Rants and Observations

Aug. 16, 2017

PUBLISHED IN QCOSTARICA

Q OPINION – The world is especially turbulent this month. There is a potential war in Korea and real ones in the middle east, Afghanistan, the Philippines and Africa. Venezuela is in turmoil. An unpredictable and combative US president and his revolving door of a team have roiled the world financial markets. In Europe, Brexit is an added cause of uncertainty.

Costa Rica, with no army, friendly people and relaxed lifestyle, seems like a haven to many of us. New waves of retirees and others pour in every year. Is this truly a place to forget the cares of the outside world?

In the light of the global situation, I visited institutions in Europe and discussed the international financial situation with other experts in Japan, New York and Hong Kong. I was especially interested in their views on investments in Costa Rica. The sobering results are discussed below.

A global downturn is coming. There is rare consensus that the length of the current economic cycle is unusually long. (The time from the trough the last recession to the peak of the next). Many pundits predict a forthcoming and significant correction with a subsequent deep recession. The trouble is that forecasting exactly when a downturn will come is problematic. Randomly, one of them will get it right and claim great predictive powers.

Most cycles peak with high employment and inflation. The US and most of Europe have the former but not the latter. In this cycle, wages for the masses have been kept low by competition from low wage countries and increases in the spread of robotics and advances in IT. Low wages and low-cost imports have contributed to reduced pressure on prices in the major economies. There is therefore some support for those who think we may eek another year or two from the current boom.

However, all booms end in bust. Busts are often triggered by dramatic world events, such as oil shocks, wars, presidential impeachments, bank collapses and the like. Now is a good time to dust off the Kevlar helmet.

Costa Rica. As you can imagine, Costa Rica and its tiny economy are not on the radar of most global investors and analysts. Normally, they tend to group small developing economies with the larger ones in a region. This is fair, as when economic tsunamis strike, small countries are swept along with others.

Some of my discussion partners were kind enough to research our economy in preparation for our meetings. They were helped by recent cries of financial distress from the Costa Rican government, trying to frighten the legislators into levying higher taxes and cutting the benefits of our bureaucrats to alleviate the coming crisis. The negative views of the bond rating agencies add to the picture. Local media has been reporting the increasing government borrowings and expenditures and difficulties in raising tax revenues with increasingly strident alarm.

The consensus is that the Colon will continue to decline against the dollar, causing distress to the government, which has massive dollar debts and private individuals who borrowed in dollars to buy local assets.

A New York analyst shared, “In these situations, when a global downturn occurs, countries like yours default on their debts. This causes a precipitous drop in the value of local currency and assets, (like houses), by well over 30%. Huge unemployment and civil unrest often follow.”

Maybe Ticos will be more placid?

A London banker gave me a wry smile, “It’s a classic case of public and private debt run up over the years and the politicians being unable or unwilling to take the steps to resolve the problem. They are loath to tax those with money, who support them and refuse to face down their feather bedded bureaucrats demanding that their pensions and increases be maintained. Senior members of the administration tend to be from the wealthier classes.This further inhibits their desire to act. The train speeds on towards the buffers without brakes.”

Everyone laughed when shown the regular advertisements appearing in the Costa Rica Star, offering 12-16% Return on Investment on loans for construction. “That’s double what the Greeks were offering on their bonds, just before their economy collapsed. They had big brothers in the EU to bail them out.”

“Construction is one of the most cyclical sectors in every economy. When borrowers default on their mortgages, because they lose their jobs in a recession, these investors will lose their money. The construction sector tanks along with most others.”

So What Should those living in Costa Rica Do?- There are some obvious steps.

1. Minimize amounts held in colones and keep as much as possible outside the country in hard currencies like the dollar. Change sufficient into colones, only to make local payments. Even dollar accounts in Costa Rica may be unsafe. “When governments default on debts they can seize dollar assets in private accounts or levy a charge on them.” “Avoid state owned banks if possible, their assets are more easily predated by desperate governments.” Keep away from investments in non-bank financial institutions. They may offer higher interest, but are more likely to go belly up.”

2. Do not make large purchases such as secondhand cars and property. Wait till there is a recession, when they will cost less.

3. If you want to hedge against a fall in any asset, such as a house, borrow against it in colones, but in general reduce your risks by cutting borrowings and saving in hard currency. Reduce exposures and batten down the hatches.

4. If you are selling a property, now is a good time to speed the process and maybe to accept less than you hoped for.

5. If you are renting properties, be prepared for renters to leave or to be unable to meet their payments. Maybe this is a good time to sell, if you can find buyers.

And for those contemplating a move to Costa Rica –

1. Consider waiting till recession strikes and things settle down. Only gamblers take risks at such times.

2. Do not bring your life savings to Costa Rica.

3. Rent rather than buy, at least for now.

4. If you are seeking to establish a business, the locals always have an advantage because they know how to play a sometimes corrupt system. In recessions, competition becomes desperate. Re-evaluate your projected risks and returns, with these things in mind. If your business requires fixed assets, consider waiting for asset prices to collapse.

Timing. This is the big problem. “No one can predict whether the current up cycle will continue for a couple of years more. Getting out of investments at peak is desirable, but has more to do with luck than good judgement.” This is a time to be cautious and to make prudent preparations for hard times.

Watch out for what others are saying in the media, both here and internationally. What are friends thinking? There is a tremendous herd instinct in economic cycles. Once the doomsters start moving, the rest panic.

Governments make calming statements, but when the time comes no one can hold back an avalanche. Now is the time to get out of its path or be prepared to ride it out.

Chris Clarke has retired to Costa Rica from New York. His career included international banking. He has degrees in economics and management.

A global downturn is coming. There is rare consensus that the length of the current economic cycle is unusually long. (The time from the trough the last recession to the peak of the next). Many pundits predict a forthcoming and significant correction with a subsequent deep recession. The trouble is that forecasting exactly when a downturn will come is problematic. Randomly, one o fthem will get it right and claim great predictive powers.

Most cycles peak with high employment and inflation. The US and most of Europe have the former but not the latter. In this cycle, wages for the masses have been kept low by competition from low wage countries and increases in the spread of robotics and advances in IT. Low wages and low-cost imports have contributed to reduced pressure on prices in the major economies. There is therefore some support for those who think we may eek another year or two from the current boom.

However, all booms end in bust. Busts are often triggered by dramatic world events, such as oil shocks, wars, presidential impeachments, bank collapses and the like. Now is a good time to dust off the Kevlar helmet.

Costa Rica. As you can imagine, Costa Rica and its tiny economy are not on the radar of most global investors and analysts. Normally, they tend to group small developing economies with the larger ones in a region. This is fair, as when economic tsunamis strike, small countries are swept along with others.

Some of my discussion partners were kind enough to research our economy in preparation for our meetings. They were helped by recent cries of financial distress from the Costa Rican government, trying to frighten the legislators into levying higher taxes and cutting the benefits of our bureaucrats to alleviate the coming crisis. The negative views of the bond rating agencies add to the picture. Local media has been reporting the increasing government borrowings and expenditures and difficulties in raising tax revenues with increasingly strident alarm.

The consensus is that the Colon will continue to decline against the dollar, causing distress to the government, which has massive dollar debts and private individuals who borrowed in dollars to buy local assets.

A New York analyst shared, “In these situations, when a global downturn occurs, countries like yours default on their debts. This causes a precipitous drop in the value of local currency and assets, (like houses), by well over 30%. Huge unemployment and civil unrest often follow.”

Maybe Ticos will be more placid?

A London banker gave me a wry smile, “It’s a classic case of public and private debt run up over the years and the politicians being unable or unwilling to take the steps to resolve the problem. They are loath to tax those with money, who support them and refuse to face down their feather bedded bureaucrats demanding that their pensions and increases be maintained. Senior members of the administration tend to be from the wealthier classes.This further inhibits their desire to act. The train speeds on towards the buffers without brakes.”

Everyone laughed when shown the regular advertisements appearing in the Costa Rica Star, offering 12-16% Return on Investment on loans for construction. “That’s double what the Greeks were offering on their bonds, just before their economy collapsed. They had big brothers in the EU to bail them out.”

“Construction is one of the most cyclical sectors in every economy. When borrowers default on their mortgages, because they lose their jobs in a recession, these investors will lose their money. The construction sector tanks along with most others.”

So What Should those living in Costa Rica Do?- There are some obvious steps.

1. Minimize amounts held in colones and keep as much as possible outside the country in hard currencies like the dollar. Change sufficient into colones, only to make local payments. Even dollar accounts in Costa Rica may be unsafe. “When governments default on debts they can seize dollar assets in private accounts or levy a charge on them.” “Avoid state owned banks if possible, their assets are more easily predated by desperate governments.” Keep away from investments in non-bank financial institutions. They may offer higher interest, but are more likely to go belly up.”

2. Do not make large purchases such as secondhand cars and property. Wait till there is a recession, when they will cost less.

3. If you want to hedge against a fall in any asset, such as a house, borrow against it in colones, but in general reduce your risks by cutting borrowings and saving in hard currency. Reduce exposures and batten down the hatches.

4. If you are selling a property, now is a good time to speed the process and maybe to accept less than you hoped for.

5. If you are renting properties, be prepared for renters to leave or to be unable to meet their payments. Maybe this is a good time to sell, if you can find buyers.

And for those contemplating a move to Costa Rica –

1. Consider waiting till recession strikes and things settle down. Only gamblers take risks at such times.

2. Do not bring your life savings to Costa Rica.

3. Rent rather than buy, at least for now.

4. If you are seeking to establish a business, the locals always have an advantage because they know how to play a sometimes corrupt system. In recessions, competition becomes desperate. Re-evaluate your projected risks and returns, with these things in mind. If your business requires fixed assets, consider waiting for asset prices to collapse.

Timing. This is the big problem. “No one can predict whether the current up cycle will continue for a couple of years more. Getting out of investments at peak is desirable, but has more to do with luck than good judgement.” This is a time to be cautious and to make prudent preparations for hard times.

Watch out for what others are saying in the media, both here and internationally. What are friends thinking? There is a tremendous herd instinct in economic cycles. Once the doomsters start moving, the rest panic.

Governments make calming statements, but when the time comes no one can hold back an avalanche. Now is the time to get out of its path or be prepared to ride it out.

Chris Clarke has retired to Costa Rica from New York. His career included international banking. He has degrees in economics and management.

 
Jul. 27, 2017

I have been advised to write under a pen name. For some years I have oftimes been masquerading as Chris Clarke, a respectable resident of Costa Rica. My semi-schizophrenic personality has often led me to believe I am this person. Worse we often get into arguments especially about poor Ivy, who we both claim to be espoused to.

Apparently, people are confused by the spelling of Aaron Aalborg. Chris Clarke is easier to remember. Therefore it seems logical to write under that name for future novels. ometimes 

Sometimes, I awake in the night and am furious when I find Chris, pretending to be me and completing some of my work in progress. I believe, Wilkie Collins, the 19th Century first writer of detective novels, was faced with a similar spectral apparition, when he had taken too much opium.

As Chris is too horrible to behold, I will continue to use masks for his image.

 

Apr. 16, 2017

It began with the martial arts and ended with a new reading of Buddhist history. Apologies if this is too philosophical for some.

As a young Karateka, I learned the Zen way to eliminate fear of death and pain. These things are still useful, though not totally effective re pain.

To this day, the ethics of Buddhism are still with me, though contradicting some deeply turbulent parts of my nature. I try to confine those to my writing.

For the last 15 years I have been part of Sangas, aka Buddhist study groups, in New York, The UK and Costa Rica. Meditation enabled me to overcome hatred of 'enemies'. Metta or loving kindness meditation really works. Look it up and try it.

For a while, feeling part of the universe rather than a seperate being has fitted well with my weltanschauung.

Buddhist logic, that allows things to be and not to be simultaneously fits with Quantum Theory. The concept of Karma, that all actions have consequences fits well with my increasing belief in scientific determinism, though the corollery of this to conclude that we have no free will goes against the teachings.

The Buddhists tendency to insist that, though we have no separate identity or transmutable soul, we can achieve some vague state of Nirvana or be reincarnated again till we do always seemed contradictary. As in many belief systems, they have a neat out, in that the Buddha allegedly claimed that devotees are free to discover their own understanding. This kept me hooked for a while.

Focussing on our inner selves and especially the monkish tendency to go off, live on the charity of others, build temples and meditate raised concerns. That seems to contradict the idea that we are part of everything. It is sponging and deprives others of food and funds that could be better used.

A nagging concern was the obsession with suffering and death. They have always seemed just natural parts of life to me. Focussing on joy, fun and happiness is more my nature.

To jump to the end, I read the history of Buddhism and studied eastern and other religions on a comparative basis over many years. The plethora of Buddhist sects, myths and superstitions was fascinating and partly due to the beliefs incorporating local lore as it spread around the world. The other causes of schism and diversity were new thinkers, developing further or different insights.

Ritual and flummery have never appealed to me. There is much of that in most Buddhist sects. I accepted it as a need of others in the sanga.

Then, seeking to explore why so much had gone away from the original teachings, I read another history of Buddhism. My teachers and previous reading had explained that though the Buddha lived some hundreds of years before he was written up, oral repetitions preserved and offered some proof of his existence and passed on the true word. This always seemed doubtful, as spin, exaggeration and misinterpretation dog even still living public figures. The stories of Prester John, Robin Hood and the creation myths of various religions all seem spurious. This is due to centuries of oral rendering, the pre scientific mind and a dash of later interpretation.

My latest reading blew away the idea that the life of the putative Buddha was written within a couple of hundred years of his death. The stories were drawn together only in the last couple of hundred years, though texts in Pali and Sanskrit, neither language which existed 2,500 years ago, are ancient.

So where does that leave my thinking?

I learned a lot. I still save insects, snakes and other beasties. Much of the original attraction of the core way of life remains. There will be no more studying Asian practices and beliefs. They are less relevant to modern life in the West. I feel less guilty about focussing more on joy, happiness and yes hedonism.

 

Jan. 20, 2017

2016 in Costa Rica

 Weary peons trudge home to rest

 Glowing sunsets over the far mountains.

 Clouds painted with molten gold, flare against the bluest sky.

 Needled pines silhouetted against the final glow.

 The twinkling lights in the valley herald the emerging stars.

 

 2017 in Costa Rica

 Weary peons trudge home to rest

 Glowing sunsets over the far mountains.

 Clouds painted with molten gold, flare against the bluest sky.

 Needled pines silhouetted against the final glow.

 The twinkling lights in the valley herald the emerging stars.

 

Jan. 20, 2017

2017

If you have any hope for the year.

You’ve likely consumed too much beer.

Doom gloom and despair,

Are all in the air

And the 1% will stand up and cheer.