This is the first letter I am writing after the U.S. elections, where the people supported Trump significantly, giving him 312 electoral votes and a majority in the popular vote. These unexpected results were a clear manifestation of two conditions that led the voters to their decision: first, the impact that inflation and the invasion of undocumented immigrants had on the population’s perception of their quality of life and Harris’ lousy campaign that never knew how to explain the accomplishments of the last few years. When asked what she would have done differently than Biden did, she responded that she could not think of anything different, which caused people to be upset, and that convinced the voters that they did not want to continue with what they did not like.
For many people, it was difficult to vote for Trump, an individual whose personality bothers some. Still, his policies are more sound than the current ones and whose announced changes should achieve greater welfare for the voters. The proposed cabinet is very different from the current one, and I believe that most of the nominees will be approved by a Senate, which is now majority Republican. There will be significant changes in border issues, hydrocarbon exploitation, tax collection, and climate control policy. On foreign policy, there will be changes in economic aid to Ukraine and the situation in the Middle East, now 14 months since the terrorist attack on Israel.
Trump’s foreign policy has never been about making friends but using an iron fist to achieve his goals, even if it doesn’t look like it to other countries. It will be interesting to see what happens with the proposed tariffs, as the use of import taxes as a policy tool can have serious supply chain and inflation consequences, as part of those tariffs will have to be paid by the consumer in the United States.
In the U.S., the economy remained strong in November despite awful data regarding job creation (+12,000 net) in October, but it will rebound with this month’s report. The economy grew at 2.8% annualized, better than expected, and inflation was reported at 2.6%, higher than the Fed’s target but much better than just a year ago. The most worrying aspect of the US economy is the deficit of 1.9 trillion dollars this year and the debt that will already reach $35 trillion, 107% of GDP. At this rate, by 2032, all projected government revenues will go to servicing the debt, and analysts believe that the plans proposed by the new administration will create a deficit of more than 7 trillion dollars. The creation of a new Department of Government Efficiency (DOGE), headed by Elon Musk and Vivek Ramaswamy, people very close to Trump, is an exciting initiative that could reduce spending. However, the numbers they aim for, $2 Trillion, seem unattainable. Total uncommitted outlays (other than debt service, Social Security, Medicare, etc.) are only $1.7 Trillion; this is where the proposed savings would have to come from. The government employs 2.3 million people, and it is estimated that this workforce could be reduced by up to 16%.
It is worrisome that the current deficit is 6% of the GDP even though the economy is solid and tax collection is quite good. The thought of what would happen in a recession makes us shudder. Today, the U.S. government debt held by foreigners is $8.7 trillion, 25% of the total, and only if this trend continues can the projected deficits be financed. The United States represents 15% of the global GDP, and the G-7 countries (which include the United States) represent 30% of the total, although they represent only 9.6% of the global population. Economic generation per capita in the United States is 40% higher than in Europe and 60% higher than in Japan. The IMF estimates that world debt will reach 93% of global GDP by 2024, led by the United States and China.
The relationship with China will characterize the Trump administration, which will have to choose between the Asian country and Mexico not to break the production chain of US manufacturers. For now, sanctions are already prohibiting sending the most advanced technologies to China. The announcement that nations that seek to move away from the dollar as the main currency in their reserves will be sanctioned with 100% tariffs is a clear example that the administration by punishment will be an essential vehicle in the next 4 years. A relevant fact is that the trade deficit with China has been reduced from $343 Billion in 2019 to $279 Billion in 2023 due to the sanctions already imposed on Chinese products.
Democrats talk a lot about the rich not paying their fair share in taxes, but the numbers say otherwise. The wealthiest 1% pay 40.4% of the total collected, and the top 10% pay 72.1%, which contradicts what is said by those who talk about subsidies to those with higher incomes. 30-year mortgages dropped to 6.12%, making October the highest month of the year in home sales. The average age of homeowners is 56, and first-time homeowners are 32. Twenty-four percent of total home sales were to first-time buyers. The total credit card debt of the American people is $1.7 Trillion, but debt as a percentage of income is down to 82%, the lowest level in 20 years. To end with the U.S., I want to comment that Scott Bessent, the proposed Treasury Secretary, has an economic plan that he called 3/3/3, and it refers to reaching 3% of GDP as the maximum deficit, 3% GDP growth and extracting an additional 3 million barrels of oil per day to bring down inflation.
In Barron’s annual survey of the 50 leading economists in the United States, the forecasts for 2025 are as follows: Stock markets: 50% optimistic, 32% neutral, 18% pessimistic, with the main risks being rebounding inflation and geopolitical crises. Regarding portfolios, the consensus is that stocks are 55%, bonds are 11%, real estate is 9%, gold is 8%, other commodities are 7%, alternatives are 7%, and cash is 3%. In bonds, 52% prefer less than 3 years, 38% between 3 and 10 years, and 9% suggest more than 10 years. Regarding the economy, only 16% believe there could be a recession, and half expect GDP to grow between 2% and 2.5%. Regarding inflation, 78% expect it to be between 2.5% and 3%.
Mexico also had a very controversial month, as, even though the Supreme Court wanted to postpone the judicial reform for 90 days, President Sheinbaum said that she would oppose such a delay. There are already 18,000 registered for the elections of judges. The talks between Sheinbaum and Trump regarding migration and drug trafficking control seemed to have been done in different languages, as the explanations of both were totally different. Trump saying that Mexico would close the border, and Claudia is talking about creating bridges, not barriers. The threat of a special 25% tariff on Mexico and Canada, if they do not stop migrants and drugs is in violation of the CUSMA/USMCA/T-MEC and a clear example of what could be a complicated relationship for the next 4 years.
There is no doubt that AMLO left Sheinbaum with a complicated situation. A deficit of 5.9% of GDP leaves the country with few resources for infrastructure and the need to approve a very austere budget for 2025. Cuts will be required in Education, Health, support for the countryside, and technology, as social spending has already become an integral part of the economy, and it is almost impossible to eliminate such subsidies.
As every month, I will list the positive and negative data on the Mexican economy.
Positive:
The new government allocated US$23 billion to the CFE to remedy the lack of electrical infrastructure.
– Consumer confidence is at its highest level this year.
– Infonavit froze 2 million loans to support low-income homeowners.
– Mexico reported a trade surplus in the automotive industry of US$76 billion.
– The government fully supported PEMEX despite the state-owned company’s massive losses and is close to explicitly guaranteeing the oil company’s debt.
– The government pledged that the deficit will be at most 3.9% of GDP, a figure we have already commented on and which looks difficult to achieve.
In October, we reported 0.2% economic growth and a fiscal surplus of 0.2%. Reported inflation was close to what Banxico proposed, which cut the interest rate by ¼%.
– The balance of payments had a surplus of 0.2% of GDP.
– The peso’s fall in the face of Trump’s victory was much smaller than in 2016.
– Bank credit grew 8.7%, indicating that the economy remains buoyant.
Negatives:
– October remittances fell to $5.358 Billion, down 4.5% from October 2023 and the most significant drop of the year.
– Maquiladora industry value added declined 7.6% to 58.3%.
Altos Hornos de México will finally be liquidated after going into receivership in 1999. This is a perfect example of how the law does not protect creditors.
– Moody’s put Mexico’s sovereign debt rating outlook negatively, also affecting publicly traded companies issuing debt.
– Canada proposed establishing a bilateral trade agreement with the United States, ignoring Mexico and putting the T-MEC at risk.
– The intervention of U.S. Ambassador Ken Salazar, who questioned the good relationship between both countries and took an aggressive position towards AMLO and Claudia Sheinbaum.
– The possible installation of a Chinese electric car plant (BYD) in Mexico was put in doubt due to the fear of a potential ban on importing them to the United States.
The different reports of projected growth for 2025 were modified downwards: Banxico to 1%, Citi Bank Banamex to 0.2-0.8%, and IMEF to 0.9%. S&P predicted 1.2% in 2025 and 1.5% in 2026.
– The possible tariff war, as Sheinbaum said, where Mexico will impose the same taxes on products that the US imports from Mexico that Trump wants to impose on products imported into Mexico.
The most serious event of the month was the Senate’s approval to eliminate seven regulatory agencies that protected citizens and strengthened the rule of law. The extinction of INAI, COFECE, etc., gives more power to the government and takes away citizens’ rights, including oversight of education and health.
Some important news from the rest of the world is worth mentioning.
– Strong support from China to Brazil and Peru, trying to downplay the importance of the U.S. and South American relationship.
– Brazil will grow by 5.1% in 2024, and Mexico will grow by only 1.5%.
Only 678,000 children were born in France in 2023, aggravating the population problem and foreshadowing future crises.
Saudi Arabia’s $1 trillion project to develop a new NEOM city has been halted due to a lack of resources.
– Argentina reduced its inflation from 193% to 19%, but the honeymoon with Milei is ending, and the unions demand disproportionate increases.
– Taiwan imports 93% of its oil and gas requirements, which leaves them very vulnerable to a Chinese embargo that could strangle them without direct intervention.
– Germany remains in recession, affecting all of Europe.
– Some interesting comparisons between Europe and the United States are that the percentage of military spending on research and development is 4.5% in the old continent and 16% in the United States.
None of the European companies with a market value above $100 billion were founded in the last 50 years.
Of the 50 most valuable technology companies globally, only four are European.
Concerning Israel, the situation remains complicated with wars on seven fronts, the hostage crisis, and now the condemnations of the International Court of Justice (ICC) against Netanyahu and Gallant, which put them at risk of being arrested in many countries. The ceasefire with Hezbollah seems to be holding even with some violations. Still, it is hoped that it could be the beginning of more serious talks with Hamas to recover the abductees and seek a solution that returns Gaza to civilians and finally ends the power of the terrorist group.
Inflation returned to 1.9%; the central bank kept rates at 4.5% as inflation remained above what they wanted and GDP significantly increased to 3.8% annualized, well above the projected 2.9%. This positive data is thanks to consumer spending again, some foreign investment in fixed assets, and export growth. On the other hand, tourism remains depressed, and there is a severe deficit of foreign workers in agricultural activities. The budget deficit is projected at 7.8% of GDP by 2024, and if it lasts much longer, the war in Gaza will continue to grow due to military spending and the decline in tourism. Debt to GDP is believed to reach 72% by 2025.
November was an excellent month in the stock markets, with indexes reaching all-time highs—bonds with a slight contraction, as Trump’s victory could bring additional deficits and higher inflation. Gold was volatile, closing around $100, down from its all-time high of $2,681.00. Bitcoin soared on the support Trump has given it, reaching almost $100,000 and closing the month at $97,100.Foreign currencies were down slightly, but the movements were much smaller than markets expected if the Republicans won.
Greetings.
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