Argentina Peso Gap Between Official And Black Market Rate Hits To 100%, BMWs Become Inflation Hedge

Tyler Durden's picture

Despite efforts by the government to quell the black-market (or blue-dollar) for Argentina's foreign exchange, the unofficial rate surged yesterday to 10.45 Pesos per USD. This is now double the official rate of 5.22 Pesos per USD. This implicit 50% devaluation comes amid the growing realization that there is no savings option to maintain the purchasing power of the peso in the context of sustained high inflation (no matter what the officials say) and negative real interest rates. The government is not amused, suggesting the devaluation won't happen (just as Mexico did right up until the day before they devalued), "those who seek to make money at the expense of devaluations must wait for another government." Perhaps the government should be careful with their threats? And of course, this could never happen in the US or Japan, right?

 

And in the meantime, looking to hedge their inflation risk while taking advantage of the massive FX rate differential, the local population has found a new and original inflation hedge: BMWs.

Argentines are buying more BMWs, Jaguars and other luxury cars as a store of value as inflation decimates their deposits and pummels the nation’s bonds.

 

Purchases of cars from Germany’s Bayerische Motoren Werke AG (BMW) and Jaguar Land Rover Automotive Plc, owned by India’s Tata Motors Ltd. (TTMT), jumped the most in April among brands sold in Argentina. The sales were part of a 30 percent surge in car sales from a year earlier that was the biggest increase in 20 months, according to the Argentine Car Producers Association. While used-car prices rose in line with inflation last year, or about 25 percent, peso bonds tied to consumer prices fell 13 percent. The drop was the biggest in emerging markets.

 

Car sales in Argentina increased by the most in almost two years last month as a ban on buying dollars made Argentines turn to vehicles to protect savings against the fastest inflation in the Western Hemisphere after Venezuela. Luxury models are becoming more attractive because they are imported at the official dollar rate, said Gonzalo Dalmasso, vehicle industry analyst at Buenos Aires research company Abeceb.com. Argentines with savings in dollars are able to purchase cars at half the cost by trading in the unofficial currency market.

 

“I’m seeing a lot of people buying high-end cars for the first time, trading Minis for middle of the market models,” Ignacio Monteserin, a salesman at BMW’s Mini Cooper dealership in Buenos Aires’s Libertador Avenue, said. “It’s become very convenient to own luxury cars in general because of the big gap in the exchange rates and you get to have a quality good that will preserve the value of your money with time.”

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css1971's picture

Argentina, showing the Japanese how it's done.

Ahmeexnal's picture

In Bosnia, you could have a woman for a can of russian SPAM.
In argentina, you can have a woman for a small bag of Yerba Mate.

Freddie's picture

Sad.   Maybe Doug Casey can given me a good deal on one of those haciendas he is selling in N Argentina.

Ahmeexnal's picture

When TSHTF in Argentina this time, expect several provinces to split from the BA based mafia. A bankrupt army will not be able to stop them from proclaiming several new sovereign states.
What a bunch of idiots the argentines are.
They think a car is a store of value. Unless they are buying a collectible car, they are about to get their asses handed to them in a melamine platter.
Buy a new car and drive around the block from the car dealership. They will buy that very same car from you, at a 20% discount. Just for taking out for a 3 minute ride.
A year later, you've lost quite a bundle on that "store of value".

BTFDemocracy's picture

Buy a well maintained, low miles E30 M3, E36 M3 or E39 M5 and park it and it will retain its real value.

Bam_Man's picture

I have a 1995 (E36) BMW M3 - all original - with 109,000 miles. Still as much fun to drive fast as ever. Probably worth only about $10 grand max though. Original sticker was $42k and change.

Atlas_shrugging's picture

Isn't it already happening in the US vis a vis paper vs physical bullion?  'Unofficial' silver to exchange a real oz is over 28 bucks, but "official" spot price is in the $23 range...hmmm

jimmytorpedo's picture

I lost all my BMW's in a tragic boating accident.

Withdrawn Sanction's picture

Buy a new car and drive around the block from the car dealership. They will buy that very same car from you, at a 20% discount. Just for taking out for a 3 minute ride.
A year later, you've lost quite a bundle on that "store of value".

True in the abstract.  Given the circumstances Argentinians are facing, however, this is probably their most sound alternative--not that it's a good one, for the reasons you point out, just "better" than holding pesos.  Said differently, if your 20% car haicut is true, then it suggests the peso haircut must be even larger and the graph seems to bear that out.

Freddie's picture

I hope they do split up.  Buenos Aries is like DC or Kirchner's Doppleganger Pelosi MexiFornia.

Precious's picture

People being jailed there for exchanging American fiat.  An idea worth pursuing.

ZerOhead's picture

Looks like they are going to have to pay so (peso) much more for stuff...

Precious's picture

The American edumacation system is doomed... DOOMED I say...

Mugatu's picture

Theta,

I believe you mean got BMW?  Gold is settled in dollars and thus they have no advantage buying gold for 100% of exchange rate when they can buy cars at 50%.  

God I hate it when people just fall into mantra mode!

Theta_Burn's picture

Mugatu,

Mantra or no, i would hope the Argi's are more creative at protecting wealth than buying a BMW..

Parse through what these folks endured back in 99-02 when cardboard collecting was one of the few "jobs" one could do to eat. gold, even fucking silverware is for after things sort out.

BMW's..sheesh, there pesos would be better protected with black market currencies, bic lighters, liquor and toilet paper

Bam_Man's picture

They are on the verge of producing their THIRD hyper-inflation in the past thirty years. That has got to be some kind of a record. 

css1971's picture

Cool isn't it? I'd have thought Ben would be down there taking notes.

SmallerGovNow2's picture

no Ben thinks if HE'S doing it everything will be okay because he prints MO bettah than the Argentine's...

Tinky's picture

Yes, but this one's the charm.

Rustysilver's picture

No, they just good at it.

jbvtme's picture

what if the usa officially devalued the dollar...how would that process look?

LawsofPhysics's picture

"What if"?  85 billion per month indefinitely, becomes 120 billion per month, then 300 billion per month...

NoDebt's picture

Our currency isn't pegged so the change would happen over time (fast or slow).  Can't say exactly when it would have happened, just one day you'd notice "shit, stuff's getting damned expensive!"

And I don't mean gentle, like it is now.  More like "holy crap" differences in only a few months.

fonzannoon's picture

i wonder if silver is a good example of this happening already. I am told the price keeps dropping. I am also told that if I were to be able to purchase it, it would cost substantially more than what i am told it costs. More importantly, the people who sell it apparently do not have any.

So is silver in deflationary mode or hyperinflationary mode?

Ignorance is bliss's picture

Silver is in manipulation mode.

 

The thing to remember is that India (1966 and 1991), Russia (1986), and China (1952 and the more recent currency peg from 1.5 to 8 yen to the dollar (1980-94)) have all lived through currency destruction and devaluation within the current generation's memory. They all know what shit looks like when it hits the fan. Isn't it interesting that they are also the countries whose citizens and governments are buying up physical PMs. They know how this story ends.

fonzannoon's picture

it would be a very orderly process that would take place over time in a transparent manner by our central bank. There would be little, if any ill effects, and the market would rally as in many ways devaluation is stimulative. This was clearly illustrated in the movie "My cousin Vinny" and so that is how I came to this conclusion.

David Tepper

Son of Loki's picture

Wake up groggy on a rainy Monday morning and as you drive to work to stop off for that Double Mocha Latte, double caffeine, no cream...and find the price is double b/c they have 'officially' devalued the fiat 50%. The oyung nymph behind the oucnter purrs, "that will be $18.85, please."

 

Holy Crap!

fonzannoon's picture

wake up on a groggy morning and pull up to starbucks and get robbed and the shit kicked out of you by a flash mob that just burned starbucks down....

fonzannoon's picture

can we throw gold in Peso's on that chart?

Jonas Parker's picture

WOW! Our worthless FRNs just doubled in value in Argentina! Isn't international finance and economics wonderful?

Bam_Man's picture

Can things get any more surreal in Argentina?

Then again, they elected that crazy Kirchener chick TWICE - so I guess the answer is "Yes"!

Harbanger's picture

Those elections are even more rigged than the Obama election.  The way they change from one socialist to another is to throw the last guy/gal out of office.

Bam_Man's picture

Just in time for the next hyper-inflation.

Harbanger's picture

All these socialist states have high budget deficits relative to their GDPs. They generally have difficulty raising enough funds thru taxes to finance their expenditures.  So in order to continue existing, because govts don't voluntarily become smaller, they borrow money from their central banks and in the process destroy their currency and the citizens wealth.

orez65's picture

You are describing the USA!

sethstorm's picture

Which fits the entire NATO-defined Third World + the PRC.

PontifexMaximus's picture

How does she pay her daily botox shot? With off. pesos or black market bucks?

Son of Loki's picture

I read somewhere that in Arizona & Utah where some doctors and lawyers are accepting the yellow metal as payment.....it's gonna get real.

PontifexMaximus's picture

Bullish, you have to make a reservation to get a table in BA for a decent churrasco, caballeros!

Bam_Man's picture

Yes, the Recoleta area is very nice and ritzy. But the rest of Buenos Aires reminds me of East LA.

jcamargo's picture

If it rises too much they send the police on them and shut down the black market. It reopened today at 9,15$.

PontifexMaximus's picture

No, the little tiny man will show up in the black market and teach them a lesson, same as they did and do in Caracas

ebworthen's picture

Heard a report, I think "Marketplace" on PBS radio, that many in Argentina and the rest of Latin America use $100 Dollar bills as their saving vehicle; tucked in a coffee can or mattress.

How long before Americans are stuffing Yuan or Deutschmarks under the mattress and coffee can to try and save?

With 0.05% interest on cash in banks the mattress makes more sense than ever, especially after Cyprus.

Gold and Silver too, of course.

Shell Game's picture

¡Viva el mercado negro!