Mexico City, Mexico

This is probably the hardest trip of my life. My sister and I are in Mexico City this week liquidating my late father's apartment. My dad passed away at 72 on September 23 after years of neglecting his health. Though we endured a conflicting relationship he was still my father and he is sorely missed. This trip is difficult.

I've been visiting Mexico for decades and enjoy the country. I love Mexican food, the beaches and the weather. But Mexico's economy is running on borrowed time.

Since peaking earlier this decade the Cantarell oil fields in Mexico are now in a long-term decline as it pertains to oil production. The long-term implications for Mexico, PEMEX and its prosperity leave policy-makers with a formidable challenge to replace ageing fields.

After producing more than 2,000,000 barrels per day in 2003, Cantarell barely spits out 500,000 barrels per day in 2009. Cantarell recorded the second-highest annual production of all time at 2.1 million barrels per day in 2003 – second only to the largest field by every measure, Saudi Arabia's Ghawar, according to Grant's Interest Rate Observer. But over the last six years daily production has crashed by almost two-thirds.

On the currency front, the peso is one of the few currencies in the world this year that has remained virtually unchanged vis-à-vis the falling dollar. And since last September, the peso has tanked almost 20% against the dollar. Mexico needs a competitive currency because her exports are compromised by China; increasingly, Mexico is losing export market share to the Chinese – a phenomenon largely shared by every exporting nation over the last 20 years.

Thus far, credit markets still like Mexican paper. Credit spreads on benchmark ten-year Mexican bonds are just 228 basis points higher than Treasury bonds or 2.28%. Though I wouldn't coin Mexico an emerging market by the strictest definition of that term – Bangladesh and Sri Lanka are true emerging markets – investors have voted, and give Mexico and other emerging markets a high ranking. Credit spreads, currencies and stock prices have recovered sharply since March. In fact, they've been rallying sharply since 2002.

Mexico, like some of the largest emerging markets (Brazil, Russia, Indonesia) needs high oil (and commodity prices) to sustain the current level of credit spreads and positive balance of payments. At some point, oil prices and the rest of the complex will suffer a steep correction and asset markets will decline.

Is this time different for the emerging markets? Do they deserve such high kudos this decade for surviving and largely escaping the credit crisis? Yes, they do. Longer term, growth rates in the emerging markets will far outpace major markets. But the entire asset class is heavily overbought – currencies, credit spreads and stock prices discount the best of all worlds for this universe. All the good news is already baked into prices – and probably more.

Meanwhile, Mexico needs to replace oil production – and fast.