Today, I begin my letter with an issue that has been worrying me for some time, which seems even more serious today. The new generation of young people known as Generation Z, the next generation of millennials, seems not to find its way and is confused, manipulated, and definitely questioning its future.
Universities worldwide have become a hotbed of discontent and movement to a misunderstood left, frightened by automation and artificial intelligence that will displace them; they are channeling their insecurity by demonstrating against traditional values and proclaiming their support for causes they do not understand and have no affinity with.
Seeing the protests against Israel, a “colonizing” country that not only did not colonize but returned the territory that was assigned to it by the United Nations and that it bought even though it historically belonged to it, forgetting the horrendous events of October 7, where the images of murder, rape, mutilation, and destruction of men, women, old people, and babies, makes us reflect on where the world is going if these are the leaders of tomorrow.
The sight of homosexuals attacking the only liberal country in the Middle East that accepts them is a clear indicator of the lack of knowledge of reality. We are at a crucial moment for humanity; if we look at what Jamie Dimon, the President of JP Morgan, the largest bank in the world, said: “This may be the most dangerous moment the world has seen in decades” or the President of the World Bank, Ajay Banga, who said that we are at a juncture that could lead us to a global crisis, it is time to reflect as individuals and as countries and try to avoid that Armageddon.
Wars in Ukraine and the Middle East, killings of Sikhs in America ordered by the Indian government, inflation, and global economic contraction are elements that force us to reflect on the future that awaits our children and grandchildren. But enough of philosophy, and let’s start with the analysis we do every month.
The U.S. economy continues to be pretty stable without falling into the recession that many had predicted. Inflation is coming back from the 8% it reached to 3.2%, although everything seems to be more expensive than that slight increase, while unemployment remains below 4% and GDP growth in the third quarter was a surprising 5.2%.
Home sales are at a 15-year low due to a combination of lack of inventory and very high mortgage rates, but prices have already started to rise again, with a November to November increase of 6.8%. It is interesting to know that 39.9% of all homes have no mortgage but that the payment of those with debt takes 40% of the owners’ income.
On the other hand, 28% of the young people said they do not have the resources to deal with a $400 emergency. The number of households where the couple works dropped from 1.39% to 1.34%, partly because of the cost of child care, and among people earning less than $60,000 annually, the use of credit they have on credit cards is 91%! 43% of all cardholders only pay the monthly minimum, even though rates are above 30%, which is a drag that does not forecast a good holiday season.
Interestingly, the government provided $814 billion in subsidies during the pandemic to stave off recession, which worked well but produced the inflation we see today. The number of workers physically in offices is 49.3%, and a crisis is expected in commercial real estate, as building values have fallen by as much as 30%, and it will not be possible to refinance loans as they come due.
In a survey where thousands of people were asked if they were living the American dream of stability, tranquility, and reasonable expectations for the future, only 36% answered yes, after, in the two previous surveys, in 2012 and 2016, the answer had been 53% and 48% respectively.
The high U.S. government deficits covered by issuing debt are a concern for the future, and today, the amount of debt held by foreigners has dropped from 43% to 30%. China was the most substantial buyer but has reduced its investments by $600 billion, while Japan has increased its purchases considerably.
U.S. government debt is forecast to reach between 181% and 340% of GDP by 2050, and the government deficit is expected to be $3 trillion a year. Interest rates had better be very low, or servicing that debt will be the largest item in the budget and will affect what can be spent on infrastructure, services, etc.
The stock markets have ignored the crisis and continue to rise. Still, it is worth noting that the index of the 500 largest U.S. companies (S&P500) has risen 13.6%, and seven companies that it calls “the magnificent 7” (Microsoft, Tesla, Google, Facebook, Nvidia, Apple, and Amazon) have risen 54.2%, while the other 491 have risen only 1.2%.
Clean energy, led by windmills, has had many problems, and the world’s largest company, based in Denmark, which was going to build two huge offshore plants in the United States, canceled the project. Electric cars have already reached 7.4% of all vehicles in the United States, with Tesla leading the sales with 56.3% of the market. However, the euphoria seems to be over, and car dealers offer better discounts on electric cars than on internal combustion ones.
When the interest in clean energy arose, stock funds came to the market that only invested in companies that helped the environment, were socially acceptable, and had good governance. Unfortunately, the results have not been very good, and little by little, investors have been leaving these funds.
In politics and with the presidential elections approaching, Biden continues with his cognitive problems, forgetting places, giving speeches that are difficult to understand, and with legal issues related to everything his son Hunter did.
On the Republican side, Trump, despite having four lawsuits on top, is still very high in the polls. It seems that the race is shaping up between him and Nikki Haley, the former governor of South Carolina and former ambassador to the United Nations, who has received the support of major donors who, in 2016, supported Trump and are now against him. I repeat that it is very worrisome to think of a Trump-Biden election where both are unacceptable, but I still believe that Biden will withdraw for “health reasons”.
Mexico continues to report good growth numbers, and even the OECD raised its GDP forecast for this year to 3.2%, 2.5% in 2024, and 2% in 2025, anticipating lower growth in the U.S. and, therefore, a drop in exports to the North American country. Both employment and production figures show a slight increase, remittances at their highest point in history, 5,612 million dollars in the month, reserves at $206.5 billion, and auto production at the highest level in 29 months. The current account surplus of $2.612 billion is outstanding, but why isn’t that surplus being invested in infrastructure?
On the other hand, we see that foreign direct investment is 40% below 2022, all airports reporting a lower number of users, Congress approving a budget deficit with very little investment in infrastructure, and a report that major works such as the Mayan train, the Dos Bocas refinery, and the AIFA cost 368 billion pesos more than budgeted according to CIEP figures. Those 22 billion dollars would have created a lot of light, water, communications, and other infrastructure that would be so necessary if we really want to attract the famous and elusive nearshoring. According to studies by the American Chamber of Commerce in Mexico, the country will require an investment of $112 billion over ten years to generate the electricity needed for the projected industrial growth. President Lopez Obrador wants to grow passenger railroads when there is a great need for a freight rail system, one of the many reasons that foreign direct investment is down 47.2% over 2022, the worst in the last 12 quarters.
Regarding the rest of the world, China continues to have severe growth problems, and the growth projection for next year is below 5%, which is almost a contraction for them. XI Jinping’s trip did not produce great results, and the supposed negotiation with Biden on fentanyl was not the purpose of a summit meeting. Foreign investment in China has fallen sharply, partly because of U.S. sanctions and a lack of domestic growth.
The rest of Latin America continues with moderate growth, falling inflation, and falling interest rates in Peru, Chile, and Brazil. Argentina elected Milei as President as a way of protesting against so many years of inflation, unemployment, and corruption dating back to Menem and the Kirchners, but marking a rebound of the movement towards populism that we have seen in most of the continent in recent years. The dollarization project of the country looks complicated, as they do not have the necessary reserves to change the pesos.
Now, I am going to refer to Israel from the point of view of the economy and not the tragedy of October 7 and all the effects of that atrocity on the government and the people. A 520 billion dollar a year economy, with a GDP per capita higher than France, England, and Germany, which overnight has had 8% of its workforce taken away from it who are emergency call-ups to the military reserve, plus 60,000 Palestinians who crossed daily to work earning 3-4 times what they could make in Gaza and where tourism practically disappeared, is now with a negative annualized growth of 11%, which has never happened before. The stock market has plummeted 13% in dollar terms, and the shekel has been at its lowest level since 2012 despite a central bank intervention that has invested $45 billion in defending the currency. Foreign investment in high tech was not canceled but postponed, and much will depend on what happens and how long the conflict lasts. High-tech companies that hire young people have lost 15% of their personnel and report that, on average, they are working at 70% of the activity they had before October 7. For all humanitarian and economic reasons, hopefully, the conflict will end soon, and God willing, all hostages will be returned, and Hamas will be eliminated with the least possible loss of Palestinian civilians so that the country can return to relative normalcy, as it will never be the same after the horrible attack suffered. High-tech companies that hire young people have lost 15% of their staff and report that, on average, they are working at 70% of the activity level they had before October 7.
For all the humanitarian and economic reasons, hopefully, the conflict will end soon, and may God bring back all the hostages and end with Hamas with the least possible loss of Palestinian lives so that the country can return to relative normalcy, as it will never be the same in the face of the horrible attack it has suffered.
The stock exchanges had a pretty good month, recovering an average of 7%. The fixed-income markets had the best month in several years as the 10-year treasury bond rate dropped from 5% to 4.30%, resulting in an increase of over 4% in fixed-income instruments. The mortgage rate that reached 8% has already returned to 7.3%, which is still very high but moving in the right direction.
Gold hit an all-time high of $2,052/oz, and bitcoin soared dramatically, breaking above the $38,000 level.
I hope we can soon talk about a calmer and more stable world, and in the meantime, I wish all readers a good end of the year and a 2024 of health, peace, and prosperity.
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