Guillermo Ortiz, former head of Banco de Mexico established important policies in the 1990's that are still prayed to, to this day. Ortiz is regarded somewhat as the Alan Greenspan of Mexico's Fed.
POINT: I have read many places about BanXico's "New Policy" of defending the peso by buying pesos with dollar reserves should the exchange rate sag more than 1.5% in a single day. New policy? Shirley you jest. Ortiz instituted the policy in 1998 SIXTEEN YEARS AGO. Not one comma, letter, or number has changed.
Do the compounding math. ONE POINT FOUR PERCENT TIMES TWENTY WORKING DAYS. One point four percent is NOT one point five percent. Well? How much percentage wise did you come up with? This is reality, not hyperbole nor Depends Grade opinion.
Guillermo Ortiz, also formulated a near Constitutional Amendment for Banxico, dollar reserves, and purchasing pesos...to defend the exchange rate.
DO NOT THROW AWAY BILLIONS OF DOLLARS WHEN THE PESO IS UNDER PRESSURE. WAIT UNTIL THE PRESSURE LESSENS, THEN PURCHASE PESOS WITH DOLLAR RESERVES.
The peso can sag, and Banxico will toss in a few hundred millions of dollars in an obligatory public relations grade peso purchase. But the fed will WAIT until the pressure lessens, then feed 300,000,000 dollars into the system, usually between 0500 and 0700 Central Time, then wait. If the three hundred million raises the peso's value and the value remains for a day, the next day Banxico will invest another three hundred million dollars. Such tiny investments can have profound effect on the exchange rate when timing is right. If there was no pressure on the peso today, three hundred million may indeed strengthen the tipo de cambio from 14.50 to 14.10.
But when pressure is on the peso, that investment lasts three minutes and is eaten roots and all without a burp.
I listened to Ortiz in Guadalajara in 2007. He gave a speech at the UNAM university there that was most enlightening. It lasted just under an hour.
MEXICO's CRISIS IS JUST BEGINNING...
Normalization of relations with CUBA is going to lead to HUNDREDS OF MILLIONS of dollars investment for resorts, gaming and entertainment. Check airfares to CANCUN lately? There will be flights. There will be cruises to Habana at TEN PERCENT of the cost of a flight to Cancun. Hotels will cost a fraction of what they do in Cancun. Eighty percent of visitors to Cancun could care less if they are in Mexico or Cuba. But a trip that suddenly costs two thousand dollars first class for a week instead of ten thousand dollars is going to wipe out 70% of Cancun's business. And you better believe the Mexican federal revenue gleaned from Cancun's economy is LIFE OR DEATH for the Mexican economy. An hour and a half flight. Not five hours. Hub at Miami international.
Mexico is in a world of ---- as far as it's revenue potentials are concerned. The government, acting like it has an IQ of 29, made it a lot harder for foreign retirees to gain permanent residence in the country. So more than HALF the potential emigres are now excluded due to inability to meet the two thousand five hundred dollar minimum monthly income requirement. Inability to import their car. Immigration law changes, paperwork hassles.
The most destructive thing on the face of the earth is not ISIS or EBOLA. It is a Mexican federal agency armed with computers and free reign to institute new laws. It's going to get worse. Much much worse. The bureaucracy has just started cracking it's knuckles. When times get tough, I have little doubt Mexico is going to tax foreign income by instituting a FEDERAL IVA on ATM transactions. Yes, they are THAT stupid.
