|Will 2011 be any different from 2010?
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Los Perros, Nicaragua
New Year's Eve
Not much action in the markets yesterday. So, let's pass along some good information from the economic front. The latest news reports tell us that the economy is improving!
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"Businesses in the U.S. expanded in December at the fastest pace in two decades, adding to evidence the world's largest economy is accelerating heading into 2011."
"The Institute for Supply Management-Chicago Inc. said today its business barometer rose to 68.6 this month, exceeding the most optimistic forecast of economists surveyed by Bloomberg News and the highest level since July 1988. Figures greater than 50 signal expansion."
"Gains in business investment on new equipment and growing exports to emerging economies will keep factories churning out goods in the coming year, contributing to the recovery. Reports showing consumer spending is also picking up mean retailers will need to restock shelves, giving manufacturing a further lift. "
"The report today from the Labor Department showed claims for jobless benefits fell last week to the lowest level since July 2008, showing the labor market is improving heading into 2011. Filings decreased by 34,000 to 388,000 in the week ended Dec. 25, fewer than the lowest estimate of economists surveyed."
"The number of contracts to buy previously owned homes rose more than forecast in November, a sign sales are recovering following a post-tax credit plunge, figures from the National Association of Realtors also showed today. The index of pending resales increased 3.5 percent after jumping a record 10 percent in October."
Retailers' 2010 holiday sales jumped 5.5 percent for the best performance since 2005, MasterCard Advisors' SpendingPulse, which measures retail sales by all payment forms, said this week. That compared with a 4.1 percent gain a year earlier. The numbers include Internet sales and exclude automobile purchases.
"Automakers are also seeing sales increase. Vehicles sold at an annualized 12.3 million rate in November for a second month, the fastest pace since the U.S. government's "cash for clunkers" program in 2009, said Autodata Corp."
Hey, we've got our ideas. The gods could have different ones. Who knows? They don't talk to us directly.
So, maybe the economy is finally recovering. Or maybe it is just enjoying a brief bounce...before returning to its Great Correction funk.
One thing we're sure of: stupidity got us into this mess; stupidity will get us out.
Stay tuned for 2011.
Happy New Year.
*** "This place was booming three years ago. People did crazy things. Everyone thought prices would just keep going up, just like they were in the US."
Yesterday, we took a horseback ride. The purpose was to look at some land for sale - about 900 acres of it, not to far from our house down here.
"The owners thought they could develop this property and sell lots," continued the real estate agent. "But they ran into trouble with zoning. And by the time that problem was resolved the boom was over."
The agent was a very handsome young man who came down to Nicaragua to surf. Like many others, he fell in love with the place and has been here ever since.
"Prices never got as high here as they were in Costa Rica. And the beaches are actually nicer here. But it was amazing how fast prices were going up. And then, when the crash came, I guess nobody wanted to take a chance on Nicaragua. Or maybe it was just that the buyers ran out of money."
We recall the bubble-like atmosphere around here in 2006. Buyers came in loaded with money and up to the brim with enthusiasm. All up and down the coast, properties were being bought up, carved up, and sold at higher and higher prices. Lots that cost $50,000 in 2002 or 2003 went for $300,000 or more 3 years later.
As connoisseurs of financial foolishness, we knew what it meant. A bubble was happening, right in front of us.
Heck, in a way, we were responsible for it. We had kicked off the development boom on the Southwest Coast of Nicaragua back in the '90s. We were among the first buyers. We came. We saw. We put down contracts.
The "Pacific Riviera," we named it.
In the year 2000, we bought one stretch of land - about 700 acres - on the ocean, for about $1.4 million. Then, in 2006, when a single 1-acre lot near our house, on the same land, sold for $500,000 we knew the end must be getting close. We alerted Dear Readers that the bubble was ready to pop.
Then, ka-pow! In 2007, development on this part of the coast came to a stop. The boom was over. It wasn't so much that prices fell - of course they did; more importantly, the buyers disappeared. North Americans stayed home.
Our own development projects slowed down. But since we had no debt, we could keep going. Other developers weren't so lucky. Some went bust. Some just went away.
Up the coast, we saw a gated community. Only the gate was falling off its hinges. It looked abandoned. In another one, the homeowners were forced to take charge when the developer left the country; apparently they succeeded in keeping the project alive.
"Almost every project on the coast is in trouble," said our real estate guru, Ronan MacMahon. "Real estate markets go through booms and busts too. But when you are in an area like this the busts really shake out the marginal developers. They don't have the money to continue."
So, we mounted a few skinny local horses in order to look at one of them. This was a project that never even got started. Which was good thing. There were no roads or water lines to repair. There was nothing at all.
We rode up a mountain for nearly an hour. The horses struggled...stopped by exhaustion...and then went up some more. Water ran off their hindquarters. Foam lathered their mouths. Each time we thought we had reached the summit, a new hill appeared. Up...up...up ...steeper and steeper. Harder and harder.
Finally, we reached the peak. What a view! We could see for 30 miles in every direction.
On one side was a huge tract of government land, confiscated during the Sandinista period. On the other were the developments along the Pacific Coast.
On the one side were the mistakes of government. On the other were the mistakes made by private investors. On the one side were the bankrupt land-redistribution schemes of the world-improvers. On the other were the bankrupt land sales projects of the developers.
We looked left. We looked right. We breathed deeply and turned our face to the Heavens. We beckoned to the gods themselves. We beseeched them.
"Tell us your secrets," we begged.
Then, we went back down the mountain and had a drink.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.
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