October was a month of a lot of news, significant movements in the financial markets, and important changes in the political scenarios in several countries. Let’s start with the United States, where a campaign leading up to the November 5th elections ended. It was characterized by negativism and a huge polarization of both contenders. Instead of communicating proposals and ideas on how to improve the country, both parties dedicated themselves to showing what was wrong with their opponents and the damage that would be done if they were elected.
Harris ended her campaign without making clear what she would do if she won and despite repeating ad nauseam that she is “not Biden”, when asked what she would have done differently if she had been president since 2020, she replied that she could not think of anything different from what Biden did. It should be remembered that never before has there been a candidate who did not win a direct vote, who was not selected by delegates to his party’s convention, and who always got his positions by appointment.
Trump continued with his usual rhetoric, his insults to opponents, and a campaign based on the two issues that seem to matter most to voters: inflation and the porous border with the consequent continuous flow of undocumented immigrants. The voter will decide which is more important, a woman’s right to control her body or the attempt to have a little more money in her pocket and control of the border.
I don’t know where the center-left (Clinton) or center-right (Reagan) candidates got lost, but today, the choices are extreme, and there is no freedom to change voting intentions without personally questioning the principles that make a voter a Democrat or a Republican. No matter who gets elected, what is a fact is that if the candidates deliver on their campaign promises, the U.S. deficit will grow even more from the current negative results ($1.9 Trillion in 2024), with academics predicting an additional $4.6T increase with Kamala and $7.3T with Trump, which would add to a current country debt of $35T, already larger than GDP. Today’s annual service on this debt already exceeds $1Trillion, the second largest government outlay line item.
The US economy has achieved the famous soft landing intended by the FED, and the much-mentioned recession never happened. Unemployment rose slightly, but still at levels that were considered full employment just a few years ago. Economic growth was reported at 2.8% annualized for the third quarter, above economists’ forecasts, showing a healthy economy that employs young people and new entrants to the labor force.
A negative element was the report of a 10.8% trade deficit in the last quarter, indicating that the country continues to import much more than it exports. This is a central theme of Trump’s campaign, which promises a massive increase in tariffs on products from abroad and a series of incentives for those who produce in the United States. Here, it is worth mentioning that for every dollar Mexico exports to the United States, 40 cents corresponds to imports for manufacturing those exports.
The U.S. consumer continues to spend hand over fist and save very little (4.5% of their income). Annualized consumption growth is over 3%, coupled with a confidence index that reached 70.9, the highest level since the pandemic. There is no doubt that the economy is strong in a fragile world and that it would not take something unexpected and very dramatic to alter this situation.
There is a question as to what would happen if Trump wins and fulfills his campaign promise to deport all undocumented immigrants who entered the country during the current administration. This number ranges between 7 and 16 million people who work, consume, and have a relevant impact on the U.S. economy. Analysts did an assessment assuming 10 million deportations. They estimated that GDP would shrink by 3%, higher than the projected annual growth of 2.4%. The lack of workers would significantly affect certain industries, such as agriculture, hospitality, and construction.
At its last meeting, the Fed cut the interest rate by 0.5% and indicated that it would focus more on employment and economic growth than on fighting inflation, which it had apparently already brought under control. Based on the economic data, we will see if the rate cut will continue in the coming months.
Before moving on, I want to comment on what would happen if, in next week’s elections, one of the parties gains control of the presidency, the Senate, and the Congress. In the first instance, the advantage is that the judiciary remains independent. In a state with the rule of law, this factor gives a sense of stability and control over unilateral decisions of the executive. Secondly, in the Senate, there is a condition called “filibuster”, a loosely defined term for action designed to prolong debate and delay or prevent a vote on a bill, resolution, amendment, or other debatable question where major decisions require 60 votes and not just a majority of 51 votes and I am convinced that neither party will reach that number of senators.
I believe that only the Republicans have the possibility of having that majority in both houses and the presidency since on November 5th, 33 senatorial seats will be contested, 10 currently held by Republicans and 23 occupied by Democrats, and since there are so many more, it is more likely that the winner will be an opposition candidate. Some data that I found interesting is that Americans have 6.5 Trillion dollars in money markets, which are paying around 5% per year, creating an additional outflow of more than $300 Billion when historically those markets paid barely 1%.
An interesting sale was that of Dish, the satellite television company, which was sold for 1 dollar plus existing debts, marking the impact of the Internet on the way we watch television. Finally, obesity in the U.S. fell for the first time in 13 years as a result of new treatments based on GLP-1, a drug manufactured by ELI LILLY and Novo Nordisk. U.S. retirement funds have only 76% of their needs to meet their obligations and have a $1.6 trillion deficit in excess of their assets. Tariffs on Chinese goods imposed by Trump in his first administration and maintained by Biden have reduced imports from 21% of total U.S. imports to 14%.
Mexico saw the first woman president in its history enter on October 1. In her first weeks, Sheinbaum has shown no significant change from Lopez Obrador’s policies and is accelerating the implementation of the judicial reform that AMLO passed through the Senate in his last month in office. The reaction of the current magistrates was predictable, and the eight considered independent presented their resignation in protest. However, they will remain in office until next August, as a country cannot be left without a Supreme Court. It is interesting to note that Sheinbaum appointed Arturo Zaldivar, who was President of the Supreme Court and who resigned a year ago to join MORENA, as the person responsible for the selection of candidates for Court justices in the popular elections that will determine who will form the future Supreme Court of Justice.
The government deficit 2024 will reach 5.9%, the highest in many years. Sheinbaum offered to reduce it to 3.5%, which is very unlikely since she promised not to affect the social spending of subsidies created by AMLO. On the other hand, I feel that if they do not invest in infrastructure, the promise of the economic boom created by nearshoring or relocation of companies from China and other countries to Mexico will not happen since the lack of electricity, airports, and educational infrastructure will stop much foreign investment in factories to supply the U.S. market.
Following the pattern we started a few months ago of listing positive and negative news about Mexico released in October, we start with the positive.
– Fixed investment in the 3rd quarter of the year was the highest in the last 4 quarters.
– Domestic and export auto sales rose 6.4%.
Major foreign companies announced investments in Mexico, including $1.2 billion from Microsoft and a semiconductor investment from FOXCONN for NVIDIA.
There was a good meeting between Sheinbaum and the Business Coordinating Council, during which it was agreed not to increase the price of basic food basket products and not to stop investing in factories and businesses.
– Reserves exceeded 226 billion dollars, although they have stagnated at that level.
– Banks’ loan portfolio had its best result in 8 years, according to Banxico.
Negative
– Pemex reported a huge loss, almost double the previous year’s. Crude oil production fell to 1.56 million barrels per day, 6.3% less than last year’s average and well below the 2 million promised by AMLO at the beginning of his administration. Pemex produces 14 barrels per employee, Petrobras 27, and Aramco (Saudi Arabia) 92. Only the Petroleum company of Venezuela has lower numbers than Mexico.
According to the IMD, Mexico moved from 60th to 67th on the list of countries most favorable to foreign investment.
– Business confidence dropped to an index of 50.9, the lowest in the last 20 months.
– The Ministry of Finance reported that foreign debt increased by 15 billion dollars.
– The GDP growth forecast was reduced from 2.3% to 1.7% in 2024 and from 2.1% to 1.5% in 2025, while the IMF increased the figures for the world economy from 1.7% to 1.9% this year and from 2.4% to 2.6% next year.
– ANTAD reported a reduction in its affiliates’ sales for the fifth consecutive month, while the airports reported a drop in traffic that lasted 14 straight months.
– I found COFECE’s action against Gruma, one of Mexico’s best companies, for “monopoly” to be damaging since its growth has been organic and not based on acquisitions.
In Israel, the economic crisis continues as a consequence of the war against Hamas in Gaza and the increased hostility in Lebanon in the fight against Hezbollah. Problems with the country’s budget could lead to a dissolution of the coalition that keeps Netanyahu at the head of the government if not resolved by March 31, 2025. The cost of the wars increased the debt by 7 trillion Shekels in 2024, estimated to rise by an additional 10 trillion Shekels in 2025. The proposed austerity measures amount to 40 billion Shekels, which will cause the economy to contract. That austerity program attempts to bring the deficit down from 8.5% of GDP (up from the 6.6% expected just 6 months ago) to 4.0%. The consumer tax (VAT) will grow from 17% to 18%, and the proposed total spending of 744 billion shekels in 2025 includes 161 billion shekels of debt service, which is 22% of the total and one of the highest in the world.
Economic growth slowed to 0.4% for the current year but is expected to rebound to 4.3% next year. The wars have caused all three rating agencies to downgrade Israel’s debt from A+ to A by S&P and FITCH and from A to BBB+ by MOODYS. All three agencies maintain a negative outlook because the war has made issuing new bonds more expensive.
In the rest of the world, we see relative economic stability, with oil prices around $70 a barrel. China is trying to revive its flagging economy and is expected to announce a stimulus package of 8% of GDP or 1.3 trillion dollars. India is maintaining healthy growth of almost 8% and reserves of 705 billion dollars, which puts it in 4th place in the world. Inflation in the European Union fell below target for the first time in 7 years, leading to two consecutive interest rate cuts.
It is interesting to note that Suez Canal revenues are down 60% from the previous year due to Houthi attacks from Yemen. This has made the Red Sea a very dangerous area, leading shipping to take much longer but less troubled routes.
No doubt, stopping Iran’s influence will make the global economy recover faster, and this will only be achieved if the funding of terrorist groups subsidized by them is cut off. These subsidies result from Biden’s misguided decision to suspend the sanctions imposed by Trump on the global purchase of Iranian oil, which represented an increase of 1.6 million barrels per day ($110 million per day). This decision gave them the resources to pay for wars and create problems throughout the Middle East.
Stock markets had a good month, with many indices hitting record highs. Bonds had a very bad month, as the 10-year bond rate went from 3.61% to 4.3%, and gold and bitcoin hit record highs. Currencies weakened a bit against the dollar, although the peso did fall sharply, breaking the $20 pesos per dollar barrier, for two fundamental reasons: the interest rate cut in CETES and the distrust generated by the judicial reform.
Interestingly, art, an excellent investment in the past, has lost its appeal, generating returns of only 3.3% annually in the last five years.
I bid you farewell, wishing you health and many joys. I will close with a phrase from Ronald Reagan that I found very interesting and applicable worldwide, making people tremble: “Don’t worry. I come from the government and am here to help you.”
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