Argentine Economy

Inflation may accelerate do to spending central bank money, to help bolster K popularity for the coming elections.

[url]http://www.bloomberg.com/apps/news?pid=20601083&sid=azssCZBBHCvE[/url]

In this current issue of The Economist, there are 2 articles on Argentina. One is devoted to the current sabre rattling over oil exploration in the Falklands and the other is a substancial 3 page Article detailing the Kirchner's contrary governing by wim and favouritism. There is detailed 2 part reference to the half a billion US dollars from the Province of Santa Cruz that they have 'lost' as well as an inset article devoted to their tourism empire. Their declared wealth is over 12 million dollars, mainly made by shady insider property deals. They have been cited by Siemens of Germany for being in receipt of millions of dollars in bribes related to Siemans business activities in Argentina though this point is not made in the article. Their true worth would be close to 1 billion and is an ongoing accumulation, with funds rolling in by the hour.

For those illiterate board members that still ask is it worth investing in Argentina and in Argentinian stocks, I offer 2 pieces of advice.

1. Learn to read.

2. Read this week's The Economist.

Business is about making money, not gambling.

Argento

K signs new decree to use central bank money to pay foreign debt, since the first was blocked by the court and it is unlikely to pass congress. This time she wants 4.2 billion US instead of 6.6 billion. Since it's less, it not the same decree that the former central bank chief opposed and brought to court.

Don't know how it will play out? She does have her puppet as central bank chief now, I am sure he will not object, unlike the other chief. I guess congress can take it to court.

I don’t know if K can ignore another court ruling or not. Not sure how the legal system in Argentina works. If her puppet releases the money right away, can the court then freeze it or order it back once the government has the money?


[url]http://www.bloomberg.com/apps/news?pid=20601086&sid=ajKbx0418P1I[/url]

[QUOTE=Tessan]K signs new decree to use central bank money to pay foreign debt, since the first was blocked by the court and it is unlikely to pass congress. This time she wants 4.2 billion US instead of 6.6 billion. Since it's less, it not the same decree that the former central bank chief opposed and brought to court.

Don't know how it will play out? She does have her puppet as central bank chief now, I am sure he will not object, unlike the other chief. I guess congress can take it to court.

I don't know if K can ignore another court ruling or not. Not sure how the legal system in Argentina works. If her puppet releases the money right away, can the court then freeze it or order it back once the government has the money?

[url]http://www.bloomberg.com/apps/news?pid=20601086&sid=ajKbx0418P1I[/url][/QUOTE]It's an incredible story, but the US$4 billion was transfered while she was addressing the opening of Congress. The money will be used to pay the
the international debt due this year. By the way, constitutional scholars are in agreement the action is unconstitutional. However, constitutional issues have never stopped Peronistas from violating the constitution.

Article in Spanish is from the front page of La Nación:
[url]http://www.lanacion.com.ar/nota.asp?nota_id=1238631&pid=8426496&toi=6255[/url]

The old girl has opened Pandora's Box: Central Bank Funds.

[QUOTE]Judge Thomas Griesa of the United States District Court of the Southern District of New York on Wednesday ruled that funds of the Central Bank, also called the BCRA, are really those of the Republic of Argentina saying evidence shows that the bank is not autonomous.[/QUOTE][url]http://www.reuters.com/article/idUSN0717036220100407?type=marketsNews[/url]

Every currency on the Planet is in a state of flux with the exception of the AR Peso. The thing defies logic. WTF?

"Any money raised by a new bond sale by Argentina will be subject to attachments" by creditors, said American University's Porzecanski. "These guys are salivating because they see the prey coming back into the arena."

[url]http://www.bloomberg.com/apps/news?pid=20601086&sid=aT2pXE7OJGZ8[/url]

[QUOTE=Damman]Every currency on the Planet is in a state of flux with the exception of the AR Peso. The thing defies logic. WTF?[/QUOTE]The Peso dollar relationship is more than meets the eye. Dollar-denominated liabilities of the country drive the powers that be at the central bank to intervene in the market in order to try to maintain the exchange rate within a certain range (don't want to make you debts bigger, without incurring new ones)

While the dollar has appreciated 3.23% vs. The peso over the last 8 months. I don't recall that either country altered fed rates, which, all things being equal is the biggest driver in forex movements. Therefore, in a 'free market', the additional 3.23% if for additional risk. Do you think that adequately compensates the investor for risking his dough in AR?

Conversely, the peso has appreciated 15.8% vs. The euro, during the same period.

Walleye,

You are right that the AR Peso is essentially tied to the US Dollar in that the AR peso's value against other currencies only changes in exact concurrence with an adjustment in the US Dollar's value against a particular currency. The AR peso's "appreciation" versus the Euro has absolutely nothing to do with any strength in the currency and everything to do with the simple fact that the Euro fell against the Dollar.

Argentina is one of the most dollar based and dependent economies in the world that does not actually use the dollar as its currency. All big ticket items are priced in dollars and all savings are held in dollars. Even the most ignorant Argentine knows better than to save in pesos. Dollars can be used to make purchases at near market exchange rates for 99.9% of the products and services offered in Buenos Aires. Can you imagine earning in one currency and then having to buy a house or car in a different currency that is worth 4x as much?

Suerte,

Rock Harders

[QUOTE=Damman]Every currency on the Planet is in a state of flux with the exception of the AR Peso. The thing defies logic. WTF?[/QUOTE]My point is, Argentina has been forced to use the Euro to support the Peso for about two months. It is difficult to understand how the Peos was able to stay flat during this chaotic period with Euro. Central Bank in Argentina has got to be loosing big time. But the brain trust of AP knows a lot more about Worldly things than I.

[url]http://www.foxbusiness.com/story/markets/industries/finance/argentina-forced-buy-euros-avoid-ny-embargoes---analysts/[/url]

Now see where more funds have been seized to the tune of 2.43 billion.

[url]http://www.buenosairesherald.com/BreakingNews/View/34470[/url]

[QUOTE=Damman]My point is, Argentina has been forced to use the Euro to support the Peso for about two months.[/QUOTE]Err, I'm missing something. On the face of it, one might think that the peso has been kicking the snot out of the Euro. In fact if you were making that bet recently, you'd be well in the money. However, as Rockharders helped to articulate my point, that relationship (peso:euro) is really secondary to, and driven by, the dollar:peso relationship. Because the peso is highly correlated to the dollar (that means basically that it follows the dollar) and the dollar has been in high demand during this period of flight to quality, the peso has benefited via the dollar's strength against the Euro.

[quote=]It is difficult to understand how the Peos was able to stay flat during this chaotic period with Euro. Central Bank in Argentina has got to be loosing big time.[/QUOTE]See above. Market forces. If the dollar declined against the euro, at the same time the euro declined against the dollar, the peso and the Arg economy would be taking it in the shorts.

In just the last 120 days, the euro has lost about 19% of its value vs. The dollar. If the peso stayed with the Euro (let alone declined vs. The euro) the defecation would hit the rotary oscillator. A 19% loss against the dollar would take the dollar:peso rate to about AR$4.67:USD$1. So every dollar owed by companies and the govt that collect revenues in peso just got bigger, way bigger. In this scenario, yesterday (before the devaluation) you sold a widget for AR$100 (USD$25.5) and made a profit of AR$10 (USD$2.55) after all your costs including USD$6 in debt coverage. Tomorrow, you sell a widget for AR$100 (USD$21.4) However, your dollar denominated debt still requires payment of USD$6 (now AR$28, and increase of AR$4.52, therefore, my after tax profit is AR$5.48 (USD$1.17) So, in 120 short days, while still selling the same number of widgets at the same price, my profit has just been cut by 54%. That is undesireable.

[quote=]But the brain trust of AP knows a lot more about Worldly things than I.[/QUOTE]"Don't sell yourself short, you're quite a slouch"

Name that movie.