As Argentina Peso Plummets To Record, BofA Warns Of Looming Economic Crisis

Tyler Durden's picture

After spending time in Argentina, BofA's Marcos Buscaglia is concerned... The perception of many locals is that the risks of an economic/currency crisis before year-end have increased significantly. This compares to a view they had before of a muddle-through till the 2015 presidential elections. Policy decision-making is ever more concentrated, and the administration has radicalized, but the severe economic downturn will change political incentives in 2015, in BofA's view. With the official peso rate at record lows once again, the black-market Dolar-Blue tumbled to over 14/USD - a record low indicating dramatic devaluation ahead (which of course, sends ARS-denominated stocks surge to record highs).


Imagine the headlines on CNBC Argentina... think of the wealth effect...


as markets price in massive devaluation... 14.04 Black-market Peso...


A more recent snapshot of the "Dolar Blue" collapse:

Not pretty, and as BofA warns, Argentina: on a slippery slope?

We spent three days in Buenos Aires last week, meeting government officials, economists, political analysts, market participants, corporates and members of the opposition parties. Below are our main takeaways.

A presidential election that seems too far away

The most striking change compared with our previous visits is that now many of the locals we spoke to think it likely Argentina will undergo an economic/currency crisis before the transfer of power to a new administration in December 2015. Previously, the consensus seemed to be of a muddling through or a small contraction at the worst. In this sense, the presidential elections seem farther away now in economic terms.

What do we mean by economic/currency crisis? We expect the demand for pesos to fall and the demand for dollars to increase. The default will likely increase external restrictions as well as the fiscal deficit and monetary financing. This would mean higher inflation and pressure on the peso and on reserves. Deteriorating sentiment and a wider gap between the official and the parallel FX rates would dent investment, spending and hiring decisions even more. This will likely further hurt fiscal revenues, which will require more peso issuance, and so forth.

What would be the catalysts to trigger a downward fall? We think there are several potential negative news items in coming weeks, while the only potential positive – but surprising – news would be an unexpected remedy to the default.

The local media report a dispute between central bank (BCRA) President Fabrega and Finance Minister Kicillof. Fabrega’s resignation would spur demand for USD, in our view. In addition, unions are pushing for a reopening of wage negotiations. Wages are increasing slower than inflation, so a new round of wage hikes would not be surprising. It is reported a general strike will be called for this Thursday by dissident Peronists unions. In addition, events that cement the view that the absence from voluntary debt markets will be more protracted may destabilize demand for pesos.

In our view, the social situation seems precarious, and the many we spoke to did not rule out additional social conflicts toward year-end. December has been turbulent in recent years. In 2013, amid widespread electricity cuts and a police strike, there were lootings in many provinces. The social situation has not improved since then: employment has dropped and disposable income is probably falling at low double digits yoy at this point.

External conditions tightened

External conditions have not only tightened due to lower expected financing from abroad in coming months, but also because export prices have dropped sharply and because farmers are restricting grain exports. By our estimates, farmers exported about $520mn less in the four weeks after the default compared to before the default.


On top of this, grain exports are likely to drop next year. Since May/June, soybean, wheat and corn prices have dropped by 20%. At the current international prices and the current exchange rate, planting wheat and corn is not profitable in many areas, according to some locals we met. If there is no sufficient weakening of the peso in coming weeks, the harvest may contract in 2015 compared to in 2014. [ZH: Which would be devastating for Gartman's short Grains trade]

Central bank started moving, where will it end?

BCRA started allowing the peso to weaken, sending it from 8.28 to 8.40 per USD last week, not surprisingly during the first week in which it showed a decline in reserves. In a country where locals compare their ex-ante expected return from peso term deposits with the expected weakening of the peso, the move made clear that returns from term deposits were negative once measured in dollars. In sum, we think the small moves made by the BCRA increase the demand for USD rather than reduce it. This happened in December 2013/January 2014. As a result, pressure for a larger devaluation likely will increase after this move. We think that BCRA will resist a larger FX move as much as possible, but it may have difficulty avoiding a larger devaluation if reserves keep falling.

It takes only two to tango

Local political analysts characterize the current government’s decision process as highly centralized in Cristina Kirchner, with an increased access to her by Kicillof over other members of the administration. Moreover, they believe the government actions in the pari passu case should be understood in political rather than economic terms. According to this view, Cristina Kirchner does not have a candidate for the 2015 presidential elections, so they believe she is more concerned about her legacy than about the elections. Right or wrong, their view is that by fighting the holdouts, she thinks she gains more for her future political career than by giving up to holdouts.

Negotiations with holdouts in 2015 are still feasible

The many we we met expect the government will be able to pass the bill to implement local payment of Exchange Bonds (EB) and to offer a voluntary swap into local law. Most opposition members said they will not vote in favor of the bill, so the real question is whether the government can keep its rank and file united. Although there seem to be some cracks in the government coalition, the combination of electoral rules and fiscal distribution rules makes representatives dependent on the national government, so are unlikely to block this bill.

There is some disagreement among local economists and political analysts over whether the government will be ready to negotiate with holdouts in January once the Right Upon Future Offers (RUFO) clause expires. The RUFO is not the only impediment to negotiations. It seems local laws and the will to negotiate with all holdouts simultaneously – and not just with the plaintiffs of the pari passu case – also weigh on the government’s decisions. We are in the group that believes that the pressure from slumping activity will make the chances of some negotiations with holdouts more feasible in 2015, but these may take the form of a new offer to all holdouts rather than staying with the plaintiffs of the pari passu case.

Massa and Macri on the rise

Many locals believe that Argentina’s economic difficulties will be negative for Daniel Scioli’s chances of carrying the presidential elections. This is in stark contrast with our April 2014 visit amid the adjustments and negotiations with creditors, when Scioli was the favorite. Some recent polls show Mauricio Macri and Sergio Massa may have gained ground against Scioli.

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thatthingcanfly's picture

Blue-light special on Argentinan mail-order brides!

lordylord's picture

Looming economic crisis?  We're just in the gradual phase.  It's already here and not just in Argentina.

hedgeless_horseman's picture



...employment has dropped and disposable income is probably falling at low double digits yoy at this point.

There has never been a better time to travel to Argentina with a pocket full of USD. 

Quus Ant's picture

Sure, hedge.  Fuck the corpse.  It's the american way.

hedgeless_horseman's picture



Hurry on down...
before deflation sets in!

ghostzapper's picture

Personally I prefer the lighter tone black girls but I must admit this one here demonstrates an appealing level of modest inflation thus enabling one to achieve consistent marginal gains in productivity along with economies of scale.  Heard even she won't accept USD or the Argentinian crappo.  Gold?  BTC?

MalteseFalcon's picture

She looks very, very much alive to me.  It's not like I'm asking for a kidney.

espirit's picture

Dolar @ 14 to Dollar @ 14(2014).

Dollar in 1971 maybe.

Move along, nothing to see but headlights here.

orangegeek's picture

She has her CWI's on.


(cold weather indicators)

Turin Turambar's picture

Wait a bit longer, and the deals will be even better.  I need to head back down to BA to do some more preliminary real estate scouting.  I'd rather have some of my assets down there than trapped here in the US for the oligarchs to tax the hell out of.

Freddie's picture

The whole neck and skeleton thing make me believe those are bolt on accessories.  Still, Argentina gave Germany a good game.

The Brazil-Germany game was a nightmare with incredibly sloppy football.  Brazil was pathetic.

Kirk2NCC1701's picture

Are those bodacious Tatas, those Major Highbeams real?  Or are they... Mammarex?

Harbanger's picture

Peso plummets to record lows, peso denominated stocks surge to record highs.

Kirk2NCC1701's picture

@ThatThingCanFly: "Blue-light special on Argentinian mail-order brides!"

Better make sure you don't have an American "Ex" milking your income, or you'll be pulling a "Williams", long before your Bride comes in the mail.

p.s. Poor Robin Williams has two Alimonies and was almost broke when he died.  Whether it was due to financial despair or due to an accidental "Auto-Eroticism Asphyxiation" (AEA, as some claim), or some other reason, it's no way for a man to go.  And not someone of his caliber.  His present/last wife (#3), Susan Schneider who slept in a separate bedroom on the fateful night, had him cremated and dumped his ashes into the ocean, - before the Toxicology Report came back.  If there are any questions from that Report, it will be too late.  No body to see, no shrine to visit.  IOW, the ultimate "Fuck You!".

thatthingcanfly's picture

Eleven more years until the kid turns 18, then I'll be free and clear of that penis tax I'm paying every month. I'll be grey then, but, hey, the mail order brides will still be the same age, right?

Gromit's picture

Have you met any Argentine mail order brides?

Lots of foreign girls here in San Diego California, I've met maybe one or two Argentine immigrants here in 35 years.

Perhaps it is because Argentina, despite its many problems, is actually a very nice place to live.

RiskyBidness's picture

Argentina.......The gift that keeps giving!!  Communism at its finest!!

john39's picture

more a symptom of the global usury empire beginning to crumble...

lordylord's picture

I bet Argentina (along with all other failed socialist/fascist/communist experiments) won't appear in any Keynesian economic text books as a real-world example.  Gotta sell that tryanny!

NOTaREALmerican's picture

Re:  Communism at its finest!!

Well,   cronyISM perhaps,  fascISM might be closer,  but hardly communISM.    CommunISM is like capitalISM, it only exists in the minds of semi-autistic males.

Harbanger's picture

The idea of Communism exists when a couple marries, the idea of capitalism when they file for divorce.

ken's picture

Whatever it is, it's theft.

AchtungAffen's picture

Yeah, because Peronismo is SOOOOOO communist... Hah, what a retard, please.

Harbanger's picture

That was Cuba or Venezuela.  Peronismo is stuck at the anti-busniess, anti-capitalist, broke socialist welfare state rung of the ladder.

AchtungAffen's picture

Yeah, now. At least. With the previous Peronista, the "Unnamable", it was completely the opposite. But it also broke the country.

Harbanger's picture

How can any politician be a "Peronista" and also be completely the opposite?  Argentina hasn't been pro-business/capitalism in many decades, 50+ years.  They were once very prosperous and still have tremendous natural resources but it means nothing when you are run by a socialist redistribution minded gov.

AchtungAffen's picture

Because Peronismo is like a Chameleon. It can be (almost) anything. Pro business or anti business, it doesn't matter. And the "socialist redistribution minded gov" for "50+" years ain't so. Since Perón, there were 2 military coups (and they had nothing to do with redistribution or socialism). There was Alfonsín too (not Peronista), and he wasn't much of a socialist redistribution kind of guy. He was "thrown" by Peronistas and then there was the Unnamable, which had absolutely nothing to do with socialism or redistribution. Then there was another Radical, De la Rúa, whose admin was a disaster. In the end he was also "ousted" by Peronistas. And now, well, there are the K's.


EDIT: And BTW, Perón was no socialist either.

Harbanger's picture

Military coup is not pro-business/capitalism.  Who wants to invest in a business in that environment? no one.  They entire system is socialist, your capital is not safe there.  The already chased away business many years ago and now try leftist crap like when factory workers occupied premises of old bankrupt business.  That's funny shit and sad because it like a cats coming back to the old ladies house.  Of course it failed.  The country is just another example of failed socialism.  Once you chase away business it don't come back and you're left with your broke dreams, unfortunately you lose an entire generation or two in the process.  Ironically it's the ex commies who are now prospering.  with what? capitalism. while the west is acting like it's discovering marxism for the first time.

AchtungAffen's picture

"Military coup is not pro-business/capitalism.  Who wants to invest in a business in that environment? no one."

Really? You gotta be kidding me. The thing about dictators and military coups is that they have somehwat of an absolute control over their countries and populations. And foreign capital will find that useful. Buy the dictator and you have a perfect environment to make money out of the population. It happened and it still happens today.

"They entire system is socialist, your capital is not safe there."

I wouldn't call a Peronista a socialist. If you want an ISM for them, it has to be fascism.

"The already chased away business many years ago and now try leftist crap like when factory workers occupied premises of old bankrupt business."

Many years ago? What do you mean? Argentina has a long history of comings and goings with foreign capital. The factory workers taking over broke factories wasn't that much of a govt program, but the result of huge unemployment after the 2001 collapse. I'm all for workers becoming owners of their workplace. Specially in cases of businesses who went down through their old owners.

"Once you chase away business it don't come back"

People who want to make money will go to whatever place guarantees them money. There are no friendships in business as in intl. relations: it's all about interests.

Gromit's picture

Fascism yes, exactly correct I believe.

Essentially corrupt relationships both with business and labor.

You live in BsAs, I think.  We read such a lot of biased crap here, what is really going on?

Has it changed much since my last visit in February?

AchtungAffen's picture

Disinfo? Same in Argentina. There are media outlets, allied to the Govt, which in their genuflexion are capable of calling a pig a horse and a horse a gander... My rule of thumb mostly is: if journalism doesn't dare to criticize the political power, then it's nothing more than a PR campaign.

There weren't many changes since January... well, things were kinda stable until all this issue with the holdouts. And now things are deteriorating. Don't know at what speed. When Fábrega (the latest Central Bank head) rose interest rates to contain inflation, things looked kinda better. But soon problems started again, because of a lack of credit. And now with the "default" things and the lack of dollars, recession is starting to hit. Imports (all) have been blocked for over a week now, for example. And recently, due to the pressure by Elvis Kichillof, they tried to lower those rates. But that move was dead from the start and they had to rise em again (I believe that happened either today or yesterday).

Now what we mostly see are "drowned man slaps". For example, today the Central Bank suspended BONY's license in Argentina. The lower chamber of congress just voted for a modification in the Supplying law, which would give the likes of Elvis discretionary powers to intervene in the inner workings of companies (probably another misguided attempt to control inflation). And the other law they're working on, to change the legislation of debt bonds (which were in US law), is being seen an attempt to give immunity to the Vice President (processed on like 4 court cases) during his days restructuring the country's debt.

Yet at the same time, the state's budget deficit isn't being solved. So the printing presses are at full speed. Don't think any rate adjustment will avoid the massacre of tons of new money entering the system. Specially when a lot of those moneys are spent on bullshit (and let me remark that: BULLSHIT) such as the rights for transmission of fútbol matches (a mafia by itself) and even TC2000 (race cars...)

Peronismo, in its Kircherismo iteration, has managed to pull of one of their biggest and most noxious tricks: division. People tend to be ultra-Kirchnerista or ultra-anti-Kirchnerista. This shit had awful results in the past. And the idea that the chief of the army, Milani, called himself a "politically militant" army commander gives me the goosebumps. And more, considering the para-official association "La Cámpora" has pretty much taken over the RENAR (the national gun registry, also the state body which gives gun licenses) - why the hell are those assholes arming themselves? - the future looks grim. What was thought to as a lame duck presidency until 2015, at least somewhat stable; seems to be derailing. If they don't manage to stabilize the economic variables, by 12/2015 Argentina is going to look pretty much like 2001.

Gromit's picture

Thanks.  Good to hear some intelligent local information.

The Buenos Herald was saying in February that modt politicians wanted the crisis to come on Cristina's watch - still the case I suppose.

I'm planning to visit early October - to pick up my BODEN interest LOL.


LawsofPhysics's picture

Wow, those "folks" are rich!

Bay of Pigs's picture

I wonder how physical gold and silver prices are doing down there compared to their peso?

Harbanger's picture

They're doing shit that's the point, you can look it up, silver price in pesos dropped.  No one can explain this to me exept to say that the price of silver on the street market is higher than what's listed.  Yet stocks denominated in pesos are at record highs?

AchtungAffen's picture

Unattainable. Since the FX buying restrictions went into effect, buying gold is pretty much out of the question. Before it was like buying a foreign currency (pesos for gold). Nowadays you need the permission from AFIP, and unless you make over 80k montlhy they won't authorize the maximum of... $2000 USD. Which is pretty much the price at which they'll (exchange houses or special banks) be selling. But buying (by them) will be in the low 1100's.

There is another option with Banco Nación, which creates their own gold and sells it in pesos. But it's not what is considered "financial gold". It's not .999.

Harbanger's picture

Unattainable becasue of "restrictions" is why the bigger problem is Gov.  The colapse of their currency didin't make the Gov lose any control over the population.  I'm certain some people saved themselves from the economic collapse in Argentina but they still had to leave the country and or smuggle their money out of reach of their gov.

ebworthen's picture

The U.S. is no different - just running on fumes of faith.

yogibear's picture

Uncle Scam has it all taken care of.

Harbanger's picture

"The U.S. is no different"

Exactly.  That's why they are a good measure of what is going to happen in the US after a dollar collapse.

Kaiser Sousa's picture

"There is strong opposition to any proposal to end the Federal Reserve and move away from its paper dollar. The Fed has many ideological and, of course, crony supporters. So it’s interesting that there was little controversy in Oklahoma around removing one of the obstacles to the use of gold as money. Republican Mary Fallin, the governor of the Sooner State, signed into law legislation that recognizes gold and silver as money. There was bipartisan support, particularly in the state Senate.

It’s encouraging that Oklahoma is joining the trend to right these wrongs. Their new law is no mere tinkering with the sales tax. It’s about gold and silver as money, and the text of the bill states this clearly. Other states are working on gold bills, including Kansas, Texas, and South Carolina.

The gold standard movement is profoundly important. It’s becoming obvious that the dollar system is unsustainable. Debt is rising out of control, and the benefit of additional borrowing has diminishing returns. For example, companies like Cisco and Autozone are borrowing to buy their own shares, but are not investing in growth. Cisco recently announced another big layoff. Millions of job seekers are left out in the cold, and savers are euthanized."

NOTaREALmerican's picture

Does Argentiana have a PPT,  the Fed, and Algos pushing up its stock-market too?  Or is it something else?

AchtungAffen's picture

Where there is high inflation, money runs to the stock market.

walküre's picture

S&P up 200% off the March 2009 lows.... you think all those trillions of extra vapor would go unnoticed?

yogibear's picture

Bring it on! There are many other countries that can join this party.

walküre's picture

First of many to shaft US owned and operated banks for their debt paper. Which countries are next is the bigger question? The Argentinian way will be an example to other countries burdened by high interest sucking US fonds and banks.

In the end this trend is going to hurt the US when it cannot find customers for its loans and when existing customers are simply walking away from their promise to pay.

US is printing money from nothing and the world is supposed to accept this "golden" shower forever? Fuck you and good luck Argentina. Hopefully many more will join the ranks and soon.

NOTaREALmerican's picture

The "many others" will be watch to see what happens with the Argentine peasants.    The Trash Class always pays the price for what the sociopathic leaders do.

AchtungAffen's picture

And in the next turn, those same peasants will go and merrily vote another Peronista. Argies get what they deserve: almost 70 years of Peronismo, a never solved complex with fascism.