Tag Archives: growth

The US to be No. 1 oil producer…still illegal to export it

Due to advances in technology, American companies have found ways to extract oil that was previously too expensive.  Due to these advances, it is predicted that the United States could become the world’s number one producer of oil by the year 2015.  However there is something holding back the US’s energy dominance, and that is an outdated law from a time when America was dependent on foreign oil and was desperately trying to conserve it.  This is no longer the case.  In order to encourage economic growth, employment, and stability the United States should reverse its policy on exporting petroleum.

There are three main reasons to remove the ban on exporting petroleum.   First, oil exports would increase net exports, raising the country’s GDP.  It translates into more of the money Americans (and the world) spend on gas coming to the US.  Second, the expansion in capacity would create jobs.  The most significant effects may be those on the price of oil.

There are two effects that lifting the ban could have.  One of those effects is to stabilize the price of oil.  The extraction shale oil on the United States oil imports has been evaluated in a recent report released by Fitch Ratings, reported by MarketWatch, as having a stabilizing effect on prices.  As stated in the report (taken from here):

“…all oil-consuming countries benefit from the stabilizing effect of increased U.S. output on world oil prices. This is the benefit of energy interdependence — the linkage of U.S. and world oil markets through reduced imports of crude and increased exports of products.”

This effect would only get stronger if the ban on exports is lifted.  It should be noted that the price most likely wouldn’t decrease significantly as a price of about $85-$90 a barrel is needed in order to make shale oil projects viable.  Price stability is still a welcome benefit for consumers.

There are those that are for keeping the ban in place however.  They believe that exporting oil harms America’s chance at energy independence, arguing that every barrel we export would have to some how have to be made up in imports.   This is not accurate, and it can be argued that exporting the oil is better then refining it ourselves since our refineries are not set up for the type of oil, and it would be better for our environment to have it refined else where.  The end result is still the same:  money flowing into America.  Who could be opposed to that?

The attacks on lifting the ban come from the refiners who currently make all the money from exporting the heavy oil that we have been importing.  While exporting petroleum is illegal, there is no such ban on the refined products.  Exporting oil cuts them out of the shale oil profits, but these are profits that they aren’t even prepared to take, since they aren’t set up to refine it anyway.  That is not a sufficient reason to continue to ban exports when America needs growth now.  The United States should lift the antiquated ban on oil exports in order to grow the economy and provide price stability to consumers and the world.

 

 

 

 

Japan Showing Bad Signs

Recently, Asian markets have improved, but people have been cautious about Japan. The reason for this is that Japan’s growth has been slowing down very quickly. The Wall Street Journal reports that its GDP grew about 1% in 2013. This was below the expected 2.8% growth. This can also be seen with the weakening of the Yen compared to the US Dollar. The New York Times explores other factors. One of these larger factors was the .5% increase in private consumption. The Times connects this to the proactive spending of an increase in sales tax, which is expected to be imposed in April. The Washington Post, also attributes the slowed growth with the tax hike.

On the bright side, Japan’s currency weakened. This sounds bad, but it implies that each Yen is now cheaper. This means that Japanese assets are also less expensive. People will be more interested in purchasing these assets. When the demand for these Japanese rises, their prices go up, along with the value of the currency. Once this happens, the people, who have assets that are mostly in Yen, will see increases in the value of their assets. From what we can see here, this period of growth can be cyclical. Time will tell and we cannot be certain how much foreigners will be interested in a depreciating Yen. If not, then output could continue to decrease in Japan.

The big picture here is that increased sales taxes seem to hurt growth. What a surprise? Not actually because this can be explained with simple economics models. Using a basic supply and demand graph, we shift the supply curve in when there is a tax increase. The easiest effects to see are that the price level increases and the quantity consumed decreases. The quantity consumed can directly affect output since consumption is a component of GDP. The less obvious effects from the model are the decrease in both consumer and producer surplus. Decreases in surplus are other contributing factors to negative growth. Less surplus for consumers means that they will not have as much disposable income to spend on goods and services. This can hurt output even further. On the producer side, they will profit less with decreases in surplus. When firms see continuous decreases in their profits, they come closer and closer to going out of business. If firms continue to profit less, then the industries suffer, which also hurts output. We can see that increased sales taxes can create chain reactions that lead to decreases in output.

Recovery on hold with profits overseas

The United States’ recovery from the recession of 2008 has been painfully slow. It has been a period characterized by persistent unemployment that has weighed on the economy.  Companies are not adding the jobs they shed during the recession.  During this same period American companies have made healthy profits.  However, what modest growth there has been has not translated into jobs.  Below is the labor participation rate, which is a measure of what portion of the population is working.  The shaded areas are recessions, and coincide with drops in the participation rate.  The recoveries that follow show sharp increases in the rate.  After this most recent recession is clear that this recovery is different.

Civilian employment to population 16 years or older ratio.

 

One thing that is different now then in the past was that companies like Apple, Google, and Exxon Mobile weren’t  hoarding their profits overseas (an estimated 1.9 trillion as of May 2013). All this “cash on the sidelines” could stimulate the economy and create jobs if it was just put to use.

When multinational companies bring their profits back from over seas, the government takes what is called a repatriation tax. This tax rate is currently 35% of what ever is left after the company pays taxes in whatever country it earned them.  This is one of the highest in the world.  Since the money is taxed as soon as it is brought into the country, then there is going to be over a third less of it when it gets here.  Further eroding these mountains of cash is the debt that is taken out to do share buy backs and pay dividends to shareholders.  Investors want some of the profits if the company isn’t going to use them, and borrowing is cheaper then moving the money and paying taxes.  If the government is serious about stimulating the economy, it may have to get out of its own way.

The repatriation tax is preventing corporations from bring these profits back to the United States.   In order to stimulate the growth that the United States needs, the federal government should provide a tax holiday for corporations to bring their profits home.  This could amount to almost a trillion dollars returning to the United States.  Opponents to this may see it as only helping the rich; that there is not guarantee the companies won’t just pay lavish dividends to shareholders and boost their share price.  Some of that probably will happen, but at least those profits are being distributed, and most likely to a great deal of Americans.  With almost 2 trillion, companies will also invest some of the money in mergers and research for the future.  This is prosperity that has already been earned, it is just held back because no rationally operated company would pay a 35% tax unless it absolutely had to, they do owe that much to their shareholders. The federal government may hate the idea of letting that much money in with such a little slice going in its coffers, but how much of this cash do companies even need to bring back?

The United States government should provide corporations with the incentive they need to bring their profits back to the United States by providing a tax holiday for the profits they are currently keeping over seas.  They should also modify existing policies to make America competitive again with regard to corporate taxes.  It is only driving money away (IBM, Chrysler are examples). This money and these policies could be the missing ingredient for the United States recovery.  The wealth can’t trickle down through a border.

Are we entering the age of the robot?

Technology has been improving drastically for many years now. Have we actually now reached the time when robots will take over many jobs from Americans and people around the world? It seems that we may be heading in that direction fairly soon. With the latest jobs report came an interesting puzzle of weak hiring, but solid growth. Obviously growth is a good thing. The question is, how are we having this period of solid growth without respectable hiring to go along with it? The answer may lie within the advancement of and investment in robotics.

DemeTech Corp., a Miami maker of surgical sutures and blades, is posting higher revenue but trimming payrolls. The firm is investing in technology that automates many functions, Chief Executive Luis Arguello said.

In the next two years, the firm will make as many of its products with machines “as robotics will allow,” Mr. Arguello said. After cutting 20 jobs over the past year, the company now has about 75 workers.

This is just one case of a firm moving towards robotics and better technology and away from some of the manual labor that they previously used to construct their products. And one would have to believe that if a company is able to manufacture the same product while employing and paying less people, they really don’t have any reason not to do this. Of course you need to invest in the technology and robotics, which costs money, but this can save money in the long run and in many cases the product can be produced more efficiently and effectively. Looking at the big picture, the fact that many firms have been able to enhance production at a higher rate than employment may certainly be supporting the growth of GDP regardless of a lower level of employment.

Some folks, like Lynn Stuart Parramore, do not believe that there will be a so-called ‘jobocalypse’ caused by the advancement of technology.

“If job decreases were really caused by waves of automation, the unemployment rate should have ticked up during the 1990s, when you probably started the decade with a typewriter and finished it with a laptop,” Parramore writes in her online article “Don’t buy the hype of a robot-driven ‘jobocalypse.’”

However, I don’t really buy into her argument. With some things, the past can tell you a lot about the future, but I am not so sure that applies in this scenario. According to Derek Thompson of The Atlantic, almost half of the jobs in this country could be replaced by robots within the next ten or twenty years. And while most of these are routine jobs, this is a frightening thought for many people because even if this revolution helps out the economy as a whole, the benefits will not be shared by everyone. In fact, it appears that half of the country will be sh*t out of luck if this hypothesis indeed comes to fruition. Furthermore, Bill Gates suggests that a rise of the minimum wage would also increase the likelihood that more low-end jobs would be replaced by robots as well. 

All of this taken into consideration, it seems that we are already headed into the direction of an increased robot takeover of at least some of the jobs in America. The current condition of our economy leads me to believe that more and more business owners and decision makers would like to pay as few people as possible while still being able to make their product and conduct growth. And certainly other policies that come into play over the next few months or years can have a large impact on this scenario as well. Taking this into account, I believe this should most definitely be considered an important piece to the debate over the minimum wage. While a small increase in the minimum wage would not cause some immediate disaster in terms of a robot ‘jobocalypse’, a big push could have some unintended repercussions.

A Tale of Two Identities

While sitting at the Ann Arbor Buffalo Wild Wings last night watching the Superbowl in a packed house, once again I reveled in how big of a cash cow a business like this must be. This bitterness for not coming up with the idea myself was further compounded as our waitress alerted us of the fact that someone had just placed an order for some 2500 wings and that we would not be able to get food for the time being (beer took wings place in case you were wondering). Anyhow I digress, I have thought about investing in Buffalo Wild Wings company on many different occasions via stock and stock options but the seemingly inflated price always managed to keep me away. So during a dip like this, one is always smart to make a list of names that you like but just have not had the opportunity to get into– and like clock work the WSJ had a write up on the stock that made me think about the changing identity of a company like Buffalo Wild Wings and many other types of stocks.

With annual EPS growth of 27% in the last ten years, BWLD (the ticker) is the literal definition of a growth stock:BWLD 10y EPS GRate

 

This is also in the face of chicken prices rising consistently in the same time period; an amazing feat honestly:

Chick Com Price

 

However trading at a PE ratio of almost 30 (partially aided by Chipotle’s great earnings recently) investors are placing an extraordinarily large premium on a company like this being able to continue abnormal earnings growth in the upcoming quarters and so on. I think this is where important distinctions need to be made between growth and value and when growth gets taken too far. Any sort of headwind that BWLD faces in the upcoming quarters could translate to certain figurative death for investors, and while the company says they are focused on expanding, the US markets can only grow for so long. I am not the foremost opinion on this, but loud sports watching american wings and beer does not scream investment opportunity to me.

I think BWLD is at a crossroads, where the stock will turn from a growth stock trading with a growth PE to a stock that is overpriced and begging for a beat down. Until at some point it becomes cheap enough with just enough sentiment upside that one can trade it as a value stock. I do not write a post like this lightly either, I am the number one advocate of investing in companies that you have contact with (big fan of AAPL Costco Cisco Automakers etc) and I will be honest that I have never been in a Buffalo Wild Wings that has not been packed but at some point enough is enough — just ask Amazon.

Bad Debt Addiction

As the global economy continues to recover from the Great Recession, many economists compare GDP growth to the pre-recession era and sigh.  Most economies continue to perform at levels some 10% below pre-recession levels, and growth just doesn’t seem to be as fast as it used to be.  Why aren’t we growing faster? Why is the recovery so slow?  While there are certainly many good answers to these questions, economist Adair Turner, the former Chairman of the UK’s Financial Services Authority, believes that one reason is the world’s addiction to debt.

Turner notes that prior to the Great Recession, nominal GDP grew about 5% each year.  While this is fantastic growth, it came at a cost.  During the same period of time that GDP grew at a 5% CAGR, debt levels grew at a 10% CAGR!  This fascinating statistics illuminates an extremely important issue: the world economy seems incapable of growing without excessive leveraging.  (Project Syndicate: Debt and Demand)

In the short term, leverage is not necessarily a bad thing.  For example, it is perfectly respectable for a young, financially stable couple to borrow in order to buy a house.  Similarly, it seems respectable for a developing country to borrow in order to expand its economy.  Let’s call this type of debt “good” debt.  “Bad” debt on the other hand is unnecessary debt – debt used to finance absurd purchases, like a young couple buying a large mansion, or a developing country building extraordinary buildings like the Dubai Towers.  Bad debt does not necessarily lead to a future, stable income, and as such, it creates a long-term problem: borrowers cannot pay the debt off.  And when borrowers cannot pay off their debt, economies suffer, as was the case in 2008.

While one could argue that the United States has a debt problem (too much “bad” debt and not enough “good” debt), it is much easier to argue that Asia’s emerging economies, especially China, have a debt problem.  In China, banks increased lending from a 15% CAGR until 2009 to a 33% CAGR since then.  As a result, China’s economy grew at an astounding 9.7% each year while the rest of the world was growing slowly, with an eye on controlling debt.  Indeed, when China attempted to reign in its ballooning debt in early 2010, it experienced 10 consecutive quarters of decreasing GDP growth until 2012 when China again increased lending.

It is true that China’s outstanding debt is only about 20% of the country’s GDP, much below levels in the United States.  But if China’s rapid accumulation of debt calls into question whether or not China is making smart decisions about when to borrow.  Is China really accumulating “good” debt, or is it “bad” debt.  The decline in GDP that occurred when China tried to reign in debt suggests to me that China is mostly accumulating “bad” debt; growth does not continue without the debt, but rather declines, indicating that debt isn’t fueling sustainable, growth-oriented investments. (WSJ: Asia Goes on Debt Binge…)

Debt is ultimately a tricky issue as sometimes it is very good and sometimes it is just awful.  To address the issue of bad debt, perhaps the government should get more involved in debt issuance in the United States.  Borrowing of “bad” debt (ex: for non-income generating investments like cars or TVs) could be taxed, adding a percentage point or so to the interest rate.  Borrowing of “good” debt  (ex: for income generating investments like education, new asset development) could be subsidized, subtracting a percentage point or so from the interest rate.  While this is certainly not a fix-all solution, it is one way that we might address the issue of good and bad debt in the United States.

Apple in 2014

Apple stock tanked on Tuesday, dropping $44 dollars per share, or nearly 8 percent.  That means that lost a mind-numbing $39 billion in market value in a single day.  This sharp just was the result of lower than expected sales, with 51 million units of the iPhone selling in the 4th quarter.  All this information leads to the question: Should investors be worried about the future of Apple?

They are many good reasons for answering no.  It’s 51 million units sold set a quarterly record, and that was a 7% increase from the same time period during 2012.  Furthermore, nobody really knows what Apple has up it’s sleeve, and time after time they have been able to reshape markets.  No company in recent history has been able to reshape people’s daily lives like Apple. Apple continues to enjoy high profit margins all its devices, even the newly released iPhone 5C, and thus there are still large profits to be made even without being able to trend-set in a new market.

There are also many reasons for believing that Apple is coming to the end of it’s growth potential.  First is that the iPhone now makes up a substantial portion of both Apple’s revenue and its profits.  Industry experts have guessed that about 70% of Apple’s profit in the most recent quarter came from iPhones.  Thus, Apple is reliant on the success of the iPhone, but their market share is falling, with iPhones accounting for only 15% of the global sales of smartphones.  As emerging markets demand cheaper alternatives, Apple has failed to provide; Apple has had the most success in richer markets, like the U.S. where brand recognition is the highest.  Seeing as emerging markets are the largest opportunity for smartphone sales growth, and Apple isn’t exactly dominating those markets, it seems like Apple is missing a large potential for growth.

A second reason to believe that Apple will have a hard time continuing to grow is that their product line is not as innovative as in previous times.  The recently released “cheaper” alternative, the 5C is neither than much cheaper than its cousin the 5S, nor did it do well.  This is the second time in the post-Steve Jobs era where an Apple product has more or less flopped (with the first being the infamous Apple Maps).  Apple hasn’t released a groundbreaking product since the iPad, in 2010, just under four years ago.  I for one believe that the post Steve Jobs Apple has not done as good of a job either innovating or at the very least selling their products to people.  Perhaps the creative juices have dried up at Apple, or their best people are leaving.  For example, the management of Nest, recently acquired by Google for $3.2 billion, is littered with ex-Apple designers.

Third, is simply the nature of growth.  Apple is a huge corporation, and growing simply becomes harder to do when a firm is large.  The 40% average growth over the last three years in the heyday of the iPhone era was simply unsustainable.  To keep growing at that rate would require way more marketshare than would ever be possible.

For these three reasons, I believe that Apple’s growth will begin to taper heavily, and that the reduction in stock prices were warranted.  Does this mean that Apple as a company will face tough times?  No, I believe that Apple will continue to enjoy large profits.  Apple will still continue to be a giant company with great (and perhaps overpriced) products.  But, for the time being, I think it might be time to look elsewhere to find a stock that will substantially outpace market growth.

What You Need to Know About Cities

Cities have always been important parts of countries. They have been integral in many areas, such as politics, commerce and employment. According to Jeffrey Sparshott of the Wall Street Journal, 357 of the 363 United States urban areas will be creating jobs this year. This is more than the much lower 298 seeing growth in employment last year, but it apparently is still nothing to be too optimistic about. It is still considered to be modest growth, and it is off to a relatively slow start. This is also confirmed with a Washington Post article by the Associated Press. Mayors are expecting economic growth in 2014, but cities have overall seen a large bounce-back since the economic downturn. The article mentions that this is an improvement from one third of cities in the United States seeing economic downturn.

All of this would be very important to the American economy if expectations are met. Sure, the expectations are not great, but they are better than downturn. Economic growth and creation of jobs go hand-in-hand. When cities are experiencing economic upturn, it can have large impacts in other areas, such as the labor market. Metropolitan areas have a lot more jobs than suburban or rural areas. Furthermore, the United States is experiencing high unemployment rates. If cities are growing economically, they are most likely creating jobs. This, in turn would help lower the very high unemployment rates throughout the United States. I do believe that growth in urban areas can be very helpful to the nation’s overall economy due to the fact that cities are so integral to the country.

One area that has the potential to be a large contributor of this growth is in technological start-ups. The “Next Silicon Valley” is making its way up. However, there is one city that does not seem to be welcoming of it. That city is Miami Beach. According to a Washington Post article by Lydia Depillis, the mayor of Miami beach does not see a place for it in his city. His reasoning is that he believes that cities should play to their strengths. So, the mayor believes that Miami Beach’s growth will be fueled by the tourism and travel industries.

I do not understand why this mayor would be so reluctant to welcome another chance to see growth in his city. Tying this to the other articles, mayors of other cities across the country are expecting growth in urban areas. It does not make any sense for a mayor to say “no” to another shot at helping his city’s economy. Why not try to be a part of this 2014 urban growth? Tourism and travel are two large industries, but why not bring more jobs to Miami Beach? Technology start-ups have been increasing in quantity throughout the country, and they have brought jobs to cities.

http://blogs.wsj.com/economics/2014/01/22/cities-face-a-good-but-not-great-economic-outlook-for-2014/?mod=WSJBlog&mod=marketbeat

http://www.washingtonpost.com/business/mayors-cities-experiencing-economic-growth/2014/01/22/7b2e6fa4-838e-11e3-a273-6ffd9cf9f4ba_story.html

http://www.washingtonpost.com/blogs/wonkblog/wp/2014/01/22/miami-beach-mayor-take-your-tech-start-up-gospel-and-shove-it/

(Revised) Latin American Growth in Least Obvious Countries

Usually, when people think of Latin America’s most powerful economies, Brazil and Argentina immediately come to mind. Some may even think of Venezuela and its immense oil production. That is, of course, unless they are aware of Venezuela’s currently staggering inflation, widespread shortages, and political oppression. Yet very few think about smaller, less-developed countries like Peru, Chile, and Colombia. The notion that Brazil and Argentina are today’s strongest economies in Latin America is not entirely inaccurate, but it is misleading. Brazil, one of the BRIC countries, certainly has the largest GDP in Latin America at around $2.4 trillion. Argentina comes in at around $474.9 billion. And Venezuela’s GDP is a modest $382.42 billion. However, today we see that Peru, Chile, and Colombia are countries with high growth and low inflation- due to more free market policies in their governments.

While Brazil, Argentina and Venezuela’s growth rates and inflation tell a different story. The Instituto Brasileiro de Geografia e Estatistica stated that Brazil’s economy shrank by 0.5% in the third quarter, exceeding the 0.2% shrink expectation. An article from BBC News about Brazil’s questionable outlook, explains that Andre Perfeito (chief economist at Gradual Investimentos) plans to lower his projections for next year – from 2.7% to 2.4% or 2.5%. Flavio Serrano, economist at Espirito Santo investment bank, said “It shows that we were not able to grow despite various economic stimulus measures,” about his country.

Argentina has been suffering from a rough 10% inflation rate this past year. At the end of 2013, soaring summer temperatures, paired with regular blackouts, led the country into a frenzy. Venezuela, on the other hand, faces a whopping 50% inflation rate. Regular shortages of food, toiletries, and basic necessities have been going on for a few years now – along with daily blackouts to which citizens are already accustomed. Both countries’ immediate futures look grim at this point. And investors have noticed.

An article on the Wall Street Journal breaks down Latin America into two sides: one that favors state control and one that embraces free market. What may be surprising to many is that Brazil, Argentina, and Venezuela fall on the first side. While Mexico, Peru, Chile, and Colombia are on the side that embraces free markets. Estimates from Morgan Stanley suggest that the Pacific Alliance trade bloc (Mexico, Colombia, Peru, and Chile) is expected to grow an average of 4.25% in 2014, largely due to high levels of foreign investment and low inflation. Economists indicate that these Pacific countries are much more stable than their Atlantic counterparts, who are skeptical of globalization and give the government a significant role in their economies.

Peru is a rather unexpected example. From 2002 to 2012, its economy nearly doubled in size. GDP grew at a modest 6.3% rate in 2012 and 7% in 2011, and inflation has persisted around 2.7%. Investors are especially interested in the stable, strong growth seen in Peru – as they should be. Inside Latin America, Chile is usually thought to be the perfect model for economies. For decades, it has experienced stable and modest growth. Mexico is usually underestimated in size; but it is the second-largest economy in Latin America.

One Brazilian crudely stated “Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe.” This may be true in the future, if these countries don’t ease up on trade restrictions and government regulation.These countries all have immense potential for explosive growth, but their governments are making it harder to reek the benefits of their resources. In my opinion, Brazil should be more open to foreign oil companies exploring and extracting oil from their waters, Venezuela’s politics need to be thrown away and reintroduced in such a way that the profits from their oil are not used to run a failure of a communist country, and Argentina should also welcome foreigners to participate in the natural gas industry (since they are having a rather hard time).

Of course these economies will continue to be the strongest in the region, at least for now. My intent is not to undermine these economies in any way, but instead to shed light on the ones that are also worth our attention right now. Investors are noticing the potential in these Pacific bloc countries. It is with much merit that attention is shifting towards these favorable economies (especially to foreign investors). We should expect to see much more growth on this side of Latin America, despite what most may have previously guessed.

Latin American Growth in Least Obvious Countries

Usually, when people think of Latin America’s most powerful economies, Brazil and Argentina immediately come to mind. Some may even think of Venezuela and its immense oil production. That is, of course, unless they are aware of Venezuela’s currently staggering inflation, widespread shortages, and political oppression. The notion that these are today’s strongest economies in Latin America is not entirely inaccurate, but it is misleading. Brazil, one of the BRIC countries, certainly has the largest GDP in Latin America at around $2.4 trillion. Argentina comes in at around $474.9 billion. And Venezuela’s GDP is a modest $382.42 billion.

However, growth rates and inflation in these countries tell a different story. The Instituto Brasileiro de Geografia e Estatistica stated that Brazil’s economy shrank by 0.5% in the third quarter, exceeding the 0.2% shrink expectation. An article from BBC News about Brazil’s questionable outlook, explains that Andre Perfeito (chief economist at Gradual Investimentos) plans to lower his projections for next year – from 2.7% to 2.4% or 2.5%. Flavio Serrano, economist at Espirito Santo investment bank, said “It shows that we were not able to grow despite various economic stimulus measures,” about his country.

Argentina has been suffering from a rough 10% inflation rate this past year. At the end of 2013, soaring summer temperatures, paired with regular blackouts, led the country into a frenzy. Venezuela, on the other hand, faces a whopping 50% inflation rate. Regular shortages of food, toiletries, and basic necessities have been going on for a few years now – along with daily blackouts to which citizens are already accustomed. Both countries’ immediate futures look grim at this point. And investors have noticed.

An article on the Wall Street Journal breaks down Latin America into two sides: one that favors state control and one that embraces free market. What may be surprising to many is that Brazil, Argentina, and Venezuela fall on the first side. While Mexico, Peru, Chile, and Colombia are on the side that embraces free markets. Estimates from Morgan Stanley suggest that the Pacific Alliance trade bloc (Mexico, Colombia, Peru, and Chile) is expected to grow an average of 4.25% in 2014, largely due to high levels of foreign investment and low inflation. Economists indicate that these Pacific countries are much more stable than their Atlantic counterparts, who are skeptical of globalization and give the government a significant role in their economies.

Peru is a rather unexpected example. From 2002 to 2012, its economy nearly doubled in size. GDP grew at a modest 6.3% rate in 2012 and 7% in 2011, and inflation has persisted around 2.7%. Investors are especially interested in the stable, strong growth seen in Peru – as they should be. Inside Latin America, Chile is usually thought to be the perfect model for economies. For decades, it has experienced stable and modest growth. Mexico is usually underestimated in size; but it is the second-largest economy in Latin America.

One Brazilian crudely stated “Brazil is becoming Argentina, Argentina is becoming Venezuela, and Venezuela is becoming Zimbabwe.” This may be true in the future, if these countries don’t ease up on trade restrictions and government regulation. My intent is not to undermine these economies in any way, but instead to shed light on the ones that are also worth our attention right now. Investors are noticing the potential in these Pacific bloc countries. It is with much merit that attention is shifting towards these favorable economies (especially to foreign investors). We should expect to see much more growth on this side of Latin America, despite what most may have previously guessed.