Biden/Putin Chat 2.0, Chile’s New President, Doubling Down, No más Mexican oil exports?, Center-Rights Battle, Rest in Power, and The Week in Review

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Biden/Putin Chat 2.0, Chile’s New President, Doubling Down, No más Mexican oil exports?, Center-Rights Battle, Rest in Power, and The Week in Review

Happy new year to all you cool cats and kittens. The inimitable Maurice Chammah joined us on the Perch Pod to talk about the death penalty in the U.S. You can listen or read the transcript by clicking here, and if you haven’t read Maurice’s book, you should definitely click here and buy it. If you want. Just sayin’. Last but not least: Jacob started penning a monthly column on the intersection of geopolitics and investing at Lykeion – click here to check it out. It’s free but you do have to provide an email address to get to the goods. Hope you have a Happy New Year – let’s get it started off right with a week in review!

Biden/Putin Chat 2.0. U.S. President Joe Biden and Russian President Vladimir Putin held a second phone call this month. According to the White House, Biden urged Putin to de-escalate tensions with Ukraine. The Kremlin declined to release details on the call, describing it as a “regular phone call,” though it did indicate it was Putin who initiated the call.

What it means: Russia has not reduced its troop build-up going into formal security talks between Russia and the U.S. on Jan. 12th. A Putin foreign policy advisor said new sanctions against Russia would lead to a “total severance of relations.” We continue to think the two signs will find an accommodation, one that allows Putin to claim a victory. Indeed, the most confusing part of all this to us is why on earth Putin wanted the call to be at midnight his time.

Chile’s new president. Gabriel Boric won the second-round run-off by a margin of 55.9 to 44.1 percent. Markets did not like the result: the Chilean peso saw its biggest one-day loss in a decade and closed at a record low, while the country’s primary stock gauge fell more than 6 percent.

What it means: We think the market overreaction is overwrought. Compared to his challenger Jose Antonio Kast, Boric was by far the more moderate candidate. The area where Boric poses the biggest threat to the status quo is in the mining sector. Boric has promised tighter environmental regulations, increased taxes, and even the creation of a state-owned lithium mining company. After Boric’s victory, Kast and outgoing center-right President Sebastian Pinera immediately congratulated him on his victory and urged the country to rally around its new leader. A peaceful democratic transition of power – few countries in the Western Hemisphere have shown themselves capable of that in 2021.

Doubling down. Turkish President Recep Tayyip Erdoğan (RTE) unveiled a rescue plan for the Turkish lira, to include guaranteeing returns on lira deposits at a rate similar to those on foreign currencies. Meanwhile, Turkey’s central bank is more aggressively intervening in currency markets, with its foreign reserves declining by over $6 billion this week alone.

What it means: We don’t think RTE is doing this because he believes in voodoo economics or because he’s an Islamist fanatic, as he is being portrayed in the pages of The Economist and The Wall Street Journal. Even so, RTE is quickly reaching the end game of his risky gamble: Turkey’s net foreign currency holdings are at a two-decade low.

No más Mexican oil exports? Mexico’s state-owned oil company, Petroleos Mexicanos (Pemex), announced it is cutting projections for oil exports to 435,000 barrels per day (bpd) in 2022 (roughly half of its 2021 exports) and plans to eliminate exports entirely in 2023.

What it means: It is good Pemex wants to increase domestic refining capacity so Mexico doesn’t have to continue importing refined fuel after exporting its crude abroad. But this policy move also doesn’t seem particularly well thought out. Revenue from oil exports accounts for 15 percent of total public spending in Mexico, and Mexico’s 2022 budget assumes oil exports of 979,000 bpd. The technical term for that is y i k e s.

A battle of the center-rights. French President Emmanuel Macron has a new potential political rival to worry about: Valérie Pécresse’s poll numbers have surged since winning the Les Républicains party primary earlier this month.

What it means: Unlike Le Pen and Zemmour, whose star has faded as quickly as it rose, Pécresse is not a far-right candidate. She is, however, far more skeptical of enhancing the power of the EU than Macron. Her election would have a significant impact on our short-to-medium-term view of the EU. A Macron-Pécresse contest would essentially be a center-right v. center-right election. So much for political diversity in France!

Rest in power. Desmond Tutu passed away at the age of 90. Tutu was a seminal figure in South Africa’s post-apartheid politics as head of the country’s Truth and Reconciliation Commission, second in influence only to Nelson Mandela.

What it means: Tutu’s death does not have any direct geopolitical impact of course – but it does mark the end of an era in South African politics, which have deteriorated into factional infighting and were punctuated this year in July by some of the worst violence in years. On paper, South Africa has the potential to be a significant geopolitical power, but to realize that potential, it has domestic hurdles to overcome. Tutu’s death is a reminder both of how far South Africa has come – and how much further it has to go. If you missed our excellent podcast on this subject with Professor Carolyn Holmes of Mississippi (Hail!) State, check it out by clicking here.

Extra! Extra!

El Salvador is buying the dip.

Mexico produced a record amount of tequila in 2021. The EU reported a drop in champagne exports for the first time in a decade. Coincidence??

Japan and China agreed to create an emergency military hotline.

China unveiled new regulations tightening scrutiny and control over foreign initial public offerings

The Monetary Policy Committee of the People’s Bank of China (PBoC) held its Q4 meeting.

An Indonesian parliamentary commission approved the ratification and endorsement of the Regional Comprehensive Economic Partnership (RCEP).

Polish President Andrzej Duda vetoed a proposed media law that would have barred foreign nationals outside the EU from owning Polish media outlets.

Palestinian President Mahmoud Abbas held his first meeting with an Israeli official in Israel since 2010.

Ethiopia’s finance ministry proposed an additional $2.47 billion in government spending to repair the damage done by the country’s ongoing civil war and make up for lost foreign investment.