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It’s one of those days. Reading the financial press is a delight; the big challenge is deciding what to laugh at first.

Take your choice. There’s Martin Wolf, writing in The Financial Times, with a claim that is so staggeringly conceited, the gods must have marked him for punishment before the ink was dry. He thinks economists should be thanked, not merely for saving the world economy…but for saving civilization itself. We will come back to this later…after we’ve had a chance to catch our breath.

There’s another report in The Financial Times about our hometown, Baltimore, Maryland. A few years ago, the city’s meddlers bawled and whined about how the banks had “red-lined” Baltimore’s urban center. Red-lining was the practice of not lending to people who were not likely to pay their mortgages. Finally, Congress passed a law requiring the banks to lend to poor credit risks – which is how the subprime industry got so big. The banks then discovered that lending in minority areas was a goldmine – as long as they could lay the paper off on someone else. Eventually, all the pieces were in place. The feds required it. The feds helped fund it with low rates. And Wall Street securitized it…taking much of the risk away from the lenders themselves. Pretty soon, the banks were “reverse red-lining,” actually targeting poor people so they could lend them money.

“We’ve had people in our office who were qualified for a mortgage based on their Ebay earnings or their gambling income,” says a local housing do-gooder.

Which just goes to show we were right. If you’re going to make a really big mess of things, you need taxpayer support.

Well, now the sub-prime loans have blown up. In the third quarter of 2009 alone, 15% of sub-prime mortgages were in foreclosure; nearly 30% were delinquent. So, now the poor people are complaining that lenders took advantage of them…and rather than admit that they should have left well enough alone, the meddlers are blaming the banks for sharp credit practices. The city of Baltimore is actually suing Wells Fargo for “reverse red-lining,” which just goes to show how shameless these politicians can be.

And guess what? The city will probably win. They’ve got a hotshot, ambulance chasing lawyer on the case. He’s already won a ‘reverse red-lining’ case against a bank. And he’s got a motive to win; he’ll make millions on the case. All he needs is a jury of nitwits to stick it to Wells Fargo.

Economic Disasters Need Taxpayer Support originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

There is not a lot of action in the markets. Most of the investment world is home for the holidays… At least, the investors are home. The pros – the bankers, for example – are celebrating the holidays in fancy resorts. They can afford it. It was a great year for the financial sector. After nearly going broke because of their reckless speculations, the bankers took money from the feds and went on to speculate some more…making huge profits. Bonuses for many of them were better than ever.

Yes, dear reader, 2009 was a strange year. It began strangely…and ended the same way. After many years of going the other way, finally, the rich were NOT getting richer. At the beginning of the year, they were getting poorer, big time, as the value of their stocks fell in half…and the value of the real estate dropped 30%. But then the government stepped in and made sure that at least the richest of the rich didn’t suffer too much. And then, thanks to a natural bounce and a very unnatural amount of money from the feds, the rest of the rich didn’t end the year too badly either. The FTSE world index closed yesterday within a few points of its high for 2009….and the US market ended very near the level it was when Lehman Bros. went broke. Of course, that still left investors a little short, if they looked back at their 2008 high. The Dow is still down about as much as houses – about 30% from the peak.

You will notice the lack of precision in our figures. Most of the financial press prefers to tell you, for example, that the Dow is down 31.8% from its 2007 peak…or that copper is up 42.5% in 2009. We avoid such precise numbers, partly because we’re no good at math and too lazy to look it up…and partly because we think precision, in our business, is a fraud. Prices move all the time. By the time the reader finds out that copper is up 42.5% the fact is history. And by the time he puts in his sell order, to take advantage of the gain…it has turned into a loss. What’s more, there is no real precision in finance…or in history…or in most other things. Stuff happens. It is always a little different than you expect and never quite measures up to precise analysis. The facts won’t stand still long enough to permit it. And often, what you think you are measuring turns out to be a complete illusion…if not a complete bamboozle.

Take another example: GDP. When the government reports GDP growth of 3.2%…what does it really mean? Well, it means that this is the number their measurement system has produced. Anything beyond that is inference, guesswork, and theoretical extrapolation. Does it mean ‘output’ has gone up? That depends on what you call ‘output?’ Does it mean the economy is growing? That depends on what you call growth.

We won’t continue on this subject. You get the idea. GDP is itself a counterfeit. It pretends to measure the health – the growth – of an economy. In fact, it measures something much different…more appropriately called ‘activity.’ Without looking much deeper, you don’t know whether the activity is making people richer…or poorer.

Well, we got that off our chest…back to the financial news…

Back to Japan for a final laugh. Is there anything so stupid that Japanese economists have not yet taken it up? And yet, after 20 years of trying to revive their economy, the islands’ output (measured by GDP) is expected to shrink 4.3% to the 12 months ending in March of 2010.

Rather than give up and admit they can do the patient no good, the quacks keep at it. A new initiative by the Hatoyama government will focus on developing new markets – said to be worth $1 trillion – in the environmental, healthcare and tourism sectors.

We will ask a simple question: if these were viable markets, why doesn’t the private sector target them? And here’s another one: what makes anyone think that Japanese government economists are better at spotting investment opportunities than Japanese businessmen?

We’re stumped on both questions.

But government officials say these initiatives will create 4.76 million new jobs (not, 4.75 million…nor 4.77 million) by the year 2020. (Why not by March 2nd, at noon, 2020?)

The rest of the world laughed at Japanese economists in the ‘90 and early ‘00s. Here at the Daily Reckoning, however, we reckoned that they were no dumber than any others. They were just pursuing the usual claptrap policies. We went on to predict that US economists would do the same thing when their time came. Well, now their time has come; they’re doing the same thing.

So, now US economists are bowing towards their Japanese colleagues…and we laugh at them all. Bunch of morons…every one of them.

But while economists followed their simpleton theories…the markets did their work. They’ve been grinding down Japanese shares for the last two decades. In fact, they’ve been knocked so low that they probably can’t go much lower. Maybe Japanese stocks are now a buy. Maybe they are what we should put on the buy side of our new Trade of the Decade.

We’ve still got a day to think about it. Stay tuned…

Regards,

Bill Bonner,
for The Daily Reckoning

Camaraderie of the Damned originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.

As I mentioned in yesterday’s edition of the Daily Reckoning, next year is going to be the most exciting one real estate investors have seen in a decade. I’ve got my eye on four spots, in particular – diverse opportunities around the globe, each of which represents an excellent value play.

Yesterday, I explained in detail why I believe the Northeast coast of Brazil offers tremendous opportunity. This spectacular region boasts some of the world’s most glorious beaches. And now that Brazil will be hosting the 2014 World Cup and the 2016 Olympics, the country is committing itself to large-scale infrastructure projects. All these factors should combine to boost the already-increasing property prices in Northeast Brazil.

Today, I’ll examine three other hot spots around the globe:

1) In Europe, projects and banks are in deep trouble. The resulting financial distress has created pockets of opportunity where you can buy quality cash-flow property for 50 cents on the dollar.

2) In Costa Rica’s southern zone, a new coastal highway is set to open in 2010 and an airport is on its way. With improved accessibility, property prices here will increase, just as they have elsewhere in the country when better roads have gone in.

3) And in safe, stable, cultured Uruguay, there is an undiscovered stretch of coastline that big international developers have just begun to snatch up. Rich Argentines have been coming here for generations – but keeping the secret to themselves. The best beaches and seaside towns in Uruguay are here. And now’s the right time to stake a claim.

Now let me explain in more detail why…and how, you can position yourself for profits in each.

Grab Distressed Deals in Europe

In Europe right now you can get deals with discounts of 52% on list prices, or 40% on official valuations – deals in blue-chip locations that will immediately throw off positive cash flow.

These are opportunities in locations that will be the first to recover once real pent-up demand recovers. In some cases, up to 100% financing may be available.

After years of market overshoot on the upside, today we see the opposite – overshoot on the downside. You could profit in 2010 on distressed and bank foreclosed properties in Europe. The best deals are in projects that have gone bankrupt.

Here is why this opportunity exists: Banks lent to developers to build. Developers built in anticipation that there would be no problem selling their units. After nearly a decade of runaway demand and floods of cheap money, they took their eye off the ball. Developers took on more debt and risk than they should have and they overpaid for land.

The Credit and financial crises, combined with oversupply, led to a breakdown in many markets. Sales dried up and high-quality, completed units were left sitting, waiting for a buyer. Banks need to purge their loan books. Developers want to lick their wounds and move on. Forced sell-offs are happening…demand is almost non-existent. This is a formula for opportunity.

Distressed deals are available in many places in Europe, though most markets make little sense and I wouldn’t recommend them. In Central and Eastern Europe, for instance, deep structural and currency issues make the deals unattractive.

And in Ireland, there is an oversupply problem. It’s compounded by increased unemployment and an imminent fiscal crisis. Rents in Ireland have fallen by up to 30% in the past year alone. Add in more vacant structures and you see a market that is suffering from yield implosion. With the exception of an exceptional deal on a property with intrinsic value, I wouldn’t recommend Central or Eastern Europe or Ireland.

I’m focused on my three golden rules:

Buy quality (location, construction, amenities, and fit-out).

Don’t take on any construction risk; buy completed units.

Don’t take on any project risk; make sure, for instance, that the condominium is functioning. You don’t want to be one of 10 owners in a 100-unit condominium.

I wouldn’t consider any distressed deal that doesn’t tick all three boxes. So where should you look?

The best opportunities are in the UK, Spain, and Portugal. Developers here relied heavily on debt. The discounts can be big…more than 50% in some instances. The banks who control many of the failing developments will offer mortgages of up to 100% at extremely competitive rates.

In the UK, invest in prime urban areas in cities with a diverse employment base. Look to cities like Birmingham and Manchester. You can buy for less than 50% of what your neighbors bought preconstruction several years ago. Buy into projects where there are a large number of owner-occupiers. These will be more stable.

In Spain and Portugal, invest in prime resort properties in areas that haven’t been overbuilt. There’s a lot of junk out there, which you should avoid. However, the market has stalled for quality inventory, too. Northern Europeans will still come in droves to enjoy the region’s sunny weather, and these folks will still need to stay somewhere. Buy where these tourists want to stay – in places that are close to golf courses, beaches, and an international airport. Places like Granada in Spain or Portugal’s Algarve.

Costa Rica’s Suddenly Accessible Southern Zone

Anything that improves the accessibility of a piece of property increases its value – roads, bridges, airports, etc.

In 1983, IL first recommended Northern Costa Rica. Those who followed IL’s recommendation saw their investments increase 8-, 10- or even 12-fold. Today there is another Costa Rica play. History might just repeat itself.

Prices have stayed low in Costa Rica’s Southern zone because it’s difficult to get to. That’s set to change. If you move fast, you have the opportunity to position yourself ahead of the path of progress.

Some of the most amazing scenery in Costa Rica is in an area that runs south of Quepos to the border with Panama. Landscapes here in Costa Rica’s Southern zone are dramatic – panoramic ocean views; lush tropical rainforest; and sheer jungle-clad slopes, rising sharply away from pristine stretches of sandy beach.

There is more land preserved in national parks and reserves in this region than in any other in Costa Rica. Ballena National Marine Park is a hotspot for humpback whales. Corcovado is reputedly the largest area of primary rainforest left in the Americas, home to numerous endangered plant and animal species. The beaches are mostly deserted.

In a country with an established real estate market like Costa Rica, this sounds like just the type of place that would attract a lot of fervent investors. Difficulty getting there has kept it under the radar in terms of development, and kept prices far lower than areas in Northern Costa Rica.

The Costanera Highway was unpaved between Quepos and Dominical and the airports in this area are small, local affairs. These are exactly the kind of conditions I look for when scouting for a good real estate opportunity. Especially when these conditions are set to change.

Costa Rica’s President Oscar Arias Sanchez recently kick-started the final stage of the Costanera highway. The work is almost complete (only one bridge still remains unfinished). And so a project that’s been promised by successive governments for 30 years is finally on the brink of completion. It will open up a truly undiscovered area of Costa Rica by cutting the two-hour trip from Quepos to Dominical to 25 minutes.

An international airport is planned for Palmar Norte. Due to be completed in 2013 (the government has already allocated funds) the airport is planned to open in stages; the first will allow international flights with a maximum capacity of 50 passengers. Eventually, the plan is to have a runway capable of accommodating even the world’s largest passenger plane, the Airbus A-380.

An airport of this scale needs to be close to a hospital…so they built one. The ultra-modern 85,000-square-foot Hospital De Osa located in the town of Cortez opened in April 2008. The hospital features multiple treatment facilities including a state-of-the-art emergency room, a pediatrics wing, a neurology center, and an obstetrics and gynecology center.

In 2002, in Northern Costa Rica, Liberia airport started taking direct flights from the U.S….and property prices soared. The beaches in this Southern zone are even nicer…and they’re about to be more accessible.

Uruguay’s Secret Beach Hideaway: Rocha

Uruguay rarely makes the headlines. There are no natural disasters and the crime rate is low. It’s safe, stable, and cultured. The infrastructure, from modern airports to roads, is first class.

The country goes quietly and successfully about its business. Last year it made headlines with GDP growth of 8.9%, compared to 1.1% in the States. Uruguay isn’t burdened with debt. Montevideo’s largest shopping mall plans a $100-million expansion, adding to the 200 stores already open.

The department of Rocha in the east of Uruguay has for years been a favorite destination for rich Argentines. East of Punta del Este, it stretches to the border with Brazil and boasts the nation’s best beaches. Inland, you’ll find cattle ranches and sleepy towns, most with populations of less than a 1,000 souls. The coast is where the action is. The beaches here are wide, natural, and pristine. The deep-blue water contrasts with powdery golden sands. You won’t find highrises or all-inclusive resorts.

What you will find are Uruguay’s best seaside towns. La Paloma fills with tourists in high season, but it’s still a small, friendly beach town. La Pedrera has an upmarket feel to it, with large weekend homes beside a sweeping curve of beach. Cabo Polonia is famous for its shifting sand dunes and bohemian residents.

There’s an abundance of nature reserves and parks in Rocha, many with lagoons ideal for bird-watching enthusiasts.

Rocha’s seacoast draws visitors from Uruguay, Argentina, and Brazil. And this stretch of coast has recently appeared on the radar of major international developers. They have been quietly purchasing large tracts of land. Land values have been slowly increasing. Now they are set to explode. This stretch of coast is the natural extension of Punta del Este.

One planned project I recommend is by Argentina’s foremost developer, Eduardo Costantini. Estimated costs for his development run to $350 million. This is the first upscale project in the area, and it will raise the bar for quality and luxury. Included in his project is a bridge over the lagoon at Rocha. U.S. development groups also are getting ready to launch projects in this area.

Buy accessible beachfront land along Rocha’s coast, and you will do well.

The 4 Best Real Estate Investments for 2010, Part II originally appeared in the Daily Reckoning. The Daily Reckoning, a FREE daily e-letter, offers a "uniquely refreshing" perspective on the global economy, investing, and today's markets.