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Argentina Peso Gap Between Official And Black Market Rate Hits To 100%, BMWs Become Inflation Hedge
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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Argentina, showing the Japanese how it's done.
Got Gold?
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.
Sad. Maybe Doug Casey can given me a good deal on one of those haciendas he is selling in N Argentina.
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".
Buy a well maintained, low miles E30 M3, E36 M3 or E39 M5 and park it and it will retain its real value.
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.
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
I lost all my BMW's in a tragic boating accident.
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.
I hope they do split up. Buenos Aries is like DC or Kirchner's Doppleganger Pelosi MexiFornia.
People being jailed there for exchanging American fiat. An idea worth pursuing.
Looks like they are going to have to pay so (peso) much more for stuff...
*chuckles*
The American edumacation system is doomed... DOOMED I say...
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!
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
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.
Cool isn't it? I'd have thought Ben would be down there taking notes.
no Ben thinks if HE'S doing it everything will be okay because he prints MO bettah than the Argentine's...
Yes, but this one's the charm.
No, they just good at it.
what if the usa officially devalued the dollar...how would that process look?
"What if"? 85 billion per month indefinitely, becomes 120 billion per month, then 300 billion per month...
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.
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?
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.
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
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 $18.85, please."
Holy Crap!
wake up on a groggy morning and pull up to starbucks and get robbed and the shit kicked out of you by a flash mob that just burned starbucks down....
can we throw gold in Peso's on that chart?
WOW! Our worthless FRNs just doubled in value in Argentina! Isn't international finance and economics wonderful?
Can things get any more surreal in Argentina?
Then again, they elected that crazy Kirchener chick TWICE - so I guess the answer is "Yes"!
Those elections are even more rigged than the Obama election. The way they change from one socialist to another is to throw the last guy/gal out of office.
Just in time for the next hyper-inflation.
All these socialist states have high budget deficits relative to their GDPs. They generally have difficulty raising enough funds thru taxes to finance their expenditures. So in order to continue existing, because govts don't voluntarily become smaller, they borrow money from their central banks and in the process destroy their currency and the citizens wealth.
You are describing the USA!
And the UK!
Exactly.
Which fits the entire NATO-defined Third World + the PRC.
How does she pay her daily botox shot? With off. pesos or black market bucks?
http://www.youtube.com/watch?v=GQZc5v77Qwk
Go to 2:10 for the part that got it banned from Argentina.
I read somewhere that in Arizona & Utah where some doctors and lawyers are accepting the yellow metal as payment.....it's gonna get real.
Bullish, you have to make a reservation to get a table in BA for a decent churrasco, caballeros!
Yes, the Recoleta area is very nice and ritzy. But the rest of Buenos Aires reminds me of East LA.
If it rises too much they send the police on them and shut down the black market. It reopened today at 9,15$.
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
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.
¡Viva el mercado negro!
Thass raciss!
Ah Plead da FiF!
http://dchtvideo.com/2012/10/chappelle-i-plead-the-fif/
Up the surveillance, bring it to the burning light, and it won't. The informal market is a problem that undercuts the legitimate one.
Those who seek to have any of their own money left at the expense of the socialist welfare state, must wait for another government.
? 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
Kindly de-concatenate. I've had my head up excel's ass all day and can't parse any meaning from this.
Price of bitcoin, in various fx
There is an article on Bloomberg today noting that wealthy Argentines are buying luxury automobiles as an "inflation hedge". Now that sounds pretty desperate!
Makes sense if you can buy them in Pesos at the official rate - especially if you have dollar income.
http://www.dolarblue.net
Dollar now indicated at 9.23 Pesos..
Talk about a bulletproff index http://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=logarithmic&chdeh=1&chfdeh=0&chdet=1368561600000&chddm=391&chls=IntervalBasedLine&cmpto=NYSEARCA:SPY&cmptdms=0&q=NYSEARCA:USO&&fct=big&ei=2n-SUeCYF8iL0QHORw
Bunch of pessimists! It's TOTALLY under control!
/sarc
"Klink, you iiiiiiidiot!"
How sad to have to purchase a depreciating asset to protect ones wealth....
This truly is sad. At least they aren't buying a depreciating asset on leverage.
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...
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.
This sort of thing is quite common in Banana Republics.
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.
When the very base of the system is dishonest, it is difficult to built an honest system on top of it.
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.
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.
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 (Author)
http://www.amazon.com/When-Money-Dies-Devaluation-Hyperinflation/dp/1586...
If your cheap (like that Cheap Bastard here on ZH) you might check your local library and borrow it...after your sprayed it for SARS, etc. One of the greatest books ever written.
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.
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.
Steinway?
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.
Which shows a problem in enforcement.