Stephen Jen thinks the Peso can be as much as 50% undervalued

1. Raoul Pal Retweeted
   RealVision ‏@realvision 2h2 hours ago
   
   
   
   Stephen Jen thinks the Peso can be as much as 50% undervalued but when is the right time to catch a falling knife. http://rvtv.io/2kxybRC
   
   

 

Lets not forget the 3rd largest economy in the world - illegal drugs. If you factored in the estimated 50+ billion money flowing in from the U.S. that chart may look a bit different.

 

It depends on how the relationships between the U.S. and Mexico will develop.

 

The Peso has a long standing perception deficit. Rooted in reality.

 

And am thinking every time President Trump twits about the "Wall", the Peso will tumble more.
Hmmmmm bunch of us could short Peso and use Twitter sending our Pres to chat about Mexico wall and ask him how close are we getting. LOL But the charts right now smell it going down.

 

And that factor you cite only hurts the Peso and strangles the native economy.

In 2015, there was $531B worth of trade between the US and Mexico. The US runs an annual trade deficit of ~$50B /year with Mexico. The Office of National Drug Control Policy estimates that $100 billion worth of illegal drugs were sold in the U.S. in 2013. The US had an annual GDP 18 times that of Mexico.

The only way that chart would be improved (just slightly) would be if the Mexican drug cartels were converting their dollars to pesos, or insisted on getting paid in Pesos, or were using those dollars to build legit Mexican businesses whose receipts would count towards developing the Mexican economy and building the Mexican GDP. None of that appears to be happening to the extent of positively influencing the Peso vs the US Dollar.

This Stephen Jen's numbers and premise of a possible 50% Peso undervaluation just don't hold water IMO. I think it will only get worse given the new US business policy reality regarding Mexico.