola, Africa’s second-biggest oil producer, expects its stock exchange to have a market value of 10 percent of gross domestic product within 18 months of its startup, making it at least the continent’s sixth biggest.
  • The capitalization of the exchange, set to start in 2015, would be a minimum of $11 billion based on last year’s output of $114 billion.
  • The Angolan government is forecasting economic growth of 7.1 percent this year, down from 7.4 percent in 2012.
  • A secondary bond market will start this year to help develop a yield curve.
  • South Africa’s bourse is the continent’s largest at $842 billion, more than double its GDP.
  • Angola ranks 157th out of 176 countries on Transparency International’s 2012 Corruption Perceptions Index.

The investment bank Imara just put together this brief which summarizes some key data points for other stock markets in Africa. There’s some good trading info in there but missing is any indication of market capitalization figures. I should add that this isn’t Imara’s fault necessarily as this data is generally pretty hard to come by.

The thing is, this isn’t the first time Angola has made efforts at opening a stock exchange. In December 2007, allAfrica.com ran a story entitled, “Angola: Stock Exchange Opens in 2008”, but I definitely remember hearing about this before then, though not as far back as 2003, which is when this article dates the beginning of the process.

In any event, here’s a more “recent” take on the Angola stock exchange prediction, from How We Made It In Africa in 2010. Apparently, Angola’s planned exchange was then expected to be the third largest in Africa. Particularly striking from the 2010 article was this little snippet:
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Map Of The Day: Global Shipping Routes

Thanks to CNI Group for this:

2013.04.16.Global Shipping Routes

I guess what strikes me the most about this map is the huge blank spaces among the world’s global shipping routes: the Bay of Bengal, southern Australia, the west coast of South America, and pretty much all of sub-Saharan Africa that isn’t connected to either South Africa or the Gulf of Guinea. Of these, Australia at least has a viable road network. Relative to the entirety of the world, these don’t look like large spaces, but the increased costs for closing these gaps via land are not insignificant.

Another thing that comes to mind here is imagining how the shifts in shipping patterns may have happened over the centuries. Never mind the obvious growth in gross number of journeys; what I’m thinking of here is the opening up of new routes.

I’m not a shipping person, but I try to be as much of a history person as I can. Off the top of my head, I would venture that China’s periodic bouts with isolationism over the centuries have had material effects on the Asia routes, the most recent probably being a massive dropoff during the 1950s through sometime in the 1970s as China re-opened and Japan started coming online. And transatlantic development from the Industrial Revolution forward has kind of been done to death.

There’s also this book, which I’ve yet to read but has been on my to-do list since it came out. I suppose where this all leads is, what’s the future of this map? More specifically, how much of south-south trade development will any of us live to see?

Taxation With Representation, By Mustafa Mond

I am pleased to present a new guest contributor today, who goes by the tag of Mustafa Mond, presumably inspired by Aldous Huxley’s Brave New World.

In recognition of today as that annual rite of American citizenship–Tax Day–Mr. Mond has graciously offered us a piece of his mind.

Ladies and Gentlemen, Mustafa Mond: 

Democracy-Taxation-With-Representation-Mustafa-Mond

The first person to correctly identify all the references here will receive a prize to be determined at a future date.

Diverging Markets Turns One Year Old

2013.04.12.annual-reviewActually, at this point we’re at one year and one month but I was too caught up in other stuff to do this last month.

So I’ve been looking at the site metrics for the first year of operation from March 4, 2012 to March 3, 2013.

Here’s the breakdown of where readers are visiting from:

2013.04.12.Diverging Markets Home Countries

The “Others” category I have the full list of but it’s too long to put here. What I can say is that it runs 169 countries and territories long. Of the 193 member states of the United Nations, I suppose it’s easier to count the countries not on there, a task I may take up next year at this time.

Also, it seems there are a quite a lot of visitors from the “not set” category. Someone more familiar with the inner workings of Google analytics and firewalls could probably explain this better, but I’m willing to bet China comprises a fair proportion of this category.

Looking at the city breakdown is way too unwieldy to do in its entirety, but here are the top 20, in order:

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