LOS TIPOS DE CAMBIO EN LA REGION

Les comparto una nota sobre las políticas del tipo de cambio en la región. Mas allá que no veo que suceda lo que plantea la misma, es interesante comparar como evolucionaron las distintas monedas frente al dólar.

Argentina's new forex policy in three words: Stupid, Stupid, Stupid

Mark Turner | Mar 13, 2008

Here are a few two year charts that map how some local currencies have done against the dollar.

Here's the Brazilian Real (approx 20% appreciation)

The Chilean Peso (approx 18% appreciation)

Here's the Colombian Peso (approx 10% in two years, but 23% from that peak)

Now the Peruvian Nuevo Sol (approx 16% appreciation)

And to give some global context, here's the Euro's perf against the greenback in the same two year period (approx 21% appreciation)

Meanwhile, Argentina's Peso has done...well....this;

While the vast majority of world currencies have appreciated considerably against the US Dollar, the Peso in Argentina has actually lost ground against the greenback to the tune of around 2%.

We've been through the "whys" of this monetary policy before, but in a nutshell Argentina wants to keep its currency artificially weak so that its exports remain competitive. The fact that it doesn't necessarily change anything (We've previously argued that one as well (1)) doesn't seem to worry them....so be it.

We also argued that Argentina is setting itself up for a speculative attack on its currency from overseas investors. Peru is the latest regional state to have made the complaint that foreign hot money has been washing in and overcooking its forex market. Well, it looks like Argentina has not just ignored this threat but has just thrown the door wide open to the speculators and pinned a sign saying "please take my money" on its back.

Bloomberg reported today (2) that Martin Lousteau, Argentina's minister of the economy, plans to sell ArgP$40Bn into the foreign currency markets this year to keep the Peso weak. But this time they aren't just going to emit Peso debt but use tax revenue pesos to buy the dollars, the idea being that they can artificially weaken the currency without printing more currency and adding to the country's inflation problem (and hey, it's a problem).

Sounds fine, no? You get to 1) up your dollar reserves, 2) keep your currency nice and weak and where you want it and 3) don't add to M2 in pesos, thus lessening monetary inflation pressures.

Well, apart from the obvious inflation problem a weak currency causes to a country with a strongly growing GDP (country gets richer, country likes that 42" flatscreen digital TV they make in Japan, country starts importing shiploads of stuff, country pays through the nose for foreign goods in its local currency cos the gov't won't let the Peso go from 3.15 to 2.80 vs the dollar etc etc), the chances of being hung out to dry are multiplied tenfold when you start playing forex games in the big leagues instead of just pumping out the pesos to the unsuspecting locals and sterilizing the transaction.

How it happens is like this: Argentina wants to sell ArgP$40Bn in a year...that's ArgP$3.33 a month...let's call it a billion dollars' worth to round up a bit. So Argentina trots over to the open forex market and finds a buyer for its pesos. Ka-ching, dollars change into pesos at 3.15/1, and everybody's happy.

But hold on a minute; if you were the buyer, what would be the attraction in buying a currency that wasn't planning on going up in value? Surely you'd be a buyer in the Peso for a reason, no? You'd like the Peso and happily sell your dollars if you thought it would get more valuable later.

So what happens if you, as Señor Buyer, decide that you don't just like the Peso but you REALLY like the Peso? The Argentina government goes to market and sells its ArgP$3.33Bn for the month, and you go, "Hey! wait up dudes!! I haven't finished buying those yet! Don't run away, sell me another 3 billion, yeah?"

Argentina says, "Sorry dude, ain't got no more right now....I'll sell you a few next month ok?"
Señor Buyer, "Hey dude, that's bogus. Anyone else wanna sell me some?"
Private bank #1; "Yeah, I got 500 million of them, but I won't sell 'em so cheap. I'll give you 3.1 of them for a buck."
Señor buyer, "Yeah ok, it's a deal."
Private bank #2; "Dude, you can have half a billion of my Pesos at 3.05 if you like, yeah?"
Señor buyer; "Cool, deal...here's the moolah."

Now all this time Señor Buyer's feeling happy, cos he bought 3.3Bn pesos at 3.15, then managed to bring down the exchange rate by buying a few more at lower prices. So if he cashes in his original buy at the latest deal price of 3.05, he makes 10c on every Peso he bought from the gov't. And when you're talking 10c X 3.3Bn, that's a tasty profit.

But the gov't aren't so happy, they see what's been going on since they left the market and go,
"WHOAAAA! Bad karma, maaaaaan! This whole thing was supposed to keep the Peso weak, and now look what's happening...DARNIT! We're gonna have to sell some more Pesos."

So the gov't goes back to market and sells another 3 billion or so. But Señor Buyer isn't just any old buyer with a deep pocket. He's a hedge fund with REALLY deep pockets and he's got pals who run funds too, and he smells serious profits here.

Señor Buyer; "Hey, this is SOOOO cool. These dudes are selling me lumps of cheap currency, but not only that, they've already told me how much they're going to throw at me in the whole year. They have ArgP$40Bn to sell. Hold on, let me check how much I've got here. Okaaaay! Way cool. I've got TWO HUNDRED AND FIFTY BILLION DOLLARS HANGING ROUND HERE! All I have to do is buy every single cheap Peso the Argentine gov't offers me, then buy more and more and more until they can't defend it any more! Sweet! Then it goes to 2.80 or so, up 10% more or less, and I cash in my chips....They sell me 40 billion chips and i make a 4 billion chip profit without breaking sweat."

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Moral: Argentina is now officially playing with fire. It doesn't take Einstein to work out that the Peso is lagging behind all other regional currencies (check those charts again), and by going to the open foreign exchange market with a fixed amount of Pesos to sell they are making a huge tactical mistake. The well-founded word on the street a couple of weeks ago was that economy minister Lousteau was very close to resigning. When the forex market has finished with him and his half-baked plan, he might just get fired first.

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GLOBAL EQUITY MARKET

Antes de escribir mi opinión de lo que pasa en US, y lo que está por venir (espero ponerme las pilas este fin de semana), me pareció interesante compartir este cuadro que salió en The Bespoke Investment.

This quick bubble chart that gives some perspective on global equity market returns in recent years. The x-axis represents each country's equity market performance during the global bull market that ran from March 2002 to July 2007. The y-axis represents each country's equity market performance since the market peaked last July. The size of each bubble represents each country's current market cap as a percentage of global market cap.

As shown, Brazil, Russia and India saw the biggest gains during the bull market. Surprisingly, Germany went up the 4th most out of the 14 countries we analyzed, while China ranked 6th. Remember, China didn't really start rallying sharply until 2005. At the very bottom of the bull market barrel is the UK and the US. The US went up the least at 93%.

Since the market peaked, Brazil, Russia and India have once again done the best. Along with China, these countries have actually all gained since most countries peaked last July. BRIC is strong as bricks. On the downside, Japan has fallen the most at -32.88%, followed by France, Italy, Switzerland and Germany.

Otra manera de verlo, es cuanto vienen devolviendo del bull market, los mercados, desde que alcanzaron su máximo. A modo de ejemplo, US de un 100% que subió solo corrigió un 15%. Fibonacci diría que falta bastante para corregir si estamos en un bear market de acciones, sobre lo que creo que hay coincidencia generalizada. SEGUIR LEYENDO...

ALTERNATIVA LOCAL PARA INVERTIR EN COMMODITIES

Mucho se ha escrito, y he escrito sobre el boom de los commodities.

Por ejemplo, el otro día leí unas declaraciones de Jim Rogers (cofundador de Quantum con G.Soros) que hizo frente a 750 fund managers de todo el mundo en Tokyo.
Según dijo ... "América está fuera de control", "este bull market va a durar por lo menos 20 años (recordemos que el bull market comenzó a fines del '99 apróx.), y la inflación será el tema". Y advierte "que no descartaría conflictos armados por competencia mundial por los recursos".
Finalmente comentó "que los precios de los productos agrícolas explotarán" y que el oro "podrá llegar a u$ 3.500 la onza".

Como vemos la oportunidad de invertir en commodities, más allá de alguna corrección, sigue vigente. Es por eso que me pareció interesante el producto que sacó la gente de InvertirOnLine.com.

Se trata de una cartera administrada de commodities (ICOM) con la siguiente composición:

- Sector energético: Petróleo (WTI - calefacción - brent), gasolina sin plomo, gas antural
- Sector agrícola: Maís, Trigo, Soja, y Azúcar
- Metales preciosos: Oro y Plata
- Sector industrial: Aluminio, Zinc, y Cobre

Hay información bastante completa en la página de ellos: www.invertironline.com SEGUIR LEYENDO...

OTRA NOTA DE MARC FABER

Siempre es interesante analizar lo que escribe M.Faber.

FAILED EXPERIMENTS IN FISCAL STIMULI
by Dr. Marc Faber

If a shift from low volatility to high volatility signals a change for the worse in the macroeconomic outlook, then the collapse in the yield of short term US Treasury securities is a symptom of the current credit crisis, which has infected all the sectors of the credit market save the highest quality credits.

At the same time, the sharp decline in the yield of ten- and 30-year Treasury bonds and the collapse of lower-quality bond prices seem to indicate that a bad deterioration in US and world economic conditions is about to occur. Since, according to Philip Isherwood, equities tend to perform poorly when volatility is high, cash and bonds would seem to be a good alternative. But, stating his case in favour of US equities on CNBC, a US money manager made the comment that “money in cash is also at risk”. This is certainly true for bank deposits, CDs all structured products, and even money market funds, because the return of capital is uncertain. In the case of Treasury securities, “money is also at risk” but for different reasons.

In the case of Treasuries, the return of capital won’t be a problem for now, but I suppose that with a yield of less than 2% on two-year, 3.7% on ten year, and 4.5% on 30-year Treasury securities, the risk is that inflation (not that published by the government, but the cost of living increase for the median household), which is already higher than these yields, will over time completely eat away the purchasing power of the principal, including the interest.

I hope my readers understand the problem of interest rates, which are artificially low and below the rate of inflation. This forces investors, including individuals, institutional investors, and state and private pension funds, into risky investments, which as we have now seen can also lead to widespread losses. In fact, the losses are now so large that they threaten the entire financial system. I estimate that, when all is said and done, the losses experienced by the financial sector and investors brought about by Mr. Greenspan’s and Mr. Bernanke’s irresponsible monetary policies will exceed several trillion US dollars if we add up the combined capital losses on homes, nongovernment bonds, and equities.

Expressed in Euros or gold, the total wealth of the US has already shrunk by at least 40–50% since 2000. I don’t have a high regard for any government (except, possibly, that of Singapore), but the most destructive course a society can embark upon is to appoint academics to positions of responsibility. A problem of artificially low interest rates that is seldom discussed is that many individuals depend on interest income in order to meet their living expenses. Equally, pension funds depend on a certain annual income to meet their present and future liabilities. Moreover, high interest rates provide investors with a cash flow, which can cushion downturns in asset values. Say, an individual or a pension fund owns a balanced portfolio: 50% in equities and 50% in fixed income securities of various maturities. Let’s assume that, in a given year, the stock portfolio declines by 20%. If interest rates average 10% on the fixed income portfolio, the total loss on the portfolio will “only” be around 10%.

Moreover, the cash flow from the fixed income portfolio can be reinvested in equities. But what if the yield on the fixed income portfolio averages only 3%? Obviously, the opportunity to make up for the losses on the stock portfolio by investing the cash flow and averaging down diminishes. And what if the annual cost-of-living increases average 5% or more? In this case, the purchasing power of money will rapidly vanish. Moreover, because of negative real interest rates, consumer price inflation will accelerate, as was the case in the 1970s. At the same time, the “real” spending power of households whose income depends on fixed interest securities will be cut and their standards of living will decline.

My friend David R. Kotok, chairman and chief investment officer of Cumberland Advisors , writes regular insightful comments on the US financial market. Recently he stated: “We still have to deal with dysfunctional credit markets. The Fed must persist in their work of creating liquidity. Only time and transparency will relieve the problem of insolvency. That process is working, too. It takes time and it does and will succeed. Remember, there are no examples of Depression in economic history where stimulus was applied and where the inflation-adjusted interest rate was brought to zero by the central bank. That is the condition in the US today. In sum, stimulus works.”

Well, David, on this one I must disagree with you. I know many economies where monetary and fiscal stimulus was applied and yet they still went into depression. In all these economies, the inflation-adjusted interest rates were not only brought down to zero but, in fact, significantly below zero. The failed experiment by John Law with paper money in France at the beginning of the 18th century ended with a depression, and money printing in Germany between 1918 and 1923 brought about total impoverishment of the German working and middle class. Latin America went through extremely poor economic conditions in the 1980s. (In Argentina, car sales declined by more than 50% between 1980 and 1988.)

However, in all these instances, the depression wasn’t accompanied by nominal price declines but by hyperinflation and collapsing asset prices, GDP, and standards of living in real terms. In fact, I know of two little empires that, as a result of excessive monetary and fiscal stimulus, went bankrupt and ceased to exist: the Roman and Spanish empires.

Admittedly, these empires’ rulers weren’t as smart as our present-day leaders of Western democracies....

Also, I was pleased to hear that Robert Mugabe (another academic with several degrees from Oxford and an honorary degree bestowed on him by China’s Hu Jintao “for his brilliant contribution to international diplomacy and peace”) has offered Mr. Bernanke a teaching job at the University of Harare. This will provide him with a first-hand opportunity to study the devastating impact of excessive monetary and fiscal stimulus on a society.

So, to a large extent, I agree that “money in cash is also at risk”, because there is the risk either of default or that money’s purchasing power will decline. Also, I am beginning to wonder for how much longer buyers of ten- and 20-year Treasury bonds will accept their low yields, which are now below the cost-of-living increases and below nominal GDP. The poorly delivered, contradictory, and incoherent statements made by Mr. Paulson and Mr. Bernanke at a recent Senate hearing didn’t provide much comfort to holders of US fixed interest securities. Not surprisingly, gold has more than doubled since Bernanke was appointed Fed chairman, while the yield on 30-year US government bonds is higher now than before the January 125 basis points Fed fund rate cuts.

Surely, the Fed can cut the Fed fund rate to zero. But this doesn’t mean that longer-dated bonds will rally. If inflation were to accelerate further, rate cuts would inevitably lead to higher long-term rates and capital losses on long-term bonds — particularly if the dollar weakens further! In other words, the Fed can bring down short-term interest rates, but it has little power over the longterm bond market. I may add that one of the problems of hyperinflating economies is that the long-term fixed rate bond market ceases to exist.

I should like to introduce one more thought. Throughout most of the 1970s interest rates were below the rate of nominal GDP growth and negative in real terms. So, what happened? Inflation accelerated, bond yields soared from 6% in 1970 to above 15% in 1981, and the US dollar tanked. After 1981, we had for most of the following 20 years bond yields that were above both nominal GDP growth and the rate of inflation (positive real interest rates).

What happened? We had a lengthy period of disinflation. Also, because real interest rates were particularly high in the early 1980s, we had a huge US dollar rally between 1980 and 1985. After 2001, we again had interest rates that were below both nominal GDP growth and cost-of-living increases, which led to the unprecedented credit inflation we experienced between 2001 and 2007 and the subsequent historic bust.

Now, let us assume that market participants begin to believe in the nonsense Mr. Bernanke has been coming out with concerning “money printing” and “dropping dollar bills from helicopters” in order to stabilize asset markets and avoid economic downturns. They will begin to realize that he is the messiah of the gold bulls and the arch-enemy of sound money.

What will investors do? They will dump bonds and the US dollar en masse. In this context, it is interesting to note that recently, on very poor economic statistics, bonds didn’t rally but sold off. The Institute for Supply Management’s non-manufacturing index, which is representative of almost 90% of the US economy, fell in January from 54.4% to 41.9%. (A reading of 50 is the dividing line between growth and contraction, and the index has averaged 57.6% since its inception in 1997.) January retail sales — closely scrutinised — were a disaster and confirmed my view that US economic statistics published by the government misinform the public about the true state of the economy.

How can January auto retail sales increase by 0.6% when volume sales were down 6% month-on-month? According to David Rosenberg, in addition to declining sales at department stores (down in three of the last four months), sporting goods and book stores, furniture and building materials stores, sales at electronic stores were down 1% in January on top of a 2.5% slide in December, which represents the worst back-to-back performance since the 1990 recession. According to Rosenberg, the “bottom line is that the cyclical components of retail sales — autos + clothing + furniture + electronics + sporting goods + building materials + department stores — were down 0.1% in January.

By way of comparison, spending on gasoline, food and health care rose 1.1% collectively for the month.”

The poor state of the economy is reflected by the collapse of the ABC News/ Washington Post Consumer Comfort Index and its various components. The personal finance component is now lower than it was in 2002. Also, the University of Michigan index of consumer sentiment collapsed in January to its lowest level since 1992. According to Rosenberg, “consumer sentiment is now at a level that is telling us that we are not on the eve of a recession but are rather already several months into the downturn”.

As I have noted in earlier reports, the US economy is already in recession in real terms, but this fact is obscured by the government’s grossly understating price increases throughout the economy. Despite, in my opinion, horrible economic statistics (in real terms), the Fed needs to be very careful not to disturb bond holders by “printing too much money” (electronically), which — aside from the collapse in lowerquality bonds that had already occurred — would also lead to a rout in long-term government bond prices. At the same time, the US must be increasingly careful about its budget deficits and about bailing out the entire financial sector, which is loaded with crappy paper.

Otherwise, Treasury securities will reach “junk status” sooner than I had expected. But I can very confidently predict that, in the long term, US debt will become “junk”!

So, whereas under a sound monetary regime high-quality bonds would be — like utilities — a candidate to outperform, under a central bank that lacks any monetary discipline they are a rather dangerous investment. But this isn’t to say that, at some point in the current downturn, distressed lower-quality bonds won’t provide a great buying opportunity.

Regards,

Dr. Marc Faber
for The Daily Reckoning

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