For those of us who believe when the market speaks, politicians listen (remember the first TARP vote in Oct. 2008?) there here is something to ponder on NAFTA. It’s not dead. Mexico’s peso’s not going to 26, which was Barclays Capital’s worst case scenario, and about that border tax? Ain’t happening.
Jamie Anderson, managing partner of Tierra Funds, adds his voice to a growing chorus of fund managers large and small who think NAFTA survives.
“A repeal is not going anywhere,” he tells us. “If you go back to when NAFTA was enacted you had around $50 billion in two-way trade and the U.S. had a surplus. Then the U.S. deficit grew but so did trade. I think if you drill down into what is behind the deficit you will see it is mostly oil and autos. Things will change in NAFTA. I think everyone agrees to that. But a do-over? I wouldn’t put my money on it.”
Anderson also thinks that the appointment of Wilbur Ross as Commerce Secretary is a very good sign for U.S.-Mexico trade. The peso has gone from trading at around 21 to the dollar to 19. Some people are missing the local currency trade here, whether it is in local currency government bonds, or in Mexican dividend paying stocks. Anderson is a REIT and real estate investor in Mexico via his Tierra XP Latin America Real Estate fund (LARE 31.27 +1.11 +3.68%).
There will be modifications to the decades old trade deal.
Anderson notes that Chinese companies are now selling into the U.S. via Mexico. That’s got to stop. Trump will put his foot down on that and Mexico will have to be honest about it, and not allow China a backdoor like that.
On the 20% border adjustment tax: “I can’t figure this one out,” Anderson says. “Reading the tea leaves tells me that this does not get off the ground. This is a VAT and in the U.S. that means either consumers will pay for it on the shelves in stores, or politicians will pay for it in the voting booth.”