A Visit to the Filthiest City in North America
By Tom Dyson 
April 2, 2008

"The policia will rob you if you go down there..." 

I had just arrived in Ciudad Juarez. Ciudad Juarez is a border town across the Rio Grande from El Paso, Texas.  

It was 9 a.m. I was looking for a supermarket to get breakfast. A woman had pointed me down a backstreet. I started walking down the backstreet when a man called out to me, warning about the police. 
 
"There's a roadblock down there. The policia will fine you. They arrest gringos looking for girls." 

"But I want to buy some fruit," I told him.  

"It doesn't matter," he said. "They'll take your money just for walking down there." 

I thanked the man and turned back to the main road. He called out behind me, "You need something else amigo... girls, weed?" 

Juarez is probably the filthiest city in North America. It's like there's no government there. Simple things are missing... like traffic lights. Potholes never get repaired. No one picks up the trash. The police are all criminals.
 
The irony is, Juarez is one of the richest cities in Mexico. This is because drug cartels own it. The cartels make billions of dollars selling drugs. It's all cash. They can't deposit it in the bank or invest it in the stock market. So they spend it on houses and cars. The city's infrastructure may be terrible... but house prices in Juarez are the highest in Mexico. I saw more Cadillac Escalades in an hour there than the four days I was in Texas. 

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I went to Juarez to continue my research on pawnshops. The Spanish phrase for pawnshop is "Casa De Empeno."  

Mexican pawnshops use loud music, bright lights, and uniformed staff to generate credibility. They look like franchises. The first store I visited was so clean and welcoming, it felt like I'd found a McDonald's restaurant in the middle of a flea market... 

Pawnshops don't have the stigma in Mexico that they have in the United States. Only 10% of the Mexican population has a bank account. Everyone else lives in the cash economy.

Many Mexicans store their wealth in jewels and electronics. They use pawnshops like Americans use ATM machines. When they need cash, they bring their television to the pawnshop and take out a loan. Pawnshop interest rates don't seem so high in Mexico because national interest rates are much higher there. For example, the average rate on a standard credit card in America is 13.4%. In Mexico, average credit card rates are 34.27%, according to the Mexico's national newspaper, La Reforma. 

The retail side of the pawnshop businesses works better in Mexico, too. In Mexico, buying second-hand goods is not the disgrace it is in America.  

The government runs the largest pawnshop chain in Mexico and has controlled the market for decades. This is probably the main reason the pawnshop industry in Mexico feels so legitimate... and why there's opportunity here...  

About 10 years ago, the government opened the pawnshop market to private players. Now there's a boom. New pawnshops are popping up all over the country. 

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Mexican pawnshops are so profitable they generally pay for themselves in less than seven months from their opening day. I met with the CFO of a publicly traded Mexican pawnshop chain. He thinks there's room for his company to open another 500 or 1,000 new pawnshops in Mexico over the next few years.  

I think Mexican pawnshops are a fantastic investment right now. In fact, I'm recommending a Mexican pawnshop operator in my newsletter, International Strategist, this month. If you don't mind the social stigma of going into pawnshops, you should consider investing in one too.
 
Good investing, 

Tom