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Old 04-15-2002, 03:31 AM
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Default Here\'s a fundamental analysis for you...



I have an investment idea. Just this year Mexico started allowing for tax deduction of mortgage insurance. Last year the government committed to spend a lot more money on giving homebuilding incentives and to try to seed some money to get home mortgage lending moving along, most likely resulting in a Fannie Mae kind of institution. Mexico's banks are coming out of a slumber that was an overhang from 1994's peso crisis where for 7 years they made almost consumer or small business loans to an almost scary degree. The banks are now almost all foreign owned or controlled so they have the necessary capital and shareholder value mandates to create some business.


Looking forward I see favorable factors. One is that Mexicans rarely move, their moving patterns are like that of Europeans where one family will hold onto a house for generations. As it is now though, many of these people are mere renters of their homes or they are forced to live in inadequate homes they build by hand instead of buying something their income should allow them to. Improved mortgage access would find a huge market almost immediately of people that can afford to buy the houses on credit, but not on the current terms which are generally 35% down, 10 or 15 years long, and only houses in middle or upper class neighborhoods. Due to their relative lack of movement, mortgages are extremely safe for banks because families aren't going to give up their homes when they are places that have been held a long time. Besides homes are very cheap in most of the country, banks would have a big portfolio of loans in the range of $20k-50k, so the diversification works nicely because now they only carry houses around $100k and more which have limited resale value due to lack of buyers at that price range. The interest rates are falling fast in Mexico, but the spectre of inflation is always there so at least for now the mortgage rates they would charge have huge spreads compared to the US market and are all variable so they pick up the spread anyways even if inflation goes up. Just imagine how profitable Wells Fargo or Washington Mutual would be if they charged 90 day treasury rate + 900bp on their loans, adjusted quarterly! They would be cash cows to the point where maybe we wouldn't be paying the damn $2 to use the ATM. Right now that equates to 15% in Mexico and that is considered a fair rate. Even with more mortgages meaning lower rates, I think there will still be a higher than necessary spread and that means fat profits once the whole system gets going.


I own a house in Mexico so I am well aware of a lot of these things first hand. My neighbors there said that the house I bought was held by a family for about 50 years, they built and three houses next to it themselves. The family left because they bought a big house in a neighboring town and their son wanted to move to Mexico City for his career. Over time they had sold off all the houses, but most of the families were renters for many years until they had saved enough to buy the houses, which they did with 100% cash! Imagine if they had mortgages, those houses would have sold sooner and banks would have been making money all that time. I just rent out rooms to my friends and make a fat profit on it, I may never even live there, but for now I have an idea of how much money there is to be made in real estate.


With this in mind, I think buying up the sector works. Buying Mexican stocks is a bit tricky, but there are ADRs for some of them. The best one I like is Elektra, EKT in the US. They just got a banking license about a week ago and they have a ready made database. They are like the Best Buy of Mexico, except almost all their business is done on credit with harsh terms. Still people pay their bills to them, even though its mostly low income people facing effectively 50-60% annual interest. This stock has nothing but upside for the long term. I bought it about 3 months ago when it was really cheap, at $7.20 and I just quadrupled my stake last week. Might take a little while to have the numbers work out, but I think all the convergence makes this a huge long-term success. You get a lot of angles, the banking, the mortgage, the retail sales which should pick up as the economy improves. Also I think the sales will also increase as tariffs go down and make electronics more affordable in Mexico; right now it costs at least 30% more for things that were state of the art here 2 years ago. Buy a DVD player down there and it will cost about $150 for something equivalent to what Walmart sells for $80, so almost no one has DVDs yet.


All in all, this is my fundamental analysis play, sort of doing what Peter Lynch says about buying what you know. Its ADR sells for about $9/share right now. I would be surprised if it didn't at least touch $20 within 12-18 months.
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Old 04-16-2002, 11:32 AM
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Default THE GOVERNMENT - that\'s the ticket:)



Yeah, it seemed to me that most of pricing is kind of a gradual, evolutionary, bioligical thing. And the only real opportunities for a speculator to walk up to something and say, hey, this could move a lot, is if somehow people's ideas about the supply of and demand for things had gotten screwed up in, like, a feedback loop.


But this goverment thing has been a great tip! Governments can change things arbitrariliy, and create huge shocks to the system that are neither biological, or the product of feedback loops. Meaning on the one hand you have, like, the Nasdaq, which was my kind of specimen. But on the other hand you have, like, the British Pound.


I guess that must have been Soros' secret that I completely missed out on by only looking at a country with such relative political stability. You've got to look at how the biological tendencies and the political shocks will feed back into one another!


The world is a zoo! Banana republics can be cool!


I like these commies, I may even start reading the New York Times, or the IHT, or something!


Thanks!!


eLROY
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Old 04-16-2002, 11:22 PM
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Default Re: THE GOVERNMENT - that\'s the ticket:)



New York Times is fun to read, you see just how far people can go. I get it everyday in my email and just love reading the latest angle to bash a Republican. Its like they forgot Democrats exist. Oh wait, to the Times Democrats are infallible! It then happens when you realize the editorial writer is some guy probably living in a million dollar apartment in Manhattan and talking about how we should suffer as a country to make life better for some "focus" group, you fill in the blank for the group. Oh yeah and its completely amazing that before September 11 a day didn't go by when someone on the staff didn't bash Bush for something he or his people had done. EVERY SINGLE DAY. It was getting funny. Amazing how they realize that ain't so popular now and they tend to avoid any criticism unless its about tax cuts. I wrote to the NYT last year and said I have an idea. Since your editorial writers love taxes so much and your readers are mostly living in New York, Connecticut, New Jersey and DC/Virginia and are so loyal as to make you the most influential paper in the World...why not just pass a tax increase on those states and lower the taxes for everyone else! Ingenious idea, I made it so sarcastic and put so much thought into it I though I would have a shot at publication. Alas, no luck on that, but it was a brilliant idea whose time has come! If they agree to do that I say we give them the honor and make the Times free for them to show our solidarity. There will be a big lovefest in Central Park after they get free of the burden on their minds that they aren't paying enough in taxes...


Speaking of governments changing things arbitrarily, just the threat of it can move markets. Witness Venezuela. I have been making huge winning bets against its currency and played its bonds and stocks in the past. I have a great grip on the country and then this weekend happens to remind you that no one can figure out unstable regimes! I luckily had no money in the markets, but I can only imagine the euphoria then the downfall I would have had with money in the country. Just the threat of Chavez reverting to idiotic government removed almost all the gains created by thought that anyone else could do better even though it appears that country is 100% devoid of anyone willing to serve public office with common sense and some political skill. When investing internationally, be sure to understand the government climate and be two steps ahead of that in seeing what would happen under different changing scenarios.


Mexico is a great place to invest right now. No make that a SPECTACULAR place to invest. Nowhere in the world comes close for the American investor who already has money invested at home. They have a ridiculously independent central bank and a stock market that will boom and keep booming for a long time. No one ever trusted stocks or investment before because inflation and currency concerns. Now those two have all but been erased. Central bank targets inflation to make it a non-factor and the currency is fully free-floating, thereby creating a great environment to invest. Political instability hasn't been a problem in ages and personal experience tells me that it never will be. To be Mexican means to accept your place in life and make the best of what you have. They go and protest every day over stupid things like high electric bills (that still are heavily subsidized) or lack of permission to have a "love parade", but they are not the types that ever question the legitimacy or strength of their government. That is why they have seen incredible foreign direct inflows of money. Savvy world investors haven't figured this out yet so get in now. The benefits of economic integration with the US and Canada are icing on the cake, there is little doubt in my mind this country can be G7 worthy in a generation as it overtakes Spain as the center of the Spanish speaking world and all the financial spoils that go with it. It might seem crazy now, but in 15-20 years I can see this country being at about 75-80% of the per capita income of Canada which would make it about 60% of the US. Right now its about 25%. All the anti-globalization people will hate it too, that is the best reward of it all! Make lots of money and piss off the tree-hugging crowd is the daily double if you ask me...
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Old 04-17-2002, 07:58 AM
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Default I LOVE Mexico [img]/images/smile.gif[/img] *NM*




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Old 04-17-2002, 09:25 AM
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Default Re: I LOVE Mexico [img]/images/smile.gif[/img]and trees *NM*




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