With Lula’s victory in Brazil, the entire subcontinent, from Argentina to Mexico, now has a left-wing populist government.
The explanation for this phenomenon is quite simple. The difference in income distribution, where very few have a lot of money, and the majority live in poverty, coupled with the abuse of corruption by governments, makes voters think that the one who promises them change is the best option. Unfortunately, very rarely do these electoral promises become a reality.
The political situation around the world is highly complicated. The United States is a week away from the mid-term elections, and the country is totally polarised. Democrats are promoting their support for abortion rights across the country and attacking Republicans for the alleged attack on democracy on January 6, 2021. Meanwhile, the Republicans talk about the weakened economy, inflation that rose from 1.6% when Trump left to 8.3% today, and increased crime in almost every major city (11 of the 15 governed by Democrats). Another critical issue is the massive problem of the border where not only hundreds of thousands of illegals pass through but also fentanyl, which in the last year has caused 85,000 deaths, more than the number of people who have died in car accidents and murders combined.
In Europe, the problem of the war in Ukraine continues, where the Russians annexed four provinces in a rigged referendum. Despite increased rhetoric and pressure from NATO countries, the Russians do not seem to be backing down. They have even shut down the natural gas pipeline supplying Germany and backed out of an agreement to sell grain from Ukraine.
China is becoming increasingly dangerous to global stability. The Congress, held every five years, ratified Xi for another five years and gave him a power not seen since Mao’s time.
His acceptance speech lasted two hours, and he hinted that his plans include “taking back” Taiwan, which he claimed belonged to China. Also, without mentioning Russia directly, he confirmed his support for that country in the Ukraine conflict.
China is going through difficult times with $880 billion at risk, which it has invested in its “Belt and Road” project, where it creates infrastructure in many third-world countries and cannot collect even the interest on its loans. The growing housing problem is with almost 4 million units sold and not delivered and an incredible 2.8 billion square meters of vacant residential space. Unemployment among young people under 25 is 19.9%, its stock market is down 23%, while the technology index has lost 70%. Xi surrounded himself with 24 people in Congress who were totally loyal to him and eliminated all possible dissent and even expelled from Congress, its former leader.
In Mexico, there is already talk of the 2024 presidential succession, with AMLO putting out a list of 42 possible opposition candidates and Morena promoting Adán Lopez and Claudia Sheinbaum with billboards all over the country. It is curious how they have pushed Ebrard aside and directly attacked Monreal, trying to discredit him starting now.
Tatiana Clouthier’s statements when she resigned as Secretary of Economy that she was leaving because there was a pack surrounding AMLO, whose only interest is the election on the 24th, is symptomatic of the fact that the valuable people in the cabinet no longer tolerate what is happening. In Clouthier’s case, the straw that broke the camel’s back was the refusal to negotiate on clean energy, which puts the USMCA at risk, as well as the price control agreement to whose negotiation she was not invited.
With such a strong rapprochement with the army, I wonder what AMLO will do with the report that 20 soldiers were responsible for the disappearance of the 43 students in Ayotzinapa, as he cannot bring them to justice without turning on his new allies on whom he bases his strength.
The use and abuse of morning press conferences (mañaneras) has distorted the communication that the people receive. The telling of lies such as that the US had already given up on asking for arbitration on renewable energy in the framework of the USMCA has made people disbelieve anything.
The comment about the desirability of extending the presidential term compared to Vicente Fernandez saying that he would keep singing as long as the public kept applauding and the continued attacks on the National Electoral Institute (INE) are pretty disgusting. Still, I don’t think he seriously considers not handing over the presidential sash in 2024.
The rule of law ranking in different countries came out, and Mexico dropped six places to 115 out of 140 with a score of 0.42. Only Venezuela is more down in Latin America. On the other hand, a national survey on insecurity showed a slight improvement, although 64.4% of respondents said they did not feel safe in Mexico.
Another surprising statistic is that 91.8% of crimes in Mexico go unpunished, which somewhat confirms the low rating given by the World Peace Project.
Turning to the economic field, the United States continues to have a strong inflation rate of 8.3%. This figure is a bit misleading, as the cost of housing is impacted by 0.9% upwards. We also know that sales have been down for two months, and the average house price has fallen 9% due to the increase in mortgage rates.
It usually takes about three months for these declines to be reflected in the index. We also know that commodities such as steel, lumber, copper, and oil are down almost 28% from their peak six months ago. The cost of transporting containers is down 44% and by rail nearly 40%. I believe we will see inflation figures around 4.5% by February and around 3% by the end of 2023.
On the other hand, unemployment remains at 3.5%, and the number of job openings which dropped from 11 million to 10.05 in August, rose again to 10.7 million in reports released today, which creates additional pressure on the FED to raise interest rates. The PMI manufacturing index, which was already below 50, indicating a slowdown, returned to 50.2, not very high, but a clear sign that the economy is not slowing down.
There is a question of whether the Fed is going too fast with its hikes for the reasons mentioned above. Wage increases are still lagging behind price increases, and the impact on the dollar, which has been revalued by almost 15% against hard currencies, is seriously affecting exports. Apparently, only Brazil and Mexico have seen their currencies stable and even gain value against the dollar.
Releasing oil from the Strategic Reserve was a mistake by Biden, as 15 million barrels is less than one day’s consumption and does not have much impact on the price of gasoline. Still, it is a political maneuver before the elections. This reserve’s purpose is to defend against a supply crisis and not a price-impact vehicle.
Of the 1412 stock mutual funds, only seven are up as of September 30, and the average loss is 19.4% versus 15.6% for the S&P.
There is no doubt that cash is king at the moment; from paying nothing six months ago, today it is up over 4% in 3-month government paper. Today there are 3.4 trillion dollars in the money markets, and for 32 consecutive weeks, more money has been flowing out of stock funds than is coming in.
One fact that I found alarming is that 69% of the population lives from paycheck to paycheck, with no savings, and this figure is 51% for high-income earners.
Statistics in Mexico say that the economy is doing better than people perceive.
The economy grew 1% in the third quarter, the best quarterly increase since 2010, although retail incomes fell 0.4%. Increased onshoring (the return of US companies from China to Mexico) has created a mini-boom at the border, and exports are expected to reach 50% of GDP by 2027 from 40% today.
Infosel indicated that Q3 job creation was the highest since 2016, and airlines and airports have reported significant increases to near pre-pandemic levels, even though COVID is not yet eradicated.
I believe that the agreement not to raise prices with various commodity manufacturers and Walmart is not the solution to combat inflation, as they lead to shortages if costs continue to rise and margins shrink or disappear.
The gasoline subsidy has already cost the country 250 billion pesos, and the consumer pays for the supposed savings in fuel in inflation and higher government debt.
On the one hand, the government wants more family-owned companies to be listed on the stock exchange; on the other hand, many listed companies are exiting the public market.
The Mexican Stock Exchange is where seven companies do 80% of the volume and has not been a vehicle to attract already listed companies. I think this initiative aimed at small entrepreneurs is misguided. The public company’s additional reporting cost will be much more onerous than the advantage of being listed and having shallow trading volumes.
Analysts’ forecasts are for inflation in Mexico of 8.54% by 2022 and 5.11% by 2023 and growth of 2.4% this year and 2.2% by 2023, depending on whether or not there is a recession in the US.
Stock markets had a good recovery in October, with the Dow Jones rising 13.95%, its best month since 1976. Despite this, it does not feel like a complete turnaround.
Bonds also recovered a little, gold at $1,640, very close to a three-year low, and bitcoin at $20,300, up slightly on the month, although still well below its all-time high of $67,000 last year.
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