Reducing packaging, at last!!

Among the things that surprised Paula and me during our last year in the UK, was the efficiency of the post mail; and that, in turn, led us to increase our use of Amazon and other online shops. But we were shocked to see the ammount of debris that each package left, which was more absurd amidst the "green conscious" messages we were receiving all the time. I must say, it was not only the online-bought products, almost everything seemed to be overpacked, despite the focus on "going green". So with great pleasure I've seen that Amazon is taking action on the issue. I'm sure this is something Kevin Roberts would call a Lovemark in action!

HT: FayerWayer

Porsche, maestro en finanzas

Una de las lecciones que se suelen olvidar al trabajar en finanzas (particularmente en hedge funds) es que las posiciones largas tienen como perdida maxima el 100% de esa inversion, mientras que las cortas no tienen limite en las perdidas potenciales (o sea, la quiebra es el unico limite). Y aqui hay un caso notable publicado en el Economist de esta semana en que Porsche (si, el fabricante de autos) desplumo a varios hedge funds que habian apostado en contra de su compra en VW. Los ejecutivos de la firma dicen que no estaba planeado algo asi, pero como los hedge funds no suelen ser santos de la devocion de mucha gente, el cuento deja un gustillo dulce.

Desde el punto de vista de las lecciones a futuro queda el tema de que pasa con la obligacion de reportar no solo la construccion de posiciones en acciones sino tambien en opciones. Me faltan antecedentes para poder saber hasta donde llega esa obligacion en otros mercados pero es claro que en Alemania no es muy estricta.

For whom the bells toll

During a conversation I had with a member of Fonterra's Board he made me an interesting question: "What would you ask for Chile?". I answered: "If Argentina could clean its mess and finally became the developed country it should be... that would be wonderful". That could create a lot of opportunities for both countries and Chile would greatly benefit from a neighbour growing in order and openly. Yes, Chile has its own problems too, (education, education, education) but I was thinking of the things that do not depend on us.
After watching the way Cristina Fernandez is acting towards their private pension funds, I can't but think it's not just Argentina's problem... they are marching in to a deeper mess than the rest of the world,  and alongside there are wonderful opportunities for Chile that are going down the drain with them...
Shame...

I want it all... for free

(Sin acentos)
Nuevamente el panico hace presa de nuestros representantes y quieren meter mano. Resulta que la rentabilidad del ultimo tiempo no ha sido bueno para los fondos de las AFP, entonces quieren empezar a intervenir porque los fondos futuros van a ser menores que sin esa perdida... Obvio, en un mundo ideal en que manejaramos siempre achuntandole a la mejor rentabilidad los fondos no habrian bajado... pero lo que subieron anteriormente era precisamente porque estaban expuestos a esa baja!! Al que no le gusta, vayase al fondo E, donde la variabilidad es menor y la rentabilidad tambien. Pretender tener las rentabilidades de los fondos con riesgo, pero sin riesgo, no se puede. Y si alguien pudiera hacerlo, probablemente su comision seria lo suficientemente alta como para que todo vuelva a la misma relacion rentabilidad riesgo del resto.
Que esto impacta a quienes estan a punto de jubilar es cierto. Por eso se establecen distintos fondos, porque hay quienes podemos aceptar esta perdida a cambio de las rentabilidades mayores (porque somos mas jovenes) y quienes no pueden correr ese riesgo. Dado eso, no necesitamos que venga "el legislador" a tratar de hacerlo mejor que los administradores regulados profesionales. Gracias, pero tener el premio pero no el costo es una falacia y estoy seguro de que si meten mano van a arruinar un sistema que ya esta adecuadamente regulado.

A tech-finance thriller

The new technologies for comms have changed many things in terms of coordination, including mobs. In Chile it was extensively covered the use school students did of internet and cell phones to coordinate their actions during the "penguin riots" a few years ago. And now there's this fascinating example of the Bank of East Asia in Hong Kong that nearly faced a run because somebody spread rumours of lack of liquidity.
I'm not into conspiracy theories but the possibility of somebody being able to spread a rumour that may hit hard on a bank seems like a fascinating argument for a thriller (maybe Jeffrey Archer could use the idea and invite me to a dinner in Grantchester). Beyond the literary implications this is again a good example of the importance of "expectations" in economics, and an issue that banks should consider in their "crisis manuals".

Will you still drink me tomorrow? The bid on Bud

Interesting discussion the one generated around the bid made by InBev to take over Anheuser Busch. As a liberal I won't dare questioning their right to do so, and I would absolutely reject any attempts to try to stop it by law. But I do wonder if it is a market-sensible move.
I'm not an expert in marketing, by during my stay at Cambridge we had the opportunity to analyze the beer market (thank you Cobra!), and one of the things that really surprised me was to discover that one of the last refuges of strong national identity seems to be based in beers. Everyone has a lovemark in this market, and it usually is absolutely connected with its country of origin. I mean, while most people will stand for a beer from its own country, even those globalised minds that would rather have a different one will immediately make a strong connection with the origin of the one they like. Me? Bring me a Belgian Trappist beer. There you have some beer!.
So the question is: what would happen to Budweiser if for some reason it loses its American appeal? Would that change the way people relate to it? I don't know. In the short run I don't think so... At least I'm not willing to start drinking Bud once it becomes Belgian... but in the long run I wonder if they will be able to preserve their identity... and as for beers, that is key!

Taxing consumption instead of savings

"You can easily implement a consumption tax with a Form 1040 that says:
"How much did you earn this year? How much did you save? Now pay tax on
the difference." And you can make that tax as progressive as you like", from Steven Landsburg in the WSJ. Simple, effective, brilliant!
HT: G. Mankiw.

Decency

One of the lessons my father was keen on teaching me was the idea that eventually "all your sons and daughters will inherit from you is your name, so you want that name to be immaculate". I was reminded of his lessons by the attitude shown by British Airways CEO last month, when he announced the board that, despite his contract right to, he felt receiving the bonus he was entitled to would be "inappropriate".
In times when many people claim for corporations to go beyond the law to develop CSR, it's often forgotten that it is individuals who should go beyond the law, to be charitable, generous or at least, decent.

Beware inflation misinterpretation

When I first studied economics teachers always put a lot of focus in distinguishing between inflation (which is a persistent rise in the general level of prices) and one time shocks, which actually were changes in relative prices. Now, the problem is that all the indexes that have been created to measure inflation actually mix these effects, and therefore when there are “automatic inflation adjustments” a one time change in a specific price translates to the whole economy.

On that background the whole discussion on inflation arising from the increase in price of oil and food is an overreaction: If the price of oil is a bubble it should flop and not lead to further problems. (Actually it’s interesting to observe that the high prices we have seen in the last weeks have occurred in the context of low transaction amounts, according to Thomson Reuters).

But if there’s a case for it (i.e. growth in real demand from Asia in the context of fixed supply capacity), then the economies should adjust to the new relative prices (not a new level of prices). Such is the reality of globalisation. The real danger of inflation, in my perception, lies in calling this phenomena “inflation”, since it gives a backup to wages adjusting that will generate real inflation (and bust some companies that can’t follow them) in a spiral effect that usually becomes hard to handle.

UPDATE: One week after writing this piece for my MBA I read this comment from Mankiw's blog that reinforces the idea.

Source: Thomson Reuters

Sweatshops create welfare

Many times in class with my students we engaged in theoretical microeconomic analysis like the situation of workers that face tough job conditions. I usually challenged them with a statement I once heard from a very pious relative: "If I can't pay a decent salary, I'd rather not hire at all". My usual answer: "So you'd rather let them starve". This was usually enough to ignite a beautiful class, with many of the students that had been quite the whole term actually engaging in it. But I always missed some evidence to support my claim and here is a beautiful and brief document giving it! (Thanks to Don Boudreaux).

Chrysler: Selling oil short

I've read many critics to Chrysler's (Dodge and Jeep) new refuel program. It actually fixes the price of fuel at $2.99 for three years, for up to a certain amount of gallons. Critics say that it's encouraging the use of fossil fuels... (but on the other hand other critics say that it only goes up to the equivalent of 12.000 miles a year, whilst the American average is 15.000, so I don't see much of an encourage... ). Thomas Friedman has even compare it to "offering discounted cigarettes to teenagers"! Quite sincerely I don't see the problem: I don't believe it's going to marginally change the consumption of fuel in relevant ways. What I do see is a good example of a financial instrument (short selling) turned into a marketing tool. Now the real danger is that short sells are dangerous, since the losses may be way beyond any estimations: what if the price of fuel goes up to $10, $15 or $20 per gallon? In theory there's no limit for it... not to mention that as far as I read the offer it doesn't exclude the potential taxes that may be created in the future. In the good scenario this is an original marketing tool, in the bad one this may cause heavy losses to the firms involved, unless they take cautionary options to hedge the risk.

On population (and Neruda)

So now it's Jeffrey Sachs who has joined those who claim for a reduction in birth rates... In fact, as reported by the New York Times, he argues in favour of a 2.1 ratio per family (and then he thanks his 3 kids).
I just have two words on that:
1) "Don't put the cart in front of the horse" (a free translation from Spanish). There's not one single country that has achieved development by restricting birth rates. It has always worked the other way around, so you don't need to worry: just help these growing countries to achieve development, then birth rates will take care of themselves.
2) Population is an endogenous variable... it's not that we are facing an "explosion" the planet can't sustain... Actually, we have reached this level of population because for the first time in human history we've been able to sustain it!: less wars, better medicine, more food. Now, I don't know if the world is able to sustain this level of population consuming at the same level that the US citizens do... but I know it can sustain the population to the level of consumption that allows them to live, and I dare saying, in much better conditions that most of their ancestors. The thing is that those conditions have bad press today, they are called poverty, and though it might be true that everybody would rather live in a better situation, I would not dare telling anybody that they would be more happy consuming more and having less children. I'd like to tell "developed countries" along with Neruda:

Ah you don't want to,
you're scared
of poverty, you don't want
to go to the market with worn-out shoes
and come back with the same old dress.

My love, we are not fond
as the rich would like us to be,
of misery. We
shall extract it like an evil tooth
that up to now has bitten the heart of man.

But I don't want
you to fear it.
If through my fault it comes to your dwelling,
if poverty drives away
your golden shoes,
let it not drive away your laughter which is my life's bread.
If you can't pay the rent
go off to work with a proud step,
and remember, my love, that I am watching you
and together we are the greatest wealth
that was ever gathered upon the earth.

Mas Informacion no es mas conocimiento

Paseando por youtube me encontre con Sweet Child'o Mine que hace mucho no escuchaba... grave error: la depresion me ataco cuando me tope con el siguiente comentario:
"the guitarist of guitar hero 3 has the apperance of the guitarist :)"
Definitivamente las nuevas generaciones tienen mas acceso a informacion, pero son mas ignorantes. Yo se que estoy viejo, pero cuando era chico y veia a heroes de las generaciones anteriores sabia quienes eran!!

Great Global Warming Swindle

I mentioned in a previous post that I was skeptical on the real impact of human action on global warming. It turns out there's already a film that presents the facts that I thought might be interesting to analize and guess what: they strengthen my position. For those who need backup (as me) or for those who blindly believe in a human caused and dangerous Global Warming take a look.
I must say, I'm still concerned with recycling and garbage, but I don't buy into apocaliptic visions.

El dolar

"Las intervenciones del Banco Central seguirán
generando volatilidad y por ende oportunidad para los inversionista" asi reza la linea final del informe economico que una corredorea de bolsa envio hoy a sus clientes. Personalmente todavia no entiendo como pretende el Banco Central frenar en Chile la caida del dolar en todos los mercados. Si lo que quieren es ayudar a Pymes exportadoras (a los grandes, por favor, no: debieron haber tomado precacuciones hace rato!) hay otras maneras de hacerlo, pero dejen que el dolar sea lo que es... y de paso le permiten a los que quieren importar, turistear o invertir en el extranjero que puedan hacerlo!

El lenguaje

Masiva manifestacion ayer por el "derecho a la anticoncepcion". Sin embargo la prensa habla de manifestacion en "defensa de la pildora". Y la sutileza no es menor, me parece a mi. El TC no ha fallado en contra de la anticoncepcion, sino en contra de un medio especifico que a la luz de los antecedentes que se le presentaron dieron lugar a dudas respecto a su eficacia como medio anticonceptivo, pues su accion podria ser mas bien abortiva.
No me cabe duda de que entre la gente que hubo ayer en la manifestacion se mezclaban gente a la que la distincion le da lo mismo (grupos en favor de la libertad de elegir incluyendo el aborto como alternativa valida) y gente que no cree en el aborto como una alternativa valida pero que si quiere defender la anticoncepcion como derecho personal.
Mi problema es que si no distinguimos al final no sabemos de que estamos discutiendo. A los que son partidarios del aborto los entiendo, dado que la sutileza es para ellos irrelevante y ademas este tipo de acciones van cons truyendo un escenario de respaldo popular que les puede dar la base requerida para modificar la legislacion vigente. A los que son contrarios al aborto es a quienes les preguntaria: Que buscan? Es claro que la discusion respecto a si la pildora es abortiva o no es compleja. Personalmente lo que he estudiado del tema (que es poco) me hace pensar que la pildora famosa es abortiva en un porcentaje relevante de los casos. Alguien puede pensar distinto y me parece muy bien, La pregunta es que hacemos en el contexto de un pais en que el aborto no es permitido? Lo civilizado es dejarlo en manos de un tercero que decida, eso es lo que hacen los tribunales: yo creo que el es culpable, tu crees que es inocente: el tribunal decide. Pero una vez resuelto no podemos tratar de quebrar la institucionalidad para que se acerque a mis propias convicciones! O alguien cree que el Tribunal Constitucional se vendio a alguien (los fabricantes de condones, tal vez?) para fallar en contra de la pildora? O sera acaso que les encanta fallar en contra de la gente?
Creo que es importante que limpiemos el lenguaje: que los que quieren aborto lo planteen libremente y los que no creen en el aborto como alternativa, tambien lo hagan saber y asuman las consecuencias, incluida la renuncia a elementos "practicos" pero que a la luz de los antecedentes presentados a aquellos llamados por nuestra institucionalidad a decidir fueron juzgados como abortivos.
Lo que es increible (y solo puede pasar en Chile) es que a pesar de ese fallo se pueda seguir comercializando... eso si es insolito!: O es abortiva o no, no puede haber dos fallos que digan cosas distintas! Y eso si mereceria una marcha con pancartas de "Exijo una Explicacion", con Condorito a la cabeza.

(Disculpen los acentos, pero este PC no tiene...)

Secrets and lies

I still remember a wonderful film by Mike Leigh by that title. Eventually it's just about the fact that each one of us has some fear, some secret, some guilt... and we carry on with them as far as we can. But every now and then, you can break free from it... usually when you finally find the courage to face it, or when you get caught.
Well I found this precious site called PostSecret (hat tip to Howard Roberts, Saatchi and Saatchi) that lets you unburden your soul. And for those of us who are curious observers (yes, peepers, OK) it's a wonderful display of fun, pain, happiness and sorrow. Really worth it. One of the most amazing sides of it is that it still requires you to send a postcard by mail... and that keeps it at "human scale". Lovely.

Impuesto a la renta

Ahora que llego abril, justo podemos tener acceso a la declaracion de impuestos de Hillary Clinton (and husband). Dos reflexiones:
1.- Que notable poder tener un sistema mas transparente (siempre se puede pedir todavia mas, pero algo es algo).
2.- Los Clinton ganaron un total de US$ 16 millones y tienen que pagar impuestos por aprox un 29.1%. En Chile (suponiendo un dolar a $440), basta ganar US$ 285.000 para alcanzar esa tasa. (Roughly... habria que corregir por algunas deducciones).

Everybody's got their price

I knew that but I thought it was higher:
Even in a so called "non discriminating" world, I do feel the guy in the video is not actually conscious about the implications for his future life: Can you picture him in an interview for a job, dating, or the way his passport is going to look like?! Using a 10% discount rate, and assuming he lives long enough (and that company does not go busted) he is actually receiving £15.000 which is not bad money, but I guess it's still cheap.!!

Update: April's fool... and they caught me! (At least I didn't make a comment praising the idea!!!)

11th hour

We were lucky enough to attend a premiere of the new production on Human Environmental Impact (since it goes beyond global warming), produced by Leonardo Di Caprio: The 11th Hour. Very interesting piece. I would have appreciated more strong data for those more skeptical (such as me). Don't get me wrong, I'm not denying the fact of global warming... What I'd like to know is how much of it is due to human action (after all, this is not the first episode of warming and we understand very little of the facts that provoked the previous ones). I guess this "elasticity" measure is key if we are to agree on what to do now. Unfortunately the film doesn't offer many solutions. It relies a little bit on blaming corporate capitalism, part on the consumers (at last! somebody that points the finger clearly) but then relies on technology, carbon tax and a more "concious attitude" from "the people". To get connected with our environment.
Let me play the cynical part here: Corporate Capitalism just goes where the people wants them to go. You want to pay more for a "environmental friendly product" it's your call. The problem is that I don't see the "consumer" willing to pay more consistently. Furthermore, this is not about paying more... it's actually about consuming less. Now there's no way to solve that while keeping today standards. You may tax carbon heavily, but that necessarily means that (a) some things (including food) are going to be more expensive (that's the way markets signal the need of reducing consumption), this means people on the margin will starve and therefore there's no way the poorest of the world will accept that, or (b) the richest voluntarily accept to pay more (consume less) themselves to allow the rest of the world to get their "share" on polluting. The only way that "competitive behaviours" (i.e. more environmentally balanced ones) will rise is by imposing real costs on the polluting ones, and bearing the consequences. And this requires a willingness to sacrifice, especially among the richest countries that I don't perceive possible. They still believe this is just about separating a 20% of the tons of rubbish they produce each day. To avoid the usual "free rider" problem we need quite a strong LEADERSHIP and a real will to SACRIFICE.
If not, the system will find a way... probably one we won't like.

Who owns the Sky?

By the end of last year I attended an interesting presentation by Peter Barnes, entitled "Who owns the Sky?".

He began answering such question practically by an application of the "uti posidetis" principle: it belongs to the one who uses it, and since its main use nowadays is to pollute it, therefore the sky belongs to the polluters. I'd quickly say that I believe he is half wrong on this idea with some consequences for the conclusions he derives later, the reason being that since the sky is treated as a free resource (there are no charges for using it) it is no source of competitive advantage for anybody, therefore it generates no rent for the polluter. So the benefit of these actions relies both on the polluter and the consumer who receives a product or service free riding on the cost levied on the people that suffer the consequences of dirty air (sometimes their own selves). (Those who have studied economics can imagine a simple fall in the cost for all the firms in the industry, to get the picture).

Furthermore, Barnes believes that control via carbon taxes (or any other taxes) would be ineffective since "even if that idea overcomes the political conundrum, demand for polluting is inelastic". He didn't seem to notice that this final statement (if true) would reinforce the idea of the consumer being the real beneficiary of pollution rather than the "polluting firm".

Based on these ideas he advocates for a control based on licensed exploitation with caps to cover all carbon emitting resources in the economy. According to him this should be applied upstream rather than downstream (at the point of creation or collection of the resource rather than at its final use). He admits that this may punish some innocent (not polluting) uses of such resources, but he reckons that trying to make such distinctions may only serve as a way for fraude. All potentially contaminant resources (oil, coal, etc) should be capped no matter their final application, and not accepting any sort of offsets nor issues of extra permits. The idea of upstream capping seems simpler than other plans, hence its strength and the passion Barnes transmits also reinforces that feeling, but he completely disregards any kind of incentives for the pollution-efficiency in the use of that capped quantity, and therefore, we might end up with less oil and coal, but having it burnt in the most polluting way, if that turns to be the more profitable one. We will be favouring those who use less quantity rather than those who pollute less.

Then he moves on to the way of distributing these rights to produce potentially polluting resources, and suggests public auctions, or even more: fixed term rights that could be distributed among the population and then sold through private markets. In either case the idea is that whomever wants to produce potential carbon emitting sources should buy that right to "the people", whether directly or indirectly through the public sector. Thus all the increases in cost that would be transferred to the consumer would also be captured by the consumers who would end up unaffected (sic).

Now this raised all kinds of questions regarding the more or less regressive impact of this model since everybody would be given the same amount of benefits arising from the auctions (that would be the case if the markets are cleared fast enough to converge to a single price, which in a repeated exercise might be the case) but not everybody pollutes the same. Whether this would be regressive or not does not appear clear to me. It's true that rich people uses more cars and jets than poor people, but it's also true that their marginal propensity to consumption (of polluting and no polluting goods) is smaller than that of poor people, whose consumption baskets, on the other hand, include more polluting elements that most people think of (the proportion of the cost of basic goods arising from transportation and other polluting activities is very high). Therefore this redistribution issue does not appear clear, so the idea still sounds appealing, in principle.

But the reall fallacy is that assuming redistribution we end up unaffected!! We are capping emissions: therefore something has to diminish and that would probably be the rate of growth. (In fact, if the capping is too agressive it may create some recession). We have learnt there's no free lunch, haven't we?

I must say I regarded the conference as quite interesting, even though I can't share some of his approaches. In fact, I still believe that as long as people (rather than governments) aren't really convinced on the relevance of this issue, and by that I mean having people willing to pay the price of more expensive and less goods and services, things will still be the same. And I do believe that not only because of the "demand side" approach that every libertarian would prefer, but also because the "supply approach" seems unsustainable without the other. But, when Peter Barnes finished his intereting conference I couldn't help but ask him only one question: WHO? Who will measure, who will cap, who will enforce? And the images of Japanese ships breaking a world agreement on non commercial whale captures (1.000 whales for research in one year?) in front of the eyes of everybody (including a ruling from the Australian Courts), without a word coming from other governments clearly tell us that there's simply not enough demand... yet.

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