Tuesday, November 24, 2009

Moodys Downgrades Mexico

One of our main themes on here has been that emerging markets are going to see a complete bust - a position we have held for years. Mexico is one emerging market we have highlighted repeatedly as headed for the scrap heap.

Mexico is a wildly corrupt country that has been propped up for decades by its neighbor to the north. The wonderful people of Mexico deserve so much more than the systemic corruption of their government. Without U.S. investment, loans and bailouts, Mexico would have collapsed decades ago. In fact, they already have.

A stable Mexico is in the best interest of the United States. Washington surely realizes this. That is why misguided policies have perpetuated a failed state status for decades. As we have highlighted, Mexico is in the middle of a civil war of sorts with the corrupt elements in its society. Volatility in Mexico could get much worse before this cycle is over.

Remember as well, we have highlighted that much of the world has been bailed out by the U.S. in the past but that this dynamic would likely not continue because the U.S. will be busy bailing out itself.

The Peso, being linked to the global Frankenstein driven primarily by Wall Street, has rallied from the exact date as the S&P bottom. All while the dollar has has declined. No coincidence when you realize how Frankenstein was constructed. The problem is Frankenstein is dead on the operating table. When the eye of the storm passes, fundamentals will resume. At that time, I expect another very hard leg down in the peso.

posted by TimingLogic at 5:21 AM