How secure do Mexicans feel?

A few of the many results worth noting from the 2012 ENVIPE, INEGI's survey of Mexicans' report of how crime affects them and how secure they feel.

--INEGI, the autonomous statistical institute, estimates that last year 91.6% of crimes committed were not reported or not investigated. In 2010, the figure was 92.0%.
--Three out of five (63.2%) of victims didn't report crimes because they thought the authorities were "deficient": in essence, Mexicans said reporting crimes was a waste of time and nothing would happen.
--Of those crimes that were reported, in three out of five (61.8%) cases Mexicans said nothing happened or the case was not resolved. In 2010, the percentage was 57.9%.

The US "fiscal cliff", in pictures

It's worth clicking on the following link to see several very informative graphics from NPR. They show the composition of the fiscal cliff (US$380 billion in tax increases and US$100 billion in spending cuts) as well as the breakout of the tax increases and spending cuts.

http://www.npr.org/blogs/money/2012/09/19/161427078/the-fiscal-cliff-in-three-and-a-half-graphics?sc=nl&cc=pmb-20120920

Since there are estimates that put the impact of the fiscal cliff as high as 5 points of GDP, it's worth avoiding.

Polling and cel phones...

Whether pollsters include cel phones in their samples or not makes a big difference in the US election. Following are some charts from the 538 column of the New York Times that show the percentage of the vote received by the incumbent and by the challenger in polls of landline and of cel phone users. If only cel phone users are polled, a close race becomes a clear cut victory for the incumbent.

http://fivethirtyeight.blogs.nytimes.com/2012/09/19/obamas-lead-looks-stronger-in-polls-that-include-cellphones/

George Soros on the Euro mess...

Here's the link to the article we talked about in Economex last week.

http://www.nybooks.com/articles/archives/2012/sep/27/tragedy-european-union-and-how-resolve-it/

Greed and fear...

Greed and fear are often said to be the two factors driving the markets. CNN Money has developed an index to measure where on the fear-greed continuum the market is on any given day. For the last month, the market has been in "extreme greed" mode. Here's the link, if you'd like to take a look.

http://money.cnn.com/data/fear-and-greed/

The European Central Bank

The European Central Bank (ECB) followed the Fed's September 13 announcement with its own the next day. Last Friday, the ECB announced the OMT (Outright Monetary Transactions). OMT is the successor to the ECB's SMP and LTRO programs, which also aimed to bring down interest rates on sovereigns under attack. (The SMP is the Securities Market Program, introduced in May 2010 and, as of September 6, subsumed into OMT. LTRO is the Long-Term Refinancing Operation the ECB introduced last December.)

OMT, like the SMP and LTRO, breaks new ground, giving the ECB ever more importance as the institution that can act immediately to save the Euro. What's makes the OMT different from its predecessors?
    First, the only monetary limit on the ECB's purchases of countries' secondary market debt is the amount outstanding that matures within three years. There's no upper limit on the ECB's purchases otherwise. The ECB will buy debt with maturities of up to three years, including longer-term debt with three years (or less) of life remaining.
    Second, the ECB will not have preferred creditor status. The debt it purchases will receive pari-passu treatment with private creditors. That's an earthshaking change: if there are losses, the ECB will share them along with other creditors, a first.
     Third, the ECB will buy countries' debt in the secondary markets only on the condition that the country has a "precautionary program" or a "macro-economic adjustment program" in place. Either program must be negotiated with the ESM/ESFS, which will look to the IMF (International Monetary Fund, up till now the world's creator and enforcer of macro-economic adjustment programs) for guidance. (Yes, more letters... The ESM is the European Stabilization Mechanism. The ESM was to replace the ESFS (European Financial Stability Facility) on July 1. However, until the German courts ruled on the constitutional challenge to Germany's participation in the ESM, the ESM could not be born. On September 12, the German court ruled that Germany's contribution to the ESM is constitutional -- up to the €190 billion agreed. (That is 37% of the ESM's funding.) The German Parliament must approve any future contributions.)
     Fourth, governments must request assistance and the ECB can stop the program (in theory, at least). Spain has been reluctant to ask for assistance even though it was announced in June that Spain would request and receive up to €100 billion in assistance to deal with its banking sector rescue.
     Fifth, the OMT was not launched with the unanimous consent of the ECB's members. The Bundesbank dissented, but the program was adopted anyhow. It would seem that Mrs. Merkel and the Bundesbank don't march in lockstep.

The ECB and Fed took dramatic steps last Thursday and Friday. Crisis has fostered central banks' creativity: to contain crises, central banks are inventing new monetary policy instruments. Time will tell how well they work, in the short and the long-term.

Central banks to the rescue...

Last Thursday and Friday, respectively, the Fed and the European Central Bank (ECB) rode to the rescue: stock prices climbed on the heels of their announcements and investors heaved a sigh of relief as the banks' actions hold out hope that disaster can be averted.

First, the Fed...

What was new in the Fed's statement following its Open Market Committee meeting? The announcement of its third QE program and, especially, the open-ended time commitment of QE3 and the explicit linkage of QE3 to unemployment. The Fed began purchasing (mortgage backed securities (MBS) the next day, September 14. The Fed plans to purchase US$40 billion a month for as long as it takes "if the outlook for the labor market does not improve substantially". Between QE3 and Operation Twist, the Fed will increase its holdings of longer-term securities by about US$85 billion a month through year-end. Operation Twist (the replacement of short-term Treasuries with longer-term ones) expires at the end of 2012.

It wasn't so surprising that the Fed said it would leave the Fed Funds rate where it is (0% - 1/4%) for another year (until mid-2015). But it was an indication of how concerned the Fed is about unemployment that it added that the rate will "remain appropriate for a considerable time after the economic recovery strengthens". In other words, growth alone won't be enough to convince the Fed to raise rates.

The Fed also left the door open to further actions. Additional asset purchases were specifically mentioned. The most traditional of the "other policies" of which the Fed might be thinking would be extending the interest rate pledge. The Fed might also consider some more novel approaches. The ECB has demonstrated that cutting the interest rate on banks' excess reserves to zero doesn't disrupt the financial system. The Bank of England (Great Britain's central bank) has instituted a "funding for lending" program, which attempts to ensure that banks receiving additional funding from the central bank lend the money, not sit on it. Depending on how well the program works, it's something the Fed might consider.





  

After the conventions...

US presidential candidates usually see a "post-convention bounce" in the polls. Following the Republican convention in Tampa, Governor Romney's percentage of the vote edged up 2-3 percentage points, less than usual post-convention bounce.

In contrast, the Democrats' convention in Charlotte produced a substantial uptick for President Obama. Extrapolating from the post-convention tracking polls two days after former President Clinton's masterful political speech suggests Obama's post-convention bounce may be 8 percentage points. (Tracking polls are done over a period of time. In the tracking polls available to date, only some of the people polled responded after the speech. Thus, the need for extrapolation.)

A clarification: I'm not editoralizing or passing judgment on the content of Clinton's speech. Immediately following the speech a Republican television commentator said he wished the Republicans had someone who could give a speech like that. Can't imagine a stronger endorsement of just how good a speech it was in terms of rallying the faithful and attracting voters.

It's electoral college votes that matter. Unfortunately, we don't know how much of a bounce each candidate got from voters in the states up for grabs. According to polling data, voters in Colorado, Florida, Iowa, Nevada, New Hampshire, Ohio and Wisconsin will decide the election.

Reform: in the next two months?

President Calderon has thrown down the gauntlet, so to speak. Will the PRI and PAN work together to pass the two important pieces of legislation -- labor reform and modifications to an existing law that would extend its transparency and accountability provisions -- the President has sent to Congress? Under a "governability law" approved recently, Congress has two months to act on these proposals.

If Congress approves the reforms, the Calderon Administration can take the credit. Will the PRI get started now or will the party prefer to wait until Mr. Peña takes office to begin the reform process?