The political situation in the United States has become completely antagonistic, between an extreme left that is beginning to sound communist and an intransigent, xenophobic, and uncompromising extreme right. Mamdani’s victory in New York, who promised things that are not feasible, either due to a lack of resources or the power to enforce them, such as free public transportation, frozen rents, and even a possible expropriation of homes. City-owned supermarkets operating at cost are an example of failed experiments that end in total deterioration of assets and a mass exodus of wealthy taxpayers who are being asked to foot the bill for the experiment. The phenomenon was repeated in Seattle and Indianapolis, where the less affluent classes feel poorer by the day and seek solutions, even though they know that all they have are promises from candidates who talk a lot but will probably do little.
Overall, the country is doing well economically, though there is little tangible information due to the 43-day government shutdown. This ended on November 12, without achieving anything significant, except kicking the can down the road for two months, during which legislators will try to agree on next year’s budget, the increase in the government’s authorized debt ceiling, and subsidies for popular health insurance known as Obamacare. President Trump continues to tout his administration’s achievements in ending international conflicts, such as in Gaza, Iran, India, Armenia, and even Russia. Still, several of them appear to be only on hold and not definitively resolved.
The economic situation is stable, with inflation around 3%, higher than the Fed’s 2% target but still tolerable. Unemployment, according to estimates based on limited information, is around 4.3%, a figure that was considered full employment just a few years ago. Despite these attractive numbers, there is a sense that the economy is slowing, so the Fed is expected to lower interest rates by ¼% again next week. Short-term rates will be affected, but I do not believe this will benefit 5-year and longer-term rates, as the effect is somewhat inflationary and impacts longer-term instruments. 1.1 million worker layoffs have been announced, the highest number since 2020, partly due to advances in artificial intelligence and partly due to market contractions. Amazon with 14,000, UPS with 48,000, INTEL with 24,500, Microsoft with 15,000, and Chevron with 8,000 top the list of layoffs.
Some examples of the slight deterioration in the economy include delinquency on car loans at 6.65%, the highest in six years. Seventy percent of homebuyers with government loans are spending more than 43% of their income on housing costs, and 25% of college graduates are unemployed, sparking controversy over the value of spending four years studying and going into debt to graduate only not to get a job. The drop in mortgage rates to an average of 6.28% on 30-year loans failed to stimulate home sales, which fell 2.2%. The average price rose only 1.4% in the last 12 months, the lowest increase since the start of the pandemic.
A curious phenomenon is occurring: the US government’s investment in private companies, such as Intel in microprocessors, Lithium Americas, Vulcan, which develops magnets, and MP Materials, which processes “rare earths.” The government seeks to limit its exposure to imported products that could affect the country’s basic industries. The price of oil has collapsed, as Trump promised during his campaign, with estimates that production will exceed consumption over the next year, from 500,000 to 4,000,000 barrels per day globally, and that the price per barrel will approach $50.00. President Trump has spoken of $17 trillion in investment commitments between countries and companies, but it is still unclear where and when that money will come in. What is certain is that there is enormous competition in AI (Artificial Intelligence) investment, with none of the big tech companies wanting to be left out, and the amounts involved are substantial. Of what has already been announced, Microsoft, Amazon, Google, and Meta will invest $356 billion, while the other 496 companies in the S&P 500 will invest $904 billion.
One concern for markets is that there is no certainty that these investments will generate sufficient profits to justify the enormous expenditures these companies will incur. As usual, I include some data that I find interesting, such as the fact that the wealth of the wealthiest 0.1% in the US reached $23.3 trillion; that the Latino community in the country reached 68 million, 20% of the total population; that international patents granted to China in the last two years reached 70,160, while those given to the United States were 54,067; that internet sales suggested by artificial intelligence are expected to reach $51 billion, 18% of the total; and that the yield on junk bonds is below 6% for the first time in many years. One last comment: look at the incentive that Tesla shareholders gave Elon Musk. Suppose he manages to create a company value of $8.5 trillion, in addition to delivering 20 million vehicles or one million driverless cars, or profits of $400 billion or 5 million “humanoids” (robots that act like humans). In that case, Musk will receive a $1 trillion bonus in shares, increasing his stake from 14% to 27%.
The situation in Mexico has become bipolar: companies are not doing badly, especially retailers, but people’s sentiment is negative. Insecurity, the loss of protection against possible government actions, the virtual disappearance of the constitutional right to amparo, the elimination of an independent judiciary, and a legislative branch aligned with and serving the executive branch are among the causes of the unrest. The approval of next year’s budget without changes exemplifies this trend. It was very sad to see the scenes of the clash between government forces and protesters at the November 15 march and the subsequent comments, where President Sheinbaum downplayed what had happened and proclaimed the approval of her mandate by an overwhelming majority of the people. Also worrying are the road closures and protests by the agricultural sector, which is demanding protection against organized crime and higher prices for products such as corn and beans. We can add to this the concern over the fire at the municipal palace in Apatzingán and the scant importance given to the murder of Mayor Manzo of Uruapan.
There is talk of many cabinet changes by the end of the year. It has already begun with the departure of Attorney General Gertz Manero, who “resigned” to become ambassador to an unspecified country (at the age of 86?) and with rumors of the departure of the Secretary of the Interior, who is supposedly seeking the governorship of San Luis Potosí. The start of a campaign by the Ministry of Finance through the SAT (Tax Administration Service) seems to be reaching levels of fiscal terrorism, which is understandable given that the country is in a precarious economic situation after the 5.9% budget deficit in AMLO’s last year and the burden represented by the 33 million debit cards that are distributed monthly. It is worth noting that Mexico collects only 16.9% of its revenue through taxes, the lowest proportion among the 36 OECD countries.
As I do every month, I have listed the positives and negatives I saw in November.
Positive:
· Tourism had three positive quarters after contracting 1.2% the previous year.
· The inflation report was the best in the last 16 years.
· With inflation more or less under control, the Bank of Mexico cut the interest rate to 7.25%.
· The IPC, the stock market index, reached its all-time high.
· Pemex is already assigning oil fields to the private sector for exploitation.
· During the month, $879 million in foreign direct investment entered the country, for a cumulative historical total of 167.66 billion dollars.
· The total amount managed by the AFORES reached 260 billion dollars.
· BYD resumed talks to set up an assembly plant in Mexico.
· The IMF’s $24 billion credit line was renewed for two years.
· The introduction of tariffs on Mexican products was postponed while negotiations with the United States continue.
· Banamex projected a 1.5% increase in GDP in 2026, subject to the resilience of the US economy and oil prices remaining above $60/barrel.
· Banxico’s minutes indicate that they expect inflation to fall, although this may be due to the economic slowdown.
Negatives:
· Remittances in September were $5.214 billion, 2.7% lower than in the same month of 2024 and the sixth consecutive month of decline.
· The manufacturing PMI fell from 50 to 49.5, indicating a recessionary trend.
· GDP contracted by 0.3%, especially in the industrial sector, which fell by 2.9%. This is the second consecutive semester of GDP decline, which is the economic definition of a recession.
· Nvidia denied Governor Samuel García’s statement about the installation of a plant in Nuevo León.
· Foreign investors’ holdings of Mexican bonds reached their lowest level in 16 years.
· The automotive industry in Mexico is facing problems due to tariffs imposed on Chinese components, although sales are going very well.
· The IMEF expressed concern about the possible loss of investment-grade status due to the level of public debt.
· Bank of America believes that PEMEX will need government assistance to meet its commitments in 2027.
· Banamex cut its GDP growth forecast for 2025 from 0.4% to 0.2%.
· The IGAE (Global Indicator of Economic Activity) was reported at -0.6% for October and +0.7% from last year to the present.
· Bank lending to the private sector saw its lowest growth in three years.
It will be interesting to see how much the minimum wage increase, which is about to be announced, will be, as well as the President’s initiative to reduce the workweek from 48 to 40 hours. A possible revision to the USMCA is also expected, which will undoubtedly affect Mexico’s competitive advantage in manufacturing-related foreign investment.
In Israel, the economy is growing at 3.4% to 3.5%, a strong rebound from 2024, driven by private consumption and government spending. Despite ongoing problems with the peace treaty with Gaza and internal political instability, Q3 saw strong growth, and inflation fell to 2.5%, within the Central Bank’s 1%-3% target range. The government deficit stands at 4.7% of GDP and public debt at 66.6% of GDP. In 1973, when the population was 3.3 million, GDP was $11.3 billion in current dollars, or $3,400 per capita. Today, the population is three times larger at 10 million, and GDP is $580 billion, or $58,000 per capita, the sixth-highest among countries with 10 million or more inhabitants. Incidentally, Israel canceled the special tax it had imposed to finance the cost of the Gaza war partially.
In the rest of the world, the most relevant development is what is happening in China, where its incredible technological advances are accompanied by a severe economic crisis, with a trade deficit of 640 billion yuan. Exports contracted by 2.8%, and several hundred billion yuan in financing is expected to be needed for the announced infrastructure projects. A government bond placement, the first in 18 months, of 4.5 trillion yuan, had a demand of 118.1 trillion, while investment in production plants was the lowest since 1973.
In Argentina, there was a sharp increase in the value of the currency, the stock market, and foreign investment announcements with the victory of Milei’s party in the regional elections. In Brazil, former President Bolsonaro was sentenced to prison for his attempt to influence the elections, and even the United States imposing 50% special tariffs to try to prevent this resolution did not have the expected effect. Japan remains in a severe crisis due to population decline and a total ban on immigration, and is the only first-world country raising interest rates instead of lowering them. Public debt is already at 246% of GDP, the highest among industrialized nations, leaving them with very little room to create incentives to promote growth.
The stock markets underwent a sharp correction in the middle of the month, but recovered to close 1.5% down on the Dow but 0.8% up on the NASDAQ, the technology company index. Bonds rose 0.67%, just above the interest generated during the month. Currencies were stable, with a slight upward trend; gold was 5% below its all-time high but still very high at $4,255/oz; and bitcoin fell from its peak by almost 32% to $85,000.00.
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