Latin America

[Quips]

The presidental election will take place soon in Mexico. Polls as of 6-26-06 indicate the left leaning candidate is in the lead.

Mexican telecom and Petromex bonds have gone down recently for two reasons: interest rates in American are going up and, secondly, the possibility of a new left leaning leader in Mexico.

Time will tell how it plays out. Silva's presidency in Brazil put a scare into the markets at first, but that reaction was extremely overblown. In fact the Brazilian economy is doing great now. So it was much ado about nothing.

The hope is, Obrador, the guy leading in the presidential polls in Mexico now, will not be as his predecessors were and will be more fiscally responsible and cool social welfare spending.

The other centrist or rightist candidate also aspiring for the presidency there certainly did not get much of a push from Vicente Fox who failed miserably on any kind of immigration reform with the Colossus North of the Border.

Chances are that failure of any kind of lienient or "free market" styled immigration policy by the American legislators boosted the chances of Obrador and lessened that of his rival ... albeit indirectly.

Funny how "free market" trade policies do not carry over to immigration.

Some would say there still exists a huge trade imbalance between America and its southern neighbors, so the Latins seek to migrate to America to find work that is unavailable in their homelands. That means investment/capital is lacking in their homelands, so there is a great incentive to migrate where the jobs are.

In effect, if jobs were available where they live, there would be no incentive for them to move here.

[Quips]

http://www.bloomberg.com/apps/news?pid=20601086&sid=apkfd9p6wIOY&refer=latin_america

The media is picking up on Obrador now and watching him as the July 2 election nears.

If he wins -- and it looks likely -- it will certainly have something to do with the lack of any improvement in the area of immigration with the Colossus of the North.

Vicente Fox could have helped his compatriots had some progress been made in that area, but nothing has happened there since 9/11. Things have actually gotten worse since then concerning immigration and its reform.

Obrador's plan of increased spending on social welfare is a waste; for most in Mexico sneaking across its northern border is the premier social welfare program, i.e. a job in America. How Obrador can achieve that kind of success by governmental spending is a mystery; it will be like throwing pesos out the window.

There shouldn't be that much concern, though, about that slight left turn in Mexico. Past news reports state that relations between Mexico and Venezuela/Chavez aren't good. And neither are relations between Mexico and Cuba/Castro. That won't change with Obrador's probable win.

Obrador is not a Chavez-Castro radical, but that social welfare spending would be damaging enough, but not damaging on a scale like a Mexico-Venezuela-Cuban entente ... that would be a nightmare. Throw in Boliva with the other three and that would be worse than a nightmare. And what blumders can America make as a nation to send that disaster in motion?

Mexico and Mexicans have to stay out of such things if it wants to progress. Really, the best social welfare plan Obrador could get would be to work a deal to send more of his people to work in the Northern Colossus, so they could send more of their $$ to their families in the homeland. Their pay is already being cut by paying into a Social Security fund that they won't get a dime out of.

Some may argue about illegals tapping into social services that are supported by American tax dollars, e.g. medical care in hospital emergency rooms, schools, etc. But such things can be worked out. For example -- just for a (big) idea (watch out now) -- could it not be feasible to get an actual count of "undocumented" Mexicans working here, and then make a deal to get a discount on the oil we import from there? Say, for a 25% break on the cost of a barrel of oil, we will work out a deal to allow these "undocumented" workers free access to American employment, schools and emergency rooms -- the break in oil price commensurate to the number of "undocumented" workers here?

Chances are such arrangements would best be worked out LOCALLY where the "undocumented" populations are the greatest. Can one imagine, say, Chicago working out a deal with the Mexican government to allow undocumented workers to do their thing in Chicago and provide ER services and maybe public schooling for them, say, in a deal that would lower gasoline prices in Chicago by 25%?

It's an idea.

[Quips]

Mexico Peso to Rise 5% After Election, Barclays Says (Update3)
June 28 (Bloomberg) -- Mexico's peso may strengthen as much as 5 percent against the dollar six months after the July 2 presidential election as economic policy probably won't change regardless of who wins, Barclays Capital said in a report today.

Opposition candidate Andres Manuel Lopez Obrador wouldn't have congressional support to change economic policy and probably won't seek to finance increased spending with a budget deficit, as some investors fear, said Gautam Jain, one of the three authors of the report.

``Right now, the political risk that is priced in is too high,'' Jain said in an interview from New York. ``Congress will be divided and no president will be able to make any drastic changes in policy.''

Barclays's view contrasts with that of Citigroup Inc.'s unit in Mexico, which forecasts a decline in the peso should Lopez Obrador be elected. The peso would weaken to as much as 11.75 to the dollar because the spending Lopez Obrador plans would create a fiscal deficit of about 1 percent of gross domestic product and fuel inflation, Citigroup's Banamex unit said in a June 14 report. Mexico targets a balanced budget this year.

Mexico's peso has lost 6.7 percent against the dollar this year, the third-worst performance among 16 primary currencies tracked by Bloomberg. Today the Mexican currency rose 0.3 percent to 11.4050 to the dollar at 3:12 p.m. New York time.

Lopez Obrador's main rival is Felipe Calderon of President Vicente Fox's National Action Party. Lopez Obrador, who was Mexico City mayor from December 2000 to July 2005, belongs to the Party of Democratic Revolution.

`Call' Options

To profit from a rise in the peso, Barclays is recommending investors buy and sell currency options in a strategy that makes money should be the peso be between 10.50 and 11.30 to the dollar six months from now. The profit can be as many as six times as large as the investment if the peso is at 10.90 within six months.

Investors should buy a ``call'' option that gives them the right to buy the peso at 11.30 to the dollar six months from now, according to Barclays. At the same time, investors should sell two ``call'' options that would allow their counterparty to buy the peso at 10.90 to the dollar, Barclays said.

Lopez Obrador, who promises to boost spending by 80 billion pesos a year to aid the poor, will close his presidential campaign today with a rally in the colonial center of Mexico City.

Calderon, a former energy minister under Fox, will end his campaign in Guadalajara, Mexico's second-biggest city. Calderon vows to create jobs and boost growth by stimulating investment and attracting foreign capital to industries such as energy.

[Quips]

http://www.bloomberg.com/apps/news?pid=20601086&sid=azYTbk0CT8IU&refer=latin_america

They couldn't be more opposite in background or in outlook.

[Quips]

Calderon appears to have won the election in Mexico by a very slim margin; recounts are in progress.

http://www.bloomberg.com/apps/news?pid=20601087&sid=a3mzv2dFszC0&refer=


His win will surely enhance the outlook for the Mexican economy, as well as that portion of developing markets bond funds.

[Mike]

This is looking an awful lot like our own situation in 2000.

The preliminary results had the right-leaning candidate with a slight lead, but the recount thus far has the leftist candidate with a slight lead. Both candidates appear willing to fight the result in court, so this could/will drag out for months.

The mexican market fell hard yesterday due to the uncertainty.

[Quips]

Mexico's Bonds Rise as Lopez Obrador's Challenge Loses Support
July 14 (Bloomberg) -- Mexico's 20-year peso-denominated bond rose, snapping four days of declines, on expectations a court challenge of the July 2 election results will fail and Felipe Calderon will be named the next president.

Government bonds of all maturities rallied and the peso rose the most against the dollar of 71 currencies tracked by Bloomberg. The gains show opposition contender Andres Manuel Lopez Obrador's claims of election fraud and voting irregularities lose credibility among investors, said Pablo Septien, who manages $350 million of bonds at Finaccess Mexico SA. Lopez Obrador has challenged results showing that Calderon won the election.

``Sooner or later Calderon will be confirmed, that's for sure,'' Septien said in a phone interview from Mexico City. Calderon's pledge to maintain policies that cut debt and curbed spending will spur economic growth, he said.

The yield on the 10 percent bond that matures in December 2024 fell 5 basis points, or 0.05 percentage point, to 8.96 percent as of 5:38 p.m. New York time. The price, which moves inversely to the yield, rose 0.44 centavo to 109.29 centavo, according to Santander Central Hispano SA.

Lopez Obrador is planning a second protest this weekend after his July 8 rally in downtown Mexico City drew 280,000 supporters, according to the city's police. Lopez Obrador's campaign expected as many as 1 million people to attend.

Diminishing support for Lopez Obrador's claims will ensure a quick confirmation for Calderon by the country's electoral court, said Septien. The electoral court has until Aug. 31 to decide on Lopez Obrador's challenge.

``If all goes as planned, we'll see the peso trade at 10.80 per dollar and the 20-year bond yield fall to 8.5 percent,'' Septien said.

The peso soared 0.8 percent to 10.9775 per dollar, a two- month high.

[Quips]

http://www.nytimes.com/2006/07/18/us/18immig.html?hp&ex=1153281600&en=27d6da486d773d3e&ei=5094&partner=homepage

Maybe Texas and Mexico can work a deal for cheaper oil to cover the costs.

[Quips]

http://www.nytimes.com/2006/07/19/business/19detain.html

[Quips]

Brazil Sells 1 Bln Reais of Inflation-Linked Bonds (Update4)
July 25 (Bloomberg) -- Brazil's Treasury sold all 1 billion reais ($455 million) of inflation-linked bonds offered at a monthly auction today as a narrowing budget deficit boosts demand for securities in Latin America's biggest economy.

Brazilian President Luiz Inacio Lula da Silva's policies to keep government spending and inflation in check are helping recover demand for the nation's securities after a market rout in May reduced appetite for riskier emerging market assets, Banco Alfa de Investimento's Rodrigo Ferreira said.

``There was surprisingly strong demand for all maturities, including some that aren't considered very liquid,'' such as the bond due in 2035, said Ferreira, a fixed-income trader at Alfa, which has 3 billion reais ($1.4 billion) of bonds under management.

Lula, 60, has cut Brazil's budget shortfall to 66 billion reais ($30 billion), or 3.3 percent of gross domestic product, compared with 6.3 percent in September 2003. Inflation under Lula has fallen to a seven-year low of 4.03 percent in June.

Investors are drawn to inflation-linked bonds because they offer attractive rates and greater protection from sudden price increases, Ferreira said. The principal value on inflation- linked debt rises in line with consumer prices.

Six Maturities

The Treasury said on its Web site it sold bonds linked to the benchmark IPCA consumer price index with six maturities ranging from 2009 to 2045. The bonds are known as NTN-Bs.

The yield on the 6 percent inflation-linked bond due in August 2010, the most actively traded inflation bond, fell to 10.00 percent at 4:48 p.m. New York time, after most trading ended in Brazil, from 10.12 percent yesterday. The yield last hit fell to the 10.00 percent mark on May 11. The bond's price, which moves inversely to the yield, rose 0.379 centavos to 90.13 centavos per real from 89.75 centavos per real yesterday, according to Banco Pactual.

The yield on the 6 percent inflation-linked bond due May 2045, the security with the longest maturity of its kind, was little changed at 8.3 percent. The price rose 0.024 centavos to 75.34 centavos per real of face value from 75.32 centavos per real of face value yesterday.

Auction This Week

Brazil's borrowing costs are expected to fall to the lowest since May at a weekly sale of zero-coupon, fixed-rate bonds on July 27, said Marcio Ezequiel Monteiro de Barros, a fixed-income trader at Sao Paulo-based Agora Corretora, the country's biggest brokerage.

Brazil will probably sell 7.5 billion reais of the securities, matching the five-month high of the past two sales, the trader said. Bids exceeded the amounts offered in the past two sales and will probably do so again, he said.

Government bonds in Brazil have the world's highest yields after adjusting for inflation, according to research by Barclays Capital. The premium is a legacy of Brazil's history of sliding currencies and soaring debt, said Tony Volpon, chief economist at Sao Paulo-based CM Capital.

The yield on Brazil's benchmark zero-coupon bond due January 2008 fell 0.05 percentage point, to 14.76 percent at 4:15 p.m. New York time from 14.91 percent yesterday. The bond's price rose to 82.235 centavos per real from 82.14 centavos per real.

The real declined 0.5 percent to 2.2023 per dollar.