World's Richest Man Takes $8 Billion Hit as US Economy Takes Down Mexico Holdings

| Aug. 5, 2011 |

Published by Minyanville

As the US economy appears to be in jeopardy, Mexico is feeling the pain.

“Mexico is perhaps the economy that is the most impacted by this downward revision of the growth outlook for the U.S,” Alberto Ramos, an economist at Goldman Sachs told Bloomberg News.

The US buys 80% of Mexico's exports, meaning any downturn in demand has an immediate affect on Mexico's growth. This morning Bloomberg reported that "Mexican bonds are rallying more than debt from similarly rated nations on speculation the central bank will keep interest rates at a record low."

The news service also said that the yield on peso bonds due in 2024 plunged 45 basis points, and "Yields on similar-maturity local debt from Russia, which shares Mexico’s Baa1 rating by Moody’s Investors Service, fell two basis points, or 0.02 percentage point, to 7.69 percent. The yield on bonds from South Africa, rated one level higher at A3, dropped 38 basis points to 8.11 percent."

The sudden downturn has had a direct effect on Carlos Slim, the world’s richest man, who lost about $8 billion this week."The Mexican billionaire’s stock portfolio, measured in U.S. dollars, has dropped about 11 percent since July 29, before today, and is valued at about $63 billion," according to Bloomberg. That compares with a 7.1 percent slide in the Standard & Poor’s 500 Index."

Mexico's peso dropped 2.5 percent against the dollar and the country's Benchmark IPC index fell 7.4 percent.

Slim's Empire
Earlier this week, Slim surprised many by offering to purchase the remaining 40% of Telmex, the cornerstone of his América Móvil (AMX) empire, for $6.5 billion.

The news came as a surprise as it was thought that Slim was keen to grab a foothold on the broadcast market, despite numerous setbacks—such as the denial of a license from Mexican authorities, apparently keen to keep rival broadcasters on side before presidential elections in 2012. Analysts expected the tender to only come to fruition once its pay-TV permit had been confirmed.

Slim has fallen foul of anti-competition legislation in Venezuela, including a record $1 billion fine for alleged monopolistic practices.

Markets have reacted positively at the time, perhaps, suggests the Financial Times, thanks to trust in Slim’s “financial acumen.” The company would be able to offer cellphone, fixed-line and internet services, a bundle highly sought after by companies wanting to dominate the market.

“We had a good cash position and we also have some credit lines,” said Carlos García Moreno, América Móvil’s Chief Financial Officer. “We are in a very comfortable position from a liquidity perspective.”

His comments were reported August 2, before the US markets began to fall dramatically.

New US Ambassador Named
In other news, Earl Anthony Wayne has finally been confirmed as the United States’ new ambassador in Mexico City. He takes over from Carlos Pascual who resigned in March as he publicly fought with President Felipe Calderón and leaked cables, courtesy of Wikileaks, showed him to be highly critical of the Mexican president’s lack of co-ordination in his war on drugs.

Wayne moves to Latin America from Afghanistan, where he was the United States’ deputy ambassador. The appointment was made by US President Barack Obama in June, though many in Mexico are offended that the ambassador comes from the Middle East trouble spot, feeling an implication that Mexico is seen as equally messy by Washington.

Relations between the two countries, however strained, are economically necessary. More than 80% of Mexico’s exports head north of the border and its economy ebbs and flows with that of the States. The two countries trade more than $1 billion a day. Surprisingly, the drug war has not slowed tourism in the country in 2011. According to a CNN report, travel is up 2.1% in the first five months of the year despite the violence.

The two countries have worked together—albeit with some tension—in Mexico’s war on drugs, assumed by many Americans to be spilling over into their own territory. Mexican authorities are capturing and killing top drug lords week by week, however, many criticize the strategy suggesting that power vacuums are formed which only lead to more bloodshed.

This week the deputy financier of the Zetas cartel was arrested. The Zetas is a notorious drug-trafficking organization known for its especially brutal murders.

Homicides in Mexico rose 23% last year, according to the National Institute of Statistics and Geography. There were 24,374 killings in Mexico in 2010, up from 19,803 in 2009. The figure equates to 22 deaths per 100,000 of the country’s population. The news will fuel criticism of Calderón’s strategy.

One of the most dangerous cities in Mexico, and indeed the world, is Ciudad Juárez on the US border at El Paso, Texas. A sign on the US side reminds Americans not to take arms over from one of the safest cities in the world to one of the most dangerous.

Weapons flowing in an “iron river” from the US to Mexico are often blamed for the country’s violence. The US Bureau of Alcohol, Tobacco and Firearms and Explosives, or the ATF, last month ordered Texas, Arizona, New Mexico and California gun dealers to report multiple sales of semi-automatic rifles to authorities. However, the country’s gun industry this week sued, hoping to block the requirement.

Oil Company Success
State oil company Pemex posted a $777 million profit in the second quarter, thanks to higher crude prices alongside higher sales figures. The figure pulls the company back from a loss of more than double that amount in the second quarter of 2010.

The company is opening bidding on the country’s first oil field operating contracts in time for an auction set for the middle of this month. Companies such as Haliburton (HAL), Schlumberger (SLB), Repsol and Pacific Rubiales are looking to win the contracts.