I'm just back from Thanksgiving vacation in Athens. Since Puerto Rico is often called the 'Greece of the Caribbean' I thought that it would be interesting to see how they were doing after confronting the reality of a country without cash to continue operations.
While there are significant differences between Greece and Puerto Rico - the basic issue is the same. Governments became bloated since they could just continue to borrow money to pay off old debts in a disastrous cycle that left no room in the economies for private enterprise.
In both countries, as the government monster devoured everything in its path to maintain the status-quo, private business was squeezed out and an entire generation of the most talented young professionals and families were forced to relocate to find work outside of their home country.
Greece had their version of a control board put in place last year - as the EU imposed strict financial supervision. This has stopped out-of-control government spending. Retirees and ex-government-employees bear the burden of unemployment and reduced pensions - but it seems as if the private sector is finally stabilizing. There are projections that the economy should actually grow for the first time in years. While there are still demonstrations and frustration, there is also a new pride in re-discovering the pride of their country and the challenge of rebuilding a stable 'greco-centric' economy.
It looks like Puerto Rico will finally confront reality when it runs out of cash to meet payroll and pension payments in the next month or two. Like Greece, Puerto Rico has no option but to seek help - and will have to accept severe austerity as the price for any loans or restructuring assistance.
While this will be painful for government employees and pensioners - it should signal the bottom of the the cycle and provide a platform to right-size the government, provide a level playing field for the private sector and rebuild the economy. Puerto Rico has so much opportunity - this could be the end of a long and painful decline.
If you're looking at real estate investment - this may not be the bottom of the market yet - but the hedge funds are still buying prime locations and it may be time for you to start thinking of what area and type of property might be right for your portfolio.