Friday, May 10, 2013

Arbitrage 101 explained...with Marijuana

Ok, so as a recent MBA grad I certainly learned a LOT of new concepts over the past two years. Some of them made me financially smarter, some made me "look" smarter when I actually talk to smart people, and at a lesser degree, some made me a bit annoying (ask my wife when I go on and on explaining how I would fix the markets in 5 minutes).

Anyways, among the hundreds of new and exciting (NOT) things I learned, there is this one concept that for some reason stuck with me.  Arbitrage.

I have always enjoyed learning new things, but very few concepts have for some reason the impact this particular one had. For the first time I realized what Arbitrage (in Financial terms) was, and I realized what a powerful situation to be in. Finding a "legal" Arbitrage situation in today's financial interconnected world is almost impossible, but there is an industry where Arbitrage is there, open, exposed. And although not legal, the legality of it is what is dictating this situation that some dealers are taking advantage of. Economics 101

Let's get to the concept first. The idea is as simple as logic can imagine, Arbitrage is when a situation arises that someone can take advantage of the price difference between two markets. Not necessarily the same as finding a price difference between two identical products at your two local supermarkets. But think about the Canadian Dollar, US Dollar and Mexican Peso.

Imagine that 1 CAD buys you 10 Mexican Pesos or 1 USD in Canada, but in the United States, 1 USD buys you 1 CAD or 11 Mexican Pesos.  Exchanging CAD for USD is the same regardless the country, but if we are planning a trip to Mexico and we have 1 CAD or 1 USD (which is the same), exchanging that in the US will give us 1 extra Mexican Peso:

1 USD = 1 CAD = 10 MXN  (if the transaction is done on Canadian soil)
1 USD = 1 CAD = 11 MXN  (if the transaction is done on US soil).

By driving to the border and exchanging the money at the first US bank, we got a profit of $1 Mexican Peso. That is called arbitrage. Lets say we do it, and we post it on twitter and we tell our friends, not long after that becomes public & obvious, the markets will correct and the price will be the same, the Arbitrage is gone.

Now that we all understand the basic concept of Arbitrage, I just recently heard a podcast of an Arbitrage situation happening in the US today. With 18 states having legalized marijuana and having created a legal market for it, a pound of Marijuana goes for $45 or less on dispensaries in California according to NPR. The exact same bag of marijuana retails for $60 on the ilegal market in NY.  That creates an arbitrage situation that drug dealers are taking advantage of. Buy in the west coast, sell in the East Coast.

Of course, the main challenge for these dealers is how to move the merchandise. We all now that possessing and moving marijuana for selling purposes is ilegal across the land and the end result is jail. Not an easy task eh?

To fully understand this complicated but yet interesting story, take 25 mins of your busy day and listen to this great NPR's Planet Money Podcast...

http://www.npr.org/blogs/money/2013/05/07/182010027/episode-456-marijuana-arbitrage

Until next time!!


Thursday, May 09, 2013

Life Post MBA... armando.ca v2.0... reloaded

Dear reader(s) (if there's still any out there):

At some point during 2011, my last post stated that "I was back". Two years later I see back and I realize I should have re-phrased that to "I have the intention to be back....". Reality is, I truly wanted to do what I am about to start, shift this blog from a personal travel diary to an opinionated space where I could express my views on the economy, politics and international current affairs. 

But like with so many things in life I totally underestimated the reality of the moment. For some reason I thought that I would have some extra time that I could dedicate to this space in addition to my full time job, being a part time masters student, planning a wedding and live. So after months of ambition and now that the MBA is over, I finally have time to do all those things I have been putting on hold for the last 26 months, this blog included.

With that said, this is the official welcome to armando.ca v2. Let the econo-nerdism start :D

Sunday, September 18, 2011

I'm back....

And this time is for real, welcome to Armando's reloaded v2.0 :)

More to come, sooon.....

Friday, May 22, 2009

Political Animals… (“the fur war”)

For decades now, countries and animal right groups around the globe have put Canada in the top the “animal rights” perpetrators list. Most of these accusations come from Canada’s Seal hunting regulations and some videos / pictures  that came out to the light on how hunters kill these animals to satisfy a (mostly European) fur demand.

In last week’s edition of  The Economist, an article was published related to the endorsement of a European ban to any trade on seal products, these are some facts and fragments of such a great piece of objective journalism: 

“On May 5th MEPs (Members of the European Parliament), suddenly disgusted  by the cruelty of people far away hunting seals, voted to endorse a ban on the trade of seal products, most of which come from Canada. Their hypocritical recommendation, which still has to be approved by the European Commission and Council, isn’t even much good for the seals.”

The estimated number of seals that die per year (not by mauling from a polar bear but by a gun shot) is estimated to be in the 300 000 figure. Environmental organizations (such as WWF) argue that the Canadian hunt is professional and regulated, but the debate here is not whether is right or not to kill animals by pleasure, which I TOTALLY oppose and condemn, it is the hypocrisy of  some European politicians.

The article mention that a few seals are killed to protect fish (isn’t that mother’s nature job?), other as a source of blubber or food but most are indeed killed for their fur.

Some facts:

- Europe’s fur farms produce over 30 million Mink and fox pelts a year
- Every four or five days, Europe kills more animals for their fur than the entire annual Canadian hunt does in a year

“… Seal hunting sounds unfair; but Europeans politicians are reluctant to ban the hunting of similarly defenseless game birds, deer or wild board”  

The main question they post is: “Why did the European Parliament overlook all this?” the answer is simple, elections are around the corner and it is easier to attack seal-murdering foreigners to gain sympathy among European animal-welfare groups than  propose measures to eliminate, for real, the hunting problem as a whole in order to protect animals everywhere, including their backyard.

Friday, March 13, 2009

How Risky Is Flying?

Ok, as some of you may know, I’m what airlines consider a “serious” frequent travel, sometimes I complain that I don’t have the miles or the status that some people I know have, but if I compare myself with the statistics, I do fly a lot. Now, when we think about flying and the risks involved on it, the first thing we think is all the accidents and fatalities we’ve seen on TV in the last year, 2 years, then, the following, statistics comes to our head:
risk-airfatalities-l


We all know that the probabilities to die in an airplane accident are minimum, some people have said that it is more likely to die of a Thunder strike than an air accident.

One day a question came to my mind, if we know that the chances to die are so low, why MOST people (including me) are more afraid to flight than taking the road / train? As soon as we hit the smallest turbulence, ALL the people react in one way or another (except the flight attendants). So, what’s the difference between hitting some turbulence and experience a bumpy bus ride in the middle of the rain? why are we less afraid in the second scenario ?

Well, according to David Ropeik  (Instructor in Risk Communication at the Harvard School of Public Health), the fact that we are NOT in control of the aircraft and that 99.99% of the population is clueless on how to operate a plane, we feel way more insecure that driving, which is actually more dangerous.

Another interesting factor is:
what denominator are we using when calculating the risk of flying? Here are some options:

  1. Dividing the number of people who die into the total number of people, which gives you the risk for the average person?
  2. Dividing the number of victims into the number of total flights all passengers took, which gives the risk per flight?
  3. Dividing the number of victims into the total number of miles all of them flew, which gives you the risk per mile?
In case you don’t know, 2007 and 2008 reported ZERO (as of 0) deaths caused by Airplanes accidents in the US, do you want to see the number of casualties by bus or car? I don’t think so…
Going back to Mr Ropeik’s argument, and I quote:
“These 3 options produce accurate numbers, but which one is most relevant to you depends on your personal flying patterns. Some fliers take lots of short flights and some take longer ones, for example. Since the overwhelming majority of the few plane crashes that do occur take place in connection with takeoffs and landings, the risk is less a matter of how far you fly and more a matter of how often. If you're a frequent flier, then the risk per flight means more. For occasional long-distance fliers, the risk per mile means more. A frequent, long-distance flier would want to consider both.
Here's another number problem with the risk of flying: do you calculate the risk on the basis of one year, or an average of five years, or 10, or 20? Most years no plane crashes occur, or at least very few. So the number of victims per year goes up radically in years when there are crashes. Just look at the spikes in the number of deaths from plane crashes by year in the graph at right.
Risk perception is not just a matter of the facts
Another "feelings factor" that informs our perception of risk is awareness. The more aware of a risk we are, the more concerned about it we are. Which explains why, when there is a plane crash in the news, flying seems scarier to many of us, even though that one crash hasn't changed the overall statistical risk much.
I haven’t figured out yet what is my exact risk factor, what I can tell is that I drove the other day to Edmonton and I found myself in the middle of a snow blizzard… Not funny, so, while I live in Canada, Air Canada will be my best and loyal friend…
If you want to read Mr Ropeik’s article, go here:  http://www.pbs.org/wgbh/nova/planecrash/risky.html
If you want to read the List of accidents and incidents involving commercial aircraft, go here: http://en.wikipedia.org/wiki/List_of_accidents_and_incidents_on_commercial_aircraft
Safe flights!!!

Travel blog vs Facebook vs New Blog!

Ok, question of the day, What the heck happened to my blog?

Fact #1: I think the number of readers of this blog went down from few hundreds per month to maybe one per quarter, me.
Fact #2: And you know? it is all my fault,  when I started this blog I had the idea of sharing my experiences related to my constant travels and adventures as a consultant with friends and family. Everything was going fine, I used to post on a frequent basis, (not like lychees, but enough to consider myself a blogger) and I loved it until Facebook became part of my daily life.

Fact #3: Facebook

But, Why Facebook? Why some people claim that Facebook as the worst thing in the world? Well, I’m not there yet for sure, I certainly love the thing, but what happened is that at the beginning Facebook was the novelty for me & my friends, I gave it 2 months of my attention before “something else” showed up, but almost 2 years after the day that Rafa forced me to join and left my blog floating in the internet, I decided that it was time for me to go back into the blogger world, so here I am.

Most of you have been tracking the changes in my life through Facebook, but for those of you that have no idea where I am, I live in Canada now, the land of the Maple and the noble Beaver, the second biggest land on earth and the 130th less populated, Calgary to be more exact.

So, why am I writing again if I surrender to the power of the Facebook status, well, I’ve been thinking about the hundreds of things I want to share based on what i see, think, read and hear and I guess Fbook is not enough for some reasons:

- My Status can change several times a day
- If you missed 2 days of facebook, you maybe missed stupid things I post like the fact that “I was looking for 4 Mexicans to create the first Mexican Curling team to compete in the Winter Olympics”
- Most companies have facebook blocked
- People add & add & add friends, so, it is hard for me to share what I want to share and make sure the people I care read it

So, what’s going to be new here? Well, I’ll stop talking about my travels, well., I still travel a lot, pretty much every week (I’ve been on a plane 65 of the last 75 weeks) but now I’ll concentrate my efforts on places, day to day things, news, opinion and Global affairs. And the most important change, it will be 100% in English, why? because I need to improve my writing communication skills before 2011 that I will do my MBA.

Said that, welcome to my new blog, and thanks for reading this :)