The Consumer Price Index (CPI) of the US Department of Labor publishes monthly data on price changes paid by urban consumers for a representative basket of goods and services in the United States. The tracking of CPI data began in 1913, and by 1983 inflation reached 100%. Thus, today the majority of all data is calculated using the base in 1983 at 100. For example, the consumer price index of 215.3 in 2009 shows inflation of 115.3% since 1983. The following is an inflation calculator based on data provided by the Bureau of Labor Statistics of the US Department of Labor showing inflation over the past decade:
CPI Inflation Calculator
If in 2008 (enter year)
I bought an item for $ 100
then in 1998 (enter year)
this item will cost: $ 132.09
The rate of change of inflation: 32.1%
The above calculator shows that if you put $ 100 for a mattress ten years ago, through the inflation of goods and services over the past decade, it would cost $ 76 ($ 100 / 1.32) today, that is, 76% of its initial value or loss 24% in terms of 1998 purchasing power.
In order to hedge inflation, many advisors suggest you to buy various goods, oil and gas, foreign currency, real estate investment funds (REITS), inflation-guaranteed treasury securities (TIPS), gold and silver, etc. All these investment vehicles are now available through Exchange Traded Funds (ETFs), where you do not need to acquire physical possession of the goods; for relatively small investments, gold and silver in the form of ingots or coins are easily accessible and easy to purchase and store. All of these forms of hedges for inflammation can be excellent, but for the purposes of this article we will focus on silver.
Silver has always been one of Mexico’s main export materials; In fact, just a few years ago, Mexico was the largest producer and exporter of silver in the world. Suppose that ten years ago, instead of putting your $ 100 under the mattress, you bought $ 100 silver worth about $ 5.50 per ounce. Today, with a price of $ 16.65 per ounce, you can sell your silver and make a profit of more than 200%, i.e. Your $ 100 investment now costs $ 303, with the result that in 1999 purchasing power is 230 dollars (76% of US $ 303); not bad! If you think that the recent increase in silver prices is only a temporary surge, then it should be known that silver was selling at a price of $ 20 / ounce in 1981 and when the Khanty brothers speculated in 1980, it was more than $ 50 per ounce ; Now it was a splash! Silver was last sold for $ 16.65 an ounce in 1981. Taking into account the CPI inflation index of 2.37 (from 1981 to 2009), $ 16.65 per ounce in 1981 was equivalent to almost $ 40 per ounce (2.37 x $ 16.65) in today's money, and therefore not too difficult to imagine a much larger increase in the price of silver! This logic is further enhanced when you take into account the weakening dollar forecast for the near future. (see price chart for ten years below)
World Miner and Silver Producer - Pan American Silver Corp. (PAAS) is headquartered in Vancouver, British Columbia. This publicly traded company has silver mines throughout Latin America with several of its largest mines in Mexico. In fact, one of these two mines is their only open pit, and the other huge Mexican mine, located northeast of Puerto Vallarta, has been producing the purest silver of all the mines since 1929. The graph below shows the performance of the PAAS stocks during the past ten years.
Then we analyze the performance of the US stock market during the same ten-year period. If your $ 100 has been invested in the SPY, S & P 500 ETF, today it costs $ 80 for the chart below. Let us take one more step and adjust to inflation; that $ 80 will only have $ 61 (76% of $ 80) purchasing power in 1999. Yes, that's right; If you were invested in the US stock market and your return was better than average, you lost almost 40% of the purchasing power you had ten years ago!
Now let's compare the ten years of the Mexican stock market (Bolsa) with the US stock market. If you acquired EWW, the ETF basket of Mexican stocks in 1999, you would understand a profit of 150%, and your initial investment will now be valued at $ 250, and the purchasing power in 1999 is $ 190 (76% of $ 250 United States); pretty decent, especially when you compare it with $ 61 left over from SPY investment!
You will immediately see how many stocks a ETF basket of Mexican stocks (EWW) and shares of Pan American Silver Corp. (PAAS) was priced in price until 2007, and then plummeted in the second half of 2008. More importantly, you can see how both are recovering, the world is recovering from a global recession. Comparing both of these stocks related to Mexico with SPY. you never want to invest your $ 100 in US stocks again! Assuming that the global economy continues its gradual recovery, she agrees completely with the extrapolation of the curves below, that Mexican stocks and silver are very attractive areas for investing part of your portfolio at this time. It's amazing to see how closely the prices are related to EWW and PAAS over the past decade!
Finally, let me take a look at Mexican real estate. Along the main area of the Mexican Riviera, property values have tripled from 1999 to 2008 (we do not have any empirical data, but after having invested in the real estate market in Puerto Vallarta for more than a quarter of a century, we can declare this as In fact, some properties increased fourfold!), after which they remained unchanged and changed by as much as 20%. Thus, a real estate investment of $ 100 in 1999 cost about $ 300 in 2008. Assuming that depreciation of $ 60 (20% of $ 300) over the past 18 months, now amounts to $ 240. purchasing power of 1999, it costs $ 182 (76% of $ 240); about the same as EWW and PAAS, not as much as silver, but much more fun than having! Comparing these facts and figures with the purchasing power of $ 61, the remainder of the $ 100 invested in SPY, it is very embarrassing to think about those of you who have been fully invested through the IRA & # 39; s or 401k over the last decade. Fortunately, it is not too late to recoup your losses; in fact, time can never be better!
The recent fall in Mexican real estate values has been caused mainly by the global recession; however, the recent border city drug news (1,200 miles between PV and Juarez!) and fear from swine flu (three confirmed cases in PV!) made a significant contribution to the local real estate recession. The border urban drug cartel war and the effects of swine flu panic will disappear with time, and, in all likelihood, the value of the property will soon recover to the 2008 highs. In contrast to the 20% decline in the value of real estate in the United States, there is virtually no redemption that delays the cost of housing in Mexico. The housing crisis in the United States is likely to continue for another couple of years, which will lead to further erosion of household values by another 10-20%. Currently in the US there are millions of property owned (property owned by REO-lenders), but you will not find them in Mexico!
To summarize, $ 100, put under a mattress ten years ago, has a cost in 1999 of $ 76 today, $ 61, if in S & P 500 SPY, $ 230, if in silver, $ 190, if in the EWW Mexican fund, $ 185, if in the silver company PAAS and $ 182, if in the Mexican real estate. No matter where in Mexico you invested your $ 100 a decade ago, regardless of whether it was in Mexican silver, stocks or real estate, you now received at least three times more than if you invested in the S & P 500 Spy! So here we are in 2009; the question is, where is the best place to invest the remaining money after the fiasco of the past decade? With real estate prices 20% from recent highs, long-term mortgages of 50% (or more) are available in Mexico, and many developers wanting to finance up to 50% for a short time have never had a better time to invest in Mexican real estate.
Why waver; Does it not matter to you in time that you even consider making an investment decision completely contrary to the recommendations you received from your personal financial "guru", which cost you 40% of your life? Come and go to Mexico; You might even want to buy a bag full of Mexican Libertads or indulge in a Mexican Bolsa through a vehicle such as an EWW fund, enjoying full retirement! Who knows; since you¡¯re relaxing in your beach condominium on the Mexican Riviera, perhaps your investment in Mexico will get enough over the next few years to recover what you have lost in the last decade!
(See GRAPHS related to this article.)
