EconVue Spotlight MEXICO

Mexico matters. In addition to being our southern neighbor, Mexico is our third largest trading partner, after China and Canada. It is ranked as the 15th largest economy in the world. On Sunday the country experienced a seismic change in leadership. Fueled by anger at violence and corruption, Andrés Manuel López Obrador, the 64-year old populist center left candidate best known as AMLO, was elected by a clear majority in all but one state and a simple majority in both houses. He had promised to Make Mexico Great Again.

AMLO will not be inaugurated as Mexico’s 58th president until Dec 1st. This long interregnum could be a blessing.  Investors are concerned about changes in fiscal policy and sectoral reform, and the quality of his new and probably divided cabinet. When he governed Mexico City,  AMLO was not known as a listener, but as a bit of an autocrat, big on promises but providing few details on programs for combatting crime and corruption. Over the last 25 years, Mexico’s guiding governing philosophy was focused on a small state, market-driven economy.  That is likely to change, with support of “national champion” industries such as agricultural and energy.  

In addition to increasing entitlements, AMLO has plans to double infrastructure spending, especially in the disadvantaged south, and on the campaign trail he discussed working with China to build refineries to create energy self-sufficiency.  Will the US see Chinese ownership of telecommunications facilities for example as a security threat?  EconVue expert Evan Ellis explores this question, which illuminates a new global game.

Guest commentator Isidro Morales Moreno discusses the role President Donald Trump has played in Mexican politics and will continue to play.  Trump said last night that he is willing to consider a bilateral Mexico-US trade agreement, so will this negative impact turn positive?  Much will depend on the chemistry between these two improbable leaders, who began life so differently, and who are now on opposite sides of the political spectrum as well as the border.

RESEARCH BY ECONVUE EXPERTS

Mexico Likely to Elect 'AMLO' President — How Will It Impact the Region?
R. Evan Ellis 

In South America, although the region has moved to the political right, including the return of Sebastian Piñerain Chile, Ivan Duque’s election in Colombia and Martin Vizcarra continuation of the Kuczynski government in Peru, its conservativism is increasingly divorced from its discontent with U.S. policies and China's growing influence.

How Trump is helping López Obrador pave his way to the Mexican Presidency
Isidro Morales Moreno 

With the advantage of not having held a government position since he left the governorship of Mexico City in 2005, AMLO easily exploited the binational crisis unleashed by President Trump to strengthen his presidential campaign.

Data Round-Up: Strong PMI Argues Trade War Fears Exaggerated
Michael Lewis 

Newspapers and cable news are filled with comments from nervous executives complaining about the “Trump trade war.” Apparently, purchasing managers are too busy to follow the news. Domestic and trade orders showed solid expansion in June. Meanwhile, non-residential construction appears headed for another double-digit quarter (fueled by oil rigs, which are not included in today’s report).

The necessary illusionists: How money keeps its magic
Robert Pringle 

Funny thing about money. It is supposed to be a bedrock of stability but it feeds on illusions. So much monetary policy relies on trickery.  The elite know things that the unwashed masses do not. Such as money illusion. The success of devaluation rests on tricking the masses. But tell a central banker he or she is in the business of peddling illusions and risk a smack in the eye.

How Soccer Explains Healthcare: Collective Performance Defines Success
David W. Johnson 

Soccer legend Pele made this observation about life, “Success is no accident. It is hard work, perseverance, learning, studying, sacrifice and most of all, love of what you are doing or learning to do.” Healthcare is an industry infused with hard work, perseverance, learning, studying, sacrifice and most of all, love. With the right tactics and strategy, every healthcare organization can win. 

STORIES IN OUR SPOTLIGHT

MEXICO 

López Obrador and the Future of Mexican Democracy
Shannon K. O'Neil 7/2/2018 Foreign Affairs 

Will he further erode the checks on executive power?

Third Time's a Charm: Why AMLO succeeded this time around (Spanish)
Santiago Rodríguez​ and Jorge Galindo  7/2/2018  Letras Libres

A series of graphs that display the coalitions behind each of the candidates in Mexico's presidential race.

Tropical Messiah: How Andrés Manuel López Obrador Will Remake Mexico
The Economist 6/21/2018

AMLO has promised to combat the 'Mafia of Power' in Mexico and bring about the '4th transformation' in Mexican history, this time without violence.  "His concern for the poor and wish to improve their lot is sincere. However, Mr López Obrador has a shaky grasp of economics... and he has little respect for rules or institutions."​

In Mexico, rising 'mass crime' defies security forces 
Mark Stevenson 6/27/2018 Washington Post

The breakdown in trust between citizens and the state has corrupted daily life.  "The logic of the people is that they see politicians and officials stealing big time... and they see themselves as having the same right to steal as the big-time politicians."

The Power to Kill (Spanish)
Denise Dresser 6/28/2018  Proceso Magazine

In recent months, over 100 politicians have been slain... Men and women on the campaign trail, shot, beaten, and kidnapped. As Mauricio Merino states, "the macabre punctuality of death" now reaches into the town halls, mayoral offices, and electoral districts. Blood stains elections and ballots. It stains Mexico.

U.S.

Disquiet on the home front
Karen Shaw Petrou and Basil N. Petrou 6/29/2018 Economic Equality Blog

Does increasing overall prosperity mask growing economic inequality? Cautionary words for the Fed.

U.S. retail sales jump 0.8% in May, point to strong second-quarter GDP
Jeffry Bartash 6/14/2018 Market Watch

You just can’t keep the American consumer down, even with higher oil prices.

E-Commerce might help solve the mystery of low inflation
Patricia Cohen and Jim Tankersley 6/11/2018 New York Times

Unemployment is sinking and businesses are churning out more goods and services. Yet even with the economy standing on tippy toes, prices and wages are climbing a lot more slowly than anyone has expected. Now a growing body of research is putting the blame more pointedly on e-commerce. 

Online retailers slide after U.S. court ruling on sales tax
6/21/2018 Reuters

Predictions: this will hurt small businesses as it has in Canada, hitting them with an insurmountable administrative burden, helping the bigger online players such as Amazon. Higher online sales taxes could negatively impact consumers more than Chinese import tariffs.

More students are taking on crippling debt they can’t repay—it’s time for higher education to share the risks
Adam Looney 2/16/2018 Brookings

If ever there were a time for a debt amnesty this is it. Imagine the positive effects on household formation. It would be interesting to see a projection about the long term effects on GDP should this happen.

American families shouldn't be separated, either
Tyler Cowen 6/18/2018 Bloomberg

I’ve written about for-profit prisons and the simultaneous rise in incarceration rates. Fewer than 15% of the millions of children whose parents are in prison see them even once a month. “Our treatment of outsiders is rarely an accident, and it so often mirrors how we have been treating each other all along.”

The geography of poverty and nutrition: Food deserts and food choices across the United States
Hunt Allcott, Rebecca Diamond and Jean-Pierre Dube  Econpapers

Supply side issues (food deserts) are not as critical as demand, largely driven by regional choices, knowledge of nutrition, and education. 

World

The wealth of the other Americas
Gerardo della Paolera, Xavier Durán & Aldo Musacchio The NEP-HIS Blog

This is one of several new papers about industrialization proving many of our earlier assumptions wrong.

Trade war hits stocks as $8 trillion in Bear Market: Inside EM
Ben Bartenstein & Giulia Morpurgo 6/26/2018 Bloomberg

And possibly more to follow in emerging markets.

When is it rational to learn the wrong lessons? Technocratic authority, social learning, and Euro fragility
Matthias Matthijs and Mark Blyth 9/18/2017 Cambridge University Press

Fascinating paper that explains why bad policy decisions persist when they are economically wrong--because politics.

Emerging markets under pressure
Brad W. Setser 6/14/2018 Council on Foreign Relations

Not all emerging markets are created equal. Brazil also benefits from having much higher reserves than either Turkey or Argentina. Its reserves are sufficient to cover the foreign currency debt of its government as well as its large state banks and firms in full.

How a satirical tweet managed to dent Euro and German stocks
Lorcan Roche Kelly 6/15/2018 Bloomberg

Investors worried about the potential impact of fake news on financial markets, look away now.

Fed and ECB risk being caught off guard
Desmond Lachman 6/18/2018 OMIFF

Could the Fed be caught flat footed by problems in emerging markets and in Italy?

Can the Euro be saved?
Joseph E, Stiglitz 6/13/2018 Project Syndicate

The end of the Euro, engineered by German inflexibility, and the possibility of a dual currency regime in Italy as envisioned by @stiglitzian .

Asia

Reason for optimism on the Korean Peninsula
Sourabh Gupta 6/17/2018 East Asia Forum

A positive view of the Trump-Kim Summit which “paved a path that, if faithfully trod, will close this painful chapter in Asia’s modern history and set the Peninsula on a more hopeful trajectory.”

In defense of the Trump-Kim Summit
Devin T. Stewart 6/13/2018 Medium

There are real experts on Asia, with depth and experience who understand the big picture and the long game. @devintstewart is one of them. Others say “Trump got played.” Nonsense Stewart says. Trump left the summit with exactly what he wanted.

Can the United States abandon Taiwan?
Jansen Tham 6/15/2018 East Asia Forum

Three reasons why the US cannot do so, in spite of heightening cross-strait tensions.

China

Learning Latin America: China’s strategy for area studies development
Margaret Myers, Ricardo Barrios & Guo Cunhai 6/21/2018 The Dialogue

The Chinese government is thinking long term about Latin America, and has established 60 study centers throughout China.

China says industrial profits rose from 2.9 trillion yuan last year to 2.7 trillion yuan this year. Just don’t ask why
Sidney Leng 6/30/2018 South China Morning Post

Data that changes on an “ad hoc and floating basis”is really no data at all. Even more interesting: what’s driving numerical gymnastics at China’s National Bureau of Statistics?

So now, even a commercial passenger jet flying from Europe to China is being called “Belt and Road”?
Evan Feigenbaum Twitter 6/28/2018 Twitter

What will a map of Belt & Road look like 10 years from now-scenarios? Is the program oversold right now?

Technology

Notice how the regions that have been prone to hyperinflation and/or capital controls are more willing to hold bitcoin.
Marty Bent 6 /19/ 2018 Twitter 

Bitcoin will be impossible to reflate into a bubble again
6/14/2018 Market Watch

As soon as someone says “I don’t have a problem with blockchain as a technology, which I admit is revolutionary; but I do have a problem with bitcoin” I know they understand neither economic incentives nor technology.

The Texas well that started the fracking revolution
Russell Gold 6/29/2018 Wall Street Journal

One of those great untold stories in technology, and the engineer who began it all.

On the sad state of Macintosh hardware
Quentin Carnicelli 6/14/2018 Under the Microscope Blog

This really is shocking-no Mac updates for over a year with the exception of the IMac Pro, and that was six months ago. Or is there a major Mac product update around the corner? 

Regulated crypto custody is (almost) here. It’s a game changer
Olga Kharif & Sonali Basak 6/18/2018 Bloomberg

This is critical and gives banks a role too. Most investment advisers are required by the SEC to keep client funds with a qualified custodian. That’s left more than 250 crypto-focused funds -- and especially the largest -- facing the prospect that regulators could clamp down.

Sequoia Capital China said to invest in Bitmain’s $400M pre-IPO round
Yimian Wu 6/11/2018 China Money Network

Beijing-based Bitmain is the world’s leading if not monopoly manufacturer of cryptocurrency mining equipment. Is this valuation too cheap?

Illinois

Why Chicago owns a piece of the southern border crisis
6/22/2018 Crain's Chicago Business

Excellent editorial about Chicago's role in drug trafficking, but no mention of US-manufactured guns that fuel the violence. 2-way street.

Illinois's rainy day fund would cover only 81 seconds of state spending
Joe Barnas 6/25/2018 Illinois Policy

A $98,000 emergency fund...for an entire state. That is less than one penny per citizen.

Musk hyperloop: Hoover mover
6/16/2018 Financial Times

Capacity issues with a small number of passengers per pod could mean that you’ll spend more time waiting in line at the station than traveling to O’Hare. 

Happy 4th of July!