We begin the year hoping the world will recompose, but it seems unlikely.
There is no doubt that many of the problems would end if they put a stop to Iran, a country that loves to create problems by using third parties and financing atrocities. Another example of what Iran does is Hezbollah, which operates out of Lebanon and fires rockets daily into Israel. I would not be surprised if, after the Hamas campaign is over, the next step is to try to destroy Hezbollah.
The crisis that has emerged unexpectedly is Venezuela’s threat to annex a large part of Guyana, especially since they have significant oil reserves. Brazil is trying to moderate the dispute, but who knows if it will succeed. Many of the problems come from the lack of leadership from President Biden, who is non-confrontational and wants everything to be settled as friends and not with force. If we have four more years of this administration, we will soon be talking about many more conflicts.
The U.S. economy continues to send mixed signals, as the number of job openings dropped to 8.5 million, the lowest in 20 months, but unemployment remained at 3.7% against all forecasts. Foreign money inflows remain very high even though China has bought much less government debt. It was very interesting to note that the consensus of economists in a December 2019 survey on the economic outlook for December 2023 turned out to be almost accurate despite COVID and many disruptive events along the way.
U.S. inflation is already below 3%, and if we remove the housing component, which accounts for 35% of the index, price growth from November 2022 to November 2023 is only 1.4%. The Fed is supposed to start cutting rates in the 3rd quarter of 2024, and in Europe, it is projected to happen in the second quarter, as the economies of Germany and England are in recession, and the rest of Europe is pretty bad.
The incredible increase in the stock markets not only favored the wealthy, as 58% of Americans own stocks, either directly or through their retirement funds, but one thing of concern was the growth of “buy now, pay later,” where one gets interest free credit for four months, but the late payer pays extraordinarily high interest. It is estimated that 27% of significant purchases are made under this innovative but dangerous modality for the consumer.
The increase in mortgage rates has affected the economy of the American people much less than that of Canadians or Europeans. In the United States, less than 15% of residential loans are variable and adjusted as government rates rise, and in the rest of the world, this figure is very close to 70%. A curious fact is that the commission on the sale of houses, which in the U.S. was historically 6%, was rejected by the Supreme Court as monopolistic, and commissions are now negotiable.
One very interesting statistic data is that half of the children who are five years old today in rich countries will live to be at least 100 years old. Today’s life expectancy in the United States is 74.8 for men and 80.2 for women but advances in medicine have increased its numbers dramatically.
Nominal salaries rose 19.6% in the last three years, but the increase was a meager 0.6% adjusted for inflation. The net worth of the average wealth in the U.S. is $153,200, mainly because the owners of their homes significantly impact this figure, while in Mexico, it is $16,470. The annual per capita income in the U.S. is $76,370, while Mexico’s is 10,410 dollars.
I found the impact of family businesses on economies to be relevant. Ninety percent of all companies are family businesses, and as a percentage of GDP, India leads with 79%, Argentina and Mexico 70%, and from there down.
Switching to Mexico, we are already beginning to see the upcoming elections’ euphoria; although the formal process has not yet started, the enthusiasm can already be felt. The government forgot the austerity of the first five years and is spending money foolishly, such as Mexicana de Aviacion, which has one large airplane (737) and two small Embraer airplanes. When Interjet was in very bad shape, they hired McKinsey consultants, and the verdict was that a minimum of 50 aircraft was needed to make the operation profitable. The Alemán family did not have the funds to buy the other 22 they required, so they went bankrupt.
The Mayan train is another example of a major project that will not be profitable for many years, if ever, and Dos Bocas is producing less than 10% of what was projected. I found it incredible that already more than 20% of the cars sold in Mexico are Chinese, and only Russia and China buy more Chinese cars than Mexico.
One incident that bothered me greatly was the takeover of a French company’s factory, Air Liquide, because it was convenient for Pemex. That is how things started in Venezuela, and a year later, they had their way with the big spoon. The attempt to eliminate the independent regulatory agencies is also very serious because it protects citizens from possible abuses by the authorities.
One piece of information I found worrying was the educational lag in the PISA tests that compare mathematics and creative thinking. Mexico dropped four places, and although it surpassed Brazil and Colombia, the absolute numbers were disappointing.
Concerning the rest of the world, China’s CPI fell 0.5%, the most significant drop since the pandemic’s peak and a clear demonstration that the promised recovery is not taking place. Likewise, U.S. investment in China fell $31B, partly because of sanctions and partly because the domestic market is not growing.
In Russia, authoritarian rule continues with dissident Novolny missing for several months and Wall Street Journal reporter Evan Gershkovich, unfairly accused of espionage in March 2023, still in jail in Moscow.
In Israel, things are still horrible, with many dead daily and still 135 hostages in the hands of Hamas. People are very angry with Netanyahu, who is blamed for the poor intelligence of the October 7 attack, and many are calling for him to resign at the end of the military campaign. Still, he has emphatically repeated that he does not intend to do so. Just three days ago, the Supreme Court rejected the central premise of his judicial reform, and we cannot say it is unconstitutional as Israel does not have a Constitution.
Gold hit an all-time high of $2071 but came back a bit, Bitcoin soared to $47,500, and oil fell until the Yemen HOUTHIES attacks started.
Again, may 2024 be a good year, and let’s hope to see progress in this turbulent world.
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