QUESTION: Mr. Armstrong, I want to thank you for your work. It is refreshing to read a non-biased analysis of our country. I do not say this to flatter you. I am honestly appreciative of your work and independence in the age where everything is fake news here, too, in Mexico. The peso has weakened by almost 25% in 2024. This is the most significant drop since the financial crisis of 2008. After the June election that turned our country to the left, this was the main reason for its decline. I followed your forecasts and moved to dollars. I thank you for that. Do you see any hope for us moving forward?
muchas gracias
P
ANSWER: Indeed, the peso’s volatile year kicked off with June’s general election, which swept the leftist coalition led by the ruling Morena party to a resounding victory in the
presidential race and large congressional majorities. If you look at the model, we had a Directional Change in 2024, and the politics aligned with the targets. Ahead of the election, the Mexican currency traded in April at about 16.26 pesos per dollar to reach a nine-year high. The election win for Morena set in motion the passage of constitutional reforms in September, which includes a major overhaul of the judiciary that critics argue will undermine the independence of the courts in Latin America’s second-biggest economy. Yet, look at this chart. Mexico scored an OUTSIDE REVERSAL TO THE UPSIDE in 2024. This points to technically a higher dollar.
However, the election of U.S. President-elect Donald Trump has exacerbated the situation, making it increasingly bitter, violent, or unpleasant – hence the peso’s rocky ride. In addition to this frustration, there are fresh tariff threats against Mexico, which sends around 80% of its exports to its northern neighbor. I oppose this because it will create an economic depression outside the USA, which is dangerous for the world economy and would drag the United States down, as what took place with the Great Depression.
Many emerging markets issued their debt in US dollars to raise money in NYC. As the dollar rises, these emerging markets will suffer major currency losses on top of an economic depression, which will only come back to haunt the world economy, including the USA. Whoever Trump is listening to has clearly no international experience or expertise in this field.
Mexico issued $7.5 billion in debt and became the world’s largest issuer among its peers. Mexico became the largest sovereign issuer with a BBB rating, considered the lowest investment grade by the world’s largest credit risk agencies. The Finance Ministry confirmed that Mexico is now ‘the largest sovereign issuer with a BBB rating globally at the start of 2024. The bonds were placed in three tranches: a 5-year bond at 5.07% with a coupon of 5% for an amount of $1 billion. The next tranche was a 12-year bond that paid a rate of 6.09%, paying a coupon of 6% for an amount of $4 billion. The third tranche was a 30-year bond paying 6.45%, with a coupon of 6.4% for an amount of $2.5 billion.
This brings Mexico’s currency loss at $1.8 billion for the first year. According to the Mexican government’s latest data, Mexico’s total foreign debt stands at $494 billion as of 2023. This includes both public and private debt, with the majority being owed to international lenders. Borrowing in dollars is exceedingly dangerous. Moreover. despite Trump’s threats of tariffs, Mexico has often had a trade deficit with the USA rather than a surplus.
