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Gaudente

Nov 11, 2009, 3:41 AM

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Mexican pesos bonds

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Would you invest in MXN denominated bonds ?
Some of them pay up to 9% ytm .
According to the Central Bank website, inflation was 4.5% yoy in October.
Do you agree with official statistics or think the real inflation rate is higher ?
Also according to the IMF research the peso is remarkably undervalued in comparison to the USD , they exstimate the exchange rate at PPP (purchase parity power) should be 7.6 instead of current 13.2 , meaning living cost in Mexico is about 43% lower than in the USA. Do you agree with the above statement or think the discount is lower ?



johnv

Nov 11, 2009, 6:56 AM

Post #2 of 22 (6738 views)

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Re: [Gaudente] Mexican pesos bonds

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Personally, I would not invest in anything in Mexico, period. I keep my money in the US. I had a very bad experience with Mexican banks and investing back in the 80s, from 1985 to 1988.

I think that the real inflation rate is higher than 4.5%.

I would agree, from my calculations, over time, that it is currently about 40% cheaper to live here than in the US.

Recently, this week, I calculated my rise in food prices over the past seven years, from the actual saved receipts. In 2002 I was spending an average of US$138 per month on food (groceries) for one person. As of the autumn of 2009 I am spending US$211 per month. That is a 52.9% increase in the price of groceries over 7 years, or a 7.56% increase in the price per year.


Jerry@Ajijic

Nov 11, 2009, 9:27 AM

Post #3 of 22 (6692 views)

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Re: [johnv] Mexican pesos bonds

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Just look at the price of the GDL Reporter. When we got her it was 7 pesos now it is 15 but in the paper they still quote about 4 or 5 % inflation.


Hound Dog

Nov 11, 2009, 11:08 AM

Post #4 of 22 (6671 views)

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Re: [Gaudente] Mexican pesos bonds

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Would you invest in MXN denominated bonds ?
Some of them pay up to 9% ytm .


Were we speaking here of investing pesos already converted from dollars or other currencies or, perhaps, dollars with which you would buy pesos to invest in MXN denominated bonds and when you say, "MXN denominated bonds" just what does that mean? Bonds issued by the Mexican treasury of Mexican corporate bonds? If you are thinking of buying MXN denominated corporate bonds then you are a major risk taker for several reasons but, if that´s what you want, have at it. It ain´t my money.


(This post was edited by Hound Dog on Nov 11, 2009, 11:09 AM)


RickS


Nov 11, 2009, 12:14 PM

Post #5 of 22 (6645 views)

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Re: [Jerry@Ajijic] Mexican pesos bonds

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Well Jerry, there may be a couple of problems using your single example....

You are living in Ajijic which simply cannot be isolated and compared to the Mexican inflation rate.
You are looking at one item and one cannot compare one item to the aggregate inflation rate (anywhere).
And if you have been living in Ajijic for 10-15 years, a rise from 7 to 15 pesos is relatively close to a 5% inflation rate.

And one must be cautious about generalizing that " the cost of living here is about 40% less than living in the US", without defining where here is and specifying where in the US one might be speaking of. It is probably not 40% cheaper to live in Ajijic than it is to live in, say, Marfa Texas... in fact it may even be more expensive. And my cost of living may not even approach your cost of living even if we came from the same spot and settled in the same spot.


Gaudente

Nov 11, 2009, 7:40 PM

Post #6 of 22 (6583 views)

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Re: [Hound Dog] Mexican pesos bonds

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"MXN denominated bonds" just what does that mean?

http://www.six-swiss-exchange.com/...e&savedHash=true


Gaudente

Nov 11, 2009, 8:38 PM

Post #7 of 22 (6567 views)

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Re: [johnv] Mexican pesos bonds

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Recently, this week, I calculated my rise in food prices over the past seven years, from the actual saved receipts. In 2002 I was spending an average of US$138 per month on food (groceries) for one person. As of the autumn of 2009 I am spending US$211 per month. That is a 52.9% increase in the price of groceries over 7 years, or a 7.56% increase in the price per year.


Actually a 53% increase in 7 years equates 6,26% yearly inflation (1.0626 elevated 7 = 1.53)
Thanks for the actual example anyway.


bammazmx

Nov 11, 2009, 10:28 PM

Post #8 of 22 (6547 views)

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Re: [Gaudente] Mexican pesos bonds

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I have been living in Mexico for the past 7 years from my mexican investments. Although most of my pesos are invested directly in the Mexican stock market.... naturally I also have peso bonds to different degrees from time to time. I try not to give financial advice but without going into too many details ....here is what I can say.....

At this time "fondos de deudas" (basically money market funds) that consist of 100% government bonds are paying about 3% to 3.5 % NET.... If you have enough pesos to buy direct GOV paper bonds (with most banks here you need to invest a minimum of 1 million pesos to do this) these will pay you about 1/2 % more than the "fondos de deudas" All mexican government peso bonds are relatively safe.

One thing you need to be aware of is that when a bank tells you the return on a Fondo de duedo they always tell you the net (neto) return.... when buying any type of direct gov or corp dept they always quote you the gross (bruta). I have no idea why they do this other than to confuse you, but the net return at this time is .85% less than the gross. The .85% is basically a tax an your return and there are no further taxes on your investment. to put it simply if someone tells you your return on a bond is 9% then it is actually goint to be 8.15% after taxes.

Anyhow.... back to your original question.... CORP peso bonds are a whole different story.... at this time a HEALTHY, well standing company that offers bonds is only paying between 1/2% to 1% over the government bond rate.... in short about 4% to 4 1/2 %. I am not saying anybody lied to you I am sure there are Mexican companies offering 9%.... but these are more than likely in the catagory of JUNK bonds and at a fairly high risk factor. I personally do not mess with them.... but if you decide to give it a go I would definatly suggest you stick to the shortest term possible which is usually 28 days.

Let me remind you that right now in Mexico just like everywhere else rates are at there lowest in many years. A general rule of thumb (at least for the last 7 years) is that you should get 1 and 1/2 times the return on a mexican Mutual fund or bond than you would get in the US. Something else that you need to consider is that unlike the US where the fed says they are going to keep rates low for "an extented period of time".... the bank of mexico is saying that they forsee inflationary pressures in the near future and most analysts are saying they expect the Mexican "fed" to start raising rates in the first quarter of 2010. In short whatever you invest in be it governement or corp dept it is probally wise to do it short term because you will probally be able to get governemnt bonds at 6 to 7% by the end of 2010 and that same corp bondthat you are refering to that is now offering you 9% will probally be in the 12% range. In my opinion if you would make a high risk corp bond purchase at 9% today on a term of say 5 years.... It would be a bad move.

One thing I think that people in you position should consider ( definitly before buying CORP dept paper) is that there are several companies on the Mexican stock exchange that have high dividend payments and have had stable stock prices going back to the early 90's (after the devaluation) one is Kimberly Clark of Mexico ( toilet paper, kleenex, fem hygien products etc.).... they have consistantly payed more or less a 7% dividend year after year and I believe there stock price has averaged somewhere in the area of 15% gains on average for all of those years. It even held up during the past years crisis. Anyhow please dont listen to me you can research it quite easily yourself...Bloomberg follows mex stocks quite well and if I remember correctly the program that graphs the DOW on Yahoos home page will even show you the past 10 0r 15 years of all mexican stocks if you can find the ticker code.


Enough of that.... my opinion to the inflation being 4.5% y/y...I personally believe that give or take for margin of error........ BUT... we really got nailed in the year before that. Anybody else remember buying good quality carne asada for 45 to 55 pesos a kilo in 2007???? Well by mid 2008 it was 75 to 85 pesos... and more or less remains that way to today.


Gaudente

Nov 12, 2009, 1:56 AM

Post #9 of 22 (6526 views)

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Mexican pesos bonds

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Just bought the following on the Swiss exchange: XS0256211664 Toyota 0% 15.02.2017 at 46 .
It's a zero coupon bond, at a purchase price of 46 it yields 11.30% compounded interest to maturity.
As it is a global bond, it can be held in a tax haven with no withholding tax.


Gaudente

Nov 12, 2009, 2:39 AM

Post #10 of 22 (6522 views)

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Re: [bammazmx] Mexican pesos bonds

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At this time "fondos de deudas" (basically money market funds) that consist of 100% government bonds are paying about 3% to 3.5 % NET.... If you have enough pesos to buy direct GOV paper bonds (with most banks here you need to invest a minimum of 1 million pesos to do this) these will pay you about 1/2 % more than the "fondos de deudas" All mexican government peso bonds are relatively safe.


Man, they are ripping you off big time.
http://www.bloomberg.com/...amp;sid=awbKFvhrI3UY
Yields on Mexico’s benchmark bond fell three basis points, or 0.03 percentage point, to 8.21 percent. The price of the 10 percent security due in December 2024 rose 0.32 centavo to 115.34 centavos per peso, according to Banco Santander SA. Some U.S. markets were closed today for the Veteran’s Day holiday slowing down currency trading.
And the bond I just purchased yields another 3% above that , with the issuer (Toyota) having a rating of AA+ , compared to the BBB+ of Mexico.


(This post was edited by Gaudente on Nov 12, 2009, 2:45 AM)


johnv

Nov 12, 2009, 7:59 AM

Post #11 of 22 (6494 views)

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Re: [Gaudente] Mexican pesos bonds

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I rechecked my calculations, and you are correct at 6.26% annual inflation on my food bill over a seven year period.


bammazmx

Nov 12, 2009, 10:37 AM

Post #12 of 22 (6455 views)

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Re: [Gaudente] Mexican pesos bonds

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Ripping me off big time!!!!! jajaja I think not. You are not comparing APPLES to APPLES. You will notice I said in my original post "without going into to many details". The "fondos de deuda" that I was refering to are liquid DAYLY and compounded DAYLY. I can sell stocks on monday move the money into my fondo (after the 72 hrs of course) get a few days,weeks or months interest and then use the money to buy back into the market. The 8.21 % bond that you refered to is a 15 YEAR bond !!!!! Some of the funds I use are (via bloomberg) bmerliq:mm, hsbc/d2:mm and st&er1pb:mm the first 2 being 100% GOV and the 3rd from santander is about 70%gov and 30% corp dept. You will see that in the last 5 years they have all averaged about 6% net. It has only been the last 8 months or so that they dropped to the rate I quoted in my original post ( since the mex fed dropped their rates) before that they all paid 6 1/2 to 7%. I expect those rates to return within the next year So why would anybody want to comit to a long term bond if you can get almost the same on money that is 100% liquid. Of course if you wait a year the same 15year bond that you quoted will probally pay around 10%.... it is all a matter of how you look at it.

Also like I mentioned in my previous post the Mexicn government will take .85% off the top of that so your actual net return is only 7.36% annualy. Now I am not sure if that .85 applies to you if you are buying internationally... My first assumption when replying to your post is that you are here in Mexico... but that may not be the case... As a Mexican citizen I know they take it from me... and before I became a citizen as a resident they still took it from me... so I would assume they take it from everybody ...but... that may not be the case.

I am not trying to argue with you.... just saying that we are two different types of investers.... or should I say have different risk /return goals. Since 2003 my return on investment here in mexico has averaged 42.5% per year.... and YES that includes 2007,2008 and 2009 to date. So why would I buy a 15 year bond that pays a measely 7.36%. The answer to that is I would not at this time.... mabey when I reach the ripe old age of 60 and I dont want to spent hours of every day on the computer following the more or less 20 mexican companies that I deal with on the Bolsa... I will sell everything drop it into a long term gov bond so that I dont have to work or worry.... but not yet.

Lastly... in case you dont realize it... you probally wont get to many responces on this forum for questions like yours ( other than like the responces on the inflation you recieved ). Most of the people that are active on this forum live in mexico off of simple pensions and or social security benifits. Those that do have a good sum of money stashed away are more than likely at an age where they simply dont want the hassles and leave it sitting in the US or Canada where they "FEEL" it is safer.

As for the bond you bought with toyota.... sounds like a good deal... and a safe bet.

saludos


jl1

Nov 12, 2009, 1:58 PM

Post #13 of 22 (6434 views)

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Re: [RickS] Mexican pesos bonds

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You make a very good point about cost of living. HGTV in the U.S. sometimes has a segment showing how much house a certain amount of money gets you in different parts of the country. For example, a half-million dollars would get you a really nice house--what some would consider a mansion--in Austin, Texas. The same amount would get you a 1,000 sq.ft. "starter home" in the San Francisco Bay Area--if you're lucky. As for Mexico, basic living costs, such as housing, utilities, etc., are about the same where I live in Mexico as they are where I live in the States.


Hound Dog

Nov 12, 2009, 5:49 PM

Post #14 of 22 (6396 views)

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Re: [jl1] Mexican pesos bonds

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You make a very good point about cost of living. HGTV in the U.S. sometimes has a segment showing how much house a certain amount of money gets you in different parts of the country. For example, a half-million dollars would get you a really nice house--what some would consider a mansion--in Austin, Texas. The same amount would get you a 1,000 sq.ft. "starter home" in the San Francisco Bay Area--if you're lucky. As for Mexico, basic living costs, such as housing, utilities, etc., are about the same where I live in Mexico as they are where I live in the States.

You guys are missing the point entirely. HGTV is a bad joke. And, it is not the cost of the houswe that counts but the cost of living once you own the house. Is this so complicated?

We lived in San Francisco for many years in the best part of town so what I am about to tell you is not coming from some farmer from Omaha.

It is not the cost of the house that you should be concerned about but the cost of holding on to it and eating and heating and that sort of thing.

We could have retired to France but we retired to Mexico so now let´s look at the difference:

SAME HOUSE: Property taxes in Chiapas; $25USD a year. In France $16,000USD a year.
UTILITIES: In Chiapas heat and electricity are not cheap but are optional. In France you will, freeze your butt off.
SUSTENANCE: No comparison.

If you think this is a choice you are not thinking.




(This post was edited by Hound Dog on Nov 12, 2009, 5:50 PM)


jl1

Nov 13, 2009, 9:21 AM

Post #15 of 22 (6335 views)

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Re: [jl1] Mexican pesos bonds

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Here you go again, replying with personal attacks rather than addressing the subject at hand. HGTV is a joke? What about the New York Times? They regularly publish similar studies of what housing money gets you in various parts of the country, with remarkably similar results. Your comparison of the cost of living in PARIS! with Chiapas is the biggest joke of all. Paris is one of the most expensive cities in the world to live in, if not THE most. Chiapis is probably one of the cheapest areas in Mexico to live in. Why not look at the cost of living in Puerto Vallarta compared to, say, East Texas or rural Arkansas? You seem to have no mission on this forum other than to provoke. And your comment about not being a "farmer from Omaha" is an insult to farmers from Omaha. You really are a "sumbitch", to quote your favorite expression, and I really dont' understand why more people, other than myself, don't call you on your endless stream of crap. As for your time in the Bay Area. You must have snuck in the back door.









g


Peter


Nov 13, 2009, 9:52 AM

Post #16 of 22 (6326 views)

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Re: [jl1] Mexican pesos bonds

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Why for you kick my dog? He do you no good.

What is the property tax in Texas? A larger percentage than in California. Could be another reason homes are cheaper there.

I live in Morelia, hardly a backwater town. Although I own a home here I rent another downtown to be closer to the activities. That rental costs me, at today's exchange rate, almost $190 US per month. Heating and air conditioning are optional and I use neither, don't need them. My water bill on either house, when occupied, costs around $20 US per month, electricity about the same, and around $22 every two and a half months for a cylinder of gas. Food is reletively cheap. A pair of jeans costs around $6, shirts about $9 but about half that on sale. Mexican shoes are about the best for my money. A pair of Hush Puppies, made in Mexico, are around $40 US, more or less depending on selection.

Where you live in Mexico makes a big difference. I don't pay the exorbitant extra to live close to a bunch of sniveling gringos. And that is a big savings in more than just money.


jerezano

Nov 13, 2009, 10:58 AM

Post #17 of 22 (6312 views)

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Re: [jl1] Mexican pesos bonds

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Hello all,

[jl1] seems to have missed Hounddawg's very pertinent point. No matter what part of the world one lives in, the initial cost of housing is NOT what really matters but the monthly or yearly maintenance costs added to normal living costs matter a whole lot. . For example I once had a secretary in Washington DC who inherited a very nice house in Boston from her mother. She could not afford the yearly tax on that house, nor was she able to sell it. She was not able to donate it to any NGO either.So she let it revert to the municipality for unpaid taxes.

Not an easy decision to make, but what else could she do?

When it comes to financial matters do not discount any messages from Hounddawg just because he expresses himself so vividly. He really knows what he is talking about. His point about yearly taxes on a comparable house in Paris to the one he owns in Chiapas is a really vivid example. $25 us dollars compared to $16,000 us dollars. He could have used Lake Chapala to Chiapas perhaps or San Miguel to Chiapas or Timbuktu to Chiapas with less vivid or perhaps even negative results. He just wanted to illustrate his point which is:. Don't commit yourself to something without thinking about future costs!

Dawg really needs no one to defend him. He is perfectly capable of doing that himself, but let's not deviate from the topic of this thread to attack him.

jerezano


Hound Dog

Nov 13, 2009, 11:31 AM

Post #18 of 22 (6301 views)

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Re: [jerezano] Mexican pesos bonds

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Thank you Peter and Jerezano for your kind words. Dawg is simply trying to make the point that it is not the cost of a dwelling that matters but the cost of continuing to live within its enclosures. And, it´s not simply taxes.

Forget Paris. Let´s try comparing San Cristóbal de Las Casas where our annual property tax burden is the equivalent of $25 USD per annum and homes of similar value to Chiapas with:

Gainesville, Florida. Property Tax $10,000 USD a year.
La Rochelle, France. Property Tax $16,000 per year.

Compare your town on the same budget as I compared mine in Chiapas. Let´s say, the equivalent of $300,000 value and we are talking about a nice house in a sought after historic district not Downtown Baton Rouge. We are also not talking about the incredibly cheap cost of food and utilities.

Get serious.


Rolly


Nov 13, 2009, 11:54 AM

Post #19 of 22 (6294 views)

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Re: [Hound Dog] Mexican pesos bonds

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"...that it is not the cost of a dwelling that matters but the cost of continuing to live within its enclosures..."

I once owned a Corvette. I quickly learned that paying for it was the easy part; keeping it on road is what kept me broke.

Same thing with a house.

Rolly Pirate


arbon

Nov 13, 2009, 12:56 PM

Post #20 of 22 (6280 views)

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Re: [Hound Dog] Mexican pesos bonds

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So how much would you have payed, just for a $100,000 house after the 80% mortgage @ 6.3% was added on say over 25 years.
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(This post was edited by arbon on Nov 13, 2009, 1:12 PM)


Hound Dog

Nov 13, 2009, 1:16 PM

Post #21 of 22 (6267 views)

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Re: [arbon] Mexican pesos bonds

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That would be an $80,000 loan at 5,0% for 25 years. Total cost purely as a loan with no other costs: $120,000. It´s more complicated than that but that wa the question.


arbon

Nov 13, 2009, 1:44 PM

Post #22 of 22 (6262 views)

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Re: [Hound Dog] Mexican pesos bonds

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On http://www.cs.usask.ca/.../mortgage_tables.cgi

$80,000 @ 5% over 25 years is $140,301.61

$80,000 @ 6.36% over 25 years is $ 79,956.47 + $80,000 = $ 159,956.47+ the $20,000 = $179,956.47 for the House after 25 years.

Hopefully for the lender there was $80,000 equity in the house at the time the loan was made.
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