Monday, January 13, 2014
The Two Latin Americas
Editor’s Note: I will have the pleasure in participating in a three week Management Certification program for South American business students. In preparation for this study, I have studied the current political and economic environment in South America.
There are two Latin Americas right now. The first is a bloc of countries—including Brazil, Argentina and Venezuela—that faces the Atlantic Ocean, mistrusts globalization and gives the state a large role in the economy. The second—made up of countries that face the Pacific such as Mexico, Peru, Chile and Colombia—embraces free trade and free markets.
Because both sets of countries share similar geography, culture and history, this divide makes the continent today something of a controlled experiment in economics. For almost a decade, the economies of the Atlantic countries have grown more quickly, largely thanks to rising global commodity prices. But the years ahead look far better for the Pacific countries. The region as a whole thus faces a decision about (as it were) which way to face: to the Atlantic or the Pacific?
There is good reason to think the Pacific-facing countries have the edge. Much of the continent is "paying the costs of exaggerated protectionism and…irresponsible policy," said Alan Garcia, Peru's former president, at a recent conference in Mexico City. "That is not the Latin America that I see in the future. I see the future in countries like Chile—which has been a good example of how to do things for a while—Colombia, Peru and Mexico."
In 2014, the Pacific Alliance trade bloc (consisting of Mexico, Colombia, Peru and Chile) is slated to grow an average of 4.25%, boosted by high levels of foreign investment and low inflation, according to estimates from Morgan Stanley. MS -0.79% But the Atlantic group of Venezuela, Brazil and Argentina—all linked in the Mercosur customs union—is projected to grow just 2.5%, with the region's heavyweight, Brazil, slated to grow a meager 1.9%.
The diverging trend lines between the two Latin Americas may last long past 2014. When China's economic growth was at its peak, the rising giant snapped up Venezuelan oil, Argentine soy, Chilean copper and Brazilian iron ore. But as China's economy has slowed, commodity prices have followed suit, hitting the Atlantic economies hardest. Brazilian Finance Minister Guido Mantega used to boast that his country's model of economic development would soon spread throughout the world. But Brazil—with its high taxes, red tape and tariffs—did little to prepare for the day when commodity prices might weaken.
Economists say that countries in the free-trading side of Latin America are better poised to prosper, with higher productivity gains and open economies more likely to attract investment. The Pacific countries, even those like Chile that still rely on commodities such as copper, have also done more to strengthen exports of all kinds. In Mexico, manufactured exports now account for nearly a quarter of annual economic output. (The figure for Brazil: a paltry 4%.) The Pacific economies are more stable too. Countries such as Mexico and Chile enjoy low inflation and bulging foreign reserves.
By contrast, Venezuela and Argentina are starting to resemble economic basket cases, with high inflation and weak government finances. In Venezuela, inflation is running above 50%—on par with war-ravaged Syria. President Nicolás Maduro, the successor to the late populist Hugo Chávez, is doubling down on price controls to try to tame inflation. The fairly predictable result: widespread shortages of everything from new cars to toilet paper. A popular new app uses crowdsourcing to tell residents of Venezuela's capital where lucky shoppers have found, say, meat—allowing others to rush to the store and snap up the precious stuff.
This Latin America's finances are unimpressive too. Among the three worst performing currencies in the region in 2013 were those of Venezuela, Argentina and Brazil. Argentina's peso, for instance, fell 32% against the dollar at official rates—and some 47% on the black market.
Argentina has also suffered from heavy-handed regulation. In Buenos Aires, the southern hemisphere's summer months have brought soaring temperatures—and regular blackouts. The government slapped price controls on energy prices back in 2002, hoping to help the poor overcome the 2001 financial collapse. But what was supposed to be a temporary measure became permanent. Electricity companies scared off by the price controls stopped investing in the city's aging electricity grid.
Even Brazil, which has had far more responsible economic management than Venezuela or Argentina, is starting to struggle with rising prices and a boom in credit that is starting to turn. Last year, one Brazilian summed up the Atlantic bloc harshly: "Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe."
A key moment in creating the two Latin Americas came in 2005, when Brazil, Argentina and Venezuela (then led by Mr. Chávez) lined up to kill the proposed Free Trade Area of the Americas—a free-trade zone stretching from Alaska to Patagonia and promoted by President George W. Bush. Troubled by the FTAA's demise, the Pacific Alliance set out to create its own free-trade area, eliminating tariffs on 90% of goods and setting a timetable to eliminate the rest.
The diplomacy practiced by this half of Latin America differs too: While the Atlantic bloc often views the U.S. with suspicion or outright hostility, the Pacific countries tend to have closer ties to Washington. "We set out to create the Pacific Alliance because we wanted to set ourselves apart from the populists," said Pedro Pablo Kuczynski, a former Peruvian finance minister. "We wanted a thinking man's axis."
Many of the region's young, the bulk of the population, have cast ballots for politicians such as Mr. Chavez, who offered painless growth by printing money. These youthful voters may have painful lessons ahead of them.
"In the end, the results from the different blocs will resolve the debates," Mr. Kuczynski said, "but bad ideas take a long time to die."
Wall St. Journal, January 3, 2014; David Luhnow.
UNIVERSITY CHRONICLES – New Position: VICE PRESIDENT AND CONTROLLER
Central Park West at 79th Street, New York, NY
The American Museum of Natural History seeks a Vice President/Controller to lead its financial operations and services, supporting the Museum's broad range of scientific, academic, artistic and operational divisions. The position requires strong leadership, high integrity, deep understanding of accounting standards and tax regulations and the ability to represent the institution on many levels. The Vice President/Controller position reports directly to the Senior Vice President/CFO and is a key member of the senior finance team.
POLITICS – “Record-High 42% of Americans Identify as Independents: Republican identification lowest in at least 25 years," by Gallup.com's Jeffrey M. Jones: "Forty-two percent of Americans ... identified as political independents in 2013, the highest Gallup has measured since it began conducting interviews by telephone 25 years ago. ... Republican identification fell to 25%, the lowest over that time span. At 31%, Democratic identification is unchanged from the last four years but down from 36% in 2008."
JPM PENALTIES TOTAL $20 BILLION - To settle a barrage of government legal actions over the last year, JPMorgan Chase has agreed to penalties that now total $20 billion, a sum that could cover the annual education budget of New York City or finance the Yankees' payroll for 10 years. It is also a figure that most of the nation's banks could not withstand ... But since the financial crisis, JPMorgan has become so large and profitable that it has been able to weather the government's legal blitz, which has touched many parts of the bank's sprawling operations. The latest hit to JPMorgan came on Tuesday, when federal prosecutors imposed a $1.7 billion penalty on the bank for failing to report Bernard L. Madoff's suspicious activities to the authorities.
Yet JPMorgan's shares are up 28 percent over the last 12 months. Wall Street analysts estimate that it will earn as much as $23 billion in profit this year, more than any other lender. And JPMorgan's investment bankers, who on average earned $217,000 in 2012, can look forward to another lush payday as bonus season approaches. 'The fines have been manageable in the context of the bank's earnings capacity,' Jason Goldberg, a bank analyst at Barclays, said. “It makes $25 billion in revenue per quarter and has record capital.”
10 things to look for in 2014 at the movies, 2013 was a tale of two cinemas. Blockbusters like 'The Lone Ranger' and 'After Earth' flopped spectacularly while many in the industry (including Steven Spielberg) bemoaned the increasingly commercial trajectory of the studios. And yet by the end of the year, Hollywood had set a record with nearly $11 billion in revenue, while critics hailed the year's crop -- from 'Gravity' to '12 Years a Slave' to 'Inside Llewyn Davis' -- as one of the best in years. ... Though 2013 contained no major live-action musical, several are coming this year. Clint Eastwood, of all people, directs the screen adaptation of the hit production about Frankie Valli and the Four Seasons in 'Jersey Boys' (June 20). 'Annie' (Dec. 19), produced by Will Smith and Jay Z, will get a contemporary update with 'Beasts of the Southern Wild' star Quvenzhane Wallis as the titular orphan. ...
The Muppets, too, will be back in 'Muppets Most Wanted' (March 21) ... Jim Henson's furry troupe travels to Europe. ... Naturally, 2014 boasts a boatload of sequels and remakes including 'Godzilla' (May 16), 'The Hunger Games: Mockingjay, Part 1' (Nov. 21), 'Transformers: Age of Extinction' (June 27), 'Dawn of the Planet of the Apes' (July 11), '22 Jump Street' (June 13), 'The Expendables 3' (Aug. 15) and 'How to Train Your Dragon 2' (June 13). Peter Jackson will finally close out his lifetime with J.R.R. Tolkien with his final 'Hobbit' installment: 'The Hobbit: There and Back Again' (Dec. 17). Other franchise expansions include 'The Lego Movie' (Feb. 7), 'Teenage Mutant Ninja Turtles' (Aug. 8) and 'Veronica Mars' (March 14), the cult TV show propelled to the big screen by a crowd-funding campaign on Kickstarter.
AN APPLE TURNOVER - Apple historically didn't make much of an effort to appeal to businesses, and many business applications were written only for Windows, making Apple devices not as viable for use inside corporations. But now things have changed. We are witnessing an Apple turnover: iPhones replacing BlackBerrys and iPads assuming tasks once reserved for PCs. Innovations in software to the rise of apps—that have made Apple products more appealing to corporate tech managers. Seven years ago last week, the Steve Jobs introduced a gadget, described by the WSJ as "a media-playing cellphone, dubbed the iPhone."
50 YEARS AGO -'64 US report ties smoking to cancer": "On Jan. 11, 1964, AP Science Writer Frank Carey covered the release of U.S. Surgeon General Luther Terry's historic report linking cigarette smoking to lung cancer. The report has been called one of the most important documents in U.S. public health history. While not the first to raise the alarm about smoking, it gave momentum to the push for tobacco controls. The surgeon general has periodically issued more smoking reports, and a new one is due out next week. Fifty years after its original publication, the AP is making this story available to its subscribers. ...
Heavy cigarette smoking is the principal cause of cancer of the lungs and the larynx and a health hazard so grave as to call for remedial action, a blue-ribbon science panel concluded today. The nature of that action was not spelled out. However, Surgeon General Luther Terry of the U.S. Public Health Service said his agency will move promptly to recommend specific steps of the kind urged by the science group. Meanwhile, he told a news conference: 'I would advise anyone to discontinue smoking cigarettes.'"
BIRTHDAYS THIS WEEK – Birthday wishes and thoughts this week to: Muhammad Ali (72), Robert F. Kennedy Jr. (60), Michelle Obama (50).
COLLEGE HOCKEY PICK OF THE WEEK – Saturday 1/18, 7:07 PM CT, BRAVO; Western Michigan Broncos (11-8-3) at #2 St. Cloud State Huskies (12-3-3). The Great Lakes Tournament Champs Broncos have a key league game against the #2 nationally ranked Huskies. We like St. Cloud to win, 5 – 2. Season to date (0-1).
NFL PICK OF THE WEEK – Sunday 1/19, 3:00 PM ET, CBS; New England Patriots (13-4) visit Denver Broncos (14-3) in the AFC Championship game. A battle of Hall of Famer QBs, Pats win 42 – 40. Season to date (14-4)
THE SWAMI’S WEEK TOP PICKS –
(NFL Playoff, Jan 19) San Francisco 49ers (14-4) 17 at Seattle Seahawks (14-3) 21
(NCAA Hockey, Jan. 18) #10 Yale Bulldogs (8-3-4) 3 at St. Lawrence University Saints (8-10-2) 4
(NHL, Jan. 18) Anaheim Ducks (34-8-5) 3 at St. Louis Blues (31-8-5) 4
(D-III Game of the Week, Jan. 18) women hoops; Occidental Tigers (8-6) 45 at Chapman Panthers (10-4) 57
2014 Season to date (4-5)
NHL POWER RANKINGS – through 42 games (1/2 NHL season): (1) Anaheim Ducks, (2) Chicago Black Hawks, (3) St. Louis Blues, (4) San Jose Sharks, (5) Los Angeles Kings.
NHL HOPELESS FIVE – through 42 games (1/2 NHL season): (30) Buffalo Sabres, (29) Edmonton Oilers, (28) Florida Panthers, (27) New York Islanders, (26) Calgary Flames
DEAR RINK RATS –
Our membership is down and we are thinking about recruiting college and university adjunct faculty. What do you think?
Dear Walter Reuther,
Just the mere discussion of the union is giving me a headache. I can't imagine what it would be like if they had a presence on campus.
ABOUT LAST NIGHT – ”American Hustle" dances away with three Golden Globes -- Continuing its late surge through Hollywood's never-ending awards season, director David O. Russell's con game story 'American Hustle' won a leading three trophies at the Golden Globes - including best musical or comedy - while the slavery tale '12 Years a Slave' avoided a total shutout by taking the evening's very last award, for top drama. While the awards presented by the Hollywood Foreign Press Assn. ... at the Beverly Hilton did not radically reshape the race for the Academy Awards, whose nominations are announced Thursday, they did solidify the gathering momentum for 'American Hustle' and the AIDS story 'Dallas Buyers Club,' which was the only other film to win more than one award ...
As is often the case with the Golden Globes, there were a number of unscripted, embarrassing moments in the show hosted by Amy Poehler (who won ... for her show 'Parks and Recreation') and Tina Fey. When actors Jonah Hill and Margot Robbie came on stage to introduce scenes from their film 'The Wolf of Wall Street,' their television prompter showed the next presenters' speeches, forcing a stagehand to hand Robbie a page torn out from a binder. Drew Barrymore started to present ... only to realize that the show was cutting to a commercial. In an attempt to keep the show from running too long, the broadcast's producers gave winners only a few moments to accept their trophies before cuing the band. Among those quickly played off the stage were DiCaprio, Adams, Blanchett, Leto and Jonze.
MARKET WEEK - After a bang-up 2013, the stock market is starting 2014 with a whimper. The uncharacteristic dip is leaving investors in a tough position: Selling now could protect them from further declines but could also mean they would miss out on the gains most experts are still forecasting ... In the year's first seven trading days, the Dow Jones Industrial Average is down 0.8 percent. That isn't a big dip by stock-market standards, but it marks a clear deviation from the norm. New investment money usually pushes stocks higher at the start of the year. In two-thirds of the years since the Dow ... was launched in 1896, the blue-chip index has risen in January's first seven trading days. In the 20 years through 2013, the gains were even more consistent, occurring 70 percent of the time. Last year, the Dow jumped 2.8 percent in the first seven trading days.
But this year for the first time since 2009, stocks are starting down. Many money managers see that as a sign of unease about the market's direction. ... Investors are increasingly nervous because the Dow hasn't had a significant decline since the summer of 2011. After last year's 27 percent surge, many fret that it has come too far, too fast. They hesitate to put a lot of new money into stocks. And yet they also hesitate to sell.
DRIVING THE WEEK - Congress expected to pass a temporary measure to keep the government open past Wednesday and then approve an omnibus spending bill by the weekend, taking the threat of shutdowns off the table for the year ... Treasury Budget at 2:00 p.m. today expected to show a surplus of $44 billion ... Producer prices at 8:30 a.m. Wednesday expected to rise 0.4 percent headline, 0.1 percent core ...
University of Michigan Consumer sentiment Thursday at 9:55 a.m. expected to be unchanged at 83.5 ... President Obama along with Treasury Secretary Jack Lew this afternoon meets with Spanish President Mariano Rajoy Brey ... JP Morgan Chase and Wells Fargo on Tuesday kick off fourth-quarter bank earning season ... Annual auto show takes place in Detroit.
Next week: words of the month and winter gardening.
Until Next Monday, Adios.
January 13, 2014