Saturday, December 5, 2020

THINK STRATEGICALLY: How can we Transform Puerto Rico?

By on August 24, 2020

Photo by Michael Oxendine on Unsplash

Puerto Rico First Goals

There have been at least 30,000 cases of novel coronavirus infection in Puerto Rico. With 390 deaths, make no mistake, the economy has taken a seemingly insurmountable hit in terms of gross domestic product and employment declines, with a cost that will surpass $10 billion to $14 billion. 

To reverse this scenario, we have developed a path to Transform Puerto Rico that would, in turn, create more than $15.5 billion in economic activity, along with wealth creation, job growth and education. This is before analyzing the benefits of demonetizing thousands of government contracts and businesses that can now be offered either free or online. 

According to the recent Doing Business 2020 study, Puerto Rico is ranked No. 65 among countries in terms of having the greatest ease of doing business. However, far from being positive, we have fallen from No. 18 in 2006 to No. 65 in 2020. In less than 15 years, we have dropped 47 positions, a drop of more than 261%.

This vision must be implemented and followed regardless of which party or ideology has control of Puerto Rico.

The Puerto Rico First Goals:

• Transform Puerto Rico into a country with robust economic development and sustained growth of 4% in the next four years.

• Transform the industrial structure in which manufacturing, research, development and employment activities are focused on the knowledge-based economy, representing no less than 25% of the gross national product in a period of 10 years.

• Create 300,000 new jobs in the private sector in the next six years.

• Increase our labor-force participation rate to 55% within six years.

• Reduce the unemployment rate to 5% in six years.

• Increase the average per capita income by 30% in six years, from $27,134 to $20,873.

• Reduce the apparatus of government by transferring to the private sector any corporation, operation or service that the private sector can perform more efficiently.

• Transform the education system from primary education to university level into one focused on entrepreneurship, trade and transformation.

• Measure ourselves against all international metrics, particularly the World Bank’s Ease of Doing Business ranking, to maintain competitiveness.

For Puerto Rico, improving our ranking represents an excellent opportunity to attract a wide variety of companies to the island while allowing its organic growth to prosper and develop vast amounts of wealth, rather than greater poverty.

We must assemble a group to increase Puerto Rico’s ranking within three years to the top 30 in World Bank’s Ease of Doing Business ranking.

Week in Markets:
S&P 500, Nasdaq Hit All-Time Highs as Economic Data Improve 

The U.S. stock market reached new high last week with the S&P 500 and NASDAQ Composite hitting new records. Most technology stocks led the rallies that set records. For one, Apple Inc. (AAPL), closed the week with a market value of $2.127 trillion, achieving it only 24 months after becoming the world’s first trillion-dollar company. Shares of Apple closed at $497.48, rising $24.38. Apple CEO Tim Cook himself became a billionaire and is possibly the only non-founder to have become one. 

Most of the economic data and the corporate profits released during the week showed that an economic recovery is taking hold in all the key sectors. We must mention that the COVID-19 surges could still derail the progress. Two of the biggest retailers, Walmart and Target, reported second-quarter results that blew past analyst expectations. 

Walmart Inc. (WMT) reported that its quarterly revenue rose to $93.3 billion, a 9.5% increase, with 97% of the growth coming from online sales. Its stock was trading at $131.63.

Target Corp. (TGT) reported quarterly revenue of $23 billion, a 24.7% increase, and a 195% rise in online sales. Its stock was trading at $153.63. 

While these results may be some of the most robust representations of the economy, on the other side, there are hundreds of thousand businesses that have not had the same luck. 

For the economy to recover and the millions of Americans that remain unemployed, the U.S. gGovernment’s safety net ran out July 31, and Washington continues to play politics and the need for another aid package is quite dire.

There is, however, a silver lining among all the noise. The good news is that after the biggest exogenous economic shock since the Great Depression, we can safely say the economy is showing strong signs of recovery. We can assure everyone that the bear market is officially over.

The only thing that can destroy the current economic progress is a surge in COVID-19 cases. While we are continuing to experience a quite remarkable recovery in the financial markets, we will not see the full economic recovery until 2021, assuming the United States can get the  coronavirus epidemic under control this year.

Results for the week ending Aug. 21

  • The Dow Jones Industrial Average closed at 27,930.33, down 0.69 points, or 0.0025%. 
  • The Standard & Poor’s 500 closed at 3,397.16, up 25.11 points, or 0.74%. 
  • The Nasdaq Composite Index closed at 11,311.80, up 292.50 points, or 2.65%.
  • The Birling Puerto Rico Stock Index closed at 1,557.82, up 45.1 points, or 2.98%. 
  • The U.S. Treasury 10-year note closed at 0.65%, down 8.45%.
  • The U.S. Treasury 2-year note closed at 0.14%, down 7.14%.

Three critical economic indicators reported during the week with additional signs of improvement follow:

  • U.S. Initial Claims for Unemployment Insurance rose to 1.106 million, a 13.9% increase from the 963,000 last week.
  • U.S. Existing Home Sales increased to 5.86 million homes, up from 4.7 million last month, a significant 24.68% rise from the previous month and 8.72% versus 2019.
  • U.S. Housing Starts rose to 22.62%, compared to 17.53% last month.

The Final Word:
The electoral process must not play a part in what drives investment portfolios. 

During the past two weeks, we have seen the election news cycle absorb most of the news we consume. Whether in Puerto Rico or anywhere in the United States, politics play a large part in radio, press and social media traffic. Here in Puerto Rico, two Sundays ago, Puerto Ricans who support the two major parties selected their candidates for governor. Now the full weight of the local campaigns head toward the general elections. 

In the U.S. last week, the Democratic party held its national convention virtually, with some success. This week, the Republican Party hosts its own virtual convention. 

We must all expect the electoral process to become breakfast, lunch and dinner in terms of news and discussions. 

These electoral processes create a level of anxiety and uncertainty that turn into market volatility. As we look back to the last 18 elections in 72 years, we note that despite every combination of governors, president or who controls Congress, the outcomes have barely influenced the returns of stock portfolios, which remained just shy of 12%.

More often than not presidents and governors take the credit of solving your life problems and often for the well being of the stock markets. Usually, a well-balanced investment climate with investors in high regard is essential.

What truly matters to most investors is that their portfolios are well-diversified, with definite goals. Over the long term, economic and corporate earnings drive up the stock markets over time. 

For these reasons, we recommend an investment strategy that allows you to obtain your financial goals regardless of market considerations or political outcomes. 

Francisco Rodriguez-Castro is president & CEO of Birling Capital LLC

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