Mexican Commentary - 7/20

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Jul 22, 1996, 3:00:00 AM7/22/96

Mexican Commentary - 7/20

.. "Timely news and analysis to profit by"
P O Box 30557, Alexandria, Va 22310
[Vol. II Issue No. 28] [July 20, 1996]

Mexican Commentary Home Page - over 140 Charts!

The Mexican market rallied from a market reversal
situation on Tuesday followed by a sharp Greenspan Rally
on Thursday on the belief that U.S. interest rates will
remain unchanged for the time being.
Mexican speculators caught by surprise in expecting a
rate rise were stuck with expensive dollars and pushed
the peso higher at week's end along with expat investors
who wanted to capture high Mexican rates that were
quickly slipping away in the secondary cetes market.
With the major part of the market correction out of
the way. Investors will now concentrate more on
individual company fundamentals rather than the market
technical dynamics. Earnings reports are coming in as a
mixed bag. But, many companies are showing expanding
sales volumes.
The peso seems to be undervalued compared to the
prospects for lower inflation and the yields available
on Mexican cetes. Either interest rates will come down
or the peso will continue to strengthen or both. Lower
rates are needed to grow the economy and the peso should
follow the trend in inflation that should take it 10%
lower by the end of the year.
The IPC index closed the week at 3060.08 up 50.10,
1.7% . The peso firmed up a bit to close at 7.61 up 0.5
centavos, 0.1%. On a dollar basis, the IPC increased

General Market Comments

We abandoned our usual conservative approach to the
market because of the unusual market action that brought
down prices in a selling climax on Tuesday. This
presented an extra ordinary opportunity. We sold bonds
to buy Mexican stocks. We sold our ICA bonds and bought
ICA stock. Grupo Tribasa was brought down to a
ridiculously low price on Tuesday so we doubled our
position at 3-3/8. Penn Octane was dragged down to a
ridiculously low level because of the collapse of the
NASDAQ market so we bought some additional shares when
it was below 4 dollars a share. Other recent purchases
included MSK, EKT, KOF and WEMEX. All are now higher in
In the height of market emotional despair and
distress - - the biggest opportunities appear. We
alerted out E-mail subscribers to these developments and
hopefully some profitable positions have been taken.
Technically, we seem to be having a strong market
reversal. Much of the upward bounce has already
occurred. Expectations are reasonable to assume that we
will get some consolidation before we again take off
into more of a sharp rally. We may also be in for a
stock pickers market with earnings reports now coming
out giving a reading on possible future results. Worst
possible event would be a retest of this past Tuesday's
lows and if it does get worse than that - yes we do have
more bonds to sell to pick up dimes for nickels. And,
as a last resort - - we will use margin buying power to
add additional shares of TV and TMX if the lows are
again successfully retested.

*** June Foreign Trade Data Up
For the month of June:
(All figures are in millions of dollars.)


TRADE SURPLUS 591 n/a 3,933 n/a
EXPORTS 7,633 +13.3 pct 45,469 +18.4 pct
Petroleum - 984 +30.5 pct 5,361 +26.1 pct

*** Exports Projected to Grow 33.9 Percent in 1996
Exports are expected to grow by 33.9 percent in 1996
over 1995, according to a survey released by Banco de
Mexico. Exporters are expecting a 17.9 percent increase
in the volume of production and to have their work force
increase by 7.3%. This also indicates a sharp increase
in worker productivity over and beyond wage increases
and additional hiring.

*** Increases in Sales Statistics and Auto Exports
Mexican Retail sales increased by 0.7% in May versus
a year ago. Also Wholesale sales were up 7.7% for the
same monthly comparison. Separately, June vehicle
exports were up 38.2 percent over June a year ago.

*** Airport Concession Bid Plans
Plans to bid out Mexico's airports into private hands
will soon be announced. It may be as much as a year
away before the process actually begins. Mexico has 58
airports that can be privatized. The objective is an
overall modernization of the country's transportation
system. A new airport for Mexico City is needed. The
winner of that bid will get a 50 year concession to
operate it. They will receive a profit on all
operations - - from every plane that lands and every
Coca-Cola that is sold.

*** FinMin Inflation Forecast Remains Unchanged at
Alejandro Valenzuela, Finance Ministry spokesman said
in a published interview last week that the Mexican
government's inflation forecast for 1996 remains at 20.5
percent. Reporters were trying to confirm Guillermo
Ortiz's mentioned inflation goal of "25 percent or less"
during a recent visit to New York. But, Valenzuela's
comments were that Ortiz's had been misinterpreted.
He was saying that analysts previously estimated between
a 30 and 35 percent inflation and are now predicting 25
Interest Rates

*** Cetes Rates Rise
Rates for Mexican Cetes - equivalent to Treasury
Bills, were priced to yield higher than the previous
week with the 28-day cete rising sharply in comparison
to the longer term maturities.
28-Day 32.94% + 95 basis points
91-Day 33.40% +179 basis points
182-Day 34.49% + 70 basis points
350-Day 35.48%

Bidding was less active than the previous week.
For 900 million of 28-day cetes, 3.47 billion were bid.
For 900 million of 91-day cetes, 4.64 billion were bid.
For 900 million of 182-day cetes, 2.86 billion were bid.

For the July 23 auction 3.3 billion pesos worth of
Cetes will be offered, the same amount as the previous
Corporate News

*** White Castle Grand Opening a Success
Our mystery shopper on July 14th observed the grand
opening of this first restaurant for Food Services of
the Americas. White Castle corporate observers were
there as well to closely monitor what was the most
successful opening of a White Castle hamburger
restaurant ever. People were standing and eating - the
place was packed wall to wall. For several hours, they
were selling 2,000 burgers per hour.
Thinking that the afternoon crowd would die down in
the evening, our mystery shopper's return trip several
hours later still found a large crowd patently waiting
in line to be served while the kiddies were enjoying all
the "tubos" on the playground setup.
They had a power failure (as is often the case in
this city) but the people didn't budge, until the lights
came back on. They too wanted to get their taste of
American cuisine.
Paul Slusarczyk, CEO, said he was going to install a
back-up generator/power plant as soon as possible.
Immediately, plans are going forward to open up
another 24 stores in Mexico City before the end of the
year. Expansion to other cities will have several
hundred Mexican locations under
Food Service's management. We are going to inquire
about them opening up the financing for a possible
public stock offering. With the success of this opening
a NASDAQ small cap listing should be possible soon.
Our mystery shopper remains undaunted, he will keep
returning to the site until he can find a convenient
waiting line. To greet him will be Enrique Tachna who
is managing the burger flipping and now making plans for
the 1,000,000 burger served celebration. At the rate
they are going - that will be next week.
This NAFTA success story is providing a wonderful
service to middle class Mexican's who want to enjoy an
affordable meal out - - a wonderful weekend reprieve
from the kitchen for a busy women and a macho surprise
for a man to swing by the drive up window to treat his

*** Penn Octane Boosts LPG Volume
Penn Octane Corporation ( POCC) reported that LPG gas
sales volumes in May 1996 totaled 5,806,357 gallons as
compared to 3,284,216 gallons in May 1995, an increase
of 76%. Sales volumes in June 1996 totaled 5,084,630
gallons as compared to 2,196,794 gallons in June 1995,
an increase of 131%. For the first eleven months of the
current fiscal year through June, total sales were
60,441,490 gallons, an increase of 83% over the total
sales for the same period in the prior fiscal year which
totaled 32,960,355 gallons.
Penn Octane Corporation operates an LPG pipeline in
South Texas and an LPG terminal in the Port of
Brownsville, Texas.
The Company also reported that effective July 1,
1996, its corporate operations have been consolidated in
Houston, Texas. The new corporate headquarters location
is: 5847 San Felipe, Suite 3420, Houston, TX, 77057 -
The cost of corporate consolidation was minimal
according to Mark Casaday, President of the company.
"We expect to realize a savings from efficiency in
Their market continues to look secure. An interview
with Keith Booke of Valero Energy had him say that
Valero has no interest in that kind of business. Valero
has their hands full in trying to keep their MBTE fuels
project going in Mexico that has cooled off making
recovery of their multi-million dollar investment
Mark Casaday at Penn Octane said that the investment
versus the returns to pipe-in LPG to compete with Penn
Octane would offer little return because of their
current pricing arrangement with Pemex. There are a few
wildcat truckers hauling in some LPG scalping with some
low prices but they can not compete with Penn Octanes
steady supply.
Business on the Texas side of the border is very slow
this time of the year and not as profitable as what is
expected this Winter. Another break-even to slightly
profitable quarter is expected but the real proof of
their success will be measured by the results in the
their new Fiscal Year to start in August.
POCC stock's price recovered sharply this past week
on the news of increased volume.

*** DESC ADSs Priced at 19
DESC, S.A. de C.V. ( DES) announced that it had
priced a US$105 million combined global equity offering
of its Series C shares, represented in part, by American
Depositary Shares (ADSs) at $19 per ADS. The Company
raised US$75 million in a public offering of Series C
shares and ADSs in Mexico, the U.S. and other
international markets, and US$30 million in a direct
placement of ADSs to a current director and stockholder
of the Company. The combined offering represents a
total of 5.55 million ADSs (excluding underwriters'
overallotment options). Closing is expected to occur on
July 24, 1996.

Mexican Commentary (c) 1996 - SEC Registered, an
information service. P O Box 30557, Alexandria, VA 22310
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