So far, volatility looks like a winner. The investor ‘fear gauge’, the VIX, is up nearly 70% from its 52-week low, set last July.
The US missed its growth target for the fourth quarter. GDP grew by just 2.6% instead of the consensus forecast of 3%.
As the Wall Street Journal reports:
‘The fourth quarter report means that growth for all of 2014 clocked in at 2.4%, which is the best since 2.5% in 2010. It also means another year, an astonishing ninth in a row, in which the economy did not grow by 3%.’
America’s shale-oil states — the only part of the country where jobs and incomes had really been going up — are now fading. And world trade growth is slowing.
Speculation and momentum
Nothing wrong with 2.4% growth…if it was real.
We have a feeling it will soon be discovered that this ‘growth’ was fuelled by an increase in credit rather than an increase in real output or productivity.
We also have a feeling that yesterday’s big jump in the Dow will be revealed to be the work of speculators and momentum traders rather than serious long-term investors taking serious long-term positions. But we’ll have to wait to find out.
This is a long movie we’re watching. It began 44 years ago, when President Nixon ended the gold-backed money system. And it seems to have a few more years to run.
So, let’s take an intermission…
A completely different story
We spent much of January on the beach at Rancho Santana in Nicaragua. The longer we stayed, the more we liked it.
It was warm and dry on the Pacific coast…but we woke up to the sound of rain on the roof this morning.
‘Lake Arenal has a different climate,’ our overseas real estate scout, Ronan McMahon, explained. Ronan is a young Irishman with long dark hair, a sunny disposition and a thick County Cork accent.
He also advises members of our family wealth advisory, Bonner & Partners Family Office, on where to find the best real estate deals.
‘We are up high enough that it is naturally cooler. And clouds get caught in the mountains and drop their rain on us here.’
By way of introduction to Ronan…we asked him where he had been.
‘I’ve been traveling since the first of January,’ he replied. ‘I spent a few weeks on the Costa Maya in Mexico, near Tulum.
‘That’s an incredible place. It is beautiful and people love it. The growth has been spectacular. It began with Cancún. But now the whole coast is being developed. People who bought property there just a few years ago have made a lot of money.
‘I went all down the coast, exploring and talking to developers. Then I went over to the west coast of Nicaragua, north of Managua.
‘That area is undeveloped. I had been told that the coast was not very nice. But I found it is gorgeous. And you can still buy productive farms right on the ocean. You pay a little premium over the cost of farmland, for the ocean frontage, but not much. I think we’re going to see some good projects in that area.
‘Then, I came down to Rancho Santana for the Bonner & Partners Family Office event…and to bring you up here to Costa Rica to show you this lake property.
‘It’s a completely different story here. It is beautiful, like Lake Chapala in Mexico. But it’s not crowded with a lot of North Americans — yet.
‘I think it will be eventually, because it is so pretty. There are blooming plants everywhere. Stunning views down to the lake. And the climate is so healthy. Temperatures in the 70s and 80s all year round. People come here and fall in love with it.
‘From here, I’m going down to the south coast of Costa Rica. There are some lovely properties there. Worth having a look. And then on to Ecuador. There are some great places there too.’
‘You mean, you spend months traveling from one holiday spot to another? And they pay you to do this?’
‘Yes, of course.’
The path of progress
The ‘of course’ part may not be as obvious to you as it is to Ronan.
It’s obvious to him that Americans, Canadians and Europeans are getting older and looking for nice places to spend at least some of their retirement years.
Florida was once the destination of choice for those people. Now, they look to Costa Rica, Nicaragua and Ecuador. Ronan tries to get there before they do.
‘I wasn’t the one to discover this,’ he says, ‘but you make money in real estate by buying along what I call the “Path of Progress”.’ In other words, anything that improves the accessibility of a piece of real estate increases its value. Think roads, bridges, airports, air and rail routes.
‘What I look for is a place that is so charming…so nice…so appealing that developers can’t screw it up. It is amazing how many failed developments there are. So, I have to be extremely careful about what I recommend.
‘Developers cut up the land in a heavy-handed way. Or they run out of money before they get the infrastructure working properly. Or they put in ugly buildings.
‘Building a community is much more difficult than just selling lots. And if you get a lot in a failed community, it’s a disaster because it is almost impossible to get out of it.
‘The developers call me, hoping I will help them rescue the situation by bringing in new buyers and homebuilders. But when the community has failed, it is almost impossible to turn it around.’
Switzerland in Central America
Ronan also writes for International Living magazine. He also has his own overseas real estate advisory, Real Estate Trend Alert.
‘I look for properties — some retail, some wholesale — that are especially cheap. And I recommend to my readers that they have a look.’
We could see why Ronan’s Path of Progress might take a real estate investor to Lake Arenal. There are few places like it. Rolling pastures and forests come right down to the lake. It looks like Switzerland, but with tropical plants and no winter.
So great is the resemblance that at least one immigrant built a Swiss-style hotel, as though it were in the shadow of the Jungfrau.
But almost all the rest of the architecture is boring and clunky.
We gave the local real estate agent some advice:
‘You need a distinctive style — an Arenal vernacular that can serve as a model for local builders and architects. Otherwise, the houses don’t embellish the landscape; they blemish it.’
We doubt this advice was much appreciated. But at least he was polite about it.
Tomorrow: São Paulo, Brazil.
for The Daily Reckoning Australia