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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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Tue, 05/14/2013 - 14:00 | 3561442 css1971
css1971's picture

Argentina, showing the Japanese how it's done.

Tue, 05/14/2013 - 14:01 | 3561450 Theta_Burn
Theta_Burn's picture

Got Gold?

Tue, 05/14/2013 - 14:19 | 3561561 Ahmeexnal
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.

Tue, 05/14/2013 - 14:26 | 3561589 Freddie
Freddie's picture

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

Tue, 05/14/2013 - 14:39 | 3561599 Ahmeexnal
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".

Tue, 05/14/2013 - 14:56 | 3561690 BTFDemocracy
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.

Tue, 05/14/2013 - 15:16 | 3561769 Bam_Man
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.

Tue, 05/14/2013 - 18:00 | 3562347 Atlas_shrugging
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

Tue, 05/14/2013 - 18:02 | 3562351 jimmytorpedo
jimmytorpedo's picture

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

Tue, 05/14/2013 - 14:58 | 3561700 Withdrawn Sanction
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.

Tue, 05/14/2013 - 16:41 | 3562125 Freddie
Freddie's picture

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

Tue, 05/14/2013 - 14:30 | 3561600 Precious
Precious's picture

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

Tue, 05/14/2013 - 14:20 | 3561565 ZerOhead
ZerOhead's picture

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

Tue, 05/14/2013 - 15:06 | 3561747 Lohn Jocke
Lohn Jocke's picture

*chuckles*

Tue, 05/14/2013 - 15:14 | 3561790 Precious
Precious's picture

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

Tue, 05/14/2013 - 16:52 | 3562167 Mugatu
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!

Tue, 05/14/2013 - 20:47 | 3562887 Theta_Burn
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

Tue, 05/14/2013 - 14:07 | 3561489 Bam_Man
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. 

Tue, 05/14/2013 - 14:34 | 3561620 css1971
css1971's picture

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

Tue, 05/14/2013 - 15:06 | 3561748 SmallerGovNow2
SmallerGovNow2's picture

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

Tue, 05/14/2013 - 14:38 | 3561627 Tinky
Tinky's picture

Yes, but this one's the charm.

Tue, 05/14/2013 - 16:48 | 3562152 Rustysilver
Rustysilver's picture

No, they just good at it.

Tue, 05/14/2013 - 14:01 | 3561447 jbvtme
jbvtme's picture

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

Tue, 05/14/2013 - 14:04 | 3561470 LawsofPhysics
LawsofPhysics's picture

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

Tue, 05/14/2013 - 14:29 | 3561603 NoDebt
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.

Tue, 05/14/2013 - 14:33 | 3561616 fonzannoon
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?

Tue, 05/14/2013 - 15:22 | 3561827 Ignorance is bliss
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.

Tue, 05/14/2013 - 14:05 | 3561475 fonzannoon
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

Tue, 05/14/2013 - 14:11 | 3561502 Son of Loki
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!

Tue, 05/14/2013 - 14:13 | 3561518 fonzannoon
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....

Tue, 05/14/2013 - 14:01 | 3561451 fonzannoon
fonzannoon's picture

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

Tue, 05/14/2013 - 14:01 | 3561454 Jonas Parker
Jonas Parker's picture

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

Tue, 05/14/2013 - 14:05 | 3561466 Bam_Man
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"!

Tue, 05/14/2013 - 14:21 | 3561572 Harbanger
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.

Tue, 05/14/2013 - 14:27 | 3561594 Bam_Man
Bam_Man's picture

Just in time for the next hyper-inflation.

Tue, 05/14/2013 - 14:43 | 3561646 Harbanger
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.

Tue, 05/14/2013 - 15:18 | 3561800 orez65
orez65's picture

You are describing the USA!

Tue, 05/14/2013 - 15:50 | 3561942 css1971
css1971's picture

And the UK!

Tue, 05/14/2013 - 17:14 | 3562234 Harbanger
Harbanger's picture

Exactly.

Tue, 05/14/2013 - 21:41 | 3563066 sethstorm
sethstorm's picture

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

Tue, 05/14/2013 - 14:31 | 3561612 PontifexMaximus
PontifexMaximus's picture

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

Tue, 05/14/2013 - 16:57 | 3562182 Herd Redirectio...
Herd Redirection Committee's picture

http://www.youtube.com/watch?v=GQZc5v77Qwk

Go to 2:10 for the part that got it banned from Argentina.

Tue, 05/14/2013 - 14:07 | 3561486 Son of Loki
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.

Tue, 05/14/2013 - 14:10 | 3561505 PontifexMaximus
PontifexMaximus's picture

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

Tue, 05/14/2013 - 14:24 | 3561583 Bam_Man
Bam_Man's picture

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

Tue, 05/14/2013 - 14:11 | 3561506 jcamargo
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$.

Tue, 05/14/2013 - 14:17 | 3561549 PontifexMaximus
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

Tue, 05/14/2013 - 14:14 | 3561509 ebworthen
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.

Tue, 05/14/2013 - 14:12 | 3561511 Shell Game
Shell Game's picture

¡Viva el mercado negro!

Tue, 05/14/2013 - 14:21 | 3561569 Ahmeexnal
Ahmeexnal's picture

Thass raciss!

Tue, 05/14/2013 - 14:47 | 3561662 Shell Game
Tue, 05/14/2013 - 21:37 | 3563040 sethstorm
sethstorm's picture

Up the surveillance, bring it to the burning light, and it won't.  The informal market is a problem that undercuts the legitimate one.

Tue, 05/14/2013 - 14:24 | 3561533 Harbanger
Harbanger's picture

Those who seek to have any of their own money left at the expense of the socialist welfare state, must wait for another government.

 

 

Tue, 05/14/2013 - 14:16 | 3561537 q99x2
q99x2's picture

mtgoxUSD119.3330107.218+11.299%4274380

btceUSD113.4500104.625+8.435%498248

bitstampUSD117.4500109.978+6.794%425345

mtgoxEUR92.050081.489+12.960%366678

btcnCNY712.0000696.216+2.267%322086

Tue, 05/14/2013 - 14:57 | 3561697 ParkAveFlasher
ParkAveFlasher's picture

Kindly de-concatenate.  I've had my head up excel's ass all day and can't parse any meaning from this.

Tue, 05/14/2013 - 17:02 | 3562199 Herd Redirectio...
Herd Redirection Committee's picture

Price of bitcoin, in various fx

Tue, 05/14/2013 - 14:18 | 3561553 Bam_Man
Bam_Man's picture

There is an article on Bloomberg today noting that wealthy Argentines are buying luxury automobiles as an "inflation hedge". Now that sounds pretty desperate!

Tue, 05/14/2013 - 14:58 | 3561702 Gromit
Gromit's picture

Makes sense if you can buy them in Pesos at the official rate - especially if you have dollar income.

Tue, 05/14/2013 - 14:56 | 3561556 Gromit
Gromit's picture

http://www.dolarblue.net

Dollar now indicated at 9.23 Pesos..

 

Tue, 05/14/2013 - 14:25 | 3561587 Colonel Klink
Colonel Klink's picture

Bunch of pessimists!  It's TOTALLY under control!

 

/sarc

Tue, 05/14/2013 - 14:46 | 3561657 Bam_Man
Bam_Man's picture

"Klink, you iiiiiiidiot!"

Tue, 05/14/2013 - 14:44 | 3561653 kito
kito's picture

How sad to have to purchase a depreciating asset to protect ones wealth....

Tue, 05/14/2013 - 15:07 | 3561753 AndrewJackson
AndrewJackson's picture

This truly is sad. At least they aren't buying a depreciating asset on leverage.

Tue, 05/14/2013 - 14:51 | 3561674 Poor Grogman
Poor Grogman's picture

Here is "Freegold" in action.

FOFOA will be so pleased.

Now good kiddies continue to use the peso as the medium of exchange while using gold as a store of value. See it works so well...

Tue, 05/14/2013 - 17:09 | 3562214 Herd Redirectio...
Herd Redirection Committee's picture

Bad money drives out good. - Thomas Gresham

Meaning, while fiat is in circulation, ain't no one gonna barter their gold for nuthin'.  When the fiat is out of circulation or taxes are no longer payable in it, and the currency is once more gold-backed, then gold could be traded openly, to buy a house or car, for e.g.

Tue, 05/14/2013 - 14:51 | 3561675 BritBob
BritBob's picture

This sort of thing is quite common in Banana Republics.

Tue, 05/14/2013 - 17:08 | 3562212 YHC-FTSE
YHC-FTSE's picture

Developing nations is the pc term. And I'd bet many here who have travelled widely have seen the same thing. I saw it in Russia not so long ago, China, Thailand,  S.Korea, and my dad saw it in Japan - taught me to get the best deal when I travelled. Markets, stations, and taxi ranks have black market money changers where you can profit from a trip on the first day. 

The sad thing is most people simply don't understand the concept of fiat. The precedence of one fiat over another is the biggest joke mankind plays on itself, that one debt is better than another debt, that one country's labour is higher or lower in value than another, or that the subjective ratings of agencies with criminal agendas matter. People only understand popularity and prestiege - a vacant, superficial judgement of good or bad based on tradition and self promotional propaganda.  If autumn leaves were currency, we would still have productivity cycles, denuding of forests, wars for resources, and a million pundits waxing lyrical on the analysis of  the precise value of different types of leaves from nations. Yes, people are that arbitrary about assigning value and as crazy as a couple of bats born in an asylum. 

The fact that we use the FRN as a reserve currency means that the planet itself is one big banana republic dancing to the whims of those who control its supply, making honest people give up their honest labour for a tiny piece of it, while the crooks skim off billions for themselves and their ilk. They literally supply nothing, and enslave the whole planet of people in a bewitched farce of need and greed, desperate to have the dollars that means nothing, representing only the vanity of nations and war, backed by the promise of liars. 

Tue, 05/14/2013 - 17:10 | 3562222 Herd Redirectio...
Herd Redirection Committee's picture

When the very base of the system is dishonest, it is difficult to built an honest system on top of it.

Tue, 05/14/2013 - 21:31 | 3563021 sethstorm
sethstorm's picture

Then Third World backwater will have to suffice.

As for the defective informal system, that can be fixed with more attention devoted to their detection.

Tue, 05/14/2013 - 15:09 | 3561766 Rustysilver
Rustysilver's picture

While "investing" in BMW is better than a house. It's still traceable asset and can be found if someone wants to. Probably a nice 4 wheels Jeep might be better. I don't now anything about Argentina so I might be off base.

Tue, 05/14/2013 - 16:11 | 3562003 Never One Roach
Never One Roach's picture

Sounds like Germany during the Early Hyperinflation period (aka, EHP). Goes without saying Fergusson's book is a must read for everyone, especially Newbies:

 

When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany [Paperback]



Adam Fergusson 
Tue, 05/14/2013 - 17:53 | 3562330 Gromit
Gromit's picture

Yes, "When Money Dies", brilliant book.

I re-read it during my recent visit to Argentina.

My main takeaway - government will always try some minor fix if it is politically infeasible to effect essential policy change.

Tue, 05/14/2013 - 16:31 | 3562091 jtlien
jtlien's picture

Reminds me of the Weimar Germany farmers who all bought pianos for their house when the hyperinflation started to take off.

I guess that was before they had Beamers.

Tue, 05/14/2013 - 16:41 | 3562132 PontifexMaximus
PontifexMaximus's picture

Steinway?

Tue, 05/14/2013 - 17:46 | 3562308 nofluer
nofluer's picture

In 1972 the official exchange rate for Philippine pesos was abou 4:1. But if you had a bar girl change your money for you on the black market you could get about 10:1.

Tue, 05/14/2013 - 21:51 | 3563103 sethstorm
sethstorm's picture

Which shows a problem in enforcement.

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