THE NEW GLOBAL ECONOMIC REALITY
First: A reality check on Mexico
Mexico is in a unique position to reap many of the benefits of the decline ofthe US economy. In order to not violate NAFTA and other agreements the U.S.A. cannot use direct protectionism, so it is content toallow the media to play this protectionist role. The U.S. media - overthe last year - has portrayed Mexico as being on the brink of economic collapseand civil war. The Mexican people are either beheaded, kidnapped, poor,corrupt, or narco-traffickers. The American news media was particularlyaggressive in the weeks leading up to spring break. The main reason for this ismoney. During that two-week period, over 120,000 young American citizens pouredinto Mexico and left behind hundreds of millions of dollars.
Let's look at the reality of the massive drug and corruption problem,kidnappings, murders and money. The U.S. Secretary of State Clinton was clearin her honest assessment of the problem. "Our insatiable demand forillegal drugs fuels the drug trade. Our inability to prevent the weapons frombeing illegally smuggled across the border to arm these criminals causes thedeaths of police officers, soldiers and civilians," Clinton said. Theother large illegal business that is smuggled into the U.S.A. that no one likesto talk about is Human Traffic for prostitution. This "business" isglobally now competing with drugs in terms of profits.
Is there corruption in Mexico? YES !!! Is there an equal amount of corruptionrelated to this business in the U.S.A.? YES !!!. When you have a pair ofillegal businesses that generate over $300,000,000,000 in sales you will findmassive corruption. Make no mistake about the Mexican Drug Cartel; these"businessmen" are 100 times more sophisticated than the bumblingbootleggers during Prohibition. They form profitable alliances all over theU.S.A. They do cost benefit analysis of their business much better than the USautomobile industry. They have found over the years that the cost of bribingU.S. and Mexican Border Guards and the transportation costs of moving marijuanafrom Sinaloa to California have cut significantly into profits. That is whyover the past 5-7 years they have been growing marijuana in State and FederalParks and BLM land all across America. From a business standpoint, this is atremendous cost savings on several levels. Let's look at California as anexample as one of the largest consumers. When you have $14.2 billion ofMarijuana grown and consumed in one state, there is savings on transportation,less loss of product due to confiscation and an overall reduction cost ofbribery with law enforcement and parks service people. Another great savings isthe benefit to their employees. The penalties in Mexico for growing range from5-15 years. The penalties in California, on average are 18 months, and out in 8months. The same economic principles are now being applied to themethamphetamine factories.
FOX News continues to scare people with its focus on kidnapping. There arekidnappings in Mexico. The concentration of kidnappings has been in MexicoCity, among the very rich and tCiudad Juarez by the Texas border. With theexception of Mexico City, the number one city for kidnappings among NAFTAcountries is Phoenix, Arizona with over 359 in 2008. The Phoenix Policeestimate that twice that number of kidnappings goes unreported, because likeMexico 99% of these crimes were directly related to drug and human traffic.Phoenix, unfortunately, is geographically profitable transshipping location.Mexicans, just like 99% of U.S. Citizens during prohibition, go about theirdaily lives all over the country. They get up, go to school or work and livetheir lives untouched by the border town violence.
These same protectionist news sources have misled the public as to the realdanger from the swine flu in Mexico and temporary devastated the tourismbusiness. As of May 27 2009 there have been 87 deaths in Mexico from the swineflu. During those same five months there have been 36 murdered school childrenin Chicago. By their logic, if 87 deaths from the swine flu in Mexico warrantscanceling flights and cruise ships to Mexico, then close all roads and highwaysin the USA because of record 43,359 automobile related deaths in the USA in2008.
What is just getting underway is what many are calling the "Largestsouthern migration to Mexico of people and real estate assets since the CivilWar" A significant percentage of the Baby Boomers have been doing theresearch and are making the life changing decision to move out of the U.S.A.The number one retirement destination in the world is Mexico. There are alreadyover 2,000,000 US and Canadian property owners in Mexico. The most conservativenumber of American and Canadian Baby Boomers who are on their way to owningproperty in Mexico for full or part time living in the next 15 years is over6,000,000. Do the math on 6,000,000 people buying a $300,000 house or condo andyou will understand why the U.S. Government is trying to tax this massive shiftof money to Mexico through H.R. 3056. The U.S. government calls this "TheTax Collection Responsibility Act of 2007". Those who will have to pay itare calling this the EXIT TAX.
Mexico: A better economic choice than China
Another large exodus from the U.S.A is high paying skilled jobs. The job shiftin automobile sector, both car and parts manufacturing, is already known bymost investors. In the last few months as John Deere and Caterpillar have beenlaying off thousands of workers in the U.S.A., and hiring equal numbers inMexico. The most recent industry that is making the shift is the aerospacemanufacturers. In the city of Zacatecas there is currently a $210 millionaerospace facility being built. With the 11 U.S. companies moving there, it isestimated to provide over 200,000 new high paying jobs in the coming years. Oneof the main factors for the shift in job south to Mexico instead of China isrealistic analysis of total production, labor and delivery costs. While thelabor costs in China are 40% less on average, the overall transportation costsand inherent risks of a long distance supply chain, and quality control issues,gives Mexico a distinct financial advantage.
Mexico's real economic future
Mexico has avoided completely the subprime problem that has devastated the U.S.banking industry. The Mexican banks are healthy and profitable. Mexico has agrowing and very healthy middle and upper middle class. The very recentintroduction of residential financing has Mexico in a unique position of havingover 90% of current homeowners owning their house outright. U.S. banks arecompeting for the Mexican, Canadian and American cross border loan business. Itis and will continue to be a very safe and very profitable business. These samebanks that were loaning in a reckless manner have learned their lesson and areloaning here the old fashioned way. They require a minimum of a 680 creditscore, 30% down payment, and verifiable income that can support the loan. Inmost areas of Mexico where Baby Boomers are moving to, with the exception ofPuerto Penasco (which did not have a national and international base ofbuyers), there is no real estate bubble.. The higher end markets ($2-20million) in many of these destinations are going through a modest correction.The Baby Boomers market here is between $200,000 and $600,000. With thecontinuing demand inside the Bay of Banderas, that price point, in the comingyears, will disappear. This is the reason the Mexican government is spendingbillions of dollars on more infrastructure north along the coast all the way upto Mazatlan.
The other major area where America has become overpriced is in the field ofhealth care. This massive shift of revenues is estimated to add 5-7% toMexico's GDP. The name for this "business" is Medical Tourism. Thetwo biggest competitors for Mexico were Thailand and India. Thailand andIndia's biggest drawback is geography. Also recent events, Thailand's inabilityto keep a government in place and the recent terrorist attack in Mumbai, havehelped Mexico capture close to half of this growth industry. In Mexico todaythere are over 56 world class hospitals being built to keep up with thisbusiness.
Mexico is currently sitting on a cash surplus and an almost balanced budget.Most Americans have never heard of Carlos Slim until he loaned the New YorkTimes $250 million. After that it became clear to many investors around theworld what Mexicans already knew: that Mexico had been able to avoid the worstof the U.S. economic devastation. Mexico's resilience is to be admired. Whenthe U.S. Federal Reserve granted a $30 billion loan to each of Mexico,Singapore, South Korea, and Brazil, Mexico reinvested the money in Treasurybonds in an account in New York City.
According to oil traders, Mexico's Pemex wisely as the price of oil shot to$147 a barrel put in place an investment strategy that hinged on oil trading inthe range of $38-$60 a barrel. Since the beginning of 2009 Mexico has beencollecting revenues on hedged positions that give them $90-$110 per barreltoday. Mexico's recent and under reported oil discovery in the Palaeo Channelsof Chicontepec has placed it third in the world for oil reserves, right behindCanada and Saudi Arabia.
The following is a quote from Rosalind Wilson, President of the CanadianChamber of Commerce on March 19, 2009. "The strength of the Mexicaneconomic system makes the country a favorite destination for Canadianinvestment".
In BAJA CALIFORNIA: Rosarito Beach and Ensenada are inhigh demand again
Whys is this? So many regions and countries would liketo be where northen Baja is located!
Northen Baja is located at only a 45 minute drive fromSan Diego, ca, and less than 5 hours from anyhere in Las Vegas, southerArizona, Los Angeles, Riverside, San Bernardino, Palm Springs, etc.
Not only can you find top-of-the linehospitals, clinics and dental care in Baja california, and most USinsurance plans are accepted there, but you are only minutes away from SanDiego.
Beautiful people, beautiful beaches, amazing prices at a fraction of what youwould expect in these above mentioned cities.
The cost of living in Baja is at least 35% less thanin the USA...
I would offer a word of caution for investors in Mexico. Do not be seduced bythe endless natural beauty that is everywhere, both inland in colonial townsand along thousands of miles of beach. Apply conservative medium and long terminvestment strategies without emotion. The demand for full and part time livingby American and Canadian Baby Boomers is evident throughout the country. Thetop two choice locations are ocean front, and ocean view. The third overallchoice, which is less expensive, is inland in one of the many beautifulcolonial towns or small cities.
Mexico, with the world's 13th largest GDP, is no longer a "Third WorldCountry", but rather a fast growing, economically secure state, as themost recent five-year history of its financial markets when compared to theU.S.A.'s financial markets suggests.
DOW JONES AVERAGES MAY 2004 10,200 - MAY 2009 8,200 20% LOSS IN 5 YEARS
in March 2011: 12,000
MEXICAN BOLSA MAY 2004 10,000 - MAY 2009 23,000 130% GAIN IN 5 YEARS
In March 2011: 37,500 !!