The end of the first half of 2022 marked one of the most complex times worldwide, from the war in Ukraine, global inflation, product shortages, and the apparent beginning of a worldwide recession period.
Usually, in times of crisis, there are winners and losers, but this year it is not clear who is being benefited by global events. Possibly only the producers of staple products that consumers are willing to buy at almost any price because demand exceeds supply.
In the United States, there was great controversy over several landmark Supreme Court decisions, from turning the decision to legalize abortion back to each state and no longer at the federal level, the right to bear arms, and the reversal of President Trump’s controversial decision to keep undocumented immigrants in Mexico while their asylum petition is being reviewed.
The Court has six conservative and three liberal justices, the former nominated by Republican presidents. They voted according to their ideology in each case, except in the “stay in Mexico” case, where the majority supported Biden.
President Biden continues to demonstrate his advanced age and limited ability to govern, as evidenced by his press conferences where he only reads what someone else writes without answering any questions, his attempt to blame inflation while disassociating himself from the impact of his expansionary spending policy on the economy, and his few spontaneous comments that are generally clarified and corrected by the White House.
Many economic items in the United States are already beginning to show negative trends, such as the decline in home sales (14% in the last three months), the ISM index of industrial production, which has been declining for three months, the first decline in home prices in 14 months due to the combination of inflation and the increase in mortgage rates which have gone from 2.875% to 5.65% for 30-year loans in only five months.
The drop in the stock markets has caused a loss in the wealth of the American people of $12.1 Trillion in 2022 and $13.2T since November 2021. I believe this will cause people who no longer planned to return to work after the pandemic to come to their senses, as their retirement fund has shrunk by 20-30%. This situation will reduce labor shortage pressure.
The consumer confidence index dropped to 50, the lowest level since 1952, which does not speak well for the country’s prospects and reiterates my impression that in November, the Republicans will take back the Senate and the House of Representatives.
Staffing shortages remain a serious problem, and many companies are paying additional premiums for new hires who stay on the payroll after 90 days. Mcdonald’s and CVS pharmacies are an example of this practice.
I feel that the interest rate increases created by the Fed (0.75% in June and another equal increase predicted for July and then 0.5% in the next 2 or 3 bank governors’ meetings held every six weeks) will get inflation down to 4% levels by the end of 2022. This will probably cause a moderate recession, defined by two consecutive quarters of negative growth, which will be short and, I don’t think, too painful, but definitely negative for the country.
Commenting on other global events affecting the whole world, the interruption of natural gas sales from Russia to the rest of Europe may create a strong crisis in the industries of Germany, Switzerland, France, and other countries. The International Energy Agency (IEA) commented that the impact would be much greater than markets are projecting.
The cost of transporting cargo by ship has already started to come down a little but is still more than double what it cost to move a container before the pandemic.
COVID is reviving with less mortality, although the number of cases worldwide has already reached 54.1 million with more than 6.4 million deaths.
China finally reopened its major cities, which it placed under siege because of its zero-tolerance policy on COVID. GDP growth in that country is forecast to be below 4% in 2022, a dramatic drop from the 10.4% average of the last ten years.
Adding to the pandemic response is the collapse of China’s housing sector, which was 18% of the economy and was severely hit by the financial crisis of large developers, many of whom are in receivership.
Interestingly, there is no culture of welfare or government support in China, since of the 70 million who were isolated for three months, only 2 million went to ask for government help.
In Colombia, the people elected Petro as president, an extreme leftist ex-terrorist who, on the first day after his triumph, declared that wealth does not belong to the one who generates it but to the one who needs it and that more than one family will share any housing unit of more than 65 m2.
The BIS, the central bank of central banks based in Basel, Switzerland, issued a statement recommending that they all raise interest rates more aggressively to combat inflation. It is felt that most have lost credibility, and it no longer works for them to try to make monetary policy based on commentary rather than tangible actions.
The head of the FED, Jerome Powell, first said that inflation was transitory and short term and he was wrong; then, he said that there would be no increases greater than 0.5%, and they raised rates by 0.75%, and in general, people no longer believe what they say.
Moving on to Mexico, June was a highly complex month, starting with the non-attendance of President López Obrador to the Summit of the Americas, a snub to the host who is the leading trading partner and with whom it is not convenient to be at odds. Then the vile murder of two Jesuit priests who were riddled with bullets inside the church; the announcement that the new Dos Bocas refinery would end up costing close to 18 billion dollars and not the $8 billion that had been budgeted, and finally, the cancellation of the silica sand extraction concession granted to the US company Vulcan, another manifestation of the uncertainty for the foreign investor who has to deal with the government.
The increase in Cetes yields seriously affects the government, which will have to pay more interest on domestic debt. Analysts’ forecast that the rate will reach close to 10% next year is very worrisome.
The subsidy on gasoline and diesel already reaches 35%, a direct cost for the government, which imports fuels at a higher price than it sells them. The fight against inflation based on subsidies and price controls has never worked, leading to excessive consumption and shortages of essential products.
The growth forecast for Mexico was reduced to 1.8% in 2022 and 2.1% in 2023. Inflation is estimated at 7.5% at the end of this year and a reduction to 5.6% next year.
In an analysis published by a very important magazine in England on the most dangerous cities in the world, Zamora, Michoacán was named number 1, a title that no one wants to have.
In another publication by Americas magazine, the Capacity to Combat Corruption (CCC) index puts Mexico in 12th place out of 15 in Latin America, with only Guatemala, Bolivia, and Venezuela worse than Mexico; Uruguay, Costa Rica, and Chile topping the list.
Israel is again in a political crisis with the dissolution of Parliament and elections for the fourth time in 2 years scheduled for October.
Bennet will stay on temporarily but will no longer run to head the government in the next elections. Many people believe that Bibi will return to power, although it is unlikely that he will be able to form a coalition that will give him the 61 seats needed in the Knesset.
Despite the political instability, Israel is well-positioned for the impending global economic crisis and is expected to grow by 4.8% in 2022. Inflation is at 4% vs. 8.6% in the US, and the government’s balance of payments shows a surplus with very low unemployment. The expectation is that Q2 will have 1.9% growth after the 1.5% contraction in the first quarter of this year.
I was in Israel last month, and there is an atmosphere of economic growth and well-being. Full restaurants with very high prices, state-of-the-art technology in many business incubators, construction everywhere, and museums and other entertainment venues opening all over the country.
It is amazing what the country would be like without the threat of terrorist attacks, the enormous expense of the military and security, and if it had a stable government.
The stock markets had a horrendous June, with the Dow Jones down 20% and the NASDAQ down 30% from its high point.
Some companies have fallen as much as 90% from their peak value, and in many cases, investors no longer want those stocks at almost any price. In the week of June 13, the S&P index of the 500 largest companies was down 5.8%, the sharpest drop since the country’s March 2020 lockdown when COVID began.
Bonds had a bad month, but already on July 1, bonds are at the same level as in May, having recovered a loss of almost 3% in June.
Currencies are stable with a strong dollar, especially after the US rate hike. I feel that the peso is holding up because Banxico is raising rates at the same pace as the Fed, which will further slow the Mexican economy.
Bitcoin dropped to $19,000, 70% below its high point. Bill Gates stated that its value is only in the theory of the dumbest buyer who wants to pay more than the previous one, as the cryptocurrency itself has no justification.
Gold ended the month at $1,807, versus $1852 at the end of May, proving that the old theory that it was the most excellent hedge against inflation is no longer a reality.
