Weaker US Dollar Creates Buying Opportunity in Costa Rica

During the recent financial crisis from October ‘08 — March ‘09, the world economy deflated.  The price of commodities fell, most notably oil, and the strength of the U.S. dollar soared.   “Cash was King” during these five months as quality assets became bargains, and valuations in the stock market finally got down to reasonable levels.

The U.S. passed huge stimulus legislation, the banks’ toxic assets were “written off,” and the Fed began to print money.  The cash Kings on the sidelines re-entered the stock market along with some stimulus money, causing the markets to climb 40% from their March lows.  Inventories of goods left over from the deflation are slowly being depleted, consumer confidence is returning, and the policy-makers are claiming that “green shoots” are sprouting up in the economy.

However, the fundamentals paint a vastly different picture.  The barely existent U.S. manufacturing base was further devastated by the bankruptcy of the car industry, and the entire economy is still bleeding jobs.  The gutted financial services industry, which represented 40% of the U.S. economy, is being propped up by a “surge” of monopoly money.

It is estimated that the U.S. national deficit will reach 100% of GDP ($13.5 trillion) very shortly.  This says nothing of the Goliath-sized unfunded liabilities like Social Security and Medicare, or the massive personal and corporate debt lingering.  It seems the only jobs created so far are at the Federal Reserve printing presses, and bond salesmen at the State Department. China now holds nearly $800 billion in Treasury notes and the interest paid by the U.S. has climbed from 2.75% to nearly 4% in the last few months.

It does not take an economist to see that the U.S. dollar bubble is doomed, and the signs of weakening have already begun.  The euro and Canadian dollar are trading at near record levels against the U.S. dollar, gold is approaching $1,000/ounce, and oil is around $70/barrel.  In an oil-based economy, we can expect severe price hikes in gasoline and food right when the majority of workers are already suffering and no longer have access to easy credit.

The Federal Reserve may be forced to raise interest rates while the economy is still declining.  This action, coupled with resistance from Treasury investors (China), may cause hyperinflation, or, at best, stagflation.  Either way, the U.S. dollar is traveling down a bumpy road, which may be leading to a cliff.  So, the economic “green shoots” may die before they flower because monopoly money makes a bad fertilizer when the soil has already been leeched to the level of desertification.

Cash is no longer King as the dollar continues to lose strength.  Oil has doubled from its recent lows, which will eventually translate into real world evidence of your declining purchasing power at the pump or the grocery store.  It is time to move your dollars into assets like desirable foreign real estate, commodities, and foreign currencies.

The U.S. dollar is still very strong in Costa Rica as its exchange rate with the colón traditionally lags behind world currency markets. Costa Rica represents an excellent place to move cash into solid assets like real estate.  Real estate in Costa Rica is not driven by job markets and bank financing like in North America, but by foreigners who desire a comfortable retirement home or a solid investment in a political and ecological paradise.  Canadians and Europeans now have very favorable exchange rates to further enhance this opportunity.

Costa Rica continues to win praise despite the negative global news.  Costa Rica has been recently named the 8th most stable country in the world by the Economist, and the 5th cleanest country in the world by Yale University’s Environmental Performance Index (EPI).  Foreign retirees and young professionals alike are finding stability and sustainability in Costa Rica during these tumultuous times.