2022 ended a year that will be bitterly remembered for adverse events around the world, such as the war in Ukraine, the Covid rebound in China, and high inflation around the world, as well as economic losses caused by falling financial markets, with no investments not falling.
The United States is poised to have, as of January 3, a divided congress, with the Democrats controlling the Senate (although 3 of the senators claim to be independents but vote with the Democrats) and the lower house controlled by the Republicans with a ten-seat advantage.
This situation will make governing difficult as both parties prepare for the 2024 presidential election. The enormous polarization in the country is not conducive to the easy passage of new bills, budgets, debt limits, or approval of nominations for public office.
President Biden, who seems to be getting worse by the day due to his cognitive problems, has not announced whether he will seek re-election, which in my opinion, would be terrible given his age and physical limitations. For the Republicans, the most viable candidate is Governor DeSantis of Florida.
Donald Trump has already announced that he will seek to be the Republican nominee. I fear he will run as an independent candidate with no chance of winning but taking votes away from the Republicans. Still, he has so many legal problems due to the events of January 6, 2021, and the handling of his personal finances that I feel he will not have the party’s support. Taking advantage of legal remedies for depreciation and other benefits for real estate developers, on an income of $347 million in the six years reported, he paid $5.4 million in taxes.
The conflict with China is still going strong, with many restrictions and additional tariffs on products from that country, and now with the requirement of negative Covid tests for visitors to the U.S. and other countries.
The Ukrainian war returned to the front page of American newspapers with Zelensky’s visit to Washington. Still, the United States will not send soldiers to the conflict, although it did include $45 billion in military aid in the budget approved by Congress.
Interestingly, life expectancy in the U.S. dropped to 76.4 for whites and 70.8 for blacks, the lowest since 1996, probably due to Covid.
The search for cheap oil led the United States to reengage with Venezuela, removing many of the sanctions and allowing Chevron to restart operations in that country.
In Mexico, the conflict between AMLO and the sector of the population that does not receive a monthly check continues. The approval of Plan B to weaken INE created widespread unrest, although less than it would have been had Congress approved the original initiative.
Mexico continues to be one of the most stable countries in Latin America, and its growth in both investment and consumption surprises analysts. The movement of companies from China to Mexico’s borders has been significant. Hopefully, it will bring with it the development of national industries to increase the supply of products to foreigners and increase the added value of what is produced for export.
The selection of Justice Piña to preside over the Supreme Court was a triumph for AMLO, who wanted to put a woman in the position. However, it was not his first preference, which was prevented by the plagiarism accusations against Yasmín Esquivel.
The airspace crisis seems to be worsening in Mexico with the possible creation of a new airline run by the military. The slight use of the AIFA, the proposal to allow cabotage, and the movement of passengers between cities in the country to foreign airlines competing with local ones complicate the situation. Continuing to be “punished” by the U.S. authorities with a 2 rating, which does not allow an increase in flights to the U.S., reduces the options for improvement.
PEMEX’s problem continues to be very strong, being the most indebted company in the world with liabilities of more than 106 billion dollars and with strange statements that it will not increase its debt despite having billions of dollars in losses. We will see more government intervention in that debt and perhaps its conversion to the national debt. This would raise the national debt from 55% of GDP to 64% of GDP, an acceptable figure in the global context, although the country has problems servicing its current debt even without such an increase.
An essential line item for the country is that the number of tourists is estimated to reach 40 million in 2022 despite the strong peso making it more expensive to visit Mexico than other countries.
Incredibly, the possible contenders for the 2024 election are already actively seeking to position themselves. The billboards in favor of Claudia Sheinbaum and Adán Augusto Lopez all over the country were condemned by the INE. There is already talk of Ebrard going to the opposition and AMLO promoting his two favorites.
The rest of the world also has serious problems, including Japan increasing interest rates for the first time in 15 years in the face of inflation never seen in that period, Peru with a constitutional crisis and the imprisonment and removal of President Castillo, Argentina convicting former President and now Vice-President Kirchner for corruption (her six-year sentence will not serve as long as she is a public official), and China with a drop in its production and partial isolation of several western countries.
Russia announced that it would not sell oil to countries that respect the maximum of 60 dollars per barrel imposed by the United States and Europe, strengthening its relationship with China and India to create a land corridor to communicate with the three countries.
Turning to the economic aspect, the United States continues to show mixed signals since inflation has dropped from 9.1% to 7.1% by mainly resolving the problem of the production chain and product supply. Still, unemployment at 3.7% continues to keep the cost of labor and services without lowering prices.
The approved budget of $1.7 trillion in spending goes against the Fed’s monetary policy, which continues to raise interest rates and withdraw liquidity from the market. Formal government debt already stands at $33T, every 1% increase in rates represents an additional cost of $330 billion.
Fortunately, much of the debt is long-term and was contracted when interest rates were lower, but today the government is paying almost 4.5% for short-term money.
Stock markets had their worst year since 2008, with the S&P500, the most representative index, falling 19.4% and the NASDAQ, the index of the 100 largest technology companies, losing 33%.
Many of the largest and most popular companies, such as TESLA, NETFLIX, Boeing, and AMAZON, lost more than 50% of their value. Knowing if they will ever return to their previous valuations is difficult.
An interesting fact is that when forecasting the projected profits of the S&P 500 companies, the strategists who carry out the macroeconomic study predict a 6.3% drop. In comparison, the analysts who review the companies’ projections without considering much of the economic environment expect a 4.5% profit growth. This disparity has not been seen this wide in the last 25 years.
The growth expectation for the U.S. economy is 2.2% as the final number for 2022 and 2.0% for 2023. Inflation should be around 3.7% by the end of this year.
Today there is $3.4 Trillion in “money markets”, almost all resulting from equity sales which have been 32 consecutive weeks of capital outflows from the markets.
Car inventories were 33 days on sale when they were 20 days a year ago. Home prices are down an average of 11% from their peak due to rising mortgage rates.
In Mexico, the economy declined 0.1% in November but is expected to end the year with a 3% increase, according to IMEF, who forecast 1.2% growth for the coming year with 8.4% inflation.
The increase of the CETES to 10.20% and the vast increase of the TIIE to 10.78% are not conducive to the rise in investment and will probably endanger many small companies that live on borrowed money.
Two facts that I found interesting are that global debt is now $280 Trillion (public and private) and that China’s exports grew 805% from 2000 to 2021.
In December, the stock markets had a terrible month, and bonds were about even, although there was a big swing in interest rates during the month. The dollar lost strength against most currencies except the peso, and the real and gold hit $1,830.00, its highest point in 2 years. Bitcoin continues to hover between $16,000 and $17,000.
Separately you can see my projections for 2023, and as I said in that piece, the crystal ball is cloudy because of all the non-economic events impacting the world.
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