Next Steps

Where to Next Photo_MG_3135 low resDateline: sometime in the future.

“Now what?” That’s the question that’s plaguing me constantly these days. Last we read, mom was in the middle of cancer treatment. So where are we? Well, the news is good. In fact, it’s so stupendously good that it would simply have been unbelievable at the outset.

I refer to the fact that my mother has proven to be a trouper beyond all belief. She handled chemotherapy extremely well. Her only notable side effect was hair loss, and a bit of minor fatigue toward the end. But heck, she’s in her late 80’s and if she’s a bit fatigued, well, she’s earned it. But better than the lack of side-effects, the chemo did its job. Her main tumor did shrink down and develop a distinct boundary. The rest of the cancer was vanquished by the chemo. After a very successful, single, radical mastectomy in late September that also included the removal of several lymph nodes, the pathologist’s report came back negative: no cancer was detected in her remaining tissues.

The news was so good, it was hard to believe. We had a small celebration. Six months prior I felt pretty convinced that the chemo alone would kill my mother. Now she is cancer-free.

Of course those of you who understand cancer realize it isn’t quite this simple. Her handsome oncologist warned that there still could be a few undetected cancerous cells floating around that might still cause trouble. So he prescribed a course of radiation therapy and additional chemo.

So in mid-December, mom finished doing daily radiation therapy, five days a week. That mostly went well, but she’s got a nasty burn on her chest that’s slowly healing. Now she’s resumed chemo which will run through the end of February. After that, any remaining cancer cells should have been blown well into oblivion. And then, mom should be spit out the other side of the system, stamped “cured.”

Then what? Frankly, it’s not an easy question to answer. For me, staying here forever is not an option. Leaving my mother here alone is out of the question. Since I arrived, she decided that it was best to stop driving, a decision I fully support. In addition to the cancer, she has macular degeneration, and from conversation it’s pretty clear her vision isn’t up to driving. And she’s become forgetful, and all of that combined with the various aches and pains of age means she needs someone around to look after her. She doesn’t need a nurse, just a responsible adult who can drive, and help with odds and ends. She’s also at some risk of falling, though stricter adherence to using her walker seems to have solved that problem. Fortunately she wasn’t hurt in the couple of spills she took earlier in the year.

So now what? I’ve thought of a lot of potential solutions, but I have yet to settle on any of them. My initial idea was to take her to Mexico City to live there with me, or perhaps close to me, with a live-in maid who could handle much of what I’m doing for her now. In some ways, that’s still not a bad plan. Financially it works, and it puts me back in CDMX, a place I miss very much. But it would also make my mother entirely dependent on me for everything, including companionship. And while I’d like to spend more time with her than in the past, I’d also like her to have her own life too, with her own friends. As a non-Spanish speaker, that’d be difficult in Mexico City.

I also thought about moving her to Boston, but that’s fraught with difficulties. First, my house is 2 story, and there’s no getting around the stairs. The bedrooms and bath are upstairs, while everything else is on the ground floor. Even getting into the house requires going up 4 stairs at a minimum. I briefly considered building an addition onto the back of my house that my mother could live in. But then I’d be tied to Boston more-or-less permanently. And I’d certainly not be able to easily run off to Mexico or Turkey or India or anywhere else I’d like to see, because someone would still need to look after my mother. Boston is also one of the more expensive cities in the USA, which pretty much rules out her getting her own place there. Alas, finances are a constraint too.

Then I thought about maybe trying to find her an assisted living place not too far from Mexico City. My former upstairs neighbor in CDMX, Carole, said there was an assisted living place with Gringos in Cuernavaca. Unfortunately, neither of us have been able to actually locate that one. Maybe it doesn’t even exist. Who knows? (If you do, please leave a comment.) Then I started Googling for places near San Miguel de Allende on the theory that it’s only 4 hours away from CDMX and would be easy enough to visit regularly. Certainly lack of Gringos shouldn’t be a problem there. It turns out there are a couple of places about 10 KM north of SMA that look nice. But I emailed a friend who lives in SMA and she said that some of her friends had had spotty experiences there, primarily due to the lack of medical facilities. Now, I haven’t ruled out those places, but a red flag has been raised.

Aside from her cancer, my mother has been pretty healthy, but she’s now nearly 90. Sooner or later health care is going to become more important. And for the next five years, she’ll need to see an oncologist every 3-6 months to nip any recurrence in the bud. So that makes SMA somewhat challenging.

The next obvious place is Ajijic. There are loads of Gringos there, along with plenty of assisted living facilities, and a climate I know my mother would love. I’d really like to see her in a place where she can connect with other Americans, or at least fluent English speakers. Though she’s said she’s willing to try to learn Spanish (kudos, mom!), I’m skeptical that she’d be able to learn enough quickly enough to socialize with Mexicans successfully. There are also good hospitals in nearby Guadalajara if the need should arise.

The only real problem with Ajijic is that I neither want to live there, nor do I want to live in Guadalajara. Still, I did do some quick searches on real estate there, and it’s surprisingly cheaper than Mexico City, maybe 35% less, perhaps even less than that. Moreover, decrepit but large colonial houses can be had in the Centro for cheap. But while Guadalajara has a lot going for it, I just didn’t feel like it clicked for me when I spent a week there in 2014. Still, I could probably have a fine life in Guadalajara, and it’s certainly got loads of gay people who seem to be everywhere. But it’s also full of ugly buildings (my biggest objection), much more so than CDMX. And it’s a much more conservative place than CDMX too.

Meanwhile, the fact that Medicare doesn’t cover services in Mexico is also a potential issue. Yes, I realize that cash prices for basic medical care in Mexico are quite affordable, but they could still add up for an elderly person. One thing I’ve considered is moving us to Mexico, but getting my mother established with a doctor in, say, Laredo. We could then go there from time to time, relying on Mexican medicine for emergencies. Of course that’s not an ideal solution. Mom gets monthly injections in her eyes to treat the macular degeneration. I suspect that driving from either GDL or CDMX to Laredo every month would get old fast, though such injections could probably be had in either one of those Mexican cities. The question then is cost.

So I’m still mulling the question of what to do. By the end of February mom will be done with her cancer treatments and her next chapter can begin. Any suggestions? Does anyone know of a good assisted living facility for Gringos in Mexico?

Saludos and thanks for reading and for any suggestions you might have.


So Whither the Missing Gringo Suelto?

Dateline: Colonia Roma Sur, CDMX

A LOT has happened since I last wrote. And virtually all of it has upended my life. As you may recall, my stepfather died just before Christmas and I found myself having committed to stay with my mother through mid-February to help her grieve and to help figure out her next move in life. For a while, I was trying to persuade her to come to Mexico with me, and the fact that she was even willing to consider it came as a pleasant shock. Without my stepfather’s income, her financial situation has become less secure, but with her own resources she could live large in Mexico City.

On another front, Luis, my Mexican BF had accompanied me to California for Christmas and found himself still in Redding. The original plan had been to spend only three days there with mom and stepfather, then go to San Francisco, see the other half of my family, do some touring about, see friends, and then try to drive back to Boston in mid-January without ending up buried in a snowdrift. Unfortunately the trip, the situation with my mother, and some long-simmering older issues took their toll. Luis and I broke up in mid-January. Shortly thereafter he went to Phoenix, where he had worked in the past, and had friends, in hopes of finding a job there, or at least some kind of direction. So we sadly parted ways in the third week of January. I wish him well, but the breakup has been one more blow. When I met him, I really thought he might be “the one.”

But worse was to come. Right after my stepfather died, my mother succumbed to the stress and fatigue and came down with bronchitis. I said we should go to see her doctor. Turns out she didn’t have one, her previous doctor having retired a few years earlier. So I got her to an urgent care clinic, which gave her some antibiotics, and the bronchitis cleared up.

Meanwhile, I found her a regular doctor and set up an initial appointment. As part of the initial visit, mom was scheduled for a mammogram, something which she hadn’t had in years. The results weren’t pretty. A large lump was found, and various tests, scans, pokes and prods later, we learned that she had a large tumor, and a diagnosis of stage 3 metastatic inflammatory breast cancer. Ugh. My poor mother was now suffering her second big blow.

The process of getting the diagnosis took place in mid-March to mid-April, a time during which it became entirely clear that there was no way I’d be able to go back to my regular life; mom definitely needed me. She was already struggling to maintain the house, and now with cancer it was an entirely new challenge. During the time it took to get a full diagnosis and treatment plan, we worried endlessly about her cancer. The tumor is tennis-ball-sized and was described as “busy” by the surgeon. Chemo, even in the younger, is no picnic, and mom is officially old and getting a little frail. So we (or at least I) worried about whether she’d be able to survive chemo, never mind  the cancer. And even if she survived the chemo, the cancer itself was still going to be tricky. Since it had already spread to a lymph node and lacked any distinct boundary, it was currently inoperable. That’s to say that the surgeon could find no clear line between healthy and cancerous tissue. So you can’t just cut out the tumor because you risk leaving cancerous and now-agitated cells behind. Worse, there appears to be skin involvement. That means that you have nothing to cover the wound with after a surgery. In short, it’s an ugly diagnosis.

For now, the plan is to do chemo for sixteen weeks, shrink the tumor, then surgery and then radiation. That is if everything works to plan. As of now, mom’s about halfway through chemo and taking it like a champ. Yeah, she’s lost her beautiful, long, red hair. But there’s been no nausea, no vomiting, no lethargy, no change in appetite, no nothing except hair loss. And the tumor is shrinking and softening. In short, the chemo is going as well as possible.

As for me, I’m taking care of her, having put my life on hold. But a lot of questions remain about my own future. At this very minute, I’m sitting in my apartment in Roma Sur, CDMX and in the process of moving out. I debated this internally for months. I really don’t want to give up the place. But it’s increasingly clear that I’m not going to be able to be here for a long time to come.

Since we’ve now got a rhythm with oncologist appointments and chemo (Mondays and Tuesdays) I was able to book a flight to Mexico City right after my mother’s last chemo. I arrived Wednesday night and plan to stay through Monday. That gives me some much-needed time away, the opportunity to see friends, and the chance to celebrate Gay Pride in Mexico City, something I’d hate to miss.

And I’ve really needed a break. Though I love my mother dearly, it’s been exhausting taking care of her. I’ve been doing all the cooking, cleaning, scheduling, and generally dealing with any problem that requires some stamina or concentration. Since mom’s become a smidgen forgetful, I’ve also attended all her doctors’ appointments, in the process filling a spiral notebook with comments, measurements and the like. And while my friends have been incredibly supportive, the nearest are a four hours drive away in San Francisco. It’s tough not having friends nearby.

But it’s been great to be back in CDMX, though bittersweet. The minute I dropped my stuff at the apartment, I went out for dinner in the Zona Rosa. Wow! All the people, traffic, and overall hubbub were totally energizing. In Redding, approximately six people a day walk past the house. Here, there are people wherever you look, and it’s a fantastic change. I’m a big-city boy at heart and it’s been tough living in a sterile suburban environment. Back in Mexico City I feel like I’m once again in my element.

I’ve also been very fortunate to be able to spend time with friends here. Yesterday I had breakfast with my upstairs neighbor and friend, Carole, a former Chicagoan who has lived here for twenty years and is now a Mexican citizen. She’s an adventurous soul having lived in many parts of Mexico, an inveterate traveler, and a delight to be with. I also got the chance to have lunch with Bill of Travels of a Retired Teacher. He and I used to hang out here quite regularly last Spring, but then we didn’t see each other for nearly a year. It was great to connect once again. And last night I got to have dinner with a friend who I met right after I moved here last year. His mother had just died two weeks ago, and we had a very empathetic conversation that lasted long into the night. Thank you, Alberto. I think it was healing for both of us.

Tomorrow I go to the Pride Celebration. Then I have to get serious about moving out of this place. It makes me very sad to leave it behind, but it makes no sense to keep paying rent when I have no idea when I could ever return. One suitcase is already packed. Sunday I’ll probably pack the second one. And then I’ll give away all the half-drunk bottles of tequila, scotch, and gin, along with the various and sundry other things that simply can’t be moved.

After that? I’ll bid a teary good by to my beloved Mexico City. For now at least.

Te quiero mucho aunque esté lejos.

P.S. I had avoided writing about this topic until it was OK with my mother.

Top Down on the Twisty Roads of Igo, California

Dateline: Igo, California

I recently joined an online forum for aficionados of Mercedes SLK cars. I happen to own an early model, a 2001 SLK230. It’s a sporty, two-door, four-cylinder supercharged roadster, with a six speed manual transmission, and a load of fun. It’s what got me across the country, and may someday take me to Mexico City. I just submitted this post to my SLK club, and thought I’d re-post it here.

After what seemed like endless days of gray, rainy weather, the morning dawned looking like it’d be yet another rerun of gloom. But by noon, the sky had mostly cleared, the pavement was dry, the temperature had reached the mid-60’s, and I could hear my SLK whispering softly from the garage,

“C’mon…it’s nice. Take me out! Take the top down and find a twisty road where we can let loose and strut our stuff.” 

Twisty Roads West of Redding, CA

How could I resist? After just a few of those whispers, my will gave out, and by two o’clock, I was on the road, top down. Heading north through Redding, California on highway 273, I could see the lower Cascade mountains off to the east, crowned by the regal Mount Lassen. To the west, where I was headed, the coastal mountains that separate the northern tip of the San Joaquin valley from the Pacific Ocean beckoned me.

Before leaving, I had done a little research on Google Maps. Though it was virgin terrain for me, it looked promising: mountains, tiny roads, lakes and streams. Surely there would be some exciting driving ahead.

Where the Twisties Get Serious

I turned left at Buenaventura Avenue, but hit a red light almost immediately. A white Buick Riviera with an elderly driver sat to my right. Ahead, the road narrowed to one lane in each direction. “I gotta get ahead of her, or this mountain road is going to be nothing more than an exercise in frustration,” I murmured to myself. I could see the opposing light turn yellow, and I depressed the clutch, engaged first gear, and got ready. Green! I let out the clutch, pressed the accelerator to the floor, and listened with glee as the whir of the supercharger rose to a whine. I jammed it into second and hit the first curve with gusto. Soon I was in third and the Riviera was just a bad memory.

Yes! I was now flying up the hill with the wind in my hair, no one ahead of me, and the road racing up to greet my tires. After a few sweeping curves, I crested the hill and hit Placer Road. There I made a left. Placer Road is a broad, two-lane country highway with gentle turns running through rolling hills. Though not a particularly technical or twisty drive, it’s pleasant place to zoom through with the top down. As I drove, the houses thinned out to be replaced with farms, cows, and open grasslands dotted with gnarled old oaks, still leafless from the winter. I could see their twisted silhouettes against the cloud-flecked sky, and felt glad to be alive.

This part of Northern California is the transition zone between the valley and the mountains. So there are wide meadows dotted mostly with oaks. It’s mainly cattle country, with little other farming. The terrain is hilly, and as you get farther from the valley, begins to get steep.

Parked by the Clear Creek Bridge

After a few miles of gentle curves, rises and falls, I crossed Clear Creek Bridge. I stopped to take a picture of the car next to it. The bridge was surprisingly high, and I’d estimate the creek was about a hundred feet below. By this point, Mr. SLK was happy. His engine was purring softly, and his suspension had just gotten warmed up. But he wanted more than Placer Drive. “Find me a twisty side road,” he softly begged me. “C’mon, we can find somewhere where we can really have some fun.”

Muletown Road is Calling Me

Who was I to say no? So I got back in and drove on. Shortly I found Muletown Road. The sign warned that it was twisty and that the pavement would end in three miles. “That sounds like fun!,” I thought to myself as I pointed the SLK down the country road. I was not disappointed. The pavement, though smooth, was not wide, and there was no center line. There were some houses along the way, but it was mostly desolate countryside. Though a small and twisty road, I managed to keep the car in third gear, with about 2,500 RPMs, which meant I was keeping a speed around 30-40 MPH. At one point, I nearly planted it into an embankment, but a quick stab at the brake followed by a deft move of the steering set me back on course and I continued without incident. Off to the side of the road, I spotted a flock of wild turkeys and stopped to take a photo. I’d seen these birds many times around my home in Boston, but I was surprised to find them here. Camera shy, they quickly disappeared into the underbrush.

Wild Turkeys in California. Who knew?

After a few miles, a sign warned that the pavement was ending. At this point, I also encountered a young family. Because I had learned to drive on twisty dirt roads, I wasn’t fazed by the idea of no pavement. But I asked the family if the road was public. They took one look at my car and said, “You won’t make it in that. If we have to go on that road, we take our large four-wheel drive truck. You’re probably best off just going back.”

“Makes sense. I guess I’ll follow your advice then,” I said, and turned around, the tiny turning radius of the car coming in handy yet again. God, I love this car! The ride back to Placer Road was all the better since I now knew what to expect. I hit the twisties with greater vigor, and soon I was back on the highway and continued on. After another couple of miles, Placer Road turned into South Fork road.

The road then narrowed and began to wind. Though I saw the occasional other car, they were few, and fortunately going the other way. I would have quickly caught up with anyone going the same direction.

Where Zogg Mine Road and South Fork Road Meet

Suddenly I saw Zogg Mine road, and it looked like Muletown road, only better. A dire warning was posted at the entrance: “Narrow Winding Road. Road ends in 4.6 Mi. Trucks Not Advised. NO TURNAROUND.” “Well, in my little car, that last bit shouldn’t be a problem,” I thought. “Sounds like fun, in fact.”

Fortunately, I saw no cows on the road

I turned right, and my next adventure began. I immediately crested a small hill, and then the road narrowed dramatically. The center line disappeared, and all I could see were hills, trees, grass, and the road disappearing off into the distance. “Yes! Pay dirt,” I thought with glee.

As I raced along, I could feel the suspension working overtime. The turns were narrow and banked, often the wrong way. As the turns shifted direction, the banking reversed. The road went up and down, and as I zoomed along I felt like I was on the back of a bucking bronco. But the SLK’s suspension ate it all up with aplomb, keeping the car firmly planted without shaking my teeth out.

On the straight part of Zogg Mine Road

Since my car is the 230 with only a four cylinder engine (not a six), it has nearly perfect 50/50 weight balance. Thus the handling is incredibly neutral and forgiving. It’s almost impossible to make the tires squeal, and even with the traction control off, it takes persistence to spin the tail. Incredibly, I was able to do most of this road in third gear, again maintaining a speed between the low 30’s and the mid-40’s. Since I didn’t know the road, I had to be a bit careful, but it was an exhilarating ride nonetheless.

Alone in the mountains next to a swollen creek.

As I got higher into the mountain, the trees got thicker, and soon I was driving under a forest canopy. The occasional house went by in a blur, but I was mostly alone on this wonderful country road. Soon, I saw a waterfall to my right, and then a babbling creek to my left. I stopped to take photos.

After a few more miles, I got to the end of the road, which rather suddenly turned into someone’s driveway. It was only by slamming the brakes that I managed to not end up on the guy’s porch. Jeeze, there really was no place to turn around. By then, the road was maybe eight feet across. Since the driveway was literally festooned with “No Trespassing” signs, I didn’t want to ask if I could turn around in the guy’s driveway. So I ended up backing up about fifty feet before I could turn around. “Man, that warning sign wasn’t kidding,” I thought.

By then it was about four thirty, and I knew it was time to think about getting home. I had promised to cook dinner for my elderly mother, and I knew she’d be hungry. As I headed back, I reflected back on the drive. It had been a perfect afternoon, with temps in the 60’s, top down, few cars on the road, and some really fine twisties. I counted myself a lucky man as I headed back along Placer Road, and then back onto the interstate.

Toward the end of a beautiful country drive

Since I’m still stuck here in Redding, I can hardly wait for my next chance to explore more of these country roads.


Come Hell or High Water…

img_3753-shasta-dam-low-resDateline: Living in Fear of Flood

Perhaps you’ve heard. California’s drought is over. Oh, sure, there are public officials who still deny it. And who could blame them? They’ve spent years counseling parsimony in water use. Some have even levied fines, cut flow to profligate households, and even managed to stigmatize clean cars and green lawns. But that gig is up.

We have water in excess now. Way in excess. Perhaps you’ve read about the floods in San José, California. Or maybe you’ve heard about the evacuation of Oroville, CA, after a dam there threatened to burst. Or maybe you’ve recently driven through the Sacramento Valley, where fields are doing their best lake impersonations. Here in Redding, my mother lives a mere few hundred yards from the mighty Sacramento River, California’s largest, and it’s nearly overflowing its banks.

The Firemen Haven't Used that Boat in Years

The Firemen Haven’t Used that Boat in Years

Fortunately for us, Franklin Roosevelt saw fit to have the river dammed, so we don’t have too much to fear from flooding. At least if the dams here are in better shape than in Oroville. Here, there are two dams upstream: the boringly utilitarian Keswick Dam, designed mostly for electricity generation; and the awesome Shasta Dam, built for flood control, recreation, and also electricity generation.

Given the rather stunning lack of museums, nightclubs, musical venues, and the like here, the dams are a rather popular spot. And even if there were more alternative diversions, Shasta Dam would still be worth a visit. The lake is beautiful, the scenery tranquil with pine-forested mountains rising up from the water, and eagles and hawks soar above it all. But it’s the dam itself that takes your breath away. It’s the eighth-tallest in the country, and holds the largest California reservoir. When completed, the dam was the second-tallest in the United States after Hoover, and was considered one of the greatest engineering feats of all time. And recently there’s an added bonus: actual water! Yes, the dam has filled up and now there’s honest-to-goodness water flow unlike the former bit of minor turbulence below the power house.

Compare the Water Level in the Video

Drought Starved Lake Shasta. Notice the Boat Ramp.

In fact, there’s been so much water flow, that I’ve become nervous about the prospect of my mother’s house flooding. The normally placid flow of water here has turned into an angry torrent. So we decided to visit and assess the risk of flooding ourselves. We made two visits, and I decided to document our findings on video, which you can see below.

What follows is obviously amateurish, but I hope this little video gives you some sense of our dam, rainfall, and local scenery.



Mexico is Burning

bigstock-running-on-empty-225717-cleaned-upDateline:Outta Gas and Outta Patience

Mexico suddenly finds itself in dire straits. A number of things which were neither foreseen nor planned-for have suddenly occurred. Three years ago, sub-$100 oil seemed like an impossible fantasy, at least for consumers. A slowdown or reversal of globalization was seen by no one until quite recently, when Brexit shook the establishment. Trump was considered a long-shot candidate right up to the eve of the election. Worse, the peso has lost nearly 50% of its value over the last two years, recently exacerbated by the Trump victory. And the final blow, gasoline, which remains in plentiful supply on global markets, is now having trouble finding its way to Pemex stations across the country, even at newly elevated prices, which should theoretically stimulate supply.

Of course, the most pressing of these issues is gasoline. Even back in 2014 when I did my road trip, gasoline was a contentious topic in Mexico, having seen a steady upward climb in prices. Now it’s everything.  Given the recent, hefty, and indeed record-setting price hike in Mexico, combined with shortage, I decided to do some research to better understand the facts. I looked at DOE data on global production and pricing of crude, and domestic pricing of gasoline. I looked at historical Mexican gasoline prices, and I looked at the exchange rate. I even read through bits of Pemex’s 2015 annual report. I’ve also read many articles in the Mexican press about the situation.

I learned some interesting things. First, since 2010, the price of Magna (regular unleaded) has had one very minor dip (Jan 2016) in an otherwise uninterrupted rise. Mostly those rises have been around 1% per month. Sure, they add up over time, but any given monthly hike is not too big, so people grumble, but then move on.

Relentless Price Increases in Pesos

Relentless Price Increases in Pesos

However, the most recent hike was the biggest ever, 14% in a month for Magna, more for premium. That, along with shortage, has unleashed the simmering fury.

Poor Policy Making in Action

Poor Policy Making in Action

But the real culprit is not gasoline; it’s the USD/MXN (peso) exchange rate. Over a very long time frame, the peso has mostly only moved in one direction versus the US dollar: down. Sure, it’s not a perfectly smooth downward path, but the longer term trend is about as inexorable as any seen in finance. Historically it’s been a mostly gentle depreciation, with a few twists and lurches along the way. More importantly, it’s been manageable both for the economy and for Pemex.

One Direction: It's Not Just a Boy Band

One Direction: It’s Not Just a Boy Band. Pesos per USD Over Time

But things changed in the fall of 2014, when crude oil started to tumble in earnest and OPEC gave up trying to stop it. Suddenly the peso’s gentle, long-term swoon turned into a dive, creating a host of problems, particularly for energy and imported goods.

Gentle Peso Decline Turns into a Swan Dive

Gentle Peso Decline Turns into a Swan Dive. Source: Federal Reserve

Not only do currency traders view Mexico’s economy as dependent on oil, and thus vulnerable, but the picture for Mexican oil continues to worsen, well beyond the price of crude. In 2014, along with the global crude price, Mexico’s crude production began to decline at an accelerating rate. Add to this the fact that as the most liquid emerging market currency the Peso gets used as a proxy to short oil, and you have a pile-on to the poor Mexican peso.

Production Continues to Decline, Now at a Faster Pace

Production Continues to Decline, Now at a Faster Pace. Source:DOE

So the gasoline problem is really an exchange rate problem, exacerbated by political bungling, and crippled, inefficient Pemex. In USD terms, the price of gasoline in Mexico has fallen since 2014, which reflects the global reality of excess supply against relatively fixed demand. And prior to late 2013, gasoline was actually cheaper in Mexico than in the USA. Even now, the Mexican price premium is nothing compared to places like Europe or Japan.


US vs Mexican Gas Prices. Converted to USD/Gal at Avg Monthly Foreign Exchange Rate

As for political bungling, Peña Nieto hasn’t helped his own cause. During his 2012 campaign, he promised that the energy reform would spur foreign investment and lower the price of gasoline to consumers. Had he been able to wave a magic wand and immediately turn the creaky Pemex-controlled monopoly into a thriving, competitive marketplace, this might have come true. But given the reality of a very long lead time to that promise, it was nearly impossible that it would work out as expected. In order for him to have been correct, he would need to accurately forecast both the peso exchange rate and the price of crude more than three years out, an impossible task for anyone. Sure, he was correct in essentially saying that Pemex was wildly inefficient. But he erred in thinking he could foresee future prices.

So instead of what he might have expected — a soft decline in the peso, and crude oil trading around $100/BBL — he got a collapse in both, exacerbated by steep production declines at Pemex. Worse, Pemex’s finances collapsed along with the crude price, thus cutting off a source of financing for the Mexican government. So by the time the Energy Reform was passed, and Mexico held its first auctions for oil drilling rights, the big, global energy producers responded with a collective yawn. Most of the drilling rights went unsold, leaving yet another hole in government finances. The majority of Mexico’s crude lies offshore, and it’s expensive to find and expensive to extract. Below $50/BBL it probably isn’t worth the hassle, especially when fracking costs onshore in Texas continue to plummet. Add to that the political risk of operating in Mexico, where the rule of law can be a variable thing, and a weak and bureaucratic justice system operates at glacial speed, and foreign oil producers stayed away.

As for Pemex, it is rapidly on its way to becoming a national liability instead of a national asset. It’s suffering perhaps the worst possible business nightmare of rapidly falling production, and a steep fall in the prices it can charge. Add to that enormous liabilities in the form of pensions and union contracts, and it’s in a tough spot. Oh, and the drug cartels have expanded into pipeline theft, stealing millions of liters of gasoline and disabling pipelines in the process. Add all that together and suddenly you have a state-owned albatross which can only be bailed out by radically higher oil prices, something not on the immediate horizon.

As for the immediate shortage, the above longer-term issues collided shorter-term with the law of supply and demand. While I have zero evidence to support the following thesis, it makes economic sense. Knowing that gasoline prices would be 14% or more higher in January than in December, Pemex and the gas station operators had every incentive in the world to “run out of gas” as December rolled to a close. Right? Hold your gasoline for an extra week or two and suddenly it’s worth 14% more. What sensible capitalist wouldn’t do that? Now, I don’t know if that’s what actually happened, but it seems to be the simplest explanation for sudden shortages around the country. And if that’s correct (and I have to believe it is at least partially correct), then policymakers erred big league in not foreseeing and addressing this problem, possibly via weekly price increases or some other measure.

But whatever caused the shortage, Mexican consumers are now mad as hell, and they feel betrayed once again by a government which is widely seen as rapacious and unresponsive to the needs of the ordinary people. Sadly and ironically, their protests are making things worse. Yesterday I read about a typical Mexican form of protest, shutting down federal highways. While such protests are, in my view, almost always misdirected, in this case they are almost comically misdirected. Not only are hapless drivers now wasting more gasoline idling on stopped freeways, but stalled gasoline trucks can’t make deliveries. Add to that the fact that people are trashing, burning, and sacking those gas stations, and any reasonable observer would conclude that this will only exacerbate the problem.


No Gas? Let’s Steal Toys!

Alas, Mexico is now in a tough spot. There’s zero confidence in the government. People are just angry, and acting out. There are reports now of looting all around the country. Toy stores, electronics stores, and other businesses completely unrelated to gasoline are being looted with abandon. Civic order seems to be breaking down in an unprecedented manner. Given the above, it’s hard to see a rapid resolution to the problem, even at higher prices. Gas stations will take time to rebuild, and as long as the highways remain blocked, gasoline won’t flow. Add to this misery the fact that the peso takes a dive every other time that Donald Trump issues a tweet, and you have a formula for more social unrest. As for the longer-term fallout, no one comes out looking good in this. The government manages to look incompetent, and possibly heavy-handed. The looters look just as bad as looters everywhere, and with handful of deaths to boot, Mexico just got another black eye.

At the root of the problem is the exchange rate as I’ve demonstrated, yet there’s little the government can do, though it is trying. Banxico, Mexico’s central bank, has raised overnight rates five times in 2016, for a total increase of 250 basis points. Each hike put a temporary floor on the peso, but ultimately did nothing to halt its slide. Mexico now has one of the higher overnight rates in the world, which should theoretically attract peso purchases.

But it’s not working. Thursday Banxico intervened directly in the market, purchasing one billion dollars worth of pesos, but the effect lasted all of six hours or so. Friday, Banxico intervened again with another billion.

Market Not Impressed With Banxico Intervention

Market Not Impressed With Banxico Intervention

This time it seems to have halted the slide, at least for now. But such intervention is not sustainable as it will chew up foreign exchange reserves in a hurry. And Mexico’s foreign reserves took a hit in 2015 and haven’t recovered. Moreover, central bank interventions in currency markets have a long and storied history of failure. If the market wants to take the peso lower, it will.

Foreign Exchange Reserves Well Off Their Highs

Foreign Exchange Reserves Off Their Highs

So Mexico finds itself in a tough spot. Though the peso could bounce a bit from here in the short term given the recent bolus of bad news, I suspect that it will find lower levels before stabilizing. Trump indeed will build the wall. Though that shouldn’t affect Mexico’s economy directly, it will be a psychological blow for the country and its investors. Worse, Trump has already persuaded several high profile companies not to invest in Mexico. And whether he can actually carry through with his threats or not, we can be certain that any company which had been considering inbound investment in Mexico has to at the very least be delaying such plans to see what comes after the inauguration.

As for this gringo, I’m fairly convinced that now is not the time to be buying property in Mexico. The peso is likely to get cheaper in my view. Between higher interest rates, higher gasoline prices, likely increases in inflation, and a “Trump-nado” about to be released, Mexico is probably looking at a recession in the next year. Given the social fragility that this episode has revealed, one can only wonder what might occur during a full-fledged recession. Buckle up. It’s going to be a bumpy ride.

P.S. This post has been a couple days in the making. This morning’s news suggests that the worst of the rioting and shortages may be over or on the mend. Nonetheless, I believe my conclusion still stands.

P.P.S. For an earlier analysis of the Mexican Peso I wrote in January 2016, click here.