It's not just demand that's sent commodity prices higher...

"Wall Street’s maneuverings in the commodities markets have added many billions to the coffers of investment banks like Goldman, JPMorgan Chase and Morgan Stanley, while forcing consumers to pay more for gasoline, electricity and a wide range of products, from cars to cellphones. In the last year, federal authorities have accused three banks, including JPMorgan, of rigging electricity prices, and on Monday JPMorgan was working to reach a settlement that could cost it $500 million." (New York Times print edition, July 23, 2013, page B1) 

Check out two articles on line:

http://www.nytimes.com/2013/07/21/business/a-shuffle-of-aluminum-but-to-banks-pure-gold.html?pagewanted=all

http://www.nytimes.com/2013/07/23/business/inquiry-possible-into-storage-of-commodities-by-big-banks.html?ref=business

Mexicans: the world's hardest workers

Check out CNN Money's lead article on line this morning:
http://money.cnn.com/gallery/news/economy/2013/07/16/10-hardest-working-countries/index.html?iid=Lead

Mexico

1 of 10

 

•  The four-day work week 

Average annual hours: 2,317

Average annual wages: $9,885

In Mexico, workers average 45 hours a week, the most of any industrialized nation. They work about 519 hours more than the typical American worker each year, only to earn less than a fifth of the pay.

When the OECD ranks industrialized nations by education and work-life balance, Mexico comes out on the bottom in both cases. Only about a third of adults -- ages 25 to 64 -- have earned the equivalent of a high school diploma.

There's also a huge gender gap in the job market. Whereas 78% of men have jobs, only about 43% of adult women work for pay.

Did you ever think of large investors as feral hogs?

Dallas Fed President, Richard Fisher, has. In comments on June 24, he remarked “I do believe that big money does organize itself somewhat like feral hogs. If they detect a weakness or a bad scent, they’ll go after it.”

There goes the peso...

The cost of a dollar soared following the Fed's announcement that it plans to begin reducing its asset purchases later this year. Did you wonder what investors' search for yield and the portfolio investment inflows that search produced had to do with the peso-dollar exchange rate? What's just happened in the markets in reaction to the Fed's announcement tells the story.

Not much of all that liquidity that the Fed, the European Central Bank and, now, the Bank of Japan, have been injecting into the markets ended up where policymakers wanted -- funding loans to the private sector. Lots of the liquidity sloshing around found its way into financial investments. Equities and emerging markets offered attractive opportunities to beef up returns. Mr. Bernanke made it clear yesterday that if the US economy continues on its present course, the Fed will reduce the size of its liquidity injections later this year. That was enough to send stock prices down and the cost of currencies other than the dollar higher. It's looks like an effective way to deflate bubbles...

The peso was unusually strong in early May when it took less than $12 pesos to buy a dollar. The peso is also unusually weak at today's $13.40 fix rate. It takes some time for the ups and downs provoked by portfolio capital flows to work through, but it's a good bet that in a few months it will take fewer pesos to buy a dollar than it does today. If you can hold off purchasing dollars for a while, it's a good idea to wait. 

Stay tuned for the FED...

The US Federal Reserve began its regularly scheduled two-day meeting today. Investors are on hold pending the Fed's announcement on what it's going to do with its asset purchase program. If the Fed starts to reduce the size of its monthly purchases, it's good news for the dollar and, conversely, bad news for the peso. If the Fed keeps things as they are, the peso could well strengthen.

The Mexican middle class...

If you randomly chose a household from Mexico's middle class, this is what you'd find, according to a just published study by INEGI.

The family has:

- a computer

- spends $1,460 (about US$115) monthly on food and beverages outside the home

- has a credit card

At least one family member is a salaried employee with a written contract with a private sector firm.

The head of household is married and has an education that, at a minimum, requires 2-4 years of schooling or training after completing secondary school (the equivalent of 9th grade in the US).

The children of the 4 member family attend public schools. 

INEGI cautions that its study is NOT definitive. It does conclude that 39.2% of Mexicans (42.4% of households) were "middle class" in 2010. That is up from 35.3% of the population (38.4% of households) ten years earlier.

For more, see: http://www.inegi.org.mx/inegi/contenidos/espanol/prensa/Boletines/Boletin/Comunicados/Especiales/2013/junio/comunica6.pdf

Mexican Bolsa underperforming US stocks...

The greater the risk, the higher the return... The Mexican stock index should outperform the three major U.S. stock market indices. It’s certainly been true in the last decade.  On May 31, 2013 (measured in dollars) the IPC was 399.9% above its May 2003 close. The Dow was up 70.8%, the S&P 500 had gained 69.2% and the Nasdaq, 116.6%.

However, the adage is either not necessarily true in the shorter-term. Since the end of 2009, the three major U.S. indices have all outperformed the IPC. Since December 31, 2007, the IPC has risen 32.1% in dollars. The Dow was 45.0% higher, the S&P 500, 46.2% higher, and the Nasdaq, 52.3% higher.