Nov 4, 2011, 5:25 PM
Post #4 of 6
I hope readers noticed that I just quoted factors and some facts & figures, laying out the pieces of the rompe cabeza, but I didn't assemble them. The real fun comes in sorting it all out to makes some predictions. Here's my schtick:
US unemployment has been kept high at 9% by one-time government layoffs in 2011, in an attempt to keep 30 out of 50 states from going bankrupt. The 2011 government employee layoffs of 750,000 has offset roughly 100,000 new jobs per month created by manufacturing and retail, etc. These government layoffs should be a one-time thing, since the federal, state, & local government agencies avoided 2008-2010 layoffs by using Stimulus money ($2 trillion printed by the Fed secured by thin air), tapped employee pension funds, drained rainy-day reserves & savings, and juggled budgets to shift expenses from 2008-2010 into the future. The chickens finally came home to roost in 2011, - no more kicking the can down the road -and to balance their budgets they finally made most of the cuts needed to balance local, county, and state budgets, which means far far fewer layoffs in 2012, because they finally took the bad medicine in 2011.
This means that the 19 straight quarters of US manufacturing growth should continue to support weak US economic growth, and consumer spending has rebounded nicely. The US financial, construction, and real estate/development sectors still are weak and have not begun recovering. Governments in key states with lousy real estate markets have been taking 2 years to process foreclosures, so, there is at least a 2 year backlog of foreclosures hanging out there, suppressing housing prices, and suppressing home building. Since it will take at least 2 years to work off (process and sell) the backlog of cheap cheap foreclosed properties, the real estate and construction markets will stay lousy until 2014 and possibly until early 2015. The backed-up septic tank that is the combined real estate/development and construction market will continue to hold back financial sector recovery.
Until US housing, real estate, and construction begin solid recoveries in 2014-2015, US unemployment will remain high and the overall recovery will be slow but sluggish. Which makes me predict that the Mexican economy will similarly only grow slowly, because it is heavily interlinked with the US economy. Healthy and growing US real estate, construction, and housing markets seem to represent about $15 billion in remittances back to Mexico, so, until 2015, I don't see the situation changing much.
This whole house of cards of predictions I've built is contingent on no more catastrophic hits to the financial markets: no Greek collapse, no Iran crisis, no Afghan crisis, no Italian crisis, no Spanish crisis, no Irish crises, no Chinese crisis, no Japanese crisis, NO US FEDERAL GOVERNMENT INFIGHTING SHUTDOWN, no collapse of oil prices, etc etc etc.
One wild card in the pack: oil prices.
World oil consumption has been teetering right at about world oil production capacity: 88 million barrels per day.
Before the wicked Japanese earthquake, growing Chinese oil consumption and growing Indian oil consumption, and recovering oil consumption in USA, Europe, and Japan had slightly exceeded the world's oil production capabilities - driving oil prices from $78/bbl up to $103/bbl. The Japanese earthquake temporarily reduced Japanese oil demand, and the Saudis had bumped up their oil production to make up for losses from Libya. Oil prices temporarily fell back to $80/bbl as a result of the reduced consumption/demand.
Now? The Japanese economy is recovering and heating gently, increasing their consumption and Libyan oil production is not back on line, so, oil prices have recovered to $95/bbl, and seem to be headed back to $103 - $105/bbl.
At $80 a bbl, the MXN peso seems to weaken to about $13.50 MXN per USD.
At $103 a bbl, the MXN peso seems to strengthen to about $11.7 MXN per USD.
So, in my bubble, oil prices seem to be about as good as any other indicator about the health of the Mexican economy, as long as oil prices stay below $110 - $120/bbl. If consumption does not grow or only grows slightly above 88 million bbls/day, then oil prices should stay below trigger points. If the BRIC countries continue to grow, and Europe solves its sovereign debt crises so European manufacturing takes off, and if the USA and Mexican economies grow, and Japan recovers from the Fukashima shock - then world oil consumption will consistently exceed production => $120 - $140/bbl(??) oil.
Hint: Watch the BRIC countries, their growth, and their oil consumption.
There seems to be a magic number somewhere around $125 - $130/bbl where Americans emotionally start to react to the price of oil and gasoline ($4.75 a gal?). Above these emotional trigger points, US consumers start to significantly cut back on personal discretionary oil consumption - easing off pressure on prices...
" Blah, blah, blah, GINGER. "
If consumption goes high and stays high, then the US economy may actually slow and stagnate - giving Mexico some increases in revenues from high oil prices, but net bigger Mexican losses in other revenue streams from the USA as the US economy falters... So, $140/bbl oil may ultimately be bad for the Mexican economy?
Those are my opinions... worth exactly what you paid for them. *grin*
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