Monday, August 31, 2009

Dutch Disease - Brazilian style

Today the Brazilian government launched the regulatory mark for the exploring the gigantic deep-sea oil fields found near the coast of Rio de Janeiro in 2008. For those who haven't heard about it, the "Tupy" oil field is the biggest Western Hemisfere discovery in the past 30 years and could make Brazil have the fourth largest oil reserves in the world.

The billion-dollar question is whether Brazil will follow Norway into sensibly using these riches or will be another case of the "Dutch disease". Alas, the government did not make a good start, following the old populist tune of politically exploiting something that will only be operational around 2020-2025. Rather than following the mark established in 1998, which gave a huge boost to oil exploration in Brazil by creating incentives to private-sector investments, it is bringing back the old nationalized system, recapitalizing Petrobras (the Brazilian oil company) and giving it at least a 30% stake in any group exploring the wells.

It is a mistake to change the system. They should just sell licenses to the highest bidder as under the current legislation. This would reduce the CAPEX burden on the company, increase government intake and foster further development of the reserve...

We have a saying in Brazil "De onde menos se espera, daí é que não sai nada mesmo" that can be poorly translated as: "From where you least expect things to happen, this is from where things really won’t be happen"...

I'm pessimistic about raising my (future) children in Brazil.

Friday, August 21, 2009

Presenting your results nicely goes a long way in convincing people

I believe that presenting your results in engaging and intuitive ways makes it much more likely that anything you do is successful. This applies to any new business, a research paper and (at least in theory) to politicians' arguments.

I particularly like this graph showing the size of banks before (in color) and after the crisis (in black). This one further divides banks by countries, which puts in perspective the size of each bank relative to its home country:

The Information is Beautiful site also displays cool data in (mostly) interesting ways.

Friday, August 14, 2009

Reaching the Summit and Getting Back Safely

Cool article by Andrew Lo at the Freaknomics blog.

I think that mechanisms should be in place that reward managers not only on the upside, but also when they suceed in steering companies through crises.

Tuesday, August 11, 2009

Astrology Blogging: Ibovespa Index

Click on the graph for a much better image. (NOTE: Does anyone an easy way to post stock charts?)

WARNING: Assume that markets are efficient Yes, I still believe they are most of the time.

I hate trying to forecast the future (don't all economists do...), but this is something that I find odd. Below is the latest graph on the Brazilian stock market index (IBOVESPA) from early 2005. From the 72,000 peak in May-08, the index had fallen more than 50% by Nov-08. Since then, it has gone up by more than 80% and is now around 56,000. The index is about 20% below the probably overoptimistic levels of May-08, but getting close to its value in Jan-08 (still about 10% to go).

My point is: Aren't prices highly overvalued again? Are the prospects for the Brazilian economy really as good now as they were in January 2008? Most of the good news were already known (the new gigantic oil fields, macroeconomic polic stability, etc.). Alas, we now have a bunch of worries on the negative side: smaller domestic growth, big uncertanties about the speed of global recovery, deterioration of public-sector finances, smaller commodity prices upside potential, presidential elections in 2010, etc...

Those that know me, know that I'm no fan of the current goverment and its usual lack of rationality to analysis policy issues (to be honest, almost all). Let's just hope that we are not up for huge disappointment later. If it does, at least I hope it happens before the elections...

What do you think? Am I the pessimist about Brazil? Perhaps living abroad for such a long time has made me even more skeptical...

Wednesday, August 5, 2009

The Internet sometimes dumbs down the world

This reminded me about a writer (? I forgot his name) that criticizes the Internet for the drawback of contributing to dumbing the world down. Nowadays, it is so easy to google an "answer" to almost everything that it makes it easy for people to oversimplify policy issues (as Brazil's president usually does) and pretend that everything can be solved by applying layman's intuition to complicate problems.

Last month I read a wonderful article on Intelligent Life titled "Is Google Killing General Knowledge?" that makes wonderful read. I past a small exerpt below and I highly recommend reading it in full.

"One day last year a daughter of Earl Spencer (who is therefore a niece of Princess Diana) called a taxi to take her and a friend from her family home at Althorp in Northamptonshire to see Chelsea play Arsenal at football. She told the driver “Stamford Bridge”, the name of Chelsea’s stadium, but he delivered them instead to the village of Stamford Bridge in Yorkshire, nearly 150 miles in the opposite direction. They missed the game.

Such stories are becoming commonplace. A coachload of English schoolchildren bound for the historic royal palace at Hampton Court wasted an entire day battling through congested central London as their sat-nav led them stubbornly to a narrow back street of the same name in Islington. A Syrian lorry driver aiming for Gibraltar, at the southern tip of Spain, turned up 1,600 miles away in the English east-coast town of Skegness, which has a Gibraltar Point nearby.

Two complementary things are happening in these stories. One is that these people are displaying a woeful ignorance of geography. In the case of Stamford Bridge, one driver and two passengers spent well over two hours in a car without noticing that instead of passing Northampton and swiftly entering the built-up sprawl of London, their view continued to be largely of fields and forests, and they were seeing signs for Nottingham, Doncaster and the North. They should have known.

The other is more subtle. Everybody involved in these stories has consciously handed over responsibility for knowing geography to a machine. With the sat-nav on board, they believed that they did not need to know about north or south, Spain or England, leafy Surrey or gridlocked Islington. That was the machine’s job. Like an insurance company with its call centre or a local council with its bin collections, they confidently outsourced the job of knowing this stuff, or of finding it out, to that little computer on the dashboard..."