As we have suggested through this channel many times, Joe Biden withdrew from the November election and left the way open for Kamala Harris, who was immediately endorsed by all sectors of the Democratic party despite not having received a single popular vote. Trump felt confident of winning in November after the attack that almost cost him his life. Still, his lead was considerably reduced with the disappearance of Biden and his cognitive problems. The former president’s hardcore base supports him unconditionally, but he seems to be making little progress with undecided or non-partisan voters. They would like to hear concrete proposals for improving the country with either candidate.
This election will be characterized by Democrats defending abortion rights and Trump’s alleged attack on “democracy,” a baseless argument but a reminder of January 6, 2021. On the other side, Republicans remind the voters of the serious border problems and the impact of inflation on their pocketbooks. The whole election process will be based on propagating the bad of the opponent and not the good that each candidate may be. Also, the results cannot be predicted yet since the elections are three months away.
On the other hand, I believe that the Republicans will win the Senate and Congress, as Americans tend to vote with their “pocketbook,” and there is less to do with whether or not they appreciate the personality and style of the candidates. Last quarter’s GDP report showed a relatively strong 2.8% annualized growth, but the general feeling is that it is not sustainable and the economy is slowing down; only 45.8% of employees have returned full-time to the office, and building vacancy is 19.8% and growing. This is worrisome, as 13% of bank loans to office buildings have already resulted in the owners returning the properties to the banks that gave them the loan. There is a fear that this number will grow much higher and put many banks in serious trouble.
There are currently 6.1 trillion dollars in money markets, which, at current interest rates, leave $350 billion in yields in the hands of consumers. However, despite this, businesses are already complaining about falling consumption and consumers buying cheaper goods. Undoubtedly, the polarization between rich and poor is increasing since, on the one hand, those who have savings receive more interest. In contrast, those who live on a day-to-day basis have their credit card limit maxed out and can barely afford to pay the minimum even though interest rates reach, in many cases, up to 30%.
Manufacturing reports have been fair; business confidence is at a 12-month low despite this. Pension fund funding is 30% below actuarial requirements. The U.S. government placed $2 trillion in T-bills last year, and debt has passed $35 trillion for the first time in history. What is a fact is that whoever wins in November, the country’s debt will grow more. Trump wants to cut taxes (collection), and Harris wants to increase social programs (spending). Both positions create a larger budget deficit.
The construction industry is having a tough time as, with mortgage rates high, people do not want to switch and lose the 3% mortgage they got two years ago, and therefore there is a shortage of homes for first-time home buyers. Prices for building materials have started to come down, but a home buyer’s monthly payment is still very high, and buying power continues to be contracted. The combination of low inventory, new-home builder caution, and expensive mortgages is terrible. In 34 of the top 35 housing markets, renting is more desirable than buying a home. Interestingly, 17% of home sales have fallen through at closing because the buyer ultimately does not qualify for credit.
In unfavorable news for the U.S. economy, population growth has slowed to 1.79 births per 100 population, and we know that when it falls below 2.1, it causes the population to shrink and consumption to fall. That happened to Japan, which has been in recession for 20 years. This also led Europe to open its doors to Muslim immigration with the consequences we all know. Economists in the United States are forecasting more inflation, an increase in unemployment to 4.5% in 2025, and an increase in the deficit of more than 1.7 trillion dollars. On the other hand, the IMF revised global growth downward and expressed concern about rising tariffs, deficits in all first-world countries, and global inflation that seemed to be coming down but reactivated, especially in third-world countries.
The slowdown in job creation is seen in the JOLTS (Job Openings and Labor Turnover Survey) index, which indicates how many jobs are available in the country. It points out that 12 months ago it was double the number of unemployed people. In July, it was already only 1.2 times, the lowest number since the worst months of the pandemic. A very strong increase in transportation costs has been observed around the world; on the one hand, due to the problem of the Houthi attacks that affected the Red Sea, the lack of rain in Panama has caused much fewer ships to cross the Canal, and the explosion of sales of Chinese companies such as Temu and Shein, which have grown more than 100% in the last two years.
Some interesting facts about the U.S. economy include that the market value of the company Nvidia reached $3.1 trillion, a figure equal to the GDP of all of Africa. China’s BYD already sells more electric cars than Tesla. Today, three times more is traded in funds and ETFs than in individual stocks, and the best-selling beer in the country is Modelo Especial from Mexico.
Analyzing Mexico, we can observe that the cabinet proposed by Claudia Sheinbaum, in dribs and drabs, is made up of good people. However, it was surprising in some cases, such as the Secretary of the Interior. This position requires much knowledge and strength, and the current Secretary of Security does not seem to be the most suitable person. The appointment of the Secretaries of Defense and Navy is still pending; these are critical positions to know if the impact of the militarization that AMLO has will continue with Sheinbaum.
As we have seen before, the most serious concern is what will happen in September when the new Congress enters and Lopez Obrador is still President. He will probably try to pass all of his constitutional amendments that give the government much more power, eliminating much protection for citizens. Sheinbaum seems to support all initiatives. The appointment of former Supreme Court Chief Justice Zaldivar as political coordinator does not bode well, as he left the Court under conditions that the people did not like.
As for Mexico’s economy, on the positive side,
– Banks reported a significant increase in loan portfolio to the best level in 4 years.
– Consumer confidence reached its second-best level in history.
– Fitch confirmed Mexico’s rating at BBB-, still investment grade
– Reserves reached their highest point in history, $222 billion, thanks to a reactivation of remittances
– Sheinbaum’s proposed budget appears to be favorable, with no significant increase in debt and a reasonable allocation for infrastructure
– Industrial production reached its highest level in the last year
On the other hand, the negative for the month was:
– Mining contracted 5.8% due to the new law that cuts the duration of concessions and discourages foreign investment
– There was a significant increase in huachicoleo, or fuel oil theft from PEMEX’s distribution system.
– Airports reported their fourth consecutive month of decline.
– PEMEX’s financial results were horrible, with a trillion peso loss, forcing the government to give it a new concession not to pay the corresponding taxes.
– Inflation reached its highest level in the last year.
– There is a powerful outflow of foreign investment in Mexican bonds and stocks.
Analysts and IMEF have revised GDP growth in 2024 to 1.9% and in 2025 to 1.5% downward, a feeble increase in view of the large number of young people entering the labor force.
I get often asked who would be better for Mexico, Trump or Harris. It is hard to answer, but if Trump makes good on his threat to deport millions of illegals, close the border, and impose a 10% tariff on ALL imports into the U.S., including countries with whom he has trade agreements such as CUSMA/USMCA/T-MEC, the economic impact on Mexico would be very substantial. Harris has not said much about her relationship with Mexico, but she has not demonstrated a friendly relationship with the country to date.
The situation in Israel remains very critical, with 115 hostages still being held by Hamas 300 days after the October 7 attack. The escalation of hostilities with the death of Deif and Haniyeh, military and political leaders, respectively, of the terrorists with the possible direct entry into the conflict of Iran and with an icy reception to Netanyahu by Kamala on his visit to the United States. There is no doubt that for Israel, it would be better for Trump to win, who, with an iron fist, would stop many of the conflicts that originated in the Biden administration.
The economy continues to be complicated by the lack of young people in the military reserve, although the shekel has already returned to its levels before the October attack. The Tel Aviv stock market index was already above its level 10 months ago, but more than 42,000 companies have closed, and two rating agencies have put the country under observation to lower its investment grade. Turkey is also affecting Israel by banning the import of Israeli products.
Months ago, we dedicated a few lines to China because of its importance in the global economy. The situation is very complicated, as vast numbers of unregistered “phantom debt” of the provinces have emerged, amounting to trillions of dollars, which added to the banks’ bad debt and exceeded the country’s total reserves. China is one of the few countries cutting banks’ reserve requirements and lowering interest rates to foster an economy growing at less than 4% when they were used to 10% per year, running the risk of reviving inflation and losing international competitiveness.
The failed one-child policy, abandoned eight years ago, has brought about a contractionary population trend that has them very worried, and they have not been able to reverse it. In the 10-19 age group, there are 14.86% more men than women because, during the one-child years, couples preferred sons to daughters and aborted when the baby was a woman. The decline in consumption in China has affected the price of commodities such as copper and oil. It has impacted the economies of Australia, the rest of Asia, and many third-world countries.
In July, elections were held in the UK, France, Venezuela, and several African countries, with sometimes surprising results that indicate global discontent with their current rulers.
Bonds performed well during the month as interest rates dropped considerably due to the economic slowdown and mentions of a possible moderate recession increased. Stock markets reached record highs only to begin a sharp decline at the end of the month. Gold broke through the $2,500 barrier before retreating slightly, and Bitcoin continued its volatility, closing around $64,000.
Currencies lost strength against the dollar, especially the Mexican peso, which was the hardest-hit currency in the world. This was due to the combination of the exit of speculators who were borrowing Japanese Yen to invest in cetes, the proximity of September, and the political risk of the disappearance of counterweights.
Before I say goodbye, I would like to comment on a curious fact that marks the consequence of certain actions that provoke unexpected results. In the Paris Olympics, the pool for the competitions was built in a field that was not designed for that purpose, and the depth of the pool is 2.2m, not the traditional 3m. The bouncing effect of the water encourages the swimmers, and not a single world record has been broken, and very few Olympic records have been broken, which has never happened before.
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