Sunday, October 21, 2007

Rethinking portfolio allocation at El Paso, Texas.

This is a season of the “immigrant” as a piñata for the sons of the soil.

In an interesting summary of how silly some of the statistics being touted around in the immigration debate is, Christopher Caldwell has furthered my suspicion at publicly bandied about numbers. This following Marc Faber’s report filled with his own suspicions on the meaningfulness of government statistics – I must confess, I am more pessimistic than last week about “key figures” quoted. Watching the US politicians debate for the Presidential primaries convinces me in the sagacity of the old Benjamin Disraeli line, “there are three kinds of lies: lies, damn lies and statistics”.

Although I didn’t agree with Caldwell’s argument that when talking about immigrants, one must concentrate on their contributions to GDP per capita – the underlying message that one ought to debate the utility of immigrants in any society within an economic framework, as opposed to a cultural, is a wise remark. This is so, because other aspects like cultural compatibility, understanding of ‘core-values’ etc., are provably true or false – depending on who is mining the data.

With regards to illegal immigrants, research has been sparse -- although an exceedingly elegant summary of the complexities is here. The key issues that any study must answer vis-à-vis immigrants are:

  • The effect of immigrants on wages – the average and the marginal labor.
  • The distributional impact – i.e., does the wage distribution tilt asymmetrically.
  • The tax contributions the immigrants make.
  • The impact of immigrants on resources within a society (hospitals, schools etc.,)
  • The relocation centers of immigrants. i.e., do they choose Virginia over Montgomery?

All this said, one could say “show me the money”. i.e., how does all this enable one to think about where to invest? I have great faith in the intrinsic ability of masses to weed out irrelevant information and identify that what matters at the end. Survival! Surviving today for yet another day. Illegal immigrants in the United States are perhaps the starkest example of that. Undereducated, without documentation and limited employment opportunities. Their choices of locations and industries are directly connected to the amount of food they consume, the anticipated monies they expect to earn and the growth potential in monetary terms. Not withstanding the legitimate concerns about security and income dynamics -- I think, one must have the humility to learn from their survival skills. Like migratory patterns of birds can predict the deterioration in quality of their homing grounds, the migratory flow of illegal immigrants can enable investors to learn more about “unsexy” industries like construction, fruits and vegetables, waste disposal amongst others. For those seeking to diversify, and find value in firms in these sectors -- I believe, thinking about illegal immigrant movements might be a useful indicator. Illegal immigrants predict, I believe,

    1. The changing contours of growth-patterns in non-tradeable American goods and services industries.
    2. The areas of US where economic decline is anticipated. So, for eg., short industries with sales focused in say, Alabama and Georgia, and go long on industries with sales in Washington and Oregon.
    3. Given the fact that illegal immigrants ear 2 to 30 time their home wages in the US, an obvious ‘wealth effect’ is to be observed. Thus, invest in industries that cater to their needs: cola, beer, gambling, wire transfers, auto parts manufacturers, super-stores etc., In the coming years, it is fairly clear, that one is likely to see more illegal and legal immigrants in the US – with the tacit consent of various industries – despite the goose-stepping propagandists on the Right and the Left. These industries thus have a growing consumer base with growing needs.

So, perhaps we'll soon see labor economists being hired on Wall Street!

No comments: