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March 07, 2013

March 07, 2013

Peña Nieto Brings the Fight He’s Promised

Mexico’s New President Battles Entrenched Corruption and Dysfunction on Many Fronts

Mexico’s Enrique Peña Nieto, inaugurated as president last December, is making good on his promises to pursue an aggressive agenda of economic reform with heavy political overtones.  The country, with all its resource wealth and all its well-situated geopolitical potential, is faced with a seemingly intractable set of interlocking problems.  Reform efforts for the past several decades have shown some results, but Mexico has still remained mired in below-potential growth.

Mexico’s Stock Market Climbs on Peña Nieto’s Reform Agenda

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Source: Tradingeconomics.com

Peña Nieto is sending signals that he is willing to attack many problems simultaneously, hoping to spur Mexican growth dramatically; this has made him a darling of international investors.  With Brazil falling into deeper doldrums under the heavy hand of Dilma Rousseff, Mexico is potentially poised to take the mantle of Latin America’s new tiger economy.

Hydrocarbons and Resource Nationalism: The Linchpin of Reform

El petróleo mexicano pertenece al pueblo mexicano. (Mexico’s oil belongs to Mexico’s people.)

What realities are driving Peña Nieto’s reform agenda?…

Revenue Dependence, Corruption, and Inequality

Where Has the Money Gone?

What Sector Are They Opening?

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Canada: Latecomer to the Housing Bubble Party?

According to new studies by Fitch and the IMF, Canadian housing is overpriced by 10 to 20 percent, depending on the market.  The assessment of The Economist is even more dismal.  The Economist states that in comparison with rents, Canadian housing is 78 percent overvalued, and in comparison with household income, 34 percent.  Because of very low interest rates, housing may be affordable, but this makes households — and the Canadian economy as a whole — vulnerable to interest-rate shocks.

Housing Prices Should Be Related to Rents… Somehow

Canadian Housing.jpg

Source: The Economist

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How Much of What’s in Your Wallet Goes to Food?

As our regular readers know, we frequently discuss the impact that the rising prices of basic, essential needs (food, clothing, shelter, and energy used for cooking and heating) has on the standard of living in the U.S. in our Guild Basic Needs IndexTM (GBNI) section.  This week, we want to highlight an interesting graphic in this past week’s Bloomberg BusinessWeek about your grocery bill.

The Bloomberg piece shines a light on the average American household’s falling expenditures for food over the past 29 years.  One could imagine a number of plausible explanations of the data.  Are Americans’ incomes increasing?  Are food prices declining?  Some might even take it to mean that Americans are eating less… although there’s plenty of optical evidence that suggests otherwise.

Americans Are Definitely Not Buying Less Food

We can see that the chart (see below) is saying is that American households’ expenditures for food have declined as a percentage of their post-tax income.  Americans have been spending less of their after-tax money.  Since 1984, the amount of a household’s after-tax income spent on food fell from 16.8 to 11.2 percent.  By comparison, the proportion of a French family’s income spent on food is twice as high, and in India, the percentage is four times as high.  (We suspect the disparity in percentage would be even higher if the average French and Indian were buying as much food as a typical American does.)  

   America Grocery Bill.jpg

We find it interesting that the chart shows a pretty high consistency in the proportional makeup of the food basket’s components over the decades.  But even more interesting is that it looks like the percentages across the board may have bottomed in recent years.  Is this latest uptick in percentage because of rising food inflation?  Or is it because of a decline in post-tax income?  It could be both.  There are plenty of data showing the stagnation of household income.  It is also safe to assume that taxes are going higher.  With stagnant incomes and rising taxes, it could be that the recent percentage increase in the above chart becomes the new trend.

It is not Just Food, Other Basic Needs Could Take More of the Wallet

We see rising costs of basic, essential needs as a long-term trend.  For the period from January 1, 2000 to January 31, 2013, the cost of basic needs in America, as measured by our GBNI, is up over 82 percent.  The basket of goods contained in the Consumer Price Index (CPI) is only up about 36.8 percent.  This means a shrinking percentage of income is left for saving, investing, and of course discretionary spending.

Guild Basic Needs IndexTM

Basic Needs Jan 2013.jpg

Stay tuned for our periodic updates to the GBNI in these letters or in our www.gbni.info web site.

 


In this week’s Premium Global Market Commentary available to Gold Subscribers, we:

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    QE around the world continues to grow in popularity, and there is no end in sight.  In spite of political rhetoric to the contrary, there is no plan for any retreat from a diet of pure QE in many countries.

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