Where there's smoke, are there tourists?

My family and I just spent two days in a 5 star resort next to Costa Rica’s most famous Volcano (Arenal).  We were upgraded to the Honeymoon Suite (shame about the kids in the same room).  The room rate included admission for all of us to the most amazing hot springs I could have ever imagined.

How much did that luxury cost, you ask?  $1000? $500? $300?

It was $230.  Total. For two nights. I feel like I robbed the joint.

Costa Rica underwent a phenomenal amount of development around the time of the dot.com boom. That momentum never really stopped the end of last year.

This isn’t really about brands, but about a specific principle in Macroeconomics called Lagging Variables.  These are events or phenomena that have a delayed effect (positive or negative) on the business cycle.   Allow me to draw a simple analogy:

You are 15 years old and you’re at home on a weekend night with some friends.  Your parents have been away for three days on a little trip.  They left $200 for you and your brother before going.  Your friends are hungry, so you order pizza.

You go to the cupboard where the money is, and in its place you find a note from your brother dated two days before saying “Sorry George, I took all the money – going out with my girlfriend.”

Thinking quick, you go to the cupboard with the spare credit card.  Thankfully it’s still there.  You try it with the pizza delivery guy, he says the number’s rejected.  Noticing the answering machine is blinking, you pick up the message. It’s your parents.  They left a message the night before saying they had to cancel their credit cards because they thought they lost them.

Your brother’s pre-emption and your parents’ credit card cancellation are both lagging variables.  They happened before you invited all your friends over and ordered pizza, but they didn’t really have an effect (on you) until much later.

Costa Rica’s tourist businesses are trying to figure out where everybody went.  The bigger companies that can afford it are offering major discounts (like my resort) to try to cover fixed costs.  The smaller companies will fail.  They’re not going to figure out who’s going to pay for the pizza until

1. America has consecutive quarters of growth (6 months), which leads to…
2. Americans and Canadians feel more secure in their jobs (6 more months), as well as
3. Stock Markets stabilize (3 more months), so Americans and Canadians feel like their investments aren’t going down the toilet, so after a total of probably 15 months later..
4. Americans and Canadians feel confident enough to allocate a few thousand dollars to a Costa Rican holiday

By the way, one of my friends ended up paying for the pizzas, and it took me a long time to pay him back.