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Another big jump in the central bank rate here


Mainecoons

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https://mexiconewsdaily.com/news/central-bank-raises-interest-rate-7-7/

Quote

Central bank raises interest rate to 7.7%, biggest increase since 2008

 

More increases are likely to follow, the bank suggested
Published on Friday, June 24, 2022

The central bank has raised its benchmark interest rate by 75 basis points to 7.75%, the highest level since late 2019.

It was the first time since the introduction of a new monetary policy regime in 2008 that the Bank of México (Banxico) lifted its key rate by three-quarters of a percentage point. The decision, made at the governing board’s meeting on Thursday, followed 0.5% hikes at each of the previous four meetings. Banxico has now lifted rates at nine consecutive meetings.

 

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CETES have been steadily increasing over the last couple of months. The next auction is this coming Tuesday which should show even higher rates. My last CETE investment 6 months ago was at 5.65%. It's time to start a ladder with 3, 6 and 12 month instruments. Multiva won't issue the 28 day flavor for some reason but do offer the other 3. 

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At some point the dollar is going to really take a hit over all that debt.  But Mexico will have no choice but to follow the dollar down because the country relies so heavily on the U.S. for sending exports, getting remittances, and of course there's those billions in drug money.  They'll have to keep the exchange rate pretty much in the range it is now. 

Otherwise the dollar could easily go to 10 pesos because Mexico is a great deal more fiscally responsible.  Not perfect but by comparison far better.

Stuff imported from outside of this hemisphere could get very dear indeed at some point as well.  That will create the opportunity for home grown Mexico business to fill the gaps.  Actinver just had a macro economic presentation where they believe the supply chain issue is going to resolve very much in Mexico's favor.  This makes sense to me.  Returning industry from Indochina will also favor Mexico IMO.

Drastic shifts or dislocations always have winners and losers.  Our personal take is we will all still be much better off in Mexico than in the U.S. or someplace overseas where the exchange rate would follow the dollar down much more.  We'll get burned but we won't get nuked here like, possibly, an American trying to live in Europe. 

Supposedly that old saw about the ancient Chinese curse, "may you live in interesting times" is an urban legend but it sure seems to fit these times.  :D 

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15 hours ago, Mainecoons said:

SNIP.......    Otherwise the dollar could easily go to 10 pesos because Mexico is a great deal more fiscally responsible. 

I'm not an economist but when I see the word 'easily', that gets my attention. Could you suggest what info you base this on?

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I have been waiting for several years for the US Federal Debt to become a huge economic issue.  However, it seems the Government can continue to ignore the debt it continues to build and surprisingly get away with it, without large economic consequences.

Maybe if interest rates keep climbing, it may become an issue.  However, most Americans have no clue and don't seem to care that one of the larger budget items could once again grow higher than the average budget item.

We keep saying that the next generations will have to pay the consequences or have a lower standard of living because of the Federal Debt, but it continues to build up without no one really seeming to care !  A perfect example was what the FED did in 2020-2021 by pumping hundreds of billions into the economy every month to pump it up, mostly through purchasing corporate bond debt.  Now, they have reversed course after significantly contributing to inflation and are raising interest rates instead.

https://www.crfb.org/papers/interest-payments-federal-budget    

 

As for the Mexican government, I would not agree with Mainecoons that they are any more responsbile than the US in handling their economy, most like worse.  However, I agree that they do trend the way the US economy goes! 

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15 minutes ago, mexijims1 said:

I have been waiting for several years for the US Federal Debt to become a huge economic issue.  However, it seems the Government can continue to ignore the debt it continues to build and surprisingly get away with it, without large economic consequences.

Maybe if interest rates keep climbing, it may become an issue.  However, most Americans have no clue and don't seem to care that one of the larger budget items could once again grow higher than the average budget item.

We keep saying that the next generations will have to pay the consequences or have a lower standard of living because of the Federal Debt, but it continues to build up without no one really seeming to care !  A perfect example was what the FED did in 2020-2021 by pumping hundreds of billions into the economy every month to pump it up, mostly through purchasing corporate bond debt.  Now, they have reversed course after significantly contributing to inflation and are raising interest rates instead.

https://www.crfb.org/papers/interest-payments-federal-budget    

 

As for the Mexican government, I would not agree with Mainecoons that they are any more responsbile than the US in handling their economy, most like worse.  However, I agree that they do trend the way the US economy goes! 

They are more responsible about debt and spending.  That is what "fiscally responsible" means.

 

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I disagree !  They do not spend on their people who need it, 0.7% of their GDP and one of the lowest figures of all Latin American countries.  Then they spend outrageous sums on worthless items -- the Mayan train, the new airport after stopping construction on the much needed renovation of Mex City airport.

So I need more examples?   Maybe they need to spend more on their worthwhile things, like the health care of their people.  They eliminated Seguro Popular.   Are you supporting that type of spending cut for other worthless ventures?

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1 hour ago, mexijims1 said:

I disagree !  They do not spend on their people who need it, 0.7% of their GDP and one of the lowest figures of all Latin American countries.  Then they spend outrageous sums on worthless items -- the Mayan train, the new airport after stopping construction on the much needed renovation of Mex City airport.

So I need more examples?   Maybe they need to spend more on their worthwhile things, like the health care of their people.  They eliminated Seguro Popular.   Are you supporting that type of spending cut for other worthless ventures?

Once again you do  not seem to understand the point about fiscal responsibility.  Mexico's debt to GDP ratio is around 35 percent versus 134 percent for the U.S.

This comment is not about how they spend it, it is about how much debt the country has accumulated as compared to GDP.

Seguro Popular was merged into a new Federal system.  AMLO is creating a new free public health system.

https://mexiconewsdaily.com/news/amlo-promises-health-care-system-like-those-in-canada-europe/

Can't and won't argue with you about that train and the airport boondoggle.  

The point remains that when it comes to the debt/GDP ratio, Mexico is more fiscally responsible than the U.S.

 

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AMLO raised it substantially and most likely will again. He also dropped the GDP substantially and likely will continue to do so.  His health plan INSABI, which replaced the Seguro Popular, is a total failure and his proposed Bienestar health plan is going to be a farse also like it is since he dumped the Seguro Popular. 40,000,000 previously insured  low income Mexicans do not use INSABI it is so bad but used the Seguro Popular before AMLO destroyed it.

"In 2021, the national debt in Mexico was around 57.63 percent of the GDP.
...
Mexico: National debt from 2017 to 2027 in relation to gross domestic product (GDP)
Characteristic National debt in percent of GDP
2020 60.3%
2019 53.32%
2018 53.65%
2017 53.96%
7 more rows
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You are technically correct when you are discussing pure debt as a percentage of their  budget or GDP in a country vs. their fiscal debt--compared to the US. 

What I am also trying to say to you is what good is their fiscal irresponsibility when they p--s money on those things while ignoring their people, unless you don't care about the people ! 

AMLO creating a new health care system is nothing but B.S. !  When, he says he is putting his army in charge of drug distribution.   Give me a break.  He is a MORON and cares nothing about the MXN people !  The main thing I focus on is the fact that he is spending the least of any other Latin American country on his people -- 0.7% of GDP as per The Economist magazine -- which is more credible than any other since they are out of the UK.  So, good for him -- he spends less on his people and tries to build an insane train while ruining the ecology of the Yucatan. 

Anyway, we are not supposed to be discussing politics on this thread.  But you are the moderator so you get to set the rules ! 

 

 

 

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2 hours ago, mexijims1 said:

You are technically correct when you are discussing pure debt as a percentage of their  budget or GDP in a country vs. their fiscal debt--compared to the US. 

What I am also trying to say to you is what good is their fiscal irresponsibility when they p--s money on those things while ignoring their people, unless you don't care about the people ! 

AMLO creating a new health care system is nothing but B.S. !  When, he says he is putting his army in charge of drug distribution.   Give me a break.  He is a MORON and cares nothing about the MXN people !  The main thing I focus on is the fact that he is spending the least of any other Latin American country on his people -- 0.7% of GDP as per The Economist magazine -- which is more credible than any other since they are out of the UK.  So, good for him -- he spends less on his people and tries to build an insane train while ruining the ecology of the Yucatan. 

Anyway, we are not supposed to be discussing politics on this thread.  But you are the moderator so you get to set the rules ! 

 

 

 

Except I wasn't discussing politics but you sure are.  Are you a moderator I didn't know about?  :D 

I simply pointed out Mexico is considered more fiscally responsible in economic circles by virtue of a much lower debt to GDP ratio.  No politics there, just a simple observation based on a readily calculated number.

The current interest rate of the one year Cete is real close to 9 percent and likely to rise.  The purpose of starting this thread was simply to alert others here of the sharp rise in Mexican interest rates.  If you have an investment account here, as we do, this represents an opportunity to make up for some pretty lean years due to the combination of a higher tax on those accounts and lower yields.

 

 

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  • 2 weeks later...

Mexico is poised to be the big winner due to Covid and the failures of the global supply chain.  There is currently a large project between US and Mexico to pump millions into roads and bridges in Mexico so that the US corporations can keep the supply chains open in the future.  States with maquiladoras such as auto parts, auto mfg, semi conductors, chips etc will get the most benefit.  Coahuila will benefit the most.  My engineer friend with TXDOT is going on a one week tour in Coahuila with the governor in his private jet in July.  Torreon, SLP, and Saltillo is rolling out the red carpet.  A ten year project now in year three.

I have few worries about economic growth in Mexico as long as the largest consumer in the world is on the border.

 

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For years (40+) I’ve been seeing highway construction going on between Houston and the Rio Grande Valley at a steady non-stop pace.  The size and population of the RGV didn’t seem to warrant such a highway system. After the construction of the Pharr bridge it became obvious that long term plans are in play here.

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On 7/10/2022 at 9:36 AM, Jreboll said:

For years (40+) I’ve been seeing highway construction going on between Houston and the Rio Grande Valley at a steady non-stop pace.  The size and population of the RGV didn’t seem to warrant such a highway system. After the construction of the Pharr bridge it became obvious that long term plans are in play here.

Yep, I-69 C

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  • 2 weeks later...

At this time the estimate for the 8/11 benchmark decision is 8.5%, another 75 basis point increase. The one year CETE is already 9.82. Bank CEDES or CDs is a little lower than the CETE rate but to get close you must invest $1 million pesos or more. I haven't found a way to invest directly in CETES except for the website cetesdirecto.com. Just a little hesitant sending money to an entity that only exists on the internet.

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  • 1 month later...

The only way to invest directly into CETES is through Cetesdirecto.com. Unfortunately, their rules are more convoluted than any 3 government agencies combined. While it is possible only after the fact do you find out that you are limited to $15,000 per month unless you bring a mound of paperwork to a Bienestar (Welfare) bank. AMLO says there are going to be 2,000 or more completed by year end but at this time there is only 1 in Guadalajara. You have to make an appointment to bring your papers. There are branches in Chapala and Jocotepec that have been started but the word is they are somewhat abandoned.

If you are able to make the appointment and your papers are approved you can invest up to $10 million pesos in some undefined time period. For now after spending a lot of time asking questions, I've made a couple of investments. Time will tell if it's worthwhile.

Multiva offers promissory notes and CEDES that are close to CETE rates but you need to invest $1 million pesos to get the highest rate.

 

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