The Market

President Trump gave Mexico a reprieve from tariffs for thirty days at the beginning of February. This reprieve does not mean tariffs won’t happen. With all the inconsistencies and mixed messages coming out of Washington DC, it is hard to conclude anything.

So who or what can best assesses whether tariffs on Mexico come about or not? I think the peso us dollar market is the best predictor.

If the probability of US tariffs increases during this thirty day period, the Mexican peso will weaken against the USD.

So far, that has not happened to any extreme.

The peso weakened twice since the initial announcement of tariffs, but it is now .4% below its weakest point since the tariff drama got underway. If tariffs were such a threat, the peso would have gone through its recent low and kept going down.

It would have gone down in value a lot more than just under 1%

Are investors in denial? Are investors not paying attention to the peso situation? Or is there mounting evidence that severe tariffs won’t happen?

Let’s look at the information.

First, US inflation expectations are at their worst level since November 23, with year-ahead inflation expectations in the US at 4. 3%. High inflation expectations from US consumers can mitigate policy decisions that will be inflationary, like tariffs

Second, now the talk is about watered down tariffs, reciprocal tariffs where the US hits any country that charges a duty with the exact same tariff. Versus the previous universal tariff plan, this is watered down.

Of all the regions, reciprocal tariffs may hurt Europe the most since they have a 15% VAT, Value Added Tax. Mexico doesn’t have a VAT on US goods.

Now the talk is about global tariffs of 25% on steel and 10% on aluminum. The last time President Trump did this with steel and aluminum, Mexico was exempt from the tariffs.

Will that be the case now, we will see.

The reality is that Mexico is the second largest importer of steel to the US and the fourth largest in aluminum. This sounds bad, but Canada is in far worse shape being number one at multiples of Mexico.

Mexico has something to lose, no doubt, but Canada has more to lose and that seems to be where the attention is focused

In the end, a large part of the peso’s surprising resiliency probably comes down to good Mexican economic policy. Good policy leads to investor confidence in the peso.

Highlights of Mexico’s policy includes

The Bank of Mexico lowered interest rates by .5% to 9.5% and the peso held stable. Typically, lower interest rates lead to a lower currency versus the US dollar.

Second, this could happen because Mexico’s annual inflation decelerated for the third month in January 2025 to a low of 3.59%. The upper target band is 4%. Not too many countries can say they hit their inflation target. Well done Mexico!

Finally, the latest government refinancing extended debt maturities an average of 2.14 years.

Investors are willing to give money to Mexico for a longer time period.

Tariffs or not.

Given the yield pick up on CETES versus USD, short-term Mexican bonds still makes sense.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Gold and cash-like instruments are safe-haven assets. Investors buy them when uncertainty and/or fear is rising.

Given the price of gold climbing steadily to a record high of $2,860, one could say fear and/or uncertainty is rising.

What could be driving fear and uncertainty, making gold and cash like investments attractive?

Well, it seems there are more than a few explanations.

First, inflation expectations in the US climbed to 4.3% in February, the steepest climb since November 2023.

Second, no matter what their final form is, US tariffs will be inflationary.

It is well accepted that gold is a good investment in times of inflation.

Third, fear surrounding the US fiscal situation, taxation and spending. The US budget deficit is 6% of GDP and could get worse with less government revenue due to the extension of tax cuts. If budget cuts are not forthcoming, uncertainty could arise.

Fourth the US stock market is up on high valuations and could have a painful correction in the next few months.

Finally, the risk of military engagement which has been hinted at by President Trump in situations like Greenland and the Gaza strip.

With all these concerns, it is no wonder that gold is at a record high. It is surprising the price is not higher.

Cash-like instruments such as stable coins and short-term bonds, either crypto or fiat, are also good in times of uncertainty, like gold. In times of uncertainty, investors feel comfortable in liquid stable currencies like the US dollar and the Euro. Short-term bonds are good safe- havens because an investor is not locked into the investment for a long time. They will either be redeemed, or can be sold.

Above all else, in times of uncertainty, liquidity is king.

Some say stocks are a good investment in times of uncertainty because of the ability to sell quickly when trouble hits. This is perhaps the case if an investor is extremely disciplined. But often the first phase of down move is characterized by investor denial; investors can’t believe it is happening and often freeze up like a deer in the headlights. It is not easy to be disciplined enough to get out quick. There is always that thought it may go back up.

So, in conclusion, for a portion of a portfolio when uncertainty is on the rise, gold, stable coins, short-term bonds, or crypto currencies may make sense.

This could be one of those times.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

That didn’t take long. One call with the President of Mexico and president Trump is reconsidering tariffs?

Was it because president Sheinbaum really convinced him that they would make a dent in the fentanyl problem, and help with the immigration crusade?

Was it just a bluff from president Trump to get talks going?

Or, perhaps, some wise person in the administration said tariffs on Mexico were a bad idea?

We have 30 days until the next chapter, and in this time period there is an investment decision that can be made.

If tariffs do not happen, the peso will hold its value against the US dollar, and CETES will give an APY of 4-4.5% greater the US treasuries, a good investment.

If the peso weakens 4-4.5% against the US dollar, CETES are not a good idea

So, why might there be no tariffs in 30 days.

First, US firms benefit from the economic alliances with Canada and Mexico.

Canada provides natural resources, and Mexico competitive low-cost labor. The US provides expertise, know-how, and tech.

This makes US companies stronger.

Second, President Trump is the one who implemented the present trade agreement with Canada and Mexico in 2020. He even heralded the partnership by saying “It’s a partnership with Mexico and Canada and ourselves against the world”.

That sounds like a good thing.

It still should be.

Third, tariffs on parties in an existing trade agreement is a violation. A violation will make any other nation skeptical about entering into a trade agreement with the US. No matter the social issues, the US needs to have willing partners for trade agreements. It cannot function alone.

Finally, tariffs will weaken other currencies and strengthen the US dollar. A stronger US dollar will hold export sales back.

Without good and trusted trading relationships, and a dollar that remains strong, the US will have a hard time exporting anything anywhere. Economically, there is little to win from tariffs.

The Mexican yield is 4.5% more than USD. The peso recently closed at 20.58. Its low in the last week, the time when tariffs were everything, was 21.30. This was also the weakest level in the past year.

If the peso moves from 20.57 to 21.3 that is 3.5%, and CETES will still yield more than US Treasuries by a little

This pick-up in return will stay in place until the US makes a decision on tariffs.

If the peso goes to 21.5, 4.5% above where it is now, Cetes were not a great idea short-term,

In the end, even the peso moves back to its near-term low of 21.3 low, it still allows a better return on CETES than US Treasuries.

CETES may be a good investment for the next month.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Hockey great Wayne Gretzky had a saying “skate to where the puck is going to be, not where it has been”.

Right now, currencies are like a hockey puck travelling across the ice. No one knows where they are going, but we do know the direction.

Down.

US tariffs on Mexico and Canada set these currency moves in motion. Now, the US has its sights set on Europe.

China is still an unknown.

Times like these can provide good entry points for savings portfolios.

As this crisis, and yes this is mild crisis, unfolds, impact will be expressed in currencies and yields.

The US dollar was strong going into this fight, and it has gotten stronger. A stronger US dollar means non-dollar currencies are getting weaker. As example, the Euro is down about 2.4% from its level shortly before the tariff announcement; it went from 1.05 to 1.026. It could easily be heading towards parity, 1 to 1, another 2 plus percent loss for holders of Euro when compared to US dollar.

At some point in time, the Euro could be a buy. A Euro at parity or below? Great.

But not yet.

The most interesting currency is the Mexican peso.

Mexico retaliated to US tariffs and the situation could get ugly.

Going into this event Mexican CETES yielded about 4%-4.5% more than US Treasuries. Since the tariff announcement, the peso is down 2.63% and at its worst it was down 3.85%

So far, and yes, I know it is early days, the dollar-based return in Mexican peso has outpaced the US return. If the Peso stays below 21.93 (20.92 at present), there is still a gain being made by holders of peso bonds vs US bonds

But, Let’s say the peso goes down to the point that the return from the time of tariff announcements is negative. That may be a good time to buy

Buying the peso cheaper with 8 plus percent yield is something to consider.

But, once again, now is not the time. The puck is not there.

As regards maturity of bonds to hold right now, short-term makes the most sense. And right now, US short-term treasuries are the place to be for both investing and collateral purposes. But there will be a time to move more into the Mexican peso and get a good yield.

Or into the Euro below parity with its stable economy.

But not yet.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Well, it happened, tariffs on Mexico and Canada were announced by the United States. While there is some uncertainty as to what will be tariffed, like Canadian oil, tariffs were announced, and currencies reacted as expected.

The Mexican currency went down about 1. 67% after the announcement and has stayed roughly at that level.

The key question is what will happen from here to the Mexican peso?

And what does this mean for investors considering Mexican bond investments?

When an event like this occurs, the worst position a country can be in is experiencing high inflation, rising interest rates, and a weakening currency. Currency weakness against the US dollar, with interest rate levels that do not stop currency weakness is the worst position a country can be in.

In such a case, interest rates are going up due to inflation, but inflation continues going up due to the currency going down. When the currency falls, imported goods become more expensive and support inflation

It is a vicious circle, and can be a prelude to a full-blown currency crisis, an out-of-control devaluation.

This is not the case in Mexico.

The currency got a lot of its weakness out of the way in 2024, with 20% depreciation versus the US dollar.

Year to date, prior to the tariff announcement, it was unchanged against the US dollar.

US tariffs were telegraphed, so most of the Mexican peso selling may have taken place in 2024.

Mexico’s reality is that inflation has been going down, interest rates are being reduced, and the currency has already weakened a lot over the last months. Declining inflation gives Mexico options regarding interest rate policies designed to deal with tariffs.

They have room to maneuver.

They are positioned to cut rates due to inflation and economic growth slowing, but they DO NOT HAVE TO CUT.

Not cutting interest rates can mitigate currency weakness.

In the end, Mexico has options to avoid a currency catastrophe.

The key question is what an investor should do when thinking about Mexican bonds.

Mexican CETES are offering an APY of about 8-9%. Dollar based US government bonds are offering between 4 and 4.5%.

If you are a dollar investor, either remittance based or investor based, the CETES offers a pretty good cushion against a fall in the Peso. For US Investors the Mexican peso would have to fall between 4 and 4.5% from this level for returns in USD to be the same.

A Euro investor would have to see the currency fall more than 5% against the Euro.

Tariffs have been telegraphed, so many who want to be out of the currency have probably already sold. Thus, the yield pickup for both US and European investors seems sound.

In the end, Mexico’s economic indicators, like inflation and interest rates, are in pretty good shape.

There are risks, but if an investor invests short-term for the yield pickup and things get worse, they are not locked in.

Flexibility to change your investment and the yield pick up makes short-maturity CETES look good.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

According to Bloomberg, JPM Morgan Chase’s latest client survey shows the biggest net long position in US government debt in almost 15 years.

Is confidence driving exposure to US government debt to a 15 year high?

Or is it worry?

If rates are cut, yields across the maturity horizon from 1 to 30 years will go down, and prices will go up.

Confidence in lower interest rates could be driven by the perception of moderating US inflation, a trigger for Fed action. Recent inflation numbers have shown some moderation, and the US Fed is probably concerned about recent reports of low consumer confidence.

If rates are lowered, a bet on lower interest rates pay off before March, so investors may be positioning themselves now.

Markets anticipate more than react. It it is often better to travel than to arrive.

Now the other side.

Are investors flocking into treasury bonds because they are worried? Worried about the US stock market?

Possibly.

The market is up a lot, and a few stocks, like tech and AI have driven this move. In times of concentrated leadership, like now, it only takes one bad earning release to bring many stocks down.

Tariffs? Are they causing uncertainty, and is this uncertainty leading investors to worry?

No one knows “whether or not” tariffs are going to happen. And, if they happen, how much when, and on whom? Tariff uncertainty is even impacting the US Federal Reserve decision making. Chair Jerome Powel said that the range of possible tariff impacts is “very, very wide”.

Inflation may be moderating, but once again no one knows the impact of policies like deportations and tariffs.

And, regarding two key elements of everyday inflation, energy and food, there is limited evidence that these prices are going down from this level.

Gold, along with US Treasuries, is a safe-haven when investors are worried about the stock market, political or economic conditions.

Gold is at a 50 year high in price terms at 2,759 per ounce.

In the question of why more investors are increasing exposure to US government debt confidence or worry, worry wins.

For now.

If worry is winning, it may be best to stay in shorter-term bonds to preserve capital.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Too much attention towards Mexico has focused on the potential of US tariffs. Tariffs, which by the way, have not yet happened.

For most of 2024, investors paid little attention to Mexico’s economic fundamentals

Now, attention is being paid to fundamentals.

This claim is supported by recent Mexican debt sales. At the beginning January Mexico placed 8 bn USD of debt-a good number in times.

This debt sale, or borrowing of money, went so well they decided to follow up with a Euro offering. The total Euro issuance was 2.4 billion Euro, but demand was 8 bn Euro, 3x what they wanted.

Europeans look to be falling over themselves to lend money to Mexico,

By investing in Mexican bonds, Europeans picked up about 2% in yield on the Euro currency.

Historically seen, compared to times past, when confidence in Mexico was challenged, this is a low premium, and seems to show confidence.

As noted before, until this point, Investors in Mexico have focused on potential tariffs, which kept uncertainty up.

But looking at Mexico’s fundamentals, not possible tariffs, you see a very good investment story.

As example, Mexican economic activity is trending better than market expectations. The most recent increase in economic activity was the fifth consecutive month of economic growth.

Along with positive trending economic activity, the Mexican government cut interest rates, the cost of borrowing money, for the fourth time in a row in December, and they look set to do it again in January.

Their record on inflation allows another cut. The Central Bank of Mexico has a target rate for inflation of 4.0%. The present rate is 4.21%, only .21% above. It is close.

Few countries can make this claim

Finally, the Mexican Peso.

After a horrible 2024, the peso is roughly unchanged in January.

So, steady economic growth, inflation nearing its target, a stable currency, and a potential fifth cut in interest rates have been rewarded.

A smart group of investors have noticed Mexico’s merits and bought the bonds in size.

These buyers paid little attention to the threat of tariffs, focusing on economic fundamentals instead.

We should too.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

When investing in government bonds, both long-term and short-term, interest rates and inflation are key.

Declining inflation leads to lower interest rates, making long-term bonds a good investment.

Uncertainty surrounding inflation and interest rates, supports investing short-term bonds.

The United States influences interest rate trends worldwide, thus inflation and interest rates in the US must be watched.

There are many components to inflation, but food and energy are two of the most important.

Energy prices are so important that President Trump has made lowering energy costs a priority of his economic plan. The US wants to convince OPEC to increase production, which would lower energy prices as more oil comes on the market. At the same time, they want to incentivize Oil companies to drill in the United States, which would increase supply further and reduce oil prices.

The key factor pushing oil companies to drill more is the oil price.

West Texas Intermediate WTI oil is presently around 73 dollars, above its one year low of 65 and below its 1 year high of 89 dollars.

The price seems to be in a trend of 85 dollars and 65 dollars.

Within this price range of prices, it seems possible that oil companies will be incentivized to drill, increase supply, and help lower oil prices, benefiting inflation.

The problem is that a lot of US production comes from shale, and shale is more expensive to drill, due to older fields yielding less oil, and the high operating costs.

So, the key question is, if prices go to 65 dollars will shale drillers be incentivized to increase production?

Another option is to drill on formerly prohibited federal lands and offshore. This could work, but it will take time to get the fields up and running.

And, time is of the essence.

Regarding food, Low labor costs are a key to profit in the US food industry.

If the costs of growing and processing food are low, food prices will go down, and inflation will follow.

Foreign workers, often immigrants, are a big part of labor cost in the food chain. If these workers leave, they will have to be replaced, and replacing them could increase labor costs.

Food companies are not going to eat these higher costs. They will be passed on to consumers.

Thus, near-term, food and energy prices may be sticky and not contribute to lower inflation.

And, ff inflation stays up, interest rates will probably stay where they are.

Back the issue of short-term vs long term bonds, short term seem to stand out, especially in counties such as Mexico and Brazil.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Knowing how to interpret data is something we should continuously work on. But, to some, data is scary.

We don’t always know what we should be looking for, and how.

But there are two ways of looking at data anyone can use.

First, how was the data versus expectations?

Second, is the direction of the change supportive or not?

How the data did against expectations is easy to get a grasp on, like a guessing game.

The direction of change, or the trend in change, is clear.

Let’s see this in play by looking at some data in Mexico.

Mexican economic activity for November 2024 rose .5% versus November 2023.

Versus expectations, it was .5% versus forecasts of .6%. While this is in-line and will not bowl anybody over, at least it was not bad, no harm done.

The real kicker comes when one looks at the trend or direction of change. This marked the fifth consecutive period of growth in Mexican economic activity.

Versus forecast, a bit light, but not bad, neutral.

For direction of change, fantastic. Five periods of growth in a row, positive, great for Mexico’s investment and savings story.

Another one: Mexican GDP expanded 1.1% in the quarter ended September 2024 versus expectations of 1%.

Versus expectations, nothing great 1.1% v 1%.

But from a trend and direction standpoint, excellent. In the quarter ending in June, it was .2% and, in the quarter, ended March it was .1%.

Versus expectations-good but not great

Direction and trend, very good.

Mexico as a place for savings seems to be getting better.

Aside from decent economic trends, Inflation is under control which will probably allow the Mexican Central Bank to lower interest rates.

And, the Peso has strengthened year to date

And, US tariffs do not seem to be as big a deal as once thought.

Conclusion. Mexico seems to place to park some savings and investments.

And it all starts with data.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.

Less than one week ago potential US tariffs, higher market rates than official rates in the US market (mortgages), and weak currencies, in both emerging and developed markets were investor concerns, bordering on fear.

Now, after a few positive data releases, investors seem to be more comfortable with investment exposure to the US, Europe, and emerging markets

Complacency seems to be growing.

Some data releases that seemed to fuel optimism were.

· The S and P Global Composite PMI for Germany was positive, breaking through 50 versus expectations of 48.

· President Trump seemed to back pedal on the level of tariffs on China, and may be delaying tariffs on other countries like Mexico and Canada.

· Talk of pushing oil prices down through coercing OPEC and increased drilling in the US helped the outlook for inflation.

Markets expressed these data points in positive ways.

For the week

· The Euro went up 2% versus the USD.

· The US ten-year treasury was unchanged.

· The US 30-year mortgage rate went below 7%

· The Mexican peso went up 2.6% versus the USD

· The Brazilian real went up 3% versus the USD

· The UK Pound went up 2.5%

Although these releases were good, uncertainties will exist.

· Germany showed economic improvement, and it is a key economy in Europe, but others like France, Italy, and the UK have not yet ticked up.

· Tariffs less of a risk? President Trump has changed his mind on this a lot, and it is hard to accept this as his final policy.

· Lower oil prices pushing inflation down? Yes, that would help inflation, but part of that argument is the US convincing OPEC to raise production, not an easy thing to do.

· Elections in Germany and France are still a risk to the Euro.

· Uncertainty regarding US debt management, the debt ceiling, and budget deficits have not gone away.

· The UK is not out of the economic woods. They still have a budget problem and consumer confidence sunk to the weakest level since 2023.

On a final note, gold. In times of rising uncertainty, gold is an investment haven. When uncertainty goes up, investors often buy gold. When the global investment outlook is good, gold prices are generally weak.

In the last week the gold price has gone up 1%, reaching its highest level since October

While this week may have shown that things are not as bad as they seemed, and things may be getting better, it does not seem to be enough to increase risk in investment portfolios.

Short-term bonds still seem to make sense

Now is not the time to be complacent.

This blog is for educational and informational purposes only, covering general market trends, industry developments, and asset features. Nothing herein is investment advice, a solicitation, or a recommendation to buy or sell any assets. Etherfuse and its guests may hold stakes in some or all of the assets discussed.