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Democrats Abroad Mexico Financial Forum Recap

February 24, 2017

On February 20, Democrats Abroad hosted a presentation and discussion about how the new U.S. political situation will impact your investment portfolios, from both the American and the Mexican perspective.

Puerto Vallarta, Mexico - Democrats Abroad Costa Banderas sponsored a financial forum on Feb 20 to look at the possibilities and the probabilities that are likely to unfold in the next few years for both the U.S. and Mexican economies. The forum was held in Act II's Red Room and featured Josh Miles, First Vice-President-Investments for Raymond James in Boise, Idaho, and Patricia Berry, Director of Research and Analysis for Grupo Financiero Intercam in Mexico City.

Patricia Berry began discussing the global economy going back to the mortgage collapse of 2008. Since that point the economies of many countries have been flat, with some economies in Europe flirting with recession due to ill-conceived austerity efforts.

Further, many countries around the world went into debt to put a floor under the recessional trends. Also, through the use of monetary policy (the amount of money in circulation and the interest rate), banks started running out of options last year. Then Brexit and the American election happened, revealing deep popular discontent with the establishment. Ms. Berry went on to add that Italy's foremost candidate for Prime Minister is anti-European market. The leading candidate in the Netherlands is on the extreme right and France's Le Pen is rising quickly in the polls on the extreme right as well. So, a shift to the right seems to be increasing as a reaction to globalization.

Turning to the economies of Mexico and the United States, Ms. Berry went on to explain that the economies are so intertwined that undoing NAFTA would be "like separating scrambled eggs." Ford, for example may have committed to build a plant in Michigan but, at the same time, expanded plans for building cars in Mexico.

Mexico is the third-largest trading partner for the U.S. with a large trade deficit on the U.S. side (approximately $63 billion USD). Exports from Mexico have been growing and auto exports have been reaching record levels. In Ms. Berry's opinion having no trade deficit with Mexico is not achievable.

What are the points the U.S. administration could modify with NAFTA?

Increase the point of origin requirement to more than 60 percent of component parts manufactured in the U.S. that cross the border from Mexico to the U.S.

Go after Mexican government purchases to increase the amount Mexico is able to buy.

Fold in a parallel agreements now separate from NAFTA that deal with labor and environmental requirements.

At the same time, the U.S. is likely to increase investment in energy and telecommunications, which are now excluded from the NAFTA agreement. Further she stated that tariffs on goods from Mexico would not be approved by the World Trade Organization. In general, however, for the short term higher uncertainty dampens investment in Mexico and inflation and interest rates will increase. She predicted that by 2018 the Mexican economy will bounce back. Peso fundamentals are strong.

Josh Miles then presented issues in the American economy. He suggested that interest rates were not apt to go up in Europe, for instance, because some rates are now negative. Emerging markets, such as Mexico's, are paying the best returns on investment.

He also said that returns in the financial sector should grow, after years of flat-lining. The U.S. and Mexican bond markets should increase interest rates over time. He believes that the new administration's lowering of taxes on corporations could fuel a rise in the economy. Earnings, particularly, are likely to grow over the next few years and that, too, will be a boost to the U.S. economy.

He stated that the current administration has inherited a rising earnings-led upmarket. He also felt that the U.S. dollar will not continue its dominance for long. Miles also thought that real estate and the Mexican stock market were good bets for the future because of higher returns on both stocks and bonds in emerging markets.

The floor was then opened for questions from the audience, which dealt with everything from whether the Fideicomisos ex-pats hold for real estate would be affected (the answer was "No") to "Should I keep money in pesos or get rid of them?" (The answer was hold on to your pesos because, though the next year will be difficult, the peso will rise against the dollar again soon.)

With country committees and local chapters in over 80 countries around the world, Democrats Abroad is the official Democratic Party organization for the millions of Americans living outside the United States. For more information about the Costa Banderas Chapter of Democrats Abroad, click HERE. For local assistance, contact Tobe Jensen, Chair, at tjensen1942(at)hotmail.com.