Thread: Argentine Economy

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  1. #1903
    Quote Originally Posted by Eszpresszo  [View Original Post]
    Well, if you have to ask how to do it, then you shouldn't even think about trying. Hopefully you didn't, but if you had taken Felix's advice you have been f*cked from the beginning. On the date that you made this post, just shy of two years ago, the exchange rate was just shy of 13.7 ARS per US$. A week later, it was 15.2 to the USD. Today its closed at 23.

    The lesson? Well, as my economics professor told me back in 1980, you cannot realistically speculate on currency. You just cannot predict the direction of currency fluctuations. There are just too many moving parts. I liked to think it was possible and that my professor was being close minded. But, what did I know? I was a 22 year old student with big ideas and a blank resume of life experiences. In hindsight, he was right back then and he is right today (Thank you, Professor Behnke). Getting past my own education, the thing you must learn is that you must NEVER make a financial decision based on anything you read in the financial media. Its a good way to lose money that could better be spent on sex. If I can given any novice investor any advice, it would be to ignore investment advice by the touts in the financial media.
    With all due respect, it's a good thing that your econ professor wasn't a currency trader.

    I hope you don't mind, if I chime in with a few personal observations.

    There is a huge global currency spot and futures market based, in large part, upon speculation.

    Most currency speculation is based upon the expectation that certain future events will impact the (rather complex) equation, expressing equilibrium between the two currencies in question. That said the biggest single component of interest rate differentials is usually the relative interest rates, offered by the respective central banks. Most of the rest of the calculus is the art of estimating risk (sovereign risk, country risk, etc.). There are lots of rocket scientists who focus on far more esoteric elements of the equation and more complex transactions (like crosses of three or more currencies), but the basics are: you bet on expected interest rate differentials and events that will impact the risk equilibrium.

    The period you cited, when the peso dropped to about 15:1 was when the currency controls came off. Argentina severely limited access to FOREX 2011-2015. I tracked the official and unofficial rates (blue rate) daily, throughout the entire period. I am simplifying events and roughly approximating the ratios from memory. So, please forgive the imprecision. The free-floating peso didn't trade at 13:1 for long (minutes?). It went from about 9:1 (official rate) to 15:1 (free-floating) almost overnight. The set govt rate was under 10:1, and the blue rate (unofficial black market rate) was maybe 13:1. We were looking at a large FOREX play involving Argentina (probably the only group looking to get into, as opposed to out of, Argentina at the time, during the currency controls). I arrived at 16:1 as our "safe case." When the controls came off in 2015, the rate immediately went to 15:1 and stayed there, plenty long enough for us to unwind the position in the open market.

    Right now, Argentina faces an uphill climb, after doing so well for nearly two years, making the economy more attractive to foreign capital. They are caught in several large and powerful currents.

    The biggest monkey wrench has been that the US Fed tightening is drawing money away from Argentina (and most developing economies). During periods of increasing US rates, the risk/reward pendulum usually swings away from developing economies. While the ROI on US govt securities sucks, all US debt securities are essentially priced off of those underlying rates (and LIBOR). Therefore, a 50 basis point (or .5%) uptick in Fed rates will get priced in across the entire spectrum of dollar-based debt securities, thereby offering higher returns at a wide variety of risk profiles. That draws money into the US dollar and out of foreign currencies, starting with those of developing economies. Therefore, the declining supply increases the cost FOREX to Argentina.

    The next problem (a recurring nightmare for Argentina) is Argentina's economy, and in particular, its unsustainable domestic spending. Argentina, which was already addicted to handouts, went nuts under the Kirchner reign of terror increasing handouts to unsustainable levels. Given Argentina's legendary history of populism, the guy who pulls the plug on handouts runs the risk of quickly becoming unpopular. Unsustainable spending by a govt that has limited reserves and a checkered history in the international debt markets, raises the specter that they might have some future difficulties. Therefore, the risk to holders of Argentine debt rises. Investors demand higher returns for increased risk. Therefore, the cost of capital rises.

    1) Risk = Cost.

    2) If risk rises, so too must the compensation to the investor.

    3) Therefore, interest rates must rise in order to attract capital.

    However, rising interest rates increase inflation. Inflation increases risk.

    1) Risk = Cost.

    2) If risk rises, so too must the compensation to the investor.

    3) Therefore, interest rates must rise in order to attract capital.

    Lather, rinse, repeat...

    Despite the forgoing, things in Argentina arent really cheap. Unfortunately, I believe that things are going to have to get cheap in Argentina in order to break the cycle. If the govt severely cuts back domestic spending and the currency goes to something like 30:1, it might do the trick. However, I doubt the govt will have the sack to do it. Therefore, the currency will need to sink further in order to compensate for that.

  2. #1902
    Quote Originally Posted by Local  [View Original Post]
    What the chart shows is that we are not yet anywhere near the days of cheap Argentine prices (P4P included) that we had in 2002-2005, for example.
    Also, unemployment (another major driver of good P4P prices) is relatively stable at 8%, high by current USA levels, but actually good for the local record over past years.
    Bottom line: the crisis, if there is actually one, needs to get much deeper if we are going to see chica prices going into the bargain zone.
    Thanks for your input. Being old enough to recall double digit inflation in the US during the late 70's, I understand how it compounds over a modest amount of time.

    While not on my immediate list of places to visit, BA has a reputation for some of the finest working girls in LA, but also the most expensive. Of course, it seems Argentina is always undergoing some financial crisis. This latest one probably is not the worst or will it be the last.

  3. #1901
    Quote Originally Posted by Eszpresszo  [View Original Post]
    My question to those who travel to Argentina is, how much has inflation impacted P4P prices, and how has the devaluation worked for you? Are we seeing a rare chance for discounted mongerng with the fabled Argentine girls, or are they spiking their prices accordingly?
    The following chart shows the evolution of the real exchange rate Argentine Peso / US Dollar since the last really big crisis (end of 1 Arg Peso = 1 US Dollar currency board at the end of 2001/early 2002). "Real Exchange Rate" means adjusted for both Argentine and USA inflation.

    What the chart shows is that we are not yet anywhere near the days of cheap Argentine prices (P4P included) that we had in 2002-2005, for example.

    Also, unemployment (another major driver of good P4P prices) is relatively stable at 8%, high by current USA levels, but actually good for the local record over past years.

    Bottom line: the crisis, if there is actually one, needs to get much deeper if we are going to see chica prices going into the bargain zone.
    Attached Thumbnails Attached Thumbnails Real Exchange Rate.jpg‎  

  4. #1900
    Quote Originally Posted by Eszpresszo  [View Original Post]
    Well, if you have to ask how to do it, then you shouldn't even think about trying. Hopefully you didn't, but if you had taken Felix's advice you have been f*cked from the beginning. On the date that you made this post, just shy of two years ago, the exchange rate was just shy of 13.7 ARS per US$. A week later, it was 15.2 to the USD. Today its closed at 23.

    The lesson? Well, as my economics professor told me back in 1980, you cannot realistically speculate on currency. You just cannot predict the direction of currency fluctuations. There are just too many moving parts. I liked to think it was possible and that my professor was being close minded. But, what did I know? I was a 22 year old student with big ideas and a blank resume of life experiences. In hindsight, he was right back then and he is right today (Thank you, Professor Behnke). Getting past my own education, the thing you must learn is that you must NEVER make a financial decision based on anything you read in the financial media. Its a good way to lose money that could better be spent on sex. If I can given any novice investor any advice, it would be to ignore investment advice by the touts in the financial media.
    I did not take his advice at that time. One way to play the current situation is in hotel room prices. I paid $260 a night in November 2017 at the Alvear Art. I looked at their site today and you can book one week for $150 a night. However, I thought the quality was slipping back in November. They are starting to cater to tour groups. So the hotel lobby will be flooded with a hundred Germans or Chinese on any given morning.

  5. #1899

    Never Try to Speculate On Currency

    Quote Originally Posted by BigBossMan  [View Original Post]
    The guys in the Barron's Roundtable are not always right but they have been around the block a few times. Does anyone know how you actually do the following trade?
    Well, if you have to ask how to do it, then you shouldn't even think about trying. Hopefully you didn't, but if you had taken Felix's advice you have been f*cked from the beginning. On the date that you made this post, just shy of two years ago, the exchange rate was just shy of 13.7 ARS per US$. A week later, it was 15.2 to the USD. Today its closed at 23.

    The lesson? Well, as my economics professor told me back in 1980, you cannot realistically speculate on currency. You just cannot predict the direction of currency fluctuations. There are just too many moving parts. I liked to think it was possible and that my professor was being close minded. But, what did I know? I was a 22 year old student with big ideas and a blank resume of life experiences. In hindsight, he was right back then and he is right today (Thank you, Professor Behnke). Getting past my own education, the thing you must learn is that you must NEVER make a financial decision based on anything you read in the financial media. Its a good way to lose money that could better be spent on sex. If I can given any novice investor any advice, it would be to ignore investment advice by the touts in the financial media.

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  7. #1898

    Another Financial Crisis, and the ARS is approaching 24 per USD.

    Anyone who keeps track of international news or just pays attention to the financial world, would know that Argentina is now in ANOTHER financial crisis. If you have been paying attention to those, you would know what I am talking about. If not, I won't try and sum it up for you. But for the purposes of the overseas monger, the exchange rate cannot be ignored. Just this week the Argentine Peso broke above 23 per USD and is just shy of 24. That's easily the highest point in the past decade. As a point of comparison, there was slightly over 3 ARS per $ this time 10 years ago. However the currency has slumped steadily against most all other currencies. In Feb. 2014 and Dec. 2015 the ARS plunged dramatically. Of course this is no surprise in a country with inflation running 26%. One could argue that the devaluation of the ARS isn't sufficient to compensate for the loss of buying power.

    My question to those who travel to Argentina is, how much has inflation impacted P4P prices, and how has the devaluation worked for you? Are we seeing a rare chance for discounted mongerng with the fabled Argentine girls, or are they spiking their prices accordingly?

    I am also curious how the economic calamity will effect impact the choices, as well. As has been noted on the Greece forum, the financial crisis in Greece, resulting in widespread unemployment among young people, saw more girls on the streets and selling their services at a deep discount by EU standards. I realize that this will take time to unfold, and the government has reached out to the IMF for help ( a very unpopular move, apparently), so they might get bailed out again. But, I realize this situation didn't happen overnight, nor is it the first for Argentina. Maybe some experience people who have watched the national economy over time, or some members on the ground can comment. Thanks.

  8. #1897
    Senior Member


    Posts: 557

    Beans vs Rice vs Corn

    Quote Originally Posted by Dickhead  [View Original Post]
    Right, the aguinaldo is only one month, or fifteen days in the case of Mxico. I do believe the other poster was referring to vacation time, sick leave, and the plethora of holidays in Argentina, when saying they work for ten months.

    My guess would be that rice grows much better than beans in The Philippines. Of course, the original diet of the indigenous people in much of what is now Latin America was beans and corn, not beans and rice. And unfortunately for filipinos, beans are significantly more nutritious than rice. Sitting here in my apartment in the world's leading olive-producing country, I'm sure glad I don't have to live on rice and beans, but I could sure live on olives for a while.
    You are very correct when you say that beans are far more nutritious than rice. I think that the scarcity of corn caused by slash and burn agricultural practices in Latin America combined with the discovery that rice and beans made a "super food" led to rice supplementing, but not completely replacing, corn in the Latin American diet. Dry land raised rice strains did not hurt either. The still perplexing thing is that there are many types of beans, and there is bound to be a type that grows reasonably well in the Philippines. For example most all of the black beans consumed by humans are grown in Minnesota. I can only speculate that most Filipinos simply have not acquired a taste for beans--too bad. BTW, I never ate an olive that I did not like.

    Tres3.

  9. #1896
    Quote Originally Posted by Tres3  [View Original Post]
    In the Latin countries that I have been to, Aguinaldo is only one month. For the other two months are you referring to vacations and holidays???? The Philippines is really a Latin country that happens to be located in Asia. Spain ruled for over 400 years, and until Mexican Independence, the Philippines were controlled by the Viceroy of Mexico. The strange thing is that even though the Filipinos love rice, beans never became a part of their diet, like in Hispanoamerica.

    Tres3.
    Right, the aguinaldo is only one month, or fifteen days in the case of México. I do believe the other poster was referring to vacation time, sick leave, and the plethora of holidays in Argentina, when saying they work for ten months.

    My guess would be that rice grows much better than beans in The Philippines. Of course, the original diet of the indigenous people in much of what is now Latin America was beans and corn, not beans and rice. And unfortunately for filipinos, beans are significantly more nutritious than rice. Sitting here in my apartment in the world's leading olive-producing country, I'm sure glad I don't have to live on rice and beans, but I could sure live on olives for a while.

  10. #1895
    Senior Member


    Posts: 557

    Aguinaldo?????

    Quote Originally Posted by Dickhead  [View Original Post]
    If you are referring to the aguinaldo, it's the norm in many other Latin countries. Mxico, Chile, Brazil, Nicaragua, Colombia, and even the Philippines have this system. It's also common in France, although not mandatory.
    In the Latin countries that I have been to, Aguinaldo is only one month. For the other two months are you referring to vacations and holidays???? The Philippines is really a Latin country that happens to be located in Asia. Spain ruled for over 400 years, and until Mexican Independence, the Philippines were controlled by the Viceroy of Mexico. The strange thing is that even though the Filipinos love rice, beans never became a part of their diet, like in Hispanoamerica.

    Tres3.

  11. #1894
    Quote Originally Posted by Gandolf50  [View Original Post]
    where else in the world to people work for ten months a year (or less) and collect for thirteen months????
    If you are referring to the aguinaldo, it's the norm in many other Latin countries. México, Chile, Brazil, Nicaragua, Colombia, and even the Philippines have this system. It's also common in France, although not mandatory.

  12. #1893
    There have been a lot of strikes lately. And why not? Under the world famous Argie system of nonsense, employees collect their wages while on strike! After all, where else in the world to people work for ten months a year (or less) and collect for thirteen months???? But only those employees in "blanco" of course.

  13. #1892
    Quote Originally Posted by Ponelover  [View Original Post]
    Saw BBC news report that there was a 24 hour general strike yesterday in BA? They showed some pictures of deserted main streets, Constitution and 9 de Julio. Says security forces had to use water cannon and tear gas to control protesters who blocked the main highway leading from the north to the capital. Report says inflation 40% last year and expected to be about 20 % this year and protesters were calling for increased wages.
    That's terrible news. Well, 'sadly' bad times bring more chicas into the business.

  14. #1891

    24 Hour General Strike in BA

    Saw BBC news report that there was a 24 hour general strike yesterday in BA? They showed some pictures of deserted main streets, Constitution and 9 de Julio. Says security forces had to use water cannon and tear gas to control protesters who blocked the main highway leading from the north to the capital. Report says inflation 40% last year and expected to be about 20 % this year and protesters were calling for increased wages.

  15. #1890
    Senior Member


    Posts: 557

    Macri has a "Tough Row to Hoe"

    I agree that Macri is a breath of fresh air, BUT the country is run by civil servants, and the majority of them are Peronistas. Since 1900 the country has defaulted on its foreign debt nine (9) times. They seem to always find another sucker to loan them more money. 6.5% is not much of a risk premium. A person might make some money on this ponzi scheme, if he cashes out early, and leaves someone else holding the bag. There is a reason that real estate in this country is traded in USD, and smart Argentines have most of their money in USD.

    Tres3.

  16. #1889

    Zulauf recommends going long the Argentine Peso

    The guys in the Barron's Roundtable are not always right but they have been around the block a few times. Does anyone know how you actually do the following trade?

    Have you other investment picks?

    In the next year, there will be an investment opportunity in Argentina, where there has been a fundamental political change after 70 years of a combination of socialism, conservatism, nationalism, and corruption. This change could be as important as the Reagan presidency was to the U.S.

    Mauricio Macri, Argentinas new president, is open-minded, with an international view. He has a great team of experts in place in finance and economics, and at the central bank. He lifted export sanctions and currency controls. Thats why the dollar/peso ratio shot up to almost 16 from nine. It pushed inflation rates up, but inflation is expected to decline next year as the impact of the one-time devaluation disappears. Argentina also has settled its problems with foreign creditors, and has come back to the capital markets. In addition, Macri has announced a tax amnesty that will bring in more tax revenue.

    What is the best way to invest in Argentinas progress?

    Im bullish on the Argentine peso. You can buy it against the dollar on a one-year forward basis. The interbank forward rate is 17.31 pesos to the dollar, versus the spot rate of 13.95 pesos. This gives you a carry of 19.4% for 12 months if the spot price stays unchanged.

    Argentina has recently issued $16 billion of dollar-denominated bonds with maturities of three, five, 10, and 30 years. I bought the three-year, which carried a coupon of 6.25%. The yield has already fallen to 4.5%. If you are more adventurous, you can buy five-year debt.

    In the near term, things arent easy in Argentina. The economy is in recession. The inflation rate is 40%. There are demonstrations and strikes. The next nine to 12 months is critical, until people see that inflation is normalizing. But Argentina has little government debt. It couldnt tap the capital markets for a long time.

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