If we analyze the leaders of the world’s leading countries, we see that the leaders of yesteryear have disappeared! Where are Merkel, Reagan, Mao Tse Tung, and Lee Kwan Yew of Singapore? Today, we see extremes in every country, swings from right to left and vice versa. Not even the evil Putin seems to be able to control Russia in the face of the disastrous invasion of Ukraine and the departure of almost two million men fleeing conscription to a failed army. Xi is the only “leader” left in China, thanks to a dictatorship that gives him power. Still, he faces a declining and much-diminished economy, a failed attempt to recolonize the third world, and a population contraction that forecasts a future crisis.
In the United States, the presidential election is only 65 days away, and the policies the two candidates plan to implement have yet to be discovered. Saying they will lower the deficit, reduce the debt, control the border, and stop inflation are good intentions, but there needs to be a proposal to achieve them. Former President Trump has toned down his attacks and has been traveling around the country, especially visiting the seven key states that will likely decide the winner in the electoral college. Kamala Harris has hidden from the press and pretends to be an agent of change, which is surprising since she has been part of the administration for four years, which today has not worked well and requires quite drastic actions. Many of what she proposes mirror Trump’s.
The choice of Walz as the Vice Presidential candidate seems to be a mistake, as he has embellished his story with exaggerations and lies, and his all-left leanings reinforce a population that would vote Democrat anyway but does not convince the undecided. Both candidates have gained a foothold with their loyal followers but have yet to make much headway with the 17% of independents who would like to go to one of the two sides but need help finding something touted that convinces them. Robert Kennedy’s retirement and his support for Trump should have little impact. Still, as far as it goes, it is favorable for Trump, especially in critical states that will be decided by a few thousand votes difference.
Kamala’s proposed economic plan is ridiculous, as her proposal to control prices does not eliminate inflation but increases it, causing shortages and black markets. The proposal to tax the increase in the value of goods even before they are sold is a disincentive to investment. There has been much talk about the central bank’s independence (FED); the country survived without a FED from 1836 to 1913, and there have always been discrepancies between the Executive and the FED. Interfering with the independence of the FED is dangerous and can lead to uncontrolled situations, as in February 1951 and January 1981, when inflation in the USA was above 20%.
In Mexico, the situation has deteriorated a lot. We are hours away from the opening of the 30-day period in which AMLO is still president and has a House of Representatives where he has a qualified majority and a Senate where he only lacks one vote. It is evident from the actions of a couple of weeks ago, where seven senators from the opposition joined their caucus to approve part of the disastrous 20 amendments proposed by the president months ago, that he will have no problem implementing said proposals. With 86 senators, Morena can change the constitution with only one opposition member joining them or one not showing up for the vote since 86 out of 127 is enough to pass new laws or repeal old ones.
The proposed reforms eliminate many of the counterweights that in the past limited the absolute power of the government. With the possible elimination of the National Electoral Institute, National Institute of Access to Information, Federal Economic Competition Commission, Federal Telecommunications Commission, etc., the people lose the regulatory bodies that maintain a certain order and protect the citizens. The judicial reform, with the dismissal of all judges and the popular election process, is very dangerous since the appointment of candidates falls in the hands of the Executive, and the concept of separation of powers is distorted.
What is going to happen in states where the cartels are very powerful? They will be the ones who will appoint the judges who, in theory, should enforce the laws to arrest them; what is going to happen in a country where there is jail for suspicion of tax evasion if there is no impartial judge to convince that the arrest is improper? Claudia Sheinbaum is an intelligent woman who intends to be a good governor. Still, she has been under AMLO’s mantle for so many years and depends so much on the strength of the outgoing president that it will be challenging for her to change everything coming her way.
Her call to the new Congress seemed reasonable to me to only pass the judicial reform after carefully analyzing the repercussions and consequences. Still, on the morning of the following day, it was said that the analysis period would be at most 15 days and that the result was already known. Claudia’s cabinet is mainly made up of people trained by AMLO, and the leaders of MORENA in both chambers are 100% people of the current president. The most incredible thing is that in a recent poll, AMLO has a 73% approval rating, the highest number in history for a president at the end of his term.
Israel is still in the crisis generated by the October 7th attack, and 330 days after that unfortunate date, there are still more than 100 hostages, some alive and some no longer, in the hands of Hamas. The accusation of genocide against Israel is a fallacy since the war was started unilaterally by the terrorists, and they have used the civilian population to shield themselves from Israel’s attempts to wipe them out to avoid another attack. Where has it been seen that the civilian population is notified of an impending operation to leave the area where the terrorists are hiding? Israel’s debt rating was downgraded from A+ to A because of the economic impact of the war, mainly because of lower production due to all the reservists who have had to leave their jobs. Also, because of the drop in tourism, although the country’s airline (EL AL) has increased its number of passengers by 15% this year, the total number has dropped by 44% due to the reduction of flights by the other airlines.
Before turning to the economic data in the U.S. and Mexico, I want to make some comments about other countries. The cheating in the Venezuelan election was blatant, showing that in a dictatorship, the pretense of playing democracy does not work. In China, the economic situation is dire, with an uncollectible debt of almost 12 quadrillion dollars if the bank debt is added to the province’s debt. Likewise, the fall in domestic consumption is already affecting even the famous luxury brands, which have reported sharp declines, all attributing their problems to what is happening with the Chinese consumer. Interestingly, more than 50% of new car sales in China are hybrid or electric, while in the rest of the world, this figure is only 17%.
Argentina is an interesting case where the Milei plan works by lowering inflation to 4.6% in June but maintaining a dramatic 87% in the first seven months of the year. The rapprochement with the US has been well received, but the plan’s success will depend on the unions’ response, which had gained enormous strength under previous governments. Colombia seized the resources of the pension funds, leaving a supposed government guarantee to substitute the assets there. This same action was carried out years ago by President Kirchner of Argentina, and at some point, there was a rumor in Mexico of a government takeover of Afores assets. This rumor, fortunately, did not come to pass.
Despite all its oil production, Saudi Arabia went from a fiscal surplus to a deficit, dropping its crude oil sales to the lowest level in three years. This situation led them to postpone infrastructure investments and to slow down the development of Neom, their “city of the future,” which they estimate to cost $700 trillion.
Turning to economic news, the loss in value of the “7 great stocks” in the August 5 stock market crash was 670 billion dollars, much more than double Mexico’s GDP. Incentives to sell new cars exceeded 7% in July, remembering that sales were above list price during the pandemic. The average cost per sale was $48,401, 0.2% below July 2023.
Economic activity reports indicated that consumer confidence is up even though production rates have contracted. The construction industry is doing very poorly, as there are no new office buildings or shopping centers, and homes continue to rise in price. However, the availability of people’s resources to pay expensive mortgages has slowed considerably. The report of homes pending sale is at the lowest point since 2001. The statistic of how many people have already returned to work in the offices is only 48.8%, which is very problematic, as many of the buildings will not be able to pay their mortgage nor refinance their debt, most of which matures between 2025 and 2027 and could provoke a banking crisis.
In Mexico, fixed investment is on the rise, especially in Chinese companies settling on the border to avoid the tariffs that they fear will increase the entry of their products into the United States. The consumption of goods contracted was almost 1% concerning the previous month. Consumer confidence stood at 46.9, higher than the last three months but still below 50, representing expansion. Reserves reached an all-time high of 223.162 billion dollars, sufficient protection against a devaluation due to dollar leakage but not enough protection against a sharp drop in the peso due to loss of confidence in the country or fear of the disappearance of the rule of law. Domestic sales of light automobiles increased 12.6% in July, a significant increase, starting from low levels in the first half of the year. The participation of foreign capital in Mexican bonds is at its lowest level in 14 years, a true reflection of the wait-and-see attitude regarding the constitutional reforms. Interestingly, total private sector investment in the first seven months of the year was 48 billion pesos, while that of Taiwan Semiconductor, the world’s largest manufacturer of computer chips, was 29 billion dollars.
The central bank (Banxico) reduced its discount rate by 0.25% even though inflation was higher than expected (5.12% annual rate). On the other hand, the economy’s annualized growth report of 1.7% in the second quarter was relatively meager, especially considering the vast election spending in that period. The Mexican Institute of Finance Executives reduced its growth forecast from 2.1% to 1.7% this year and from 1.5% to 1.4% in 2025, expressing concern about the proposed constitutional reforms. On the other hand, the Bank of Mexico estimated that the GDP will end with a growth of 1.5% this year and 1.2% next year after reporting that economic activity contracted 0.6% annually in July.
The number of negative articles about Mexico published in the U.S. press, as well as the comments from major brokerage houses and investment banks alerting their clients of the possible changes in Mexico, is quite worrisome. The rating agencies threaten to remove Mexico’s investment grade rating if the proposed reforms pass. Also noteworthy was the direct intervention of Ken Salazar, the U.S. Ambassador to Mexico, who publicly criticized AMLO for his initiatives, provoking an angry response from the President who put his relationship with the Americans “on hold”. I want to express my concern about what may happen in September, and I only ask that the country does not return to the PRI era of yesteryear, where only one party controlled everything. There was no brake on the decisions of those in charge.
August was a good month for bonds, with a return of almost 1.5%. The stock markets had an awful start but rebounded by staying about the same as they started the month. Gold hit an all-time high of $2,547/oz and then dropped $20.00, and bitcoin rose to $64,000 and then dropped to $58,000. Currencies were generally strong except for the peso, which returned to $19.60 levels, mainly due to the uncertainty of the constitutional reforms.
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