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Mexican Stocks, Silver, and Real Estate--A Ten Year Review



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By : Jim Scherrer    99 or more times read
The Consumer Price Indexes (CPI) program of the US Department of Labor produces monthly data on changes in the prices paid by urban consumers for a representative basket of goods and services in the United States. Tracking the CPI data began in 1913 and by 1983, inflation had reached 100%. Therefore, today most all data is calculated using a 1983 base of 100. For example, a CPI of 215.3 in 2009 indicates 115.3% inflation since 1983. Below is the inflation calculator based on data provided by the U.S. Department of Labor Bureau of Labor Statistics showing inflation during the past decade:

CPI Inflation Calculator
If in 1998(enter year)
I purchased an item for $100
then in 2008(enter year)
that same item would cost: $132.09
Rate of inflation change: 32.1%

The above calculator shows that if you put $100 under your mattress ten years ago it, through the inflation of goods and services during the past decade, it would be worth $76 ($100/1.32) today, i.e., worth 76% of its original value or a loss of 24% in terms of 1998 purchasing power.

In order to hedge against inflation, many advisors suggest that you buy various commodities, oil and gas, foreign dollars, Real Estate Investment Trusts (REITS), Treasury Inflation-Protected Securities (TIPS), gold, and silver, etc. All of these investment vehicles are now available through Exchange Traded Funds (ETF’s) where you don’t have to take physical possession of the commodities; for relatively small investments, gold and silver in the form of bullion or coins is readily available and simple to purchase and hold. All of these forms of hedges against inflation can be excellent, however for the purpose of this article, we’ll concentrate on silver.

Silver has always been one of Mexico’s major export materials; in fact, until just a few years ago, Mexico was the largest producer and exporter of silver in the world. Let’s assume ten years ago, instead of putting your $100 under the mattress, you bought $100 worth of silver selling at approximately $5.50/ounce. Today, at $16.65/ounce, you can sell your silver and enjoy a gain of more than 200%, i.e., your $100 investment is now worth $303 resulting in a 1999 purchasing power of $230 (76% of $303); not bad! If you’re concerned that the recent increase in silver prices is only a temporary spike, it should be known that silver was selling at $20/ounce in 1981 and when the Hunt brothers were speculating in 1980, it was driven up to over $50/ounce; now that was a spike! The last time silver was selling for $16.65/ounce was in 1981. Taking the CPI inflation index of 2.37 (1981 to 2009) into consideration, $16.65/ounce in 1981 was equivalent to almost $40/ounce (2.37 X $16.65) in today’s money and therefore it’s not too difficult to imagine a much further increase in silver prices! This logic is further reinforced when you take into consideration the weakening dollar forecasted for the near future. (see ten year silver pricegraph)

The world’s leading miner and producer of silver is the Pan American Silver Corp. (PAAS), headquartered in Vancouver, B.C. This publically traded company has silver mines throughout Latin America with a couple of its largest mines in Mexico. Thegraph reveals the PAAS stock performance during the past ten years.

Next, let’s analyze the performance of the US stock market during the same ten year time frame. If your $100 had been invested in SPY, the S&P 500 ETF, it would be worth 80 dollars today per thegraph. Let’s take it a step further and adjust for inflation; that $80 would have only $61 (76% of $80) of 1999 purchasing power. Yes, that’s correct; if you were invested in the US stock market and your return was better than average, you’ve lost almost 40% of the purchasing power that you had ten years ago!

Now, let’s compare the ten year performance of the Mexican stock market (Bolsa) to the US stock market. If you had purchased EWW, the ETF basket of Mexican stocks, in 1999, you would have realized a 150% gain and your initial investment would now be valued at $250, with a 1999 purchasing power of $190 (76% of $250); pretty decent, especially when you compare it to the $61 left from investing in the SPY’s!

Review thegraph and you’ll immediately see how much the ETF basket of Mexican stocks (EWW) and the Pan American Silver Corp. (PAAS) stock had appreciated in value through 2007 and then fell precipitously in the second half of 2008. More importantly, you can see how both are recovering beautifully as the world recovers from the global recession. Assuming that the global economy continues its gradual recovery, it seems quite apparent from extrapolating the curves below that Mexican stocks and silver are very attractive areas for investing a portion of your portfolio at this time.

Finally, let’s look at Mexican real estate. Along the prime region of the Mexican Riviera, property values have tripled from 1999 to 2008, after which they have remained flat to perhaps dropping by as much as 20%. Therefore, a real estate investment of $100 in 1999 was worth about $300 in 2008. Assuming a depreciation of $60 (20% of $300) over the past 18 months, it’s now worth $240. In terms of 1999 purchasing power, it’s worth $182 (76% of $240); about the same as EWW and PAAS, not as much as silver, but a whole lot more fun than owning either!

The recent drop in Mexican real estate values was caused mainly by the global recession; however, the recent border town drug cartel war news (1,200 miles between PV and Juarez!) and the swine flu scare (three confirmed cases in PV!) contributed significantly to the local real estate recession. Unlike the 20% property value drop in the US, there are virtually no foreclosures dragging down the housing values in Mexico.

In summarizing, with real estate prices 20% off recent highs, long term mortgages of 50% (or more) available in Mexico, and many developers willing to short term finance up to 50%, there has never been a better time to invest in Mexican real estate.

So why hesitate; isn’t it about time that you at least consider making an investment decision totally contrary to those recommendations that you’ve been receiving from your personal financial “guru” that have cost you 40% of your life’s savings? Come on down and retire in Mexico; maybe you’ll even want to buy a bag full of Mexican Libertads or dabble in the Mexican Bolsa through a vehicle such as the EWW fund while enjoying retirement to its fullest! Who knows; as you’re relaxing in your beach front condo on the Mexican Riviera, perhaps your investments in Mexico will gain enough over the next couple of years to recover what you’ve lost during the past decade!
For additional articles by Jim Scherrer pertaining to Retirement in Puerto Vallarta, please go toPVREBA and click on ARTICLES.

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