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Anybody see the local news at lunch today?
A representative for the ICT was predicting a lower tourist season based on the US recession.
On Monday, Australian equities lost 2.1% amid new revelations of the U.S. recession.
U.S. recessions have always caused problems for the U.K., Canada and all large exporters to the U.S.
Are North Americans who listen to the US media conglomerates, the only ones on the planet that still believe the US economy is experiencing an economic downturn?
Ignore the BS you here coming out of Washington. The politicians are ignoring the facts indicating another recession. It’s an election year and that’s what politicians do. They rely on “Political Blind Faith”
When exactly does and economic downturn become a full-blown recession. History has repeatedly told us but we are very good at forgetting and forgiving our elected public officials who greatly profit from the upturns and lay low during the downturns.
Civilians need to plan for reality and prepare to make business and lifestyle adjustments. We are not insulated like the politicians and their lobbying buddies. The U.S. recession will cause worldwide economic repositioning.
Moreover, the USA’s recessions have always resulted in many years of recovery. The recovery periods last much longer than the downturns. Look at how long the Resolution Trust Corporation, (RTC) functioned, as the US government-owned asset management company mandated to liquidate assets of real estate and mortgage loans, as a consequence of the savings and loan crisis of the 1980’s. The RTC was established in August of 1989 and was closed in December 1995.
Do any current events sound similar?
Who benefited from the Savings and Loans blindly lending money that resulted in a huge recession, lasting six years? Another generation of politicians, that’s who. They eased the consumer protection laws, allowing the huge mortgage companies to bury inexperienced consumers with mortgages they could not afford.
Are you willing and able to ride out the next recession for six years?
The pending recession has increased foreign investors and international company’s interest to search globally for “safe havens” in emerging economies offshore. What does that mean to the average North American civilian? It means there will be less jobs and less consumer spending which affect everyone in the USA.
Currently, some economists are predicting a dollar rally based on a US economic downturn. Deutsche Bank predicts a stronger dollar by years-end, and said, “The euro will be worth $1.30, down from its current $1.47.” However, there are other predictions from large international conglomerates such as Scotiabank that stated in December, “because of the pending U.S. recession and concerns about the diversification of foreign central bank reserves, the dollar has not reached bottom yet.”
How much time do we have before the US economy hits bottom? No one economist or politician ever really knows. However, prudent business people cannot afford to relax and wait for political results. History has taught us to look beyond political positioning and promises.
This recession’s probability, is certainly good reason for investors and businesses to look globally for opportunities. Markets with stable, growing economies and democratic governments that welcome foreign investment become very attractive when the US economy shrinks.
If you are an investor or are still in business and need to keep making money, you need to look for your own personal solution, before the BS hits the fan.
With favorable trade agreements in place and for a multitude of other reasons, I consider myself very fortunate to be plugged into the Costa Rican economy and unplugged from the USA. Every time I hear the BS being spread throughout the world, about a short US recession, I count my blessings and treasure my simple life here in Ticolandia. Pura Vida!During the one month period of 9th December 2007 – 9th January 2008 I have been in communication with approximately 500 people who are planning to buy Costa Rica real estate.
All I can say is that if the New Year continues like this I’ll be dead of exhaustion before the end of February…
Scott Oliver – Founder
WeLoveCostaRica.comIt is human nature to put a spin on things. If you are poor, why then, “Money can’t buy happiness”. If you are not particularly attractive, then “ beauty is only skin deep”. If you are an expat in Costa Rica, you may be well positioned to benefit from a harsh recession in the U.S. After all, money has to park itself somewhere. If investment opportunities are slim in the States, then they may well be much better in Costa Rica. The deeper the recession, the longer the recovery, the more wealth might be transferred to little Costa Rica, where many of us own land. I get the impression there may a bit of wishful thnking on the part of some who predict a falling sky. Others in that camp may be influenced in their analysis by their political philosophy. There are bears and there are bulls and there are conservatives and there are liberals and there are chicken Littles and there are Pollyanas.
History is used often, like statistics, to back up particualr points of view and to make predicitions. And like statistics, history can be bent and interpreted to fit whatever thesis is being presented. After all, how many times throughout history has Chicken Little taken to the streets? And how many times have we seen self fulfilling predictions come to pass in the panic after she puts on her show?
Humans are pack animals. We follow leaders. I have no idea if we will end up following Chicken Little and end up in a deep, long recession, or if we will follow Pollyana this time and have a short recession. We are in a recession but I can’t tell which camp is the largest. But I am not going to panic.
I am keeping my head up and I am listening and watching closely. I have put my portfolio into a 40% cash position, divested out of financials and consumer discretionary companies and moved more money into tech, energy and foreign companies .But I am NOT buying gold, burying cash in a hole in the back yard and storing canned food in a shelter. I remain mostly plugged into the U,.S. for the time being with a tentative foot in the Central Valley where I hold a piece of property. The best tactic to survive anything is to avoid following the crowd…especially if that crowd is intent on running over cliff…
Very good analysis Sprite. Plugging into multiple economies may be the safest bet right now. Even if we go into a deeper and more prolonged recession, investing in CR may be just the thing to balance the risk. My crystal ball cracked a number of years ago, so I think it is fair to say guessing is just that, and no more. I think we can see the turbulence in the way the presidential primary is going. Some will latch onto any glimmer of hope for a turnaround in our economy and in our political situation. It appears this mess will take some time to recover from, and the uncertainty of the upcoming election just adds a bit more of that to it.
Is there anyone in Costa Rica that regularly follows this issue and publicly?
Diversifying into other markets is wise, not only now in the face of recession, but always. However, the US being the market it is, directly affects the global economy. Thus in the case of US recession, it is inevitable that the global economy, including Central America and Costa Rica, will feel the trickle down effect, especially in light of the US being the recipient of the majority of CR’s exports.
Furthermore, what Costa Rica is selling is luxury, and therefore may, like all other luxury goods in times of recession, be the first to feel the pull back.
Is it fair to say that 60% of the foreign real estate buyers in CR are Americans? Regardless of the actual proportion, lets analyze just one of the countless scenarios here. So over the past few years Joe and Joanna America have built up a fair amount of equity in their home. They bought their home in 2005 using an ARM at $300k and in March of 2007 it was worth $500k. They had so much gain on their home that they bought an investment property as well in the US by taking some of the equity out of their home and putting it into his investment property.
In the mean time Joe and Joanna visited CR and fell in love, thus his plans were to take the profit from their US investment property, once they realize it, and buy a nice ocean view retirement villa in the hills of Guanacaste. In March of 2007 Joe paid $200k the investment property expecting it to be worth $250k when it was finished being built.
Fast forward 10 months later to today. The house is finished and Joe is set to close on it. Joe closes, starts making payments and puts the investment property on the market to find that he can only get $125k for it, a far cry from the $50k gain he was anticipating.
Furthermore, Joe and Jo’s home is now only worth the $300k they paid for it back in 2005. To make matters worse, Joe and Joanna’s ARM is ready to reset. So now they are in a position whereby not only did they increase their net debt level by taking a loss on their investment property, but they are also facing a tremendous interest rate increase. Thus, they are forced into MUCH higher payments on the same house that is worth only what they paid for it in the beginning (at best). Lets just hope Joe or Joanna don’t work in the luxury auto sales or technology industries. The dream of Guanacaste is gone-acoste (sorry couldn’t resist), they are just now hoping to keep their jobs and not foreclose on their home.
Now I am not saying that there are days of gloom and doom ahead for CR, but there are definitely days of gloom and doom on the horizon in the US. And if CR’s primary resort property purchaser is experiencing days of gloom and doom it is only logical, reasonable and prudent to conclude that CR will at least feel some of that. After all, it is already estimated that tourism will suffer because of the US recession, are we to assume that real estate is immune to the same pressures that tourism experiences? Prices will soften and there will be opportunity. I am just hoping to take advantage of some of the widespread panic being seeded in the general populous by the media. And as for the the person that mentioned the 40% cash position, I like your thinking.
Now that it appears the USA has sneezed, and the entire world is afraid of catching pneumonia, we have to look at these events in context. The US economy is still the standard by which every other one is judged, like it or not. The events in the Asian and European markets the past few days have evidenced that. The US is still the leader in technology, has the largest economy, and it will most likely remain that way for some time. We still are a large consumer nation, with other economies dependent upon us. As far as the luxury auto industry is concerned, ask a Mercedes salesman. I did that just yesterday, and he told me sales were just fine in New York. The luxury buyer has not been affected, and even if they were, Mercedes will just lower the prices on the leases and stickers and all should be fine.
Having said all that, we should look to what may happen in the next year or two. Interest rates in the short term will come down here. Those on the verge of losing their homes may have the opportunity to refinance. Banks will be able to keep up cash flow, and not end up becoming real estate managers. Those who are sitting with cash may look to diversify and move their holding offshore into places like CR. The political situation and economy in CR still make it attractive to anyone looking to do just that. Stability is what investors look for in markets, and CR still has that going for it. While there most certainly has to be some ripple effect on the market in Costa Rica, it may be more of a leveling out than a downturn. Unless the entire world economy hits the skids, CR should be in good shape. The appreciation levels seen in the past 10 years may not be achieved again for a while, but then again, we thought the sky was the limit here in the US.
In the meantime the US stock market will continue to grind along, and most likely will go lower until the panic around the world settles down. People have short memories, and this too shall pass. If you are buying in CR for the long term, there will most likely be some good opportunities coming up, but still, if you wait to long, many of the premium properties will be gone. There is only so much ocean front property. And when it is fully developed, The premium attached may be more than some are willing to spend.
As for us, retirement is far enough away, and we do not have to live on the beach, or in the highest valued neighborhood. So we’ll sit here and watch everything unfold, and when we are ready to make the move, we will go.
I like much of what you say. The world ought to be scared to catch a cold. Like you said the US is the largest economy in the world…when it turns south so too does the global economy.
I beg you to ask that Mercedes dealer 9 to 12 months from now that same question. With all due respect, you are somewhat contradictory when you say, “The luxury buyer has not been affected, and even if they were, Mercedes will just lower the prices on the leases and stickers and all should be fine.” You are making a claim the economy will not be affected but if Mercedes lowers prices, does this not lower margins…at least in the midterm? Nobody escapes a downturn in the American economy. I like my position right now here in Alberta, a commodity based economy, but I too will feel at least some negativity throughout this process.
The panic has set in but reality will unfold over the next year or so. To think the luxury consumer will not be affected is a great oversight. In fact I just saw a story on an affluent late 60’s lady that was advised by her planner to invest in a fund with exposure to ABC paper and she lost $400,000. To think that this was a one off incident is blatantly turning a blind eye on the reality of the situation at hand.
Yes the Fed is slashing rates but and yes that aids the domestic monetary situation but it creates havoc for the US on the commodity import side of the equation. The fact remains that jobless claims are up, interest rates are coming down and commodity inflations remains strong in relative terms. Furthermore, slashing rates is one thing but it does not increase the pool of capital available to lend, nor does it qualify home buyers that should have never been qualified in the first place in the subprime market.
Yes CR is still an attractive place to put capital for numerous reasons, however, over the next 3 to 5 years there will be less capital available. But like I said, this will provide some of us with opportunity in CR so long as we weren’t pigs in what has been going on in the US over the last 5 years. Stability is on the side of CR and you are right, in the long run, it is positioned well. However, I can’t with any level of prudence say that prices won’t soften in the short term.
I agree 100% with your comment, “If you are buying in CR for the long term, there will most likely be some good opportunities coming up, but still, if you wait to long, many of the premium properties will be gone. There is only so much ocean front property. And when it is fully developed, The premium attached may be more than some are willing to spend.” Thus I shall stand pat for the time being, as I believe that there is a greater than 50% chance that the prices will go down (slightly) than go up at all.
grifz, With regard to the Benz salesman, he was stating the situation as it stands. And yes, profits will suffer if they reduce prices, but they will still be moving units and keeping parts and service departments busy. Down the road, if this is a long and protracted recession, you could see that change. But right now it appears only the rank and file US citizen is being banged over the head with high energy and food costs, not to mention fear of lower home values.
The wealthy always seem to come out OK in most situations, and I suspect they will survive this downturn as they have before.
Most of us feel some measure of negativity in this current situation. I try to keep myself amused and content by not dwelling on it to heavily. The things we worry about in the “first world” are not quite the same as the rest of the planet. We seem to worry more about our excess than we do about our necessities.
Interesting article.
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