An (of course) unpublished letter I sent to The Economist...

(Note on 09/24/2008: I wrote this on early August. I think I underestimated the problems the American economy was facing. If I would have known what was about to unleash… I WOULD BE BILLIONAIRE BY NOW!)

I was in the gym reading an article called “Unhappy America” in The Economist (the only thing that can keep me in the treadmill for at least half an hour) and was surprised on how worried everybody is about the actual crisis (although GDP is yet to go down for the first time when I’m writing this post).. Coming from Argentina, where real crisis happen really often, I can only look in awe at what is considered elsewhere a crisis, so I decided to write the following letter:

SIR - Allow me to disagree with your statement that America has become “Unhappy America”. The problem is the bad propaganda the media is giving to the wannabe crisis. Maybe a good marketing campaign will make American’s minds to look different at the current economic problems. For example, if house prices fall another 10% and unemployment rise above 10% Mexicans will stop crossing the border by own choice and that problem will be solved. Moreover, many that have already crossed from many different countries will want to return to their homelands. That will create many of the jobs we like here in America like construction in Phoenix at 110º or working at Home Depot. Add to the unemployment a larger increase in oil prices (transportation costs) and Nike and others will be closing their factories in China and Vietnam and reopening them in the US (what a sweet revenge to steal jobs from the stealers!). With that the US will start being a manufacturing country again and will not have to revise the current trade agreements, or even worry about trade at all! Make things even worse and many people (not only the ones in the top but also the ones in the middle too!) will be able to have domestic labor at home saving energy from those “energy sucker appliances” like dishwashers and microwave ovens, reducing the impact on carbon emissions by households. Of course that domestic workforce will be American too. As you can see, one little economic problem can solve all America’s big problems, except gay marriage.

Alex R. Horenstein
Tempe, AZ

Milton Friedman (1912-2006)

“progress could be achieved only in an order in which government activity is limited primarily to establishing the framework with which individuals are free to pursue their own objectives”

The countries of the future

A couple of years ago everybody was predicting that the countries of the future were going to be the so-called BRIC (Brazil, Russia, India and China). The sensation that the U.S. was about to fall like the Roman Empire was common among high ranked corporate men. All the eyes were pointing toward the BRIC.
Now, everybody is talking about China and India (Brazil and Russia are not seen as competitors of these two “may be” superpowers anymore). Again, predictions about the inevitability of the fall of the U.S. as the main superpower against these two super-populated countries are spread all over.
If you read news or economic reports of the early 20th century, Argentina was about to be the next superpower. Wealth was measured mainly in natural resources and Argentina fulfills these requisites for a bright future. Needless to say, that bright future never happened (currently, totally the opposite happened, but that can be discussed in another entry).

Knowledge as the tool of growth in the 21st century
In the 21st century, knowledge and scientific progress will make the difference. If you see the list of the top universities in the world, there are not many Chinese and Indian universities very well ranked, not any in the top 100 (just statistically speaking. I am not saying they are not good):
http://ed.sjtu.edu.cn/rank/2006/ARWU2006_Top100.htm
http://www.webometrics.info/top3000.asp
It is true that Chinese and Indian students can enter top universities outside of their countries, but most of them will make contributions outside their country too.

On wealth and political power
When wealth and political power is concentrated among very few people, institutions are weak and corruption spreads very easy. People who do not belong to any of these groups are easily put aside of progress and the countries reach a point were they can not continue with their momentum. Why is this? In my opinion, this is because the ones in the bottom have no chance to get to the top and the ones in the top are very comfortable in their position and have no incentives to let the ones in the bottom to catch up. Keeping the status-quo diminishes the risk of losing power.
When wealth and political power are spread, nobody has enough power to not let somebody coming from behind surpass them. This creates incentives to give their best in order to remain at the top. Moreover, institutions tend to be stronger since they don’t respond to the interest of very few but of many. In these cases, people need to agree more and put everybody’s interests together.
Why I am saying this? I think India and China are doing good right now, but political and economic power is concentrated in the hands of very few. It is easy to build from scratch, but it will become more difficult to maintain the growing rates for long enough to catch up with the U.S. if wealth and power are not shared more equally.
It is also true that there is corruption everywhere, but in order to catch up with the leader China and India still have a long path to go. Are they going to make all the necessary changes to fulfill their future, let alone, current aspirations? Who knows! They are on the correct path but to keep on that path will become tougher and tougher. In 100 years from now I don’t know if they will be superpowers or not. However, I am sure the U.S. will still be on the top. Given the level of the education and technological innovation I see no reason to think different.
Your comments are greatly appreciated, I really look forward to hearing your point of view.

On fundamental vs. technical analysis

My first post is dedicated to introduce my opinion on the topic.
I have been following a discussion on the Financial Times about this for the last couple of weeks (The long run by John Authers).
During the last century the stock exchange has, on average, been going up most of the time. No matter the type of analysis you used: technical, fundamental, full moons or “sell in May and go away” type of behavior, you probably made some profits investing in stocks long enough. Does it mean all of them are correct? For sure not! It is a matter of being at the correct place in the correct century.
For knowing what analysis is better you should be able to compare results: do fundamental investors do better or worse than technical ones on average? I think it is very difficult to test since you never know if investors use “pure technical analysis” or "pure fundamental analysis”. Moreover, histories of success and failures exist for both types of investors. As a PhD student in Economics it is really difficult to me to think that technical analysis is something else that being lucky of having born in the 20th century. Nevertheless, I am a "poor" Ph.D. student criticizing investment procedures of successful analysts, and that does not make sense either.
You have the last word.