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After Calling The Top In The Euro, John Taylor Sees A 50% Collapse In The Value Of The Mexican Peso
Time Is Up for Mexico
August 26, 2010
By John R. Taylor, Jr.
Chief Investment Officer
In the last few months, the office has received many positive analyses on Mexico and the Mexican peso. It is hard for me to believe that so many can ignore so much history and so many blatant signals of trouble. We can only conclude that the writers have been smoking one of Mexico’s most successful exports – the one not hobbled by excess government control. The positive arguments seem to depend on one of two conceptual frameworks. The first is the most academic, focusing almost entirely upon the internal monetary and economic situation, which shows the government exercising impressive control over the currency and monetary policy while following well accepted IMF-approved practices in managing the economy. Unit labor costs are down, money supply growth is low and multipliers are contracting. With all of these positive macro-economic policies in place, how could things not go well for Mexico? When one considers that the currency is about 20% cheaper than it was in early 2008, the argument is that Mexico must be in a good place and the peso must be a good buy against the dollar. That declining labor cost is a big plus that the southern Europeans do not have, as all the Mexican gain has come from the weakening currency. The other argument depends on a more mathematical comparison of the peso with other Latin American economies and with global liquidity and fund flows. The normal historical correlations seem to have broken down as Mexico is underperforming Brazil, Chile, and even Colombia and Peru, and the analysts point out that this should not be the case. Mexico has high yields and foreign mutual funds are accumulating their bonds. Global liquidity should continue to explode and Mexican two year yields seem higher than they should be, offering real value. With emerging markets the hottest asset class, why not buy Mexico? As it is lagging, it must be a better value?
Perhaps Mexico is lagging because it is a worse investment than the others. I would go way beyond that and say Mexico is a terrible investment. Fully one quarter of the country’s GDP depends on exports to the United States, and in 2008 Mexican GDP dropped by 10% peak to trough, more than twice that of the US. The Mexican work force’s two fiercest competitors are Chinese workers and US workers, both of whom have rapidly improving productivity as well. If the American economy suffers a recession in 2011, which we believe is a certainty (and now many others agree with us), the pressure on the Mexican economy will be immense. Labor costs must drop sharply. Recent retail sales are already falling and on a year-on-year basis are almost static. Tourism was harmed by the swine flue scare last year and now drug related violence is threatening to do even worse damage. With the death of major political figures and bomb threats in the news, the only way Mexico will attract tourists is with rock bottom prices. Just this week, it was announced that Pemex would begin importing oil for the first time in almost 40 years to keep its refineries running. Although there are technical reasons for this shift, net oil exports are dropping each year and private projections show Mexico as a net oil importer in less than ten years. Although Mexico’s future current account prospects look bleak, the external global financial situation will have an even worse impact on the country. History shows the peso catching pneumonia every time the US catches a cold: 1977, 1982, 1987, 1994, 1998, 2002, and 2008. The three most significant collapses came several years after the beginning of a US recession, in 1977, 1982, and 1994. The others came with major equity market declines. As the world is still recovering from the 2008 recession – and another seems on the way – and a major equity market decline is in our future, the outlook for Mexico is dire. A 50% collapse in the value of the peso would be an optimistic outcome and the odds favor a more significant weakening over a five year timeframe.
h/t Teddy KGB
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collapse, bitchez
Collapse in tequilla prices, bitchez!
my algo is long the tequilla/short peso spread
and to the BITCHEZ naysayers... go to mexico, have a joint, calm down, and stop BITCHING
Border security bitchez. This is No Country for Equivocal Men because the call is heads or tails, not tops and bottoms
http://www.youtube.com/watch?v=wkh6if8TL2U
Don't Make me TACO yo ass Amigo!
You keepe you handse off the Tequilla!
All your Tequilla BELONGS TO US MUSHASHO!!
ARIBA ARIBA!! Yiiiiii!
(obligatory)
http://www.youtube.com/watch?v=DDZBzvTDhGU&feature=related
Look at the premium for Mexican Libertads, which has been forecasting something.
Yeah, been wanting a wad of those..........not paying those Premiums.
Screw that.
I guess being Texan, better load up the AR's,the Jeep mounted 50's and get ready for the Invasion,head to the Border(Not Taco Bell)............Son O a B,just when they were going HOME, because of no workee here......now they finish the collapse.
PS: Better buy all the ammo you want, CASS SUNSTEIN just announced they are banning Leaded bullets.......this is going to be fun.
Just when Obammma Mama, thought he had stirred up enough shit, now this.He's doing everthing he can to totally destroy the Damocrats.
Jolly good job Bammy, Jolly good.
LOL
Viva La Raza, and FU.
Well...if we are going to create the "Amero", the peso and the $ need to reach equivalency so...a 50% drop in the peso seems to be about correct.
Como? 1 US$ = MEX 12.90
I think he means that the dollar will go down until
1US$ = 1 MEX = 1€
Turd,
What's the use of printing a REALLY totally worthless currency........I mean REALLY.
I think they need to get together w/Chavez, and sing Che Chaverra songs.
It's not the "Amero" - it's the "Pesito" , at a rate of $12.90 USp = $1pMex.
Obama will not be able to resist the desire to "bail out" Mexico with your money.
Because it worked so well when Clinton kicked their can with our money.
All the Clintonistas in O's cabinet get quite nostalgic at times...
We'll have to save our invaluable partner in this great war against drugs!
The U. S. will be over run with maryhooney if we don't!
Mexico is another of my mental lists of Black Swans. I'm not personally familiar with the situation there, but the drug violence is clearly de-stabilizing. Read some of the statistics on vacant homes in Juarez. Could there be a government failure? What would it look like? Would there be a refugee wave in the SW?
Another example of how the investment community, by ignoring the clear destabilization trend and further likelihood, tries to fit investment decisions into neat cyclical models that don't factor in any shocks. I'm with Taylor.
"Could there be a government failure? What would it look like? "
It would look like 7 dudes with mustaches sitting on your couch watching "Mi Vida, Mi Corazon" when you get home from work"
"Would there be a refugee wave in the SW?"
Dude, we have had that for 50yrs.........
Government failure?....they have failed long ago, 90% of the Federales,and Local POPO's are members of the cartels, just found 72 bodies day before yesterday.
Local POPO's murdered their town Mayor two days ago.
More people have been murdered there, in the last year, than the total of American soldiers in Iraq,and Trashcanistan,and the WTC.
Wonder why AZ is so pissed off?............it's the #2 City in the WORLD next to Mehico City in kidnappings........On an overpass going into Phoenix a few months back, 8 headless bodies were hanging from the interstate bridge.
A 2,500 Acre National Park is off limits to ALL Arizonians, and US residents....too dangerous to go into.
Coast guard, intercepted 200+ Drug boats in a stretch from Tihehwanna, to San Diego..........last year, the number this year(so far), 800+.............
Sorry for the Off topic, but fun facts from Tejas.
What pesos, we dont need no stinkin' pesos!
well that's one way to keep the cheap oil flowing to america for a little while longer. wonder what the mexicans will think about this one?
Mexico is OUT of oil..........their wells are all but drained.
very interesting...thanks for the info
So you're saying we should go short on Taco's and piniata's?
Does anybody have the stock symbols of that?
Is Mexico a Naro-state exporting drugs and people?
I wonder what the chances are of the drug gangs declaring independence at some point?
Already, some portions of Mexico are under their control to the extent that even the army can't maintain order.
Hmmm... that sound familiar, like it's been tried before. But when..?
Ah, yes.
http://www.youtube.com/watch?v=p-L0NpaErkk
tm,
There is bit ONE answer to this, for them and us.
Legalize POT.And make it available by prescription only............no questions asked.
Bring the cost to near nothing, let Unca Sugar make a wad off of taxes, and all's well.
They need a division of Rangers to go in, clean out the place, and move the Border back about 100 miles.........SOUTH.
Their Police, and Federal troops,Mayor's and Governors are 98% on the take.......meanwhile the Castillian Ruling Class is behing 15' walls, with tons of cash, and 24-7-365 personal Merc's watching over their families.
agreed doszap, just wondering now if it's a bit too late at this point to stop the contagion down south.
Well this is interesting. Mr. Taylor should avoid Acapulco for a while.
On May 20 I wrote a piece for ZH about Mexico. I suggested that they might be next on the list of contagion. I got a ton of comments that I was absolutely full of crap. Now Taylor jumps on this theme.
http://brucekrasting.blogspot.com/2010/05/next-on-contagion-list-ums.html
Neither my nor Mr. Taylor's views matter all that much. However the Central Bank of Mexico gave a very downbeat report last week.
Humbleness is a traders highest ranking "moral value". The unimporatance of your view makes me think : hum, let me read this man´s assessment on Mexico.
true.
I don't think it's any specific quality about Mr Bruce. He's just tuned in, in some kind of incredible way. I mean zero hedge is stuffed to gills with amazing which just makes bruce all the more odd.
50% drop in value relative to gold or the $US?
My ex- is from Mexico and has to travel there this week. She does not want to go. There have been kidnappings in her town and an Italian restaurant owner was kidnapped and murdered even though his family went to Mex to pay the ransom. If the Indians in the south ever get guns, its game over.
ah, mi querido méxico.....
#1. narco state -- hardly. the u.s. is the world's largest consumer AND producer of illicit drugs. mexicans use two drugs, tobacco and alcohol, both of which are currently legal. maybe if you locos ended the WHORE ON DRUGS, the mexicans wouldn't be caught in the middle.
#2 exporting people: sane countries have guest worker programs. the u.s. has a guest worker exploitation program -- mexicans aren't allowed to work legally in the u.s because the olicrats WANT TO KEEP IT ILLEGAL. you can't import chinese slaves to pick your lettuce.
Mexicans consume plenty of la mota. And are the worst bogarters you will ever meet. It's a bloody shame things are going so bad. When I was a young backpacking tramp I got incredible hospitality down there. Mexicans in Mexico actually have great manners. I don't know what happens when they wade across the Rio Bravo.
Because the ones that come here are the worst of the worst. They are the ones who could not make it in Mexico.
uh, no.
in general, the ones who go to the u.s. are the ones with the most gumption. one doesn't walk for days across the desert being lazy.
if anything, i'd say they become the "worst of the worst" after spending time with the "worstest of the worstest".
If that be the case..........we disinvite your sorry asses, and BEG you to go back home.
I guess that's why there are now MAJOR Drug Gangs in control in nearly every major American city?,SO friggin murderous and deadly they have RUN out the Columbian Neck Tie squads.
Bottom line......you are not a citizen, go the fk home.NO ONE asked them to come here...............I do not even recognize my birth state.
IF your an American, go into Mehico without papers,get picked up.IF your family can't come up with a RANSOM, you get the star treatment.........
1st Offense (up to 2 yrs jail).
2nd Offense( up to 10 yrs jail).
Cry me a fkin River.
Don't get me wrong I love the REGULAR Mexican peoples( regular folks) God fearing, family oriented, gentle, and kind..........just their Gv't is totally corrupt, and our Gv't isn't much better.
actually, your government is far worse. the mexican government only steals from mexicans. the u.s. government steals from americans AND people all over the planet.
cannabis use ages 15-64 by country:
canada 16.8%
usa 12.6%
méxico 1.3%
http://www.unodc.org/pdf/WDR_2006/wdr2006_volume2.pdf
Mexico is a very labor intensive group of people with extraordinary productivity. That's why the low number. They got cheech and chong smoking enough for 10,000 canadians.
Viva Mexico! Great people. Been staying away for the last couple of years, but can't wait to get back. For all you dirt bike riders out there - we routinely take four day 600 mile loops through the back country. Pop out every evening at a local hotel/rancho - drink, eat good food and generally recall all of the days harrowing events. The best!!!!!!!!!!!!!!!
frosty,
Point 1 - Touche'........why it needs top be legalized.(which I am not for, but would stop the murdering).
Point 2- Bullshit.
Mexicans have been working legally in the USA for over 50yrs, the problem is they WON'T go back home,except for the holidays.They take 20 Billion a year in wages not taxed , and send it to Mehico.
They have spread all the way to the American Canadian Border(no lettuce there).......we have/had before a lot of jobs went south,around 20 million illegals here...19% of our prison population, is from Mehico, violent offenders.
Free health care,free SS, Free Drop a kid citizenship.....while America is floundering like a beached whale to stay a viable nation.
Exploited?.....now, who the Fk is being exploited?....lotsa unempolyed Americans would pick those crops about now.
Meanwhile, the Dems are lookng for amnesty, to pick up those 15-20 million new voters.
We can't even pay for Americans CARE that invested into the system, but we can damn sure pay multipe billions on ilegal citizens?.
Mexico builds border wall to keep out US assholes:
http://www.theonion.com/video/mexico-builds-border-wall-to-keep-out-us-assholes,14349/
Crisis affects Mexicans living in the US:
http://www.theonion.com/video/prison-economy-spirals-as-price-of-pack-of-cigaret,14327/
US government stages fake coup to wipe out national debt:
http://www.theonion.com/video/us-government-stages-fake-coup-to-wipe-out-nationa,14356/
Very interesting....
One needs to remember that when one says the dollar is to be devalued....the peso devalued....the euro devalued.....
It becomes quite clear that each of these pundits have left out 50% of what would be a valid equation....
Transactions will occur in a currency....not sea shells....
These pundits ....must be in the Harvard Princeton Yale Club....and have cousins employed by the media ?
Say anything that might attract eyeballs and clicks ?
Just remember one word....relativity....not media eyeballs and clicks....
Just give Rubin a call....
With US QE 2,3....7 ??????
With no US tax structure change favoring small business....the peso versus what ?????
Five years?! Tomorrow, baby! Tomorrow! For Mexico, for U. S., for all of Europe.
Let's get this show on the road.
Right on Frosty, now buy some Euros.
i would think you folks would be all over méxico -- after all, the country is practically made of silver.
Their silver is not my silver.
When mexico collapses,it will be our governments worse nightmare. The country will turn into spanish somalia. There are milions of communist down there(EZLN ).Also there are the drug cartels,and of course the military. In my opinon the way things are going Mexico is about 4-7 years from total economic collapse. This is the worst possible time for city budget cuts to cut ploice becuas ethe southwest states will become warzones.
The federal police and Mexican military can't even stop the drug cartels let alone if the EZLN get financing,military support from other countries. Like someone said a mexico economic collapse is the biggest blackswan moments that is getting little to no play. I pray this doesnt happpen. But Mexico is 4-7 years from total collapse.
Kick back with a bag of popcorn, and watch.
It's almost all narcos wasting other narcos. I could care less. I know I am supposed to CARE SO MUCH because, well, the California nanny Senators and Julia and Angelina and their ilk CARE. We are being encouraged to CARE and to FEAR. It's just another scam.
TJ is still a lot of fun. It's full of wild animals and untamed spirits, unlike the sanitized U.S.
Are the Chinese any good at picking lettuce? They have a valley where they grow pears, and pesticides killed all the bees in the 80s, so now they pollinate each peach tree by hand, with pollen and chicken feathers ... I bet they would be very good at picking lettuce....
are Americans? nah, we're too good to pick lettuce aren't we?
I've got a honeymoon in MX to plan for late Jan '11; let's get it on.
I'm 30 minutes from the border. We can have our "gold 54K" party there. Don't worry, I know where the "salmonella free" zone is. And the donkey show. Pick you up at the airport.
Edit: ok, there hasn't been a donkey show in about 30 years, but the people are good and so is the cooking.
I'm in! Margaritas all around.
Set 'em up barkeep, my men ride tonight.
If you want a donkey show you need to hit the bars outside of Camp Hovey, South Korea. Or so I heard...
"If you want a donkey show you need to hit the bars outside of Camp Hovey, South Korea. Or so I heard..."
Yeah, that's like saying "who farted?" Whomever smelt it, dealt it. You've been there, buddy. disgusting...and how was the show, btw?
"I'm in! Margaritas all around.
Set 'em up barkeep, my men ride tonight."
ARRIBA! ARRIBA!
This Article is such bullshit:
There is next to no leverage in the Mexican housing market and the economy in general... ie there will be no
credit collapse.
Reality Check:
http://www.veteranstoday.com/2010/04/11/follow-the-money-why-the-u-s-mai...
Thanks, TrulyStupid. I'll leave it at that.
Haven't been down in a year or so.. but the difference in what you could buy for the dollar
was very killer. I was down when the rate was in the 1/10 range, then again when it
was 1/14... Bought three bags of groceries and it was $20, same stuff here would have
cost me $60.
Do drug cartels control the border of Mexico and the USA? Is Homeland Security making bold moves to take control of the Southern US border? How much of the Mexican Military is controlled by the drug kings?
It has been reported that the largest industry of Mexico is Mexicans sending money to Mexico from the US. My bet is that the largest industry in Mexico is drugs. Drugs buy governments and the weapons to control populations and law enforcement.
Do not forget that Chavez not only purchased enough weapons to arm South America but bought AK47 rifle production plants from Russia. Needless to say there are rockets, and grenades. If I were Chavez, I would be destabilizing Mexico to stage problems for my hated enemy the USA.
I suggest the dont ask/dont tell stance of the Federal Government re: illegal aliens is two fold. 1. is to fund Mexico with workers money. 2 is to have a lot of people here that will be supportive of both Mexico and the US when and if a type of war breaks out. Sorta like Italians here in WW2. Third is the obvious anti-gun controls (yeah I know that is beyond two fold). Homeland Security Janet Reno stated that hand grenades were going from the USA to Mexico---- along with guns and ammo. So if Wal-Mart stops selling you favorite hand bomb, blame Mexico. I am not sure if the Feds should ban self defense weapons from Americans on the lawless border. A loaded 12 gauge may make sense. But if you have 10 guys with full auto AK47s, imported from Venezuela, dead is dead anyway you look at it.
A certain collapse of both societies is to legalize drugs. A faster and more deadly (as in people dead) certain collapse is to not legalize drugs. In the southern US states some counties can be wet or dry, legal alcohol sales or banned alcohol sales. The way to know if a change is in play is to see the church people and the bootleggers go against legal alcohol.
Maybe, asking Russia and China to send an armed security force to make the southern USA border safe makes sense. The US can not or will not do it. This border control may indeed be a hinge pin for the collapse of the Mexican Government. Russia may be the best choice in that they are dealing with a drug issue too. Not to say the US Military can’t do the job, they CAN. But not with the politicos of DC in charge. Bring in the Russians.
hay Chihuhua...sorry, had to.
Joke In Poor Taste Warning -
why don't mexicans have bbq's? the beans keep slipping through the grill.
"A spirit of hatred and revenge took possession of me. I had numerous fights in defense of what I believed to be my rights and those of my countrymen. I believed we were unjustly deprived of the social rights that belonged to us."
http://en.wikipedia.org/wiki/Tiburcio_Vásquez
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