Drug War: Mexico’s Potential For Collapse

The 60 Minutes report on the Mexican drug war will certainly not fall on deaf ears on Wall Street as both an investable theme and a political nightmare. As I wrote in January, Mexico has been identified by the US Joint Force Command as one of the two countries in the world that have the potential to become a failed state. The other country with the potential to fail? Pakistan.

The 60 minutes story did a good job of highlighting the danger and depth of the political corruption. For those of you who did not see it, here is the video…

However, they did not dive into the future. Mexico hedged its 2009 oil production at $70 a barrel and thus have the money to fight the drug war. Despite having the fiscal resources the Mexican government is stilling losing to the drug cartels. The potential for political and economic collapse will grow in 2010 as Mexico faces a budget deficit caused by $40 oil and declining oil reserves.

Disclosure: I am short FXM and EMB

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