Mexico in the News
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 temporary 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. 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 in Cabo San Lucas, 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”.