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REGIONAL ANALYSIS – WHY AM I PESSIMISTIC ABOUT AMERICAS?

For over a week now, you have seen me expressing my pessimism about the US economy, and Americas in general. I opened shorts on $IWM $SPY (SPX500) and $QQQ ($NSDQ100) as well as $EWW and $EWZ

As value investor, I fundamentally believe that the valuations in the US are just not acceptable. They reach historic highs despite 2nd wave of infections and lots of structural issues, not to mention debt. American cases rose 2% from Saturday, outpacing the average daily increase over the past week, according to Bloomberg (July 6th 2020). California had 2.1% more infections, Florida 5.3% and Arizona 3.7% … Kanye West says he's running for President, and the Twitter exploded on the news…is this serious!?

Goldman turned gloomier on the U.S. Its economists now expect a contraction of 4.6% this year, compared with a previous forecast of -4.2%. The downgrade is because third-quarter growth is now expected at 25% instead of the robust 33% bounce it earlier predicted. Even so, they see the economy back on track in September.

Trump's approval rate is slipping fastest in the 500 counties where virus deaths have exceeded 28 per 100,000 people, Pew Research polls showed. Older voters who typically trend conservative are abandoning him. Joe Biden is leading by 6 percentage points in Arizona and by 6.4 in Florida, polling averages at RealClearPolitics showed.

[Source: Bloomberg, July 6th 2020]

MEXICO

As pessimistic as I am about the US, I think the safest and best short to take is shorting $EWW

The impact of the US will put this instrument down anyway, but you have many additional factors on top. This is way Mexico is my biggest short position:

▩ Just in June Mexico’s economy may have lost more than 130,000 jobs. The economy could contract by more than 10% by the end of the year.

▩ Mexico has been among the countries hardest hit by the pandemic due to the fall in trade with the U.S. and the crash in oil prices, while more than 12 million citizens lost or were suspended from their jobs in April. The data is consistent with the view that Mexico’s economy will shrink 10% or more this year.

▩ On July 3, the authorities in Mexico have decided to close the country’s Sonora border with Arizona—where new Covid-19 cases are surging at an alarming rate—this weekend, the Arizona Daily Star reported, in order to prevent a flood of U.S. tourists headed to Mexican beaches for the holiday.

▩ On June 23, a powerful earthquake centered in the southern Mexican state of Oaxaca left at least five people dead and more injured, as video emerged showing damage to streets and buildings as far away as Mexico City.

[Source: Forbes]

▩ Banxico announced on April 1 that foreign investors have withdrawn MXN $150 billion (US $6.3 billion) from Mexico, mostly in Certificados de la Tesorería (Treasury Certificates, Cetes) since February 27 when the first COVID-19 case in Mexico was diagnosed.

▩ In May, BBVA predicted that 58.4% of the Mexican population would live below the poverty line by the end of 2020, an increase of 12 million people. Extreme poverty is expected to grow by 12.3 million people, 26.6% of the population. The bank predicts GDP will fall by 12%.

▩ Winter is quite cold in Mexico, which will likely further accelerate the problems with the spread of the virus.



The original article was published on 06/07/2020 on e-Toro under the following link: https://www.etoro.com/posts/0__entry__7690a60e-abcb-4e5c-a63e-76b9e5aaa4a7


Marcin Jasinski

Entrepreneur & CEO Advisor

+352 661 10 80 10

www.mjtheconsultant.com

Portfolio and Wealth Management

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