tag:blogger.com,1999:blog-35005204964463656482024-03-04T22:52:40.832-08:00Cibeles CapitalAndres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.comBlogger14125tag:blogger.com,1999:blog-3500520496446365648.post-55586339952477119472014-06-13T06:20:00.000-07:002014-06-13T06:20:07.300-07:00What does the Beveridge curve tell us about US labor market slack?<div style="text-align: justify;">
A few days ago we the Job Openings and Labor Turnover Survey (JOLTS) report was released for the month of april. This indicator lags some other employment data, but still can give us useful information. During April, the unemployment rate felt 4/10 of a percentage point to 6.3%, creating <span class="hps">skepticism</span> about how much of the drop could be attributed to a structural or cyclical component.</div>
<br />
<div style="text-align: justify;">
By using the JOLTS report and relating it to the unemployment rate we can see two things in the next chart.</div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5LSpekV4NdSPKePyI_ifrKWzO0dMyAHuUAvN8U59AXFo7dIGOCV19-JePaFTLIgkrocl0BO8S8Ud43cXNYfwBqh9S6qdC3xGTg-ADDbLuJGqATqmv0JSH1RBdsdLgBk6JyGXP2Wf12YpR/s1600/BC.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5LSpekV4NdSPKePyI_ifrKWzO0dMyAHuUAvN8U59AXFo7dIGOCV19-JePaFTLIgkrocl0BO8S8Ud43cXNYfwBqh9S6qdC3xGTg-ADDbLuJGqATqmv0JSH1RBdsdLgBk6JyGXP2Wf12YpR/s1600/BC.jpg" height="428" width="640" /></a></div>
<br />
<br />
<div style="text-align: justify;">
First, the JOLTS report (given the linear relationship using data after the crisis) is consistent with an unemployment rate of 6.3%, suggesting that labor market slack is less compared with market assumption. Secondly, by comparing the constant term in both regressions (using data before and after the crisis), the NAIRU could have increased more than 1.0% (1.5% using this analysis). If the NAIRU was estimated at 5.0-5.5% before Lehman, the unemployment rate could be very close to its natural level of unemployment. Given how complascent markets have been about US monetary policy, we could see a shift in the months to come. Hopefully the FED will bring us some volatility.</div>
<div style="text-align: justify;">
</div>
<div style="text-align: justify;">
Below you will find a couple of papers that supports this comment.</div>
<div style="text-align: justify;">
</div>
<div align="LEFT">
<br /></div>
<div style="text-align: justify;">
</div>
<span style="font-size: small;">A New Measure of Resource Utilization in the Labor Market:</span><br />
<a href="http://www.richmondfed.org/research/economists/bios/pdfs/hornstein_new_measure_resource_utilization.pdf">http://www.richmondfed.org/research/economists/bios/pdfs/hornstein_new_measure_resource_utilization.pdf</a><br />
<br />
Middle-Skill Jobs Lost in U.S. Labor Market Polarization:<br />
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<a href="http://www.dallasfed.org/assets/documents/research/eclett/2014/el1405.pdf"><span style="color: #0563c1; font-family: Calibri;">http://www.dallasfed.org/assets/documents/research/eclett/2014/el1405.pdf</span></a></div>
<div class="MsoNormal" style="margin: 0cm 0cm 0pt;">
<o:p></o:p> </div>
<br />
<div style="text-align: justify;">
</div>
Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com1tag:blogger.com,1999:blog-3500520496446365648.post-55300988054812789212014-05-01T16:50:00.000-07:002014-05-03T11:25:24.524-07:00Is Mr. Draghi bluffing again? Let see if we wins the hand of poker
again.<div style="text-align: justify;">
<br></div>
<div style="text-align: justify;">
During the last few months, inflation has been a trending topic, especially for economies such as the eurozone, where inflation has been running steadily below the explicit objective of two percent. The ECB (European Central Bank) has expressed its concern, especially during its last monetary policy decision. In later speeches, Draghi has explicitly stated the three main events that could trigger a move from the ECB.</div>
<div style="text-align: justify;">
<div class="p1">
<br></div>
<div class="p1">
<i>"With our forward guidance, we aim to give guidance on the expected level of future interest rates, and to remove uncertainty about that level by strengthening communication on our reaction function. We have also further simplified our reaction function by laying out some contingencies that would warrant a monetary policy reaction. These are, first, an unwarranted tightening of monetary policy stance (from developments in short-term money markets, global bond markets or foreign exchange markets) that could be tackled through more conventional measures. Second, a further impairment in the transmission of our stance, in particular via the bank lending channel, for which a targeted LTRO or an ABS purchase programme might be the right response. <b><u>Third, a worsening of the medium-term outlook for inflation, which would warrant a more broad-based asset purchase<span class="s1"> programme.</span></u></b> The Governing Council is committed – unanimously – to using both unconventional and conventional instruments to deal effectively with the risks of a too prolonged period of low inflation."</i></div>
<div class="p1">
<br></div>
<div class="p1">
In this post, I just want to focus on the third event, which is related to a worsening of medium term outlook for inflation, that could be related, at some point, with how well anchored inflation expectations are in the Eurozone.</div>
<div class="p1">
<br></div>
<div class="p1">
The ECB research staff just released a paper in which they compare how well anchored inflation expectations are in the eurozone compared to the US, and they conclude that <b><i>"Overall, inflation expectations are anchored somewhat more firmly in the euro area than in the United States."</i></b></div>
<div class="p1">
<br></div>
<div class="p1">
I am just curious about this conclusions and would like to dig further into their arguments.</div>
<div class="p1">
<br></div>
<div class="p1">
The paper states:</div>
<div class="p1">
<br></div>
<div class="p1">
<i>"One method to assess the degree of anchoring is by analysing the reactions of medium- to longer-term inflation expectations when new information on inflation and economic indicators is brought to the market. <b>If they are reacting strongly to releases of conjunctural information, it suggests that economic agents do not expect the central bank to react credibly and fast to changing economic conditions. Similarly, when medium- to longer-term inflation expectations are not influenced by economic news releases, it indicates that market participants are confident that monetary policy will be adjusted to counter any risk to the inflation objective of the central bank </b>(see, e.g., Clarida, Gal´ı, and Gertler (2000)).</i></div>
<div class="p1">
<br></div>
<div class="p1">
<span class="s1">Theoretically and intuitively, this make sense, but the reaction function of both Central Banks has been very different, and it has been clear during the last years that the Federal Reserve has been way more proactive than the ECB, wich has maybe a more complex problem (because of the differences in the monetary transmission channels). Furthermore, the ECB does not enjoy the same flexibility as the FED in order to act in a timely manner to counteract shocks that could affect inflation expectations.</span></div>
<div class="p1">
<br></div>
<br>
<div class="p1">
<span class="s1">Maybe the ECB is trying to justify its lack of </span>reactio<span class="s1">n, but what is true, is that even if it is not obvious that deflation is a real threat in the immediate future, on my perspective, they are overconfident about their view. If they are wrong and deflation becomes real, t</span>hat could be very costly. </div>
<div class="p1">
<span class="s1"><br></span></div>
<div class="p1">
<span class="s1">Regarding markets, it is very probable that the market is going to test ECB patience and will drive the EUR to above 1.40 toward the 1.45 mark in the next few months. Let see if Draghi wins the hand of poker again.</span></div>
<div class="p1">
<span class="s1"><br></span></div>
<div class="p1">
<br></div>
</div>
<div style="text-align: justify;">
</div>
Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-61366890687151699412014-04-22T06:22:00.002-07:002014-04-28T11:44:21.209-07:00Have we gotten the first signal that gold is just about to collapse?<div class="separator" style="clear: both; text-align: justify;">
In early posts, I have explained myself why I like to be long USD in general, so I dont want to waste your time again. </div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div class="separator" style="clear: both; text-align: justify;">
What I would like to highlight is the technical picture in Gold. After breaking the trendline coming from Oct 2012 (because of geopolitical tensions between Ukraine and Russia), Gold has re-established its downward trend, and it is sitting just above its 100 day MA that coincides with the lows seen at the beginning of April (1277 USD per ounce). Furthermore, we just got bearish signals from the MACD and Stochastics indicators (although not very strong). </div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div class="separator" style="clear: both; text-align: justify;">
I would recommend to wait for a break of 1275 USD (on close) to initiate short positions, targeting 1200 in the next 3 months.</div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieHWLR_4Xtu4FUSYBlIUHZN6TbCRJP5kA350-xg1kmhEHcmU9pfyCvo0jJAjCijDlCAkzw5Ft3qr9oCelyC_KJBCkIp4Iuf5wwDyuNyCfAjfFzuKb2mDoVhHeCYEzxLDIVND-3GaJZfm_U/s1600/gold.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEieHWLR_4Xtu4FUSYBlIUHZN6TbCRJP5kA350-xg1kmhEHcmU9pfyCvo0jJAjCijDlCAkzw5Ft3qr9oCelyC_KJBCkIp4Iuf5wwDyuNyCfAjfFzuKb2mDoVhHeCYEzxLDIVND-3GaJZfm_U/s1600/gold.png" height="400" width="640" /></a></div>
Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com1tag:blogger.com,1999:blog-3500520496446365648.post-45639014697849073182014-03-13T11:31:00.003-07:002014-03-17T08:15:52.104-07:00From Quantitative to Qualitative Guidance<div style="text-align: justify;">
<br />
<div class="p1">
<i>“Participants agreed that, with the unemployment rate approaching 6.5 percent, it would soon be appropriate for the Committee to change its forward guidance in order to provide information about its decisions regarding the federal funds rate after that threshold was crossed.” - January FOMC minutes</i></div>
</div>
<div style="text-align: justify;">
<br />
During the last few months/years, the unemployment rate in the US has come down significantly, now nearing the 6.5% mark that the FED said would be a threshold (not a trigger) to revise its monetary policy stance. Additionally, they have argued that even if the unemployment rate is the best SINGLE measure of the "healthiness" of the job market, it only shows a partial picture of the whole market. </div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
In the coming months, the FED will be twisting its language to incorporate a wider range of indicators to assess the improvement in the labor market conditions. Stealing this chart from the Quarterly Inflation Report of the BoE (Bank of England), we replicated the next chart using indicators for the US, where, as shown below, the general condition of the labor market has substantially improved in the last year. The chart shows the z-score of each indicator compared to its mean from 2000 to 2007. As we can see, all of the indicators have shown a meaningful improvement, except for the unemployment and underemployment rate, for which there is some evidence that a structural change is going through.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhb83immQCEYPjJXwfI0jcghGYG-r2OH4mlHLiY2EGyg3FCS07DBfZSk1MdQmRuiDufnWtxs9q4lTEuz0uT2AMABtX46jNvVZhIzdDcOWk-Ot01OcTGA4p8exQY_tyq_6yg3JWdrxex1vC7/s1600/Qualitative+Guidance.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhb83immQCEYPjJXwfI0jcghGYG-r2OH4mlHLiY2EGyg3FCS07DBfZSk1MdQmRuiDufnWtxs9q4lTEuz0uT2AMABtX46jNvVZhIzdDcOWk-Ot01OcTGA4p8exQY_tyq_6yg3JWdrxex1vC7/s1600/Qualitative+Guidance.jpg" height="360" width="640" /></a></div>
<br /></div>
<div style="text-align: justify;">
<br /></div>
<div style="text-align: justify;">
One of the indicators that I would like to highlight, is the wage growth during the last months. Even if the pace at which salaries are growing is still below historical norms, we are just about to experience a sustained pick up in the income for american workers that, unlike others, is going to have an effect in the inflation figures during the next several months. Everything points to a normalization of the monetary policy as the FED expects, and points a risk to a faster tightening in the monetary conditions compared to market expectations. The curve in the US should flatten again and the USD should recover its gains vs G5 currencies. Equity market seems to be the one that will trade in a range, for the next few months.<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnZ_EQTdnH5TCwpDdCJRUXj0cOAeD6RbcJqRoRf8ZSNB2qbLkUQE83fe7Jg3rOYKqMlBFOxdzsUjwQO_t0p_Ey308iNroRy6dlmghOtIhXEuPakvTq_UnjVLpTNgbgGH67UjjGB7JYiF_B/s1600/wage+growth.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjnZ_EQTdnH5TCwpDdCJRUXj0cOAeD6RbcJqRoRf8ZSNB2qbLkUQE83fe7Jg3rOYKqMlBFOxdzsUjwQO_t0p_Ey308iNroRy6dlmghOtIhXEuPakvTq_UnjVLpTNgbgGH67UjjGB7JYiF_B/s1600/wage+growth.jpg" height="306" width="400" /></a></div>
<br /></div>
Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-9172852204797418152014-02-25T06:22:00.001-08:002014-02-25T06:22:27.338-08:00Go Big or Go Home - Long DXY at 80.10, Target: 82, stop @ 79.46The DXY is sitting just above a big trendline coming from mid 2011, and given how worried the market is about a potential slowdown in the US economy (more likely it is just about weather effects), the risk reward looks attractive. On the other hand, EUR is more than 50% of the Index, and being the case that the ECB is very behind the curve, especially because medium-term inflation expectations have been coming down (5 year inflation swaps are trading at multi-years low), the currency should find a hard time breaking the 1.3800-50 level. Finally, positioning in the currency looks relatively clean, specially vs low yielding currencies (most of which are in the DXY).<br />
<br />
I am targeting 82 as a possible level in the near-medium term, with a stop around 79.46 level. (almost 4:1 risk reward)<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3CrvKDpmC8L1V-SLXkXTz7BOJtI8Kiqe1NjZ0LW7Z_aSRCLfsWqlXEXLrbr7gjAcPj-cwyKcL5p16BoZt-CHiAp6Wr9TBFGoYFzH23qhcIMSuHO1BVbKIHJCePXPV31-XJkTlhHFOhJTm/s1600/DXY.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj3CrvKDpmC8L1V-SLXkXTz7BOJtI8Kiqe1NjZ0LW7Z_aSRCLfsWqlXEXLrbr7gjAcPj-cwyKcL5p16BoZt-CHiAp6Wr9TBFGoYFzH23qhcIMSuHO1BVbKIHJCePXPV31-XJkTlhHFOhJTm/s1600/DXY.jpg" height="400" width="640" /></a></div>
<br />Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com2tag:blogger.com,1999:blog-3500520496446365648.post-36147108408202789812014-02-04T05:49:00.001-08:002014-02-04T05:49:25.778-08:00Volatility is finally moving<div class="separator" style="clear: both; text-align: justify;">
During the last few weeks, we have had some developments that have pushed volatility higher (as shown in VIX in the chart below) including the mini crisis in EM, deceleration in China, and doubts about the strenght of the recovery in the US. Even if it would be difficult to see volatility much higher, everything points to a season of bigger moves in all of the asset classes.</div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiramesSncT-2-c_gW8KlXfhi27MZQvGYHdAVtZiXA98JflTTYHauUuU3Hb6yUpIuPQitczb44290fv9a77RMvaJVnEe36IS_n1B9GgzfcXhkDjLe9K90OfPkP7NOl1QVgox-H539EBoLVi/s1600/VIX_4_feb_14.gif" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiramesSncT-2-c_gW8KlXfhi27MZQvGYHdAVtZiXA98JflTTYHauUuU3Hb6yUpIuPQitczb44290fv9a77RMvaJVnEe36IS_n1B9GgzfcXhkDjLe9K90OfPkP7NOl1QVgox-H539EBoLVi/s1600/VIX_4_feb_14.gif" height="286" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
I would stay long USD vs EUR and CAD.</div>
<br />Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-78083995095287422622014-01-30T05:20:00.001-08:002014-02-02T20:24:00.641-08:005 year Inflation swaps in the EZ touching multi-year lows<div class="separator" style="clear: both; text-align: justify;">
Inflation expectations measured by the 5 year inflation swaps in the EZ are at levels not seen since the burst of the 2008 financial crisis. Draghi has mentioned that Inflation Expectations are well anchored, and this chart suggest just the opposite. <b>Should Draghi be worried?</b></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<br></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT8yTyBmQ0gnint7duSlN1DMaOOoi_kirxQr2Ubrc9NaFq2UT_sISFu4HVVco7HzZEfQsr9FERrdDnrasSm3hBp4vdxbecWrMJexjK3yYWHxwYMVa53iX-Uwk7h6DxzRXdMXJhlZQ-6hZY/s1600/5year+IS+EZ.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhT8yTyBmQ0gnint7duSlN1DMaOOoi_kirxQr2Ubrc9NaFq2UT_sISFu4HVVco7HzZEfQsr9FERrdDnrasSm3hBp4vdxbecWrMJexjK3yYWHxwYMVa53iX-Uwk7h6DxzRXdMXJhlZQ-6hZY/s1600/5year+IS+EZ.jpg" height="457" width="640"></a></div>
<br>Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com1tag:blogger.com,1999:blog-3500520496446365648.post-16175348059932709592013-11-14T12:27:00.001-08:002013-11-14T12:27:08.938-08:00Mexican Oil and the 2014 budget<div style="margin: 0cm 0cm 0.0001pt; text-align: justify;">
<span lang="EN-US">In the last months, we have
experienced a collapse in the K factor (figure 1), something that has driven
the price of the Mexican crude mix near to the lows we saw during the summer of
2012 (figure 2). <o:p></o:p></span></div>
<div style="margin: 0cm 0cm 0.0001pt; text-align: justify;">
<span lang="EN-US"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXQp0E5AYIiDLEkDjaR6_NEZ5hcNcHJG6WXHMNWaNujSfztbHxMp3RfuWg8IPHnebuBcOZ3Bg4wWRmRnI3-7UvwPaOLdRicelObIM8uT0eaf9ooqF0RJaetczSVRJuSGo3_fcXXIXOpfaI/s1600/K.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiXQp0E5AYIiDLEkDjaR6_NEZ5hcNcHJG6WXHMNWaNujSfztbHxMp3RfuWg8IPHnebuBcOZ3Bg4wWRmRnI3-7UvwPaOLdRicelObIM8uT0eaf9ooqF0RJaetczSVRJuSGo3_fcXXIXOpfaI/s320/K.jpg" width="320" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF_zGSvuH8wKz4Xx1i-aRkosHmMNcTf3QGLT95mydeBDKv33O_6ZFTfy9DtAaY7MkDnW96DTzh_r7Wl2S4_eNQw7OdqWlQMxTKPlUffXKJRmVvTILi0geAD5LDf2-IVZEaKfnuGD8M9f66/s1600/Mexican+mix.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgF_zGSvuH8wKz4Xx1i-aRkosHmMNcTf3QGLT95mydeBDKv33O_6ZFTfy9DtAaY7MkDnW96DTzh_r7Wl2S4_eNQw7OdqWlQMxTKPlUffXKJRmVvTILi0geAD5LDf2-IVZEaKfnuGD8M9f66/s320/Mexican+mix.jpg" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: justify;">
<span style="text-align: start;">The collapse in the K is a result of the fall in prices of crudes with similar grades that are trading in multi-year low levels and that compete with the MAYA crude in the gulf coast (for instance, Canadian Crudes, figure 3). </span></div>
<div style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYzJpsjR9NFoEMDh7Wm3AiIYz2tGU2IGERwprd50NzE-zuNDRAm_N3V18ZbckXnNj1iULGOnY5oamVMK9kThx2_OEVvVawxKBrl93kQtCADUY3uQbiJ6uxLBNlLsO5N1PPYNe2KBk9T2gZ/s1600/WCS.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="200" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgYzJpsjR9NFoEMDh7Wm3AiIYz2tGU2IGERwprd50NzE-zuNDRAm_N3V18ZbckXnNj1iULGOnY5oamVMK9kThx2_OEVvVawxKBrl93kQtCADUY3uQbiJ6uxLBNlLsO5N1PPYNe2KBk9T2gZ/s320/WCS.jpg" width="320" /></a></div>
<div style="margin-bottom: .0001pt; margin: 0cm;">
<span lang="EN-US"><br /></span></div>
<div style="margin: 0cm 0cm 0.0001pt;">
<br /></div>
<br />
<div style="margin: 0cm 0cm 0.0001pt; text-align: justify;">
<span lang="EN-US">The problem with this
is that the 2014 budget assumes an average price of 85 dollars per barrel, when
the Mexican mix is currently trading just below the $90 mark. What make it
worse, is that the K factor has been revised to around -7 this week, (-1.5 compared
to last month), being this K the one that will be in place from December first
until the last day of the month. So, caeteris paribus, the Mexican mix at the
beginning of December will be 1.5 dollars lower. Even if the K should be
revised higher in the future, a sharp fall in the price of crudes globally
could put pressure on Mexico's public finance. Moreover, if this scenario does
not materialize, it is highly probable that the average price of the Mexican
mix will be very close to the budget's assumption, leaving no extra revenues
for the following fiscal year.<o:p></o:p></span></div>
<br />
Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-36249755154915075562013-09-10T12:04:00.000-07:002013-09-10T12:04:17.829-07:00US Beveridge curveThe Beveridge Curve, known as the line that relates unemployment and the job vacancy rates, has shifted upwards since 2010. What this means (and as we can see in the chart below), is that for any level of unemployment rate we now should expect a vacancy rate 0.5% greater than it used to be before the crisis.<br />
<br />
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeR-hVFJoInK7PSqxQJP4lmM7kA6J8flTOVn7tTzgnki2Ox44rACfjKYihOwu0O_mnMNci0tLbiwWNdEku6iEvlQt22YntK9lVNDorQcd7BZA2Wq61p7mr3o__khF8EwTT5SvmD-IiZq-X/s1600/Beveridge+Curve.jpg" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="255" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjeR-hVFJoInK7PSqxQJP4lmM7kA6J8flTOVn7tTzgnki2Ox44rACfjKYihOwu0O_mnMNci0tLbiwWNdEku6iEvlQt22YntK9lVNDorQcd7BZA2Wq61p7mr3o__khF8EwTT5SvmD-IiZq-X/s400/Beveridge+Curve.jpg" width="400" /></a></div>
<br /><br />
<br />
What can be read from this move, is that unemployment has a bigger structural component compared with the market that we used to know in the pre-crisis world; i.e. the inefficiency in labor market is now greater given the mismatch between the openings and the people who are out there ready to get hired. From a policy maker perspective, this could mean that monetary policy has done most of the job it could have done, and that tapering may not be as bad as some people might think.Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-43595627037080137122013-08-20T20:00:00.000-07:002013-08-20T20:03:03.838-07:00What markets should be wonderingSince the second quarter of this year, markets haven been speculating whether tapering will happen in September, October or any other month, and all the surveys are based on this discussion. Even if that is an important question, what we know is that the FED will be very cautious about the speed of tapering, so maybe the relevant question is how fast the FED is going to slow the pace at which they buy treasuries and MBS in the market, and how much time it will take to normalize the monetary stance. When QE1 and QE2 were announced, we knew in advance the beginning and the end of them, this time around we do not. What matters as well are the tweaks that the FED could do to its language, specially in its forward guidance (change in thresholds).<br />
<br />
Probably the FED will taper in September, and not because they are very happy with the evolution of the economy. They will taper because even if inflation is running below historical standards, inflation in financial assets seems to be excessive in some cases, as reflected in the last few months in the sell-off of some financial assets, such as gold, high yield currencies, EM assets, etc. They want to have enough time so the markets can digest the withdrawal of stimulus that eventually will come, but at the same time, they can not afford any policy mistake and they will try to smooth the transition to tighter monetary standards. The recovery in the US seems to be robust enough to be sustained, but at the same time, the global economy has suffered some structural changes that will not allow this recovery to be as fast as we would wish.<br />
<br />
In terms of trading, my favorite strategy would be to take advantage of this environment where volatility and correlations are low but at the same time valuations seems to be still stretched in a variety of assets. Differentiation and relative value should continue to pay in the next few years.<br />
<br />
<br />Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-20019566315682112292012-05-25T10:39:00.001-07:002012-05-25T10:39:42.174-07:00Cibeles Capital Euphoria/Alarm reversal indicator<div style="text-align: justify; text-indent: -24px;">
</div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;"> </span></span><span style="color: #333333;">The Cibeles Capital Euphoria/Alarm
Index tries to identify when the market is over enthusiastic/pessimistic
regarding equity markets, in an effort to predict S&P500 returns. It is
important to read this index just as an indicator of positioning and sentiment,
rather than to try to understand the drivers of the returns that we are
forecasting fundamentally.</span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol; text-indent: -0.25in;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333; text-indent: -0.25in;">The index was constructed by using
weekly data from August 2006 through December 2010.</span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333;">The model tries to forecast 6-month
forward returns on the S&P500 Index by using different positioning, risk
and sentiment indicators, such as: total outstanding shares in emerging
markets, open interest in Nasdaq and S&P500, Bull/Bear surveys, VIX,
Put/Call ratio, spread in AAA corporates securities and Investors’ Confidence.
All the variables were lagged 6 months.<o:p></o:p></span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333;">In the out-of-sample period that
goes from January 2011 through February 20102, the index presents a 73.4%
correlation with the 6-month forward S&P500 returns (Figure 1).<o:p></o:p></span></div>
<br />
<div style="text-align: center;">
<span style="color: #333333; text-align: justify; text-indent: -0.25in;"><b><br /></b></span></div>
<div style="text-align: center;">
<span style="color: #333333; text-align: justify; text-indent: -0.25in;"><b>Figure 1</b></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgf9q1G98vqPk2TBdJo4l5WNCHFqXDNPUb9LxF1c2uMkTczYWnqgejTY46KCf5WExiIOXfSuZPgBF91MUQZY5TGsehEYEnWJAg5VQrpwUzlmuEa8he0tKnjAMGzLMQl9g8MmoFIuyhPdeVA/s1600/index.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="440" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgf9q1G98vqPk2TBdJo4l5WNCHFqXDNPUb9LxF1c2uMkTczYWnqgejTY46KCf5WExiIOXfSuZPgBF91MUQZY5TGsehEYEnWJAg5VQrpwUzlmuEa8he0tKnjAMGzLMQl9g8MmoFIuyhPdeVA/s640/index.png" width="640" /></a></div>
<div style="text-align: center;">
<span style="color: #333333; text-align: justify; text-indent: -0.25in;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<b>Figure 2</b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><br /></b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgilPSnBapQDRA9RZX9mhx9-zB-n57yOqoJpWu24q1imBb36eYAlfa4T8XAVMB6sR2zUWspSvtD7zLUsL3GuqYTMyDOGKNnmLh0LHO2E8ApfMznO6kIVQvwiy__qMMIdPbOWFeHSgAxbZrO/s1600/Scatter+plot.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="311" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgilPSnBapQDRA9RZX9mhx9-zB-n57yOqoJpWu24q1imBb36eYAlfa4T8XAVMB6sR2zUWspSvtD7zLUsL3GuqYTMyDOGKNnmLh0LHO2E8ApfMznO6kIVQvwiy__qMMIdPbOWFeHSgAxbZrO/s400/Scatter+plot.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333;">On a rolling basis, the correlation
is pretty stable between 65% and 80%, and way above the statistical significant
value. This proves in some way the robustness of the model. (Figure 3)<o:p></o:p></span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333;">Furthermore, <b>72.58%</b> of the time, the model correctly predicts the direction of
the market. (this was calculated using the number of times that the forecast
lies in the same direction as the actual return of the S&P500)<o:p></o:p></span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333; font-family: Symbol;">·<span style="font-family: 'Times New Roman'; font-size: 7pt;">
</span></span><span style="color: #333333;">Finally, the index suggests that
the six-month forward return of the S&P will be around 15%, with an average
gain of 5.4% (figure 1). This could be translated into a bullish signal, given
that the mean return over our sample period is around 1.5%. Moreover, if we
look to the individual indicators, three of them are one standard deviation above their 6-month </span><span style="color: #333333;">moving</span><span style="color: #333333; text-indent: -0.25in;"> z-score (Open interest, put/call and SSIC), and one indicator is 2 standard deviations away (bull-bear). (figure 4). </span></div>
<div class="b-text" style="margin: 0in 0in 8pt 0.5in; text-indent: -0.25in;">
<span style="color: #333333;"><br /></span></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<b>Figure 3</b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><br /></b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5ygwDxWKhUJ9WXCZlOB8sZL1ZUwySYwMxpmHC6hyphenhyphen3p6YS6jaZLpFFrbMPHp0JmhW6asJqd8lSzm6tn9IA6ag7-U-BaQPaJnWTuaItUpX92YODZJaUbdqU2VRVi3XkKgq5fTVkCEYIA8Nu/s1600/correlation.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="302" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj5ygwDxWKhUJ9WXCZlOB8sZL1ZUwySYwMxpmHC6hyphenhyphen3p6YS6jaZLpFFrbMPHp0JmhW6asJqd8lSzm6tn9IA6ag7-U-BaQPaJnWTuaItUpX92YODZJaUbdqU2VRVi3XkKgq5fTVkCEYIA8Nu/s320/correlation.png" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<b><br /></b></div>
<div class="separator" style="clear: both; text-align: center;">
<b>Figure 4</b></div>
<div class="separator" style="clear: both; text-align: center;">
<b><br /></b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLTi_WZIM-VXo8ZGqWsloEKXpDlfp255-OUlOxYuWGaZ5lBO1Rf7o7R17xjDeaC04g7JpE37lunNycA3_t237eOFyacYDHMhRiQhOk7L40qGM1v9S1_33zdRxlGXJTQ6xL9inqcLPGr2l-/s1600/Indicators.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="361" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEhLTi_WZIM-VXo8ZGqWsloEKXpDlfp255-OUlOxYuWGaZ5lBO1Rf7o7R17xjDeaC04g7JpE37lunNycA3_t237eOFyacYDHMhRiQhOk7L40qGM1v9S1_33zdRxlGXJTQ6xL9inqcLPGr2l-/s400/Indicators.png" width="400" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
</div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;"><b>Appendix</b></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">AAA
– USD domestic corporate AAA yield less US 5 years treasury<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">BULL_BEAR
– Percentage of bullish investors over the next 6 months less the percentage of
bearish investors<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">CMDTY
– Weekly Bloomberg survey<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">EEMSO
– Total outstanding shares of MSCI emerging market ETF<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">PUT_CALL
– Put/Call ratio of equity options traded on CBOE<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">SSIC
– State Street Investor Confidence<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">VIX
– Volatility Index<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;">OI
– Aggregation of open interest on Nasdaq 100 and S&P500<o:p></o:p></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9N9XLL0pVDwNSNPBpjB_Woklc5JuafQXKaE6hYn67xH3onqAPT1H9GrJZmgV4ECQ0tpqAi55XwrDpzzSMwZLXkA7rScRzDZx8zjQi_ZBlXqUzlSd1mCcRf2JzrlkEEjaxzFn8f0kpb8FN/s1600/regression.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="328" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg9N9XLL0pVDwNSNPBpjB_Woklc5JuafQXKaE6hYn67xH3onqAPT1H9GrJZmgV4ECQ0tpqAi55XwrDpzzSMwZLXkA7rScRzDZx8zjQi_ZBlXqUzlSd1mCcRf2JzrlkEEjaxzFn8f0kpb8FN/s640/regression.png" width="640" /></a></div>
<div class="b-text" style="margin-bottom: 8pt; text-align: center;">
<span style="color: #333333;"><br /></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;"><br /></span></div>
<div class="b-text" style="margin-bottom: 8pt;">
<span style="color: #333333;"><br /></span></div>
<br />
<div style="text-align: center;">
<span style="color: #333333; text-align: justify; text-indent: -0.25in;"><br /></span></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div style="text-align: center;">
<span style="color: #333333; text-align: justify; text-indent: -0.25in;"><br /></span></div>
<div class="b-text" style="margin-bottom: 8.0pt; margin-left: .5in; margin-right: 0in; margin-top: 0in; mso-list: l0 level1 lfo1; text-align: justify; text-indent: -.25in; text-justify: inter-ideograph;">
<span style="color: #333333;"><o:p></o:p></span></div>Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-46563869600090157872012-05-19T17:59:00.001-07:002012-05-19T17:59:25.880-07:00Implied Odds in the Mexican Presidential Election 2012<div class="separator" style="clear: both; text-align: justify;">
The next charts shows the risk-neutral implied probabilities according to <a href="http://www.intrade.com/" target="_blank">intrade</a> for the next presidential election in Mexico. The RHS axis, labeled as price, could be thought as the probability of the candidate to be elected according to market expectations (i.e. $1 = 10%). Due to the low liquidity of the market, this data should be read carefuly.</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
Rules of the contracts:</div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
-This market will settle at $10.00 if the named individual is elected President of Mexico in the 2012 general election.</div>
<div class="separator" style="clear: both; text-align: justify;">
-This market will settle at $0.00 if the named individual is not elected President of Mexico in the 2012 general election.</div>
<div class="separator" style="clear: both; text-align: justify;">
-Settlement will be based on the outcome of the election, as reported by three independent and reliable media sources. </div>
<div class="separator" style="clear: both; text-align: justify;">
<br /></div>
<h2>
<b><span style="font-size: x-large;">EPN</span></b></h2>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5LBR1vRJYf4ewSRfcNYdDG84-xhdVkhE66lA3w6YNhg3MrwqEkdjUnt29X1sr8vwOwEZksGlo5xvGkWfYHxy4A9CL7LmF1B1MzpqyIE7T7dBc5RWHk8WDlYcWUm2bJdTGRCrIxydsZhiV/s1600/PN.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg5LBR1vRJYf4ewSRfcNYdDG84-xhdVkhE66lA3w6YNhg3MrwqEkdjUnt29X1sr8vwOwEZksGlo5xvGkWfYHxy4A9CL7LmF1B1MzpqyIE7T7dBc5RWHk8WDlYcWUm2bJdTGRCrIxydsZhiV/s640/PN.png" width="640" /></a></div>
<h2>
<b> <span style="font-size: x-large;">AMLO</span></b></h2>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBh1QrTKGK49Rqaf_gOq_voWkD6yVa4JD7wdxW2fbGupEnR2NFcz8VebKDKX97V6SEjroq7WYVHv9tn5G88KTcSHUJziUpXwcqLX9IwSunwcJC_AJco6yylFFPilsWDHhoKJT2_LwRvcdk/s1600/AMLO.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjBh1QrTKGK49Rqaf_gOq_voWkD6yVa4JD7wdxW2fbGupEnR2NFcz8VebKDKX97V6SEjroq7WYVHv9tn5G88KTcSHUJziUpXwcqLX9IwSunwcJC_AJco6yylFFPilsWDHhoKJT2_LwRvcdk/s640/AMLO.png" width="640" /></a></div>
<h2>
<b><span style="font-size: x-large;"> JVM</span></b></h2>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6UhbGTtmaJsm9Ix_D7FqL4KR_ibMjmpi22v60HaRpcuVWWXhqPxGrLVziIC5Wlu1Zit0xZo1zs_rQsYx5Z-aJmBtJiiITwfU_Ww9-ZT6fvyIum4FzGJufHrU0fMulinOr14WaT3l2ZJuS/s1600/Josefina.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="242" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj6UhbGTtmaJsm9Ix_D7FqL4KR_ibMjmpi22v60HaRpcuVWWXhqPxGrLVziIC5Wlu1Zit0xZo1zs_rQsYx5Z-aJmBtJiiITwfU_Ww9-ZT6fvyIum4FzGJufHrU0fMulinOr14WaT3l2ZJuS/s640/Josefina.png" width="640" /></a></div>
<br />
Source: IntradeAndres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com0tag:blogger.com,1999:blog-3500520496446365648.post-88866263808354992702012-05-19T16:59:00.000-07:002012-05-24T08:15:16.545-07:00Why gasoline price in Mexico should be higher?<br />
<div class="MsoNormal" style="text-align: justify;">
The price of the gasoline in
Mexico has always been an important topic for the media, as it is now for
political parties as we approach the presidential election. Some people argue
that increasing the price of <span class="msoIns"><ins cite="mailto:Lourdes%20Trujillo%20Castellano" datetime="2012-05-19T19:34"></ins></span>gasoline
would hurt the already struggling households in the country. While this is
true, the opportunity cost is higher, and the impact on low-income families is
very small. As an international comparison, Mexico ranks 48 out of 57 in the
ranking of prices of gasoline, according to Bloomberg (<a href="http://goo.gl/1epIJ">http://goo.gl/1epIJ</a>),
in which #1 is the most expensive. In the list, there are several countries
that are poorer than Mexico (in GDP per capita terms), and that have higher
gasoline prices, such as India, Brazil, Bulgaria and China, just to mention
some examples.<br />
<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Regarding the wealth effect
argued by some people, Mexican families on average use only 5% of their total
spending in electricity and fuel. Furthermore, while the poorest population
deciles spend a bigger share than the richest (Figure 1), the VI-X income
deciles spends twice more than the I-V deciles (Figure 2).<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPwelLYaqxGb9fX8NQuhdJlgZILKq5II2lp8ge2NWEINfz5f9Y_gO2ybVddgaQvBxQzSxXl56SEeQoIEnc-h324geShUrP7CWYOCs8LYFAZNyGgi2UzrN0k-6SWHSjtTsCC0LHFTkGsINv/s1600/figure+1.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="285" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEjPwelLYaqxGb9fX8NQuhdJlgZILKq5II2lp8ge2NWEINfz5f9Y_gO2ybVddgaQvBxQzSxXl56SEeQoIEnc-h324geShUrP7CWYOCs8LYFAZNyGgi2UzrN0k-6SWHSjtTsCC0LHFTkGsINv/s400/figure+1.png" width="400" /></a></div>
<br />
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMbOCjBNaXR1elerTKHvdm91tzd9tAsr7_zjoAfkeExiQTR4jik_Nn67X1SNtn7J1Zj-rIs-KW1V4JdjEvhsaNKK5FxCyoJOl0eYa9t2gSsEEF_EPjrL4v0vKtqdhXk9vW5VQK5gtEIhY4/s1600/figure+2.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="120" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiMbOCjBNaXR1elerTKHvdm91tzd9tAsr7_zjoAfkeExiQTR4jik_Nn67X1SNtn7J1Zj-rIs-KW1V4JdjEvhsaNKK5FxCyoJOl0eYa9t2gSsEEF_EPjrL4v0vKtqdhXk9vW5VQK5gtEIhY4/s640/figure+2.png" width="640" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Another interesting fact is that,
according to the World Bank, there were only 276 cars for every 1000 habitants
in Mexico in 2009. This suggest that most of the spending of low-income families <span class="msoIns"><ins cite="mailto:Lourdes%20Trujillo%20Castellano" datetime="2012-05-19T19:37"></ins></span>goes
towards <span style="background-color: white;">domestic use fuel.
All of these, point to the well-known fact that this kind of subsidy is highly
regressive, and that its existence in a poor country like Mexico is very
difficult to support.</span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;"><br /></span></div>
<div class="MsoNormal" style="text-align: justify;">
<span style="background-color: white;">While it is
true that there exist negative effects by an increase in
the </span>price of fuels in the economy, savings coming from a free-floating price of
gasoline would over-compensate the costs. In 2011, Mexico spent around 170
billion MXN (Mexican pesos) subsidizing gasoline. This amount represents about
5 times the budget of the UNAM, 5/4 times the total household spending in public
transportation, and 3/16 of the total spending of households in food, beverages
and tobacco. What’s more, because of the price difference between US and
Mexico, some of the subsidy goes to the US, as some drivers come to Mexico to
fuel their tanks (<a href="http://goo.gl/Ujt5Y">http://goo.gl/Ujt5Y</a>).<span class="msoDel"><del cite="mailto:Lourdes%20Trujillo%20Castellano" datetime="2012-05-19T19:38"></del></span><br />
<span class="msoDel"><o:p></o:p></span></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
Last but not least, by
subsidizing gasoline prices, the government incentivizes the use of
non-eco-friendly fuels, when Mexico has a long history of pollution issues.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
*This piece constitutes a short
preview into the topic. We must not forget that there are multiple influencing
factors that offer further insight and dimensions to the analysis. Comments are
more than welcome.<o:p></o:p></div>
<br />
<div class="MsoNormal" style="text-align: justify;">
<br /></div>Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com4tag:blogger.com,1999:blog-3500520496446365648.post-84589185620040680522012-04-22T18:24:00.003-07:002012-04-22T18:24:48.503-07:00Mexico’s presidential elections: 2006 vs 2012. Implications for Mexican financial markets<br />
<div class="MsoNormal">
Six years ago, Mexico lived one of the closest elections in
its history, when Andres Manuel Lopez Obrador, and the actual President, Felipe
Calderon, where contending for President of Mexico (Figure 1).<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
<b>Figure 1</b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_DrTr8Xg6VDeh_ehLTdHoTJjcOIMZs8JejEh135HS1iWQFFP4mna5AmE0CNJ3okQoTSVwbhsqGFMaHBYJCqJoGilZ4atE6D6I4UJYJtRZjFk79wpfPwRK2u-nqih0CbbpZCA8jqdb-0qO/s1600/Figure1+(2006+poll).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="271" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEj_DrTr8Xg6VDeh_ehLTdHoTJjcOIMZs8JejEh135HS1iWQFFP4mna5AmE0CNJ3okQoTSVwbhsqGFMaHBYJCqJoGilZ4atE6D6I4UJYJtRZjFk79wpfPwRK2u-nqih0CbbpZCA8jqdb-0qO/s320/Figure1+(2006+poll).png" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: left;">
</div>
<div class="MsoNormal" style="text-align: justify;">
At that time, Andres Manuel’s (PRD) proposals were not
necessarily prudent from a fiscal and monetary policy perspective, which was
reflected in a lack of confidence from foreign and local investors. In this
context, the MXN (Mexican peso) and other asset classes deteriorated closer to
the elections (Figure 2).</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<br />
<div class="MsoNormal">
<b>Figure 2</b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDi6sC9rAgZJvfBlEQfEesILuzDe77iPrdyrBziQY5c5U-YAZeUEnFvyd_ZCF4huoxsrw21gxu0KBD8RfqNwxvczaT5kyEJewwaLvI1nUtg43eHdp5YjfFEC776aiMvhnGuZhRLkq8int7/s1600/mxn.png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="220" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEiDi6sC9rAgZJvfBlEQfEesILuzDe77iPrdyrBziQY5c5U-YAZeUEnFvyd_ZCF4huoxsrw21gxu0KBD8RfqNwxvczaT5kyEJewwaLvI1nUtg43eHdp5YjfFEC776aiMvhnGuZhRLkq8int7/s320/mxn.png" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: left;">
</div>
<div class="MsoNormal" style="text-align: justify;">
But this time around things are quite different. The three
main political parties have “market friendly” proposals regarding economic
growth and fiscal stance (at least they aren’t as radical as 6 years ago),
which makes any deterioration in Mexican financial markets unlikely, whatever
the outcome is. Furthermore, Enrique Pena Nieto (PRI) leads the polls with a
wide margin (Figure 3), making any “surprise” a very low probability event,
even taking into account voters that remain undecided.<o:p></o:p></div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<br />
<div class="MsoNormal">
<b>Figure 3</b></div>
<div class="separator" style="clear: both; text-align: center;">
<a href="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_QrUtcd4doIKGbkzdPFDuSAPw5xGAXnhqLG609foEMV-nTWXsreGSrktLPDYfRZAqDuc3KlMrWeSqESgMgItm-TUKGx9pEy8lDpmM27Hxg8gTPTdmVtLivMw-xIyDfpv7A2USatpnREED/s1600/Figure2+(2012+poll).png" imageanchor="1" style="margin-left: 1em; margin-right: 1em;"><img border="0" height="271" src="https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEg_QrUtcd4doIKGbkzdPFDuSAPw5xGAXnhqLG609foEMV-nTWXsreGSrktLPDYfRZAqDuc3KlMrWeSqESgMgItm-TUKGx9pEy8lDpmM27Hxg8gTPTdmVtLivMw-xIyDfpv7A2USatpnREED/s320/Figure2+(2012+poll).png" width="320" /></a></div>
<div class="separator" style="clear: both; text-align: center;">
<br /></div>
<div class="separator" style="clear: both; text-align: justify;">
</div>
<div class="MsoNormal">
What is most likely is that
Mexico is going to lose another 6 years. Incumbent political parties will
continue to block the urgent structural reforms that are needed (Security,
Fiscal, Political, Energy, etc.) whilst parties in power will continue to tackle
the problems only in the short-run, given the reluctance of parties to absorb
political costs. Mexico is now benefiting because of its low-cost manufacturing
structure, but the big challenges that Mexico has faced during the last decades
are yet to be overcome. Hopefully I am mistaken, and our country will not once
again be an example of mediocrity.<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
If you are interested, here are
the links to the three main presidential candidates for the 2012 elections:<o:p></o:p></div>
<div class="MsoNormal">
<br /></div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
</div>
<div class="MsoNormal">
<a href="http://enriquepenanieto.com/">http://enriquepenanieto.com/</a><o:p></o:p></div>
<div class="MsoNormal">
<a href="http://josefina.mx/">http://josefina.mx/</a><o:p></o:p></div>
<div class="MsoNormal">
<a href="http://www.andresmanuel.org/">http://www.andresmanuel.org/</a><o:p></o:p></div>
<br />
<br />
<br />
<br />
<div class="MsoNormal">
</div>
<div class="MsoNormal" style="text-align: justify;">
<br /></div>
<div class="MsoNormal" style="text-align: justify;">
</div>
<div class="MsoNormal">
Good Luck finding a good
candidate!<o:p></o:p></div>
<br />
<br />Andres Jaimehttp://www.blogger.com/profile/13472893313344772479noreply@blogger.com2