Charles Simp­son
Invest Mag­a­zine
Mex­In­vest Now.com

How to pros­per & avoid the com­ing storm and pro­longed eco­nomic stag­na­tion in the USA.

First: A real­ity check on Mexico

Mex­ico is in a unique posi­tion to reap many of the ben­e­fits of the decline of the US economy.

In order to not vio­late NAFTA and other agree­ments the U.S.A. can­not use direct pro­tec­tion­ism, so it is con­tent to allow the media to play this pro­tec­tion­ist role.

The U.S. media – over the last year – has por­trayed Mex­ico as being on the brink of eco­nomic col­lapse and civil war. The Mex­i­can peo­ple are either beheaded, kid­napped, poor, cor­rupt, or narco-traffickers.

The Amer­i­can news media was par­tic­u­larly aggres­sive in the weeks lead­ing up to spring break. The main rea­son for this is money. Dur­ing that two-week period, over 120,000 young Amer­i­can cit­i­zens poured into 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 clear in her hon­est assess­ment of the prob­lem. “Our insa­tiable demand for ille­gal drugs fuels the drug trade. Our inabil­ity to pre­vent the weapons from being ille­gally smug­gled across the bor­der to arm these crim­i­nals causes the deaths of police offi­cers, sol­diers and civil­ians,” Clin­ton said.

The other large ille­gal busi­ness that is smug­gled into the U.S.A. that no one likes to talk about is Human Traf­fic for pros­ti­tu­tion. This “busi­ness” is glob­ally now com­pet­ing with drugs in terms of prof­its. It is crit­i­cal to under­stand, how­ever that the hor­rific vio­lence in Mex­ico is over 95% con­fined to the three trans­ship­ping cities for these two busi­nesses, Tijuana, Nogales, and Juarez. The Mex­i­can gov­ern­ment is so seri­ous about fight­ing this, that they have com­mit­ted over 30,000 sol­diers to these bor­ders towns.

There was a thought­ful arti­cle writ­ten by a pro­fes­sor at the Uni­ver­sity of Juarez. He was reminded of the Pro­hi­bi­tion years in the U.S.A. and com­pared Juarez to Chicago when Al Capone was con­duct­ing his reign of ter­ror capped off with The Saint Valentine’s Day Massacre.

Dur­ing these years, just like Juarez today, 99% of the cit­i­zens went about their daily lives and attended classes, went to the movies, restau­rants, and parks.

Is there cor­rup­tion in Mexico?

YES!!!

Is there an equal amount of cor­rup­tion related to this busi­ness in the U.S.A.?

YES !!!

When you have a pair of ille­gal busi­nesses that gen­er­ate over $300,000,000,000 in sales you will find mas­sive cor­rup­tion.

Make no mis­take about the Mex­i­can Drug Car­tel; these “busi­ness­men” are 100 times more sophis­ti­cated than the bum­bling boot­leg­gers dur­ing Prohibition.

They form prof­itable alliances all over the U.S.A. They do cost ben­e­fit analy­sis of their busi­ness much bet­ter than the US auto­mo­bile indus­try. They have found over the years that the cost of brib­ing U.S. and Mex­i­can Bor­der Guards and the trans­porta­tion costs of mov­ing mar­i­juana from Sinaloa to Cal­i­for­nia have cut sig­nif­i­cantly into profits.

That is why over the past 5–7 years they have been grow­ing mar­i­juana in State and Fed­eral Parks and BLM land all across Amer­ica. From a busi­ness stand­point, this is a tremen­dous cost sav­ings on sev­eral lev­els. Let’s look at Cal­i­for­nia as an exam­ple as one of the largest con­sumers. When you have $14.2 bil­lion of Mar­i­juana grown and con­sumed in one state, there is sav­ings on trans­porta­tion, less loss of prod­uct due to con­fis­ca­tion and an over­all reduc­tion cost of bribery with law enforce­ment and parks ser­vice people.

Another great sav­ings is the ben­e­fit to their employ­ees. The penal­ties in Mex­ico for grow­ing range from 5–15 years. The penal­ties in Cal­i­for­nia, on aver­age are 18 months, and out in 8 months. The same eco­nomic prin­ci­ples are now being applied to the metham­phet­a­mine factories.

FOX News con­tin­ues to scare peo­ple with its focus on kid­nap­ping. There are kid­nap­pings in Mex­ico. The con­cen­tra­tion of kid­nap­pings has been in Mex­ico City, among the very rich and the three afore­men­tioned bor­der Cities. With the excep­tion of Mex­ico City, the num­ber one city for kid­nap­pings among NAFTA coun­tries is Phoenix, Ari­zona with over 359 in 2008.

The Phoenix Police esti­mate that twice that num­ber of kid­nap­pings goes unre­ported, because like Mex­ico 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 their daily lives all over the coun­try. They get up, go to school or work and live their lives untouched by the bor­der town violence.

These same pro­tec­tion­ist news sources have mis­led the pub­lic as to the real dan­ger from the swine flu in Mex­ico and tem­porar­ily dev­as­tated the tourism business.

As of May 27 2009 there have been 87 deaths in Mex­ico from the swine flu. Dur­ing those same five months there have been 36 mur­dered school chil­dren in Chicago.

Many “news sources” in the USA have a lack of integrity. By their logic, if 87 deaths from the swine flu in Mex­ico war­rants can­cel­ing flights and cruise ships to Mex­ico, then close all roads and high­ways in the USA because of record 43,359 auto­mo­bile related deaths in the USA in 2008.

What is just get­ting under­way is what many are call­ing the “Largest south­ern migra­tion to Mex­ico of peo­ple and real estate assets since the Civil War”. A sig­nif­i­cant per­cent­age of the Baby Boomers have been doing the research 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 already over 2,000,000 US and Cana­dian prop­erty own­ers in Mexico.

The most con­ser­v­a­tive num­ber of Amer­i­can and Cana­dian Baby Boomers who are on their way to own­ing prop­erty in Mex­ico for full or part time liv­ing in the next 15 years is over 6,000,000. Do the math on 6,000,000 peo­ple buy­ing a $300,000 house or condo and you will under­stand why the U.S. Gov­ern­ment is try­ing to tax this mas­sive shift of money to Mex­ico through H.R. 3056.

The U.S. gov­ern­ment calls this “The Tax Col­lec­tion Respon­si­bil­ity Act of 2007”. Those who will have to pay it are 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 shift in auto­mo­bile sec­tor, both car and parts man­u­fac­tur­ing, is already known by most investors. In the last few months as John Deere and Cater­pil­lar have been lay­ing off thou­sands of work­ers in the U.S.A., and hir­ing equal num­bers in Mexico.

The most recent indus­try that is mak­ing the shift is the aero­space man­u­fac­tur­ers. In the city of Zacate­cas there is cur­rently a $210 mil­lion aero­space facil­ity being built. With the 11 U.S. com­pa­nies mov­ing there, it is esti­mated to pro­vide over 200,000 new high pay­ing jobs in the com­ing years. One of the main fac­tors for the shift in job south to Mex­ico instead of China is real­is­tic analy­sis of total pro­duc­tion, labor and deliv­ery costs. While the labor costs in China are 40% less on aver­age, the over­all trans­porta­tion costs and 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 a grow­ing and very healthy mid­dle and upper mid­dle class. The very recent intro­duc­tion of res­i­den­tial financ­ing has Mex­ico in a unique posi­tion of hav­ing over 90% of cur­rent home­own­ers own­ing their house out­right. U.S. banks are com­pet­ing for the Mex­i­can, Cana­dian and Amer­i­can cross bor­der loan business.

It is and will con­tinue to be a very safe and very prof­itable busi­ness. These same banks that were loan­ing in a reck­less man­ner have learned their les­son and are loan­ing here the old fash­ioned way. They require a min­i­mum of a 680 credit score, 30% down pay­ment, and ver­i­fi­able income that can sup­port the loan.

In most areas of Mex­ico where Baby Boomers are mov­ing to, with the excep­tion of Puerto Penasco (which did not have a national and inter­na­tional base of buy­ers), there is no real estate bubble.

The higher end mar­kets ($2–20 mil­lion) in many of these des­ti­na­tions are going through a mod­est cor­rec­tion. The Baby Boomers mar­ket here is between $200,000 and $600,000. With the con­tin­u­ing demand inside the Bay of Ban­deras, that price point, in the com­ing years, will disappear.

This is the rea­son the Mex­i­can gov­ern­ment is spend­ing bil­lions of dol­lars on more infra­struc­ture north along the coast all the way up to Mazatlan.

The other major area where Amer­ica has become over­priced is in the field of health care. This mas­sive shift of rev­enues is esti­mated to add 5–7% to Mexico’s GDP. The name for this “busi­ness” is Med­ical Tourism.

The two biggest com­peti­tors for Mex­ico were Thai­land and India. Thai­land and India’s biggest draw­back is geog­ra­phy. Also recent events, Thailand’s inabil­ity to keep a gov­ern­ment in place and the recent ter­ror­ist attack in Mum­bai, have helped Mex­ico cap­ture close to half of this growth industry.

In Mex­ico today there are over 56 world class hos­pi­tals being built to keep up with this business.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 York Times $250 mil­lion. After that it became clear to many investors around the world what Mex­i­cans already knew: that Mex­ico had been able to avoid the worst of the U.S. eco­nomic devastation.

Mexico’s resilience is to be admired. When the U.S. Fed­eral Reserve granted a $30 bil­lion loan to each of the fol­low­ing coun­tries Mex­ico, Sin­ga­pore, South Korea, and Brazil, Mex­ico rein­vested the money in Trea­sury bonds 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 in the range of $38-$60 a bar­rel. Since the begin­ning of 2009 Mex­ico has been col­lect­ing rev­enues on hedged posi­tions that give them $90-$110 per bar­rel today.

Mexico’s recent and under reported oil dis­cov­ery in the Palaeo Chan­nels of Chicon­te­pec has placed it third in the world for oil reserves, right behind Canada and Saudi Arabia.The fol­low­ing is a quote from Ros­alind Wil­son, Pres­i­dent of the Cana­dian Cham­ber of Com­merce on March 19, 2009. “The strength of the Mex­i­can eco­nomic sys­tem makes the coun­try a favorite des­ti­na­tion for Cana­dian investment”.

OPPORTUNITIES: WHY PUERTO VALLARTA & THE RIVIERA NAYARIT?

The answer is sim­ple and old fash­ioned: SUPPLY AND DEMAND.

The area of Puerto Vallarta/Riviera Nayarit inside the Bay of Ban­deras is an investor’s dream. This area has the com­pre­hen­sive infra­struc­ture in place, world class hos­pi­tals and den­tal care, nat­ural invest­ment pro­tec­tion from the Sierra Madre Moun­tains, end­less future water sup­ply, low to nonex­is­tent crime, inter­na­tional air­port, and lim­ited sup­ply inside the Bay, first class pri­vate bilin­gual schools and higher than aver­age appre­ci­a­tion potential.

Like many areas in Mex­ico there is large demand for full and part time retire­ment liv­ing and a lot of con­struc­tion under­way to meet this demand. Pre con­struc­tion of course is where the best bar­gains are available.

I would offer a word of cau­tion for investors in Mexico.

Do not be seduced by the end­less nat­ural beauty that is every­where, both inland in colo­nial towns and along thou­sands of miles of beach. Apply con­ser­v­a­tive medium and long term invest­ment strate­gies with­out emo­tion. The demand for full and part time liv­ing by Amer­i­can and Cana­dian Baby Boomers is evi­dent through­out the country.

The top two choice loca­tions are ocean front, and ocean view. The third over­all choice, which is less expen­sive, is inland in one of the many beau­ti­ful colo­nial towns or small cities.

Mex­ico, with the world’s 13th largest GDP, is no longer a “Third World Coun­try”, but rather a fast grow­ing, eco­nom­i­cally secure state, as the most recent five-year his­tory of its finan­cial mar­kets when com­pared to the U.S.A.’s finan­cial mar­kets suggests.

Charles Simp­son
Mex­In­vest Now.com

More from this author: http://www.mydigitalpublication.com/publication/?i=4172&p=55