Mexico is the second largest economy in the Central and South American collection of economies. Only Brazil is larger. Interestingly, Mexico exists right next to the largest and most productive economy the world has ever known, yet, despite that advantage the country has only enough GDP to rank it as 14th in the world. As well, it holds that position among a host of other countries that are barely above and just below the one-trillion dollar market for GDP. In short, it is not an overly impressive economy compared to the top 10.
A large part of the problem with the US neighbor has been a long history of political corruption, leading to a lack of government dollars going to the actual needs of the country. The infrastructure of Mexico is fundamentally poor, which makes internal commerce difficult. The US, on the other hand, took the time and used money to build one of the most functional infrastructures the world has ever known and the results from that endeavor are obvious.
Another problem Mexico has, and it often exists hand in hand with the corruption, is drug trafficking. It has long been a gateway for the importation of drugs into the US from around the world. Since 2007, some 70,000 people have violently died in Mexico from the government’s attempt to wipe out the drug cartels. This horrible reality and the inability of the government to utilize its money for building infrastructure have certainly contributed to Mexico’s inability to rise in the GDP rankings, but the tide could be turning on both issues.
- The Mexican government said on Monday it captured the brutal leader of the Zetas drug cartel in an early-morning raid, marking the biggest victory for President Enrique Pena Nieto in his fight against gang violence.
Mexico is making headway in its war on the drug cartels, as this latest capture of a leader follows a string of other high profile killings or captures of cartel leaders. As important as this is, though, the other news coming from that besieged country is more encouraging.
- Mexican President Enrique Pena Nieto has announced a “transformational” plan for 4T peso ($316B) of government and private infrastructure investments from 2013 to 2018, including in roads, railways, telecom, ports, and energy. The spending could add up to 5% of GDP.
So, why have I spent the first third of this piece on Mexico, you might ask. Well, my job is to make my money work and that means finding opportunity. As I look to the south of the US, I see opportunity. US companies will participate in the massive infrastructure build out and that means revenue and profit. Which companies will benefit is yet unknown, but finding out is the name of the game.
Meanwhile, here in the US, the economic data keeps pointing to continued slow and steady growth.
- The National Association of Home Builders/Wells Fargo builder sentiment index released Tuesday jumped to 57 this month from 51 in June. It was the third consecutive monthly gain. The index hasn’t been that high since January 2006, well before the housing market crashed.
- Meanwhile, sales of new homes climbed in May to a seasonally adjusted annual rate of 476,000, the fastest pace in five years.
- Though new homes represent only a fraction of the housing market, they have an outsize impact on the economy. Each home built creates an average of three jobs for a year and generates about $90,000 in tax revenue, according to NAHB statistics.
- Output at the nation’s factories, mines and utilities rose 0.3 percent last month after an unchanged reading in May, the Federal Reserve said on Tuesday. For the second quarter as a whole, industrial output rose 0.6 percent.
- General Motors’ global sales rose almost 4 percent in the first six months of the year as strong demand in the United States and China outweighed sliding sales in Europe.
Yet, with all of the above data pointing to a fundamentally improving US economy, the media is still pushing the QE tapering concern.
- U.S. consumer prices rose more than expected in June as gasoline prices jumped and underlying inflation pressures stabilized, keeping on track expectations the Federal Reserve will start scaling back its bond purchases later this year.
All in all, despite the media’s obsession with Mr. Bernanke (who testifies in front of Congress of Wednesday), the reality is that earnings are going fine so far and the market sees a 6-9 month vision of an economy moving forward.
Trade in the day; Invest in your life …
