Peso Doomsday Clock?

Everybody's still waiting on midnight ...the Argentine peso hit $11.55 to $1 US dollar today.

The peso broke the psychological barrier back in May, breaching 10 to 1, but the government fought to bring it back down.  They did very well at that, much better than I thought would happen.  Well, here we are 8 months later and we are back above 10, back above 11, and hovering about 12.

To the average Argentine, it appears that the national treasury has "let go of the rope" as far as defending the peso is concerned.

What that will mean to peso-earning people everywhere in this country is uncertain.

What that will mean to policy decisions is what we are all waiting for.

It's $10:08 in Argentina. Everybody's Waiting for Midnight.

We broke the psychological barrier today: Argentina's highest denominated note is now worth less than 10 dollars.  "What happens now?"  That was the question on everyone's mind this morning.

By afternoon, the government announced what would happen.

The national government announced the creation of a bill draft intended to establish a recovery plan for undeclared assets within the country and abroad in order to strengthen the level of foreign reserves of the Central Bank.

If that sounds to you suspiciously like money-laundering, you're in good company ...almost simultaneously, the national government announced:

The national government has decided to grant the authority of Secretary of State to the Financial Information Unit (UIF), the institution headed by José Sbatella in charge of investigating money-laundering manoeuvres and the financing of terrorism.

That announcement was not really for domestic consumption; Argentina has only recently been given a clean bill of health from western central bankers as being cured of her free-wheeling ways as regards the sanitary movement of currency.

The prediction business is a tough business ...especially when yer talkin' about the future.  However, yer humble blogger has never been afraid to stick his neck out ...so with everybody ringing my phone off the hook, you can have my 2¢ (about 20.2 centavos.)

#1. Without these announcements, the Argentine peso would be well on its way to 12 pesos to each dollar ...beyond that, who can say?  Once unthinkable, today's double-digit dollar changed brain chemistry all over the country.  People who have been waiting for "things to settle down," made plans to buy this morning ...pretty much without regard as to how much a dollar would cost them.  "Buy 'em at 10 before they go to 12," flashed across the synapses of every citizen of the world's most talented amateur economists.

#2. With these announcements, however, brainwaves have become scrambled at least momentarily.  The bill draft to establish a recovery of undeclared assets seems to be an amnesty of sorts.  It would allow folks to bring out their hard foreign currency from both mattresses here and off-shore accounts, and pay no penalties nor taxes.

#3. This lightening fast action on the part of the administration could actually keep the peso from going to 11 to the dollar before close of business Friday.

#4. The plan seems exceeding smooth: your hidden foreign currency (nobody hides pesos) comes out, gets declared, and you receive a bond of sorts that pays interest, is endorsable, and payable as soon as the current president leaves office.  You pay no penalty, interest, nor taxes on the amount.  Amnesty ends about 90 days from now.

#5. Life is beautiful and monetary stability is restored.

I have a few problems swallowing all of this not the least of which is how this comes hard on the heels of money-laundering accusations by operatives close and/or inside the administration regarding 500 euro notes.

The plan is too smooth, sunshiney, and easy.  Maybe a decade of living here has hardened me ...but nothing ever seems to turn-out quite like this.  When you figure that, in order to qualify for these lollipops and sunshine, one would have to bare one's most private of assets to the national government ...a sudden increase in everyone's confidence in national fiscal policy would be necessary to make it work. 

The payment date for the bond is scheduled to take place after the new administration is inaugurated.  Somehow, methinks this puts to bed any rumors or hopes that la presidenta will be back for another term.

Today's announced plan is too slick and too responsive.  It seems to have been waiting in a box marked, "do not open until $10.00."  It seems designed as a weapon of mass-distraction against the last hundred-dollar bill in Argentina being purchased before the end of the month.

Although I´ll be following the currency rates closely for a while, I´ll be especially interested in the international reaction as regards money-laundering.  This policy apparently would allow you to smuggle a large sum of money into the country, declare it at any local bank, and be forgiven of any taxes and penalties with no questions asked as to its provenance.  That´s not gonna sit well with US and European central bankers.

A final thought on hitting ten and this/these new announcements: this looks tremendously desperate.

A word of advice: hold on to your ass; this is some good acid.

Wow! Whadda Week ...making sense of the Argentine Peso

Economically speaking, it´s difficult to amaze anyone who lives in Buenos Aires.  However, as regards the Argentine Peso, this week has been quite a week.

Monday found every "old Argentina hand" impressed by the US dollar surging to more than eight pesos to one dollar ...something that most watchers didn´t expect until April. Bueno, que vas a hacer / Oh well, whaddaya gonna do.

Less than a week later, however, the unofficial "dollar blue" went to 8.75 to 1 dollar.  Now that will freak even the longest of long-timers here in the Paris of the Palmeras.  By this writing, the dollar has dropped back to less than 8.50 ...but that´s still worthy of wonderment given the accelerated and short time-frame.

What´s that mean to ordinary folks who live in the peso-denominated economy?  Answer: nothing terribly immediate ...but it won´t be very long until it does.

Allow yer humble cattle rancher Mike to let you in on a little ripple that is sure to reach Buenos Aires Capital's pond almost as quickly as this week's currency spike.

Before Monday, My Missus and I sent a big load of autumn calves into the system that supplies all the beef that people eat here in this beef-eating nation.  Although our animals brought the best prices at auction, those prices were a tad depressed.  We wrote it off to selling in the fall when everyone else was selling.  Nonetheless, we were reasonably pleased with the money.

This week, however, our cattle buying/selling sources informed us of many auctions in which there were no buyers and/or the sellers refused to sell at such low prices.

That, my friends, is unheard of ...at least in recent memory.

For a cattleman to pay the freight to take cattle to auction ...and then refuse the offer ...and then to pay the freight to take them back to his ranch ...where there is probably scant pasture to feed them is a BIG deal.

I can only attribute that to this week's weirdness regarding the exchange rate.

In the big city of Buenos Aires, even big fluctuations in the relative value of the peso vis-a-vis the dollar are taken in stride with little effect on day-to-day life.

This week was different.  I predict that the ripples of this week will reach ordinary people in the big city sooner rather than later.

The prediction business, on the other hand, is a very tricky business ...especially when you're talkin' bout the future!

Wild fluctuations in the dollar here can be attibuted to how small is the market for foreign currency.  The scary thing about this week is how the market seems to have gotten smaller.  There are now many more buyers of dollars chasing fewer sellers of dollars.

When I first visited Argentina in 2000, it was estimated that there were 1 Billion US dollars "in mattresses" here ...that's in addition to any US dollar denominated bank accounts that existed then.  Over more than a decade, those dollars have been depleted ...both in private and government holdings.

Now, the market for dollars has become so small that any demand for dollars has the power to swing the exchange rate wildly.

Like the exquisite antiques that used to regularly appear in the famous Sunday street market in San Telmo, US dollars have been fished-out of the local economy to a degree which no one could have reasonably predicted ...until this week.

Full disclosure: even though it has bitten me in the pocketbook, I have always supported the government's effort to restrict the export of food from Argentina simply because some other nations' currencies are stronger.  We have had that luxury because of the official and unofficial stores of hard currency. 

However, just like only 1 million US dollars suddenly invested in the Buenos Aires Stock Market is enough to make values swoon ...the amount of hard-currency wealth in this rich country and its capital appears to have been depleted to the point where almost any demand for dollars can make the exchange rate really swing.

It´s not just you who wants/needs dollars ...the national coffers are dwindling as well.

The nation will probably begin to encourage the export of what we do best: agricultural products.  Already, Argentina counts more and more on the export of heavily taxed GMO soy.  Although we are rich in energy and mining products, those will take time to ramp-up.  If basic foodstuffs are suddenly allowed again to be exported at lower restrictions, there will be hunger here ...and hunger here means hunger for much of the world until Argentine production catches-up with our export capabilities of a decade ago.

I don´t know how bumpy this ride is gonna be ...but I´m holding onto my seat.  Brace yourselves.

Argentine Central Bank sells 80 million greenbacks ...but the dollar still goes up to $4.33

(from Clarín.com) "The global turmoil and the sharp fall of the Buenos Aires Stock Exchange on Monday continued to impact on the exchange market yesterday. Global financial instability fueled jitters small savers and investors, who sought shelter in the U.S. currency. After selling a record $ 230 million on Monday, the Central Bank yesterday returned to part with $ 80 million to meet demand that does not stop...

...The rise was not reflected in the official price of the dollar, which remained at $ 4.185. 

...Demand for dollars sold on the parallel market caused the price to rise from $4.30 to $4.33."

Argentina: economic top dog?

From the Financial Times:

"Nothing illustrates Argentina’s gloating at Standard & Poor’s historic downgrade of US debt better than a front-page map on pro-government Pagina 12 at the weekend, showing the Americas upside down with Argentina at the top and the US and Canada taking South America’s place"

Investing in Argentina?

Seeking Alpha has some fine things to say about investing in Argentina in general and about two stocks in particular.


"Which country's stock market has performed the best over the past 12 months? Surprisingly it has been Argentina, with a return of 38.75%. Argentina has a dynamic economy with a strong manufacturing base, developed oil and mining sectors, and real growth that averaged 9.6% for the first quarter of 2011. Argentina also is one of the world's leading agricultural exporter, known for its beef and wine production."

Mercado Libre and YPF are tops on the list.  Very interesting read.

Inflation Beater: Quetec Olive Oil

1½ liters top quality olive oil, $50 pesos.

Fate is a funny thing.  While researching a trip to the olive growing regions of Argentina, my missus and I decided to walk between la casa de Catamarca and la casa de San Juan.

For some reason, we turned off Córdoba onto Riobamba ...and ran across and olive oil shop at 448.

Well... we HAD to go in.

What a find!  Quetec is a Buenos Aires storefront for an olive plantation in Mendoza.  The small staff demonstrated the mendocino talent for sales and service and there was virtually nothing in the store that we couldn´t sample or weren´t offered.

But we were already on an olive oil mission ...so bring out the THOSE samples.  We settled on a liter of golden oil with a floral and fruity nose that tasted of nuts and butter that was wonderfully viscous in the mouth and disappeared into a tasty bitterness then astringency.  Dreams of drizzling green leaves danced in our heads.  Easily the best Argentine olive oil I´ve tasted ...so far!

The other bottle we took home was decribed to us as "more intense."  It was less complex and less floral but big on the ripe olive flavor and walnuts.  Even more viscous, a little less of both the bitter and astrigent.  I couldn´t wait to get home and sop it up with some good pan árabe and some of my fresh babaganoush.

Fiddy pesos for the both!  Maybe cheaper than anything on the supermarket shelf ...and worlds-away better.

Quetec

Riobamba 448

info@olivaquetec.com.ar
www.olivaquetec.com.ar

Buenos Aires Food Prices 2005-10

Back in the good ol´ days of 2005, when beef was still grass-fed and everything was cheap in Buenos Aires, and 100 pesos was some real walkin´ around money ...a friend from the US asked me about food prices here.

I thought about strolling the supermercado with pen and paper ...but that seemed like too much trouble.  Instead, I went online to a major chain´s website and printed a bunch of screens.  I just ran across the folder ...and man what an eyeopener!

So I thought I might go online again and see what some of those same items cost TODAY.

corn oil	$6.90	$12.67	84%
sugar	$1.30	$3.75	188%
rice	$3.47	$9.29	168%
bag o' beans	$3.65	$17.06	367%
coffee	$6.43	$11.39	77%
corn flakes	$3.62	$7.69	112%
peaches	$3.59	$11.29	214%
tuna	$4.05	$10.79	166%
chips	$5.46	$16.29	198%
pepper 50gm	$3.69	$7.91	114%
fideos	$1.97	$4.28	117%
ketchup Hellm	$2.62	$5.03	92%
ketchup Heinz	$4.93	$13.26	169%
mayonesa	$4.06	$5.95	47%
salt 1kg	$1.54	$3.80	147%
Coca Light 2.2	$3.25	$8.24	154%
sifon	$2.31	$5.80	151%
schneider 970	$1.82	$4.20	131%
budweiser 970	$1.89	$4.60	143%
heineken 970	$2.29	$6.49	183%
quilmes 970	$1.89	$5.00	165%

The increase in the two "market baskets" show a 154% increase from June 2005 to now ...and most of that increase has come in the past couple of years.  Given that, the small increase in Hellman´s Mayonnaisse is almost as surprising as the whopping price of my favorite crackers nowadays.

Nothing on the list is imported nor could be considered a luxury item.  But what bugs me is the increase in traditional "budget stretchers" like rice and beans.

I´ve noticed the price hikes over the past couple of years but shrugged them off.

This year, inflation is really going to worry me.

(*Correction: this post originally showed a 514% increase for Criollitas, I regret the error.)

200 Peso Bill for Argentina?

(from Bloomberg)

"Pablo Verani, an Argentine senator from the Radical Civic Union opposition party, this week presented a plan to introduce a 200-peso bill to combat the erosion of purchasing power caused by inflation and mark the nation’s bicentennial. The 100-peso bill has been the largest note in circulation since Argentina introduced the currency in January 1992.

“My plan is related to comfort,” Verani said. “If you go to a supermarket with 100 pesos now, you buy about 20 percent of what you bought three years ago.”

The extra yield investors demand to hold Argentine dollar bonds instead of U.S. Treasuries narrowed eight basis points to 520 as of 9:59 a.m. New York time, according to JPMorgan Chase & Co. It tumbled 49 on Oct. 27 after the death of Kirchner spurred speculation that the nation’s statistical reporting will become more transparent."

The Argentine Economy is Booming!

I really don´t know why ...and I can´t figger out where it´s coming from ...but the Argentine economy is on track to grow 9.5% this year.

Just to give you some perspective on that, the world economy is expected to expand 3.9% ...and poor Uncle Sam´s storefront will probably show only 1.8% growth.

This post will probably generate feelings along the lines of crime statistics ...if you´ve been mugged, you think crime is soaring no matter what the statistics say.  Income inequality is certainly a concern but if there is a list of countries that still have a middle class, I´d bet that Argentina still ranks high ...as it always has.

Not being much of a consumerist, I´m a poor example of the spending that is driving this boom ...but everything sure smells different than, say, two years ago when cafés and shops were empty, and some were actually closing their doors due to a lack of spending.

Bloomberg reports on the subject today, and mentions that car sales are already up 38% and could exceed predictions by 10,000 vehicles.  Tax revenue is way up, too... up about 1 billion pesos more than Bloomberg´s own economists thought it would be.

Where´s it all coming from?  Tourism is still down from those halcyon days of the early '00s when Buenos Aires was "discovered."  Beef exports certainly aren´t helping.  If anybody out there knows the source of this largesse ...please chime in.

Bloomberg doesn´t really explain it, other than foreign investment is up ...and the massive 55 million ton soybean harvest.

It looks like a really good period to be doing business in Argentina.

Inflation remains a problem and the article mentions that consumers here expect inflation to run about 25%... only Venezuelan consumers expect worse.  Since expectations can be a driving force behind inflation that doesn´t bode well for keeping the official rate down to the current 10 or 12%.

But still, even with high inflation, I have to think that most countries in world would love to have the economic activity that we´re currently enjoying here.

I have no idea what anything costs anymore.

(A meandering post for a dreary Saturday.)

Maybe it´s just a (relatively) early onset of senility ...but when I get the bill for something in Buenos Aires, I don´t analyse it, I just pay it.

Before, I might have said to myself, "Wow, that was cheap" or "Hmm, that´s a little expensive" ...but nowadays, I don´t feel like I have an index or rule of thumb to make any comparisons.

Any other long-timers feel that way?

For years after "la crisis", it felt like the peso was still pegged to the dollar; if something cost 5 pesos, that same item would generally cost 5 dollars in the US.  With a few exceptions like the local steak or some imported items, a 100 pesos walkin' around money would get you as far in Buenos Aires as 100 bucks in Chicago.  Of course, the dollar then was worth almost 3 pesos.

Now when I leave the house, I just hope that I have enough money.

Using a credit card makes it even more unreal.  A few months ago I made a purchase that my old instincts would have told me "about 200 or 300 pesos."  I handed over the plastic, got the bill, signed it, and walked out to the curb quite pleased with myself.

Suddenly, looking at my receipt, I said out loud, "WTF did I just pay for that?"

And it´s very uneven.  Recently, I stopped by L´epi for a giant loaf of their scrumptious bread: 11 pesos.  I almost felt guilty, as if it were like buying a loaf of bread in Chicago for 11 dollars.  On the way home, my missus called me to pick up a large diet Coke: $9.50.  Suddenly, my pan artesanal didn´t seem so profligate.

When I posted Thursday about the dreamy coffee at Est. General de Café, I left out that a doble con crema set me back 14 pesos ...but I figger´d that the best in town should come at a premium.   Today, however, I ordered the same thing in a non-descript little neighborhood joint ...same price for coffee that was, as I expected, only so-so.

I wonder, too, if this weirdness is a drag on the economy.  I´ve found myself not even bothering to buy some things ...simply because I don´t want to go through the sticker shock.

The greenback is, of course, at 4 to 1 nowadays ...but I don´t think that explains the phenomenon.  It´s disorienting.  I´m not even sure how to write about it.

The Cost of Living in Buenos Aires

Wanna give me a hand on this?

A long time reader wrote me this week regarding the feasibility of living in Buenos Aires on 5200 Argentine pesos per month.

"I’ll be on my own with ARS 5,200.00 per month.  I got my savings for start up furniture, payment in advance, etc.  Villa Crespo or Caballito will do nicely to keep me off the “So you’re a tourist?” grid.  I plan to arrive with a pensioner’s visa in order to avoid the buquebus ritual.  Just give me my internet, a little balcony and a bife every so often and I’ll be fine.   Is this just wishful thinking or might I have enough to pay my bills?"

At first I was pretty sanguine about it ...of course, you won´t be able to recreate your little patch of yanquilandia for what works out to be about U$D1325 but it depends on what you're looking for and what makes a living a life and what makes a house a home.

I´ve since received a more practical breakdown of all the costs involved during a month of making Buenos Aires your city.

A college student living in Almagro (one of my favorite barrios but farther off the tourist trail than Villa Crespo / Palermo) writes that his small apartment, 2 rooms with a tiny kitchen and bathroom, cost him $1200/mo. in January.  Las expensas are $300/mo., gas and electricity about $30 each (while subsidies last), $100 for the obligatory landline.  Throw in cable TV and internet, and you´ve just goose'd it by about another $290.

That brings a small, basic apartment in a real Buenos Aires barrio to about $2500 a month... deadly close to half of my reader's budget.

Cooking at home could come to $1000/mo.  Dining out anywhere (steak, some trimmings, & some wine) eats up a big piece of $100 as quick as you can.

As our reader seems to be retiring, some health insurance seems to be indicated ...not that basic care can´t be had under national health care.  A cheap prepaga like that of my missus and myself, depending on his age, can easily come to $600. Other "prepagas" around town can be double.

So minimum numbers could be a lot more like this: apartment: $2500; food: $1400; prepaga: $600

A total $4500 pesos.

Whaddya think?  Is it doable?  I know that inflation is a concern ...but I think that inflation here hasn´t been a concern for those whose incomes come in as USDs.

Are there cost-cutting measures that I may have missed?

I´d love to hear your thoughts and I promise to pass them along.