Editorials | July 2009
|The New Global Economic Reality - Part 2|
Charles Simpson - MexInvestNow.com.
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.
|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.|
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.
DOW JONES: MAY 2004 10,200 - MAY 2009 8,200 - 20% LOSS IN 5 YEARS
MEXICAN BOLSA: MAY 2004 10,000 - MAY 2009 23,000 - 130% GAIN IN 5 YEARS
After working on Wall Street for a quarter of a century, Charles Simpson retired to Puerto Vallarta where he has been living with his wife and daughter for 8 years. He feels an education about Mexico is the first step for anyone considering purchasing property here, so he uses his extensive research and financial background to benefit his investor clients and to write articles on investment opportunities in Mexico for various online publications and real estate magazines. For more information, contact Charles mexinvestnow(at)gmail.com, or visit his website MexInvestNow.com.