a fascinating read...

William Cohan's HOUSE OF CARDS tells the tale of Bear Stearns, a Wall Street powerhouse, that disappeared in just ten days in March 2008. Bear's acquisition by JP Morgan Chase underwritten by the US taxpayer was the first in a series of unprecedented events -- the intervention of Fannie Mae and Freddie Mac, Lehman's bankruptcy, the US Government's support of AIG, the doubling of the Fed's balance sheet to provide liquidity to frozen markets, the US Government's bailout of GM and Chrysler -- that contained the fallout from the financial crisis sufficiently so that we got a "Great Recession" instead of another 1930's style depression.

HOUSE OF CARDS is worth reading now for two reasons. First, in Washington, Europe and at the G-20, governments are debating the kind of regulatory framework necessary to reduce the chances of a repeat of the financial crisis that threatened the world economy. Second, as the European sovereign debt crisis continues to roil the markets, it's worth remembering that crises that seem to have been surmounted can come back to bite.

The future of the peso depends on Europe

Where the peso will close the year depends on the denoument of the "Greek tragedy", which has become a European one. If the European Community's stabilization efforts don't succeed in calming the markets, the peso will feel the fallout.

The swings in the peso are not about what's happening in Mexico. The peso's ups and downs are about volatile capital flows, returns, and investors' appetite for (or aversion to) risk. Obviously, sound macro-economic management will help us to weather the tempest that broke out in the Mediterrean; sound policies won't, however, keep us immune.

Back on the roller coaster

Yesterday, the peso took a nosedive, along with the Euro. Stock markets plunged. Once again, investors are heading for the safety and liquidity of US government debt.

The peso's 5.1% drop (fix rate) in a week vividly illustrates how fragile a foundation for the exchange rate portfolio investment is.

What are the best paid jobs for Mexicans sending money home from the US?

According to a Banco de Mexico study from 2007, these were the best paid jobs for Mexicans working in the US who sent money back home.

Driver US$2,958 / month
Auto mechanic US$2,396 / month
"Others" US$2,364 / month
Construction US$2,301 / month

Is it any wonder that remittances are still falling?

In the first two months of this year, remittances were 14.9% less than in the first two months of 2009. It's not surprising when you consider that a fifth of the Mexicans working in the US in the last quarter of 2008 (the latest data available from Banxico) had construction jobs.

Vehicle production accelerates Mexico's recovery

In the first quarter of this year, total production in Mexico averaged 174,147 vehicles a month, just 0.6% below 2008's record levels. The vehicle production figures make it very clear that exports are behind Mexico's stronger than expected recovery. Production of vehicles for export averaged 144,574 a month, 4.2% above 2008 levels; average monthly production for the domestic market was 14.7% less than in 2008.

Before the crash, exports drove the growth of vehicle production. In 2005, production for export accounted for 74.3% of total vehicle production. That percentage has grown steadily. Even last year when vehicle exports plunged 26.3%, exports' share of total vehicle production rose 2.2 percentage points, to 81.4%. In the first quarter of this year, exports' share was 83.0% of total vehicle production.

As goes the US, so goes Mexico?

The NBER, the official dater of when US recessions begin and end, met today. Pre-meeting leaks said that the group of economists will hold off declaring that the US recession is over. Yes, GDP has grown for at least two quarters, but other measures, like employment and consumer confidence, aren't looking so good.
What does this mean for Mexico? It's a reminder that the growth rate of US industrial production matters more to Mexico than the growth of US GDP. Fortunately for Mexico, the US industrial production index hit bottom last June and has grown every month since. Even so, the February industrial production index was still below its December 2008 level. In Mexico, industrial production began to rose (versus the previous month) September - December, dipped in January, and rose 0.59% in February, a month in which US industrial production rose 0.1%.