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Wednesday, April 05, 2006

The Most Popular Leader of the Americas: Nestor Kirchner

Mexican polling firm Mitofsky puts Kirchner's approval rating at 87%, the highest approval rating of any leader in all of the Americas, north or south. I think it is safe to say that, barring a very major scandal, Kirchner is going to be re-elected in a landslide.

Expats can expect the 1:3 dollar-peso exchange rate to continue for at least the next half decade while the government attempts to re-industrialize the country. The low peso exchange rate not only favors an export-driven economy, but it also stimulates tourism, and makes it harder for importers to undercut local producers.

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19 Comments:

Anonymous Anonymous said...

You are assuming that the US Dollar will continue on its merry way as it has been doing.

I believe that the US is on the verge of an economic collapse the likes of which we have never witnessed before in history. I wouldn't be surprised if the Dollar/Peso ratio inverted to 3:1 in the next 1-5 years.

If it wasn't for foreigners buying US Treasuries, i.e., debt to finance its trade deficits and budget deficits, to a tune of around $2.5 billion EACH day, the US would be in financial default--not unlike what happened to Argentina in 2001 except at a much greater scale.

The US housing market, which is the only engine driving the US economy and accounts for around 70% of the GDP, is starting to pop on both coasts. In the next 2 years some $2 trillion worth of adjustable rate mortgages, or about a quarter of all mortgage loans outstanding, will "reset" to higher interest rates (and this is not like in the 80's when rates went up from 12% to 15%, but today rates will go from 3% to 6%--in effect doubling monthly payments for borrowers already maxed out when they got their 3-4% initial teaser rates) and this will cause many foreclosures.

Hope that your view will prevail, but the reality could be very very different.

4/08/2006 02:26:00 AM  
Blogger Ted said...

So, Anonymous, you're saying you wouldn't be surprised if the dollar lost about 90% of its value in the next 1-5 years (the implication of the dollar/peso exchange rate going from 1/3 to 3/1, assuming the value of the peso stays constant)? I'd be shocked, shocked! if that happened, though I do share your concern to some extent.

4/09/2006 01:59:00 PM  
Anonymous Anonymous said...

Ted,

I was using the 3:1 ratio more metaphorically than what you pointed out--that it would require the US dollar to lose 90% of its current value. What I was trying to say was that don't expect the Dollar/Peso to remain at its current 1:3 ratio, given the dire financial and economic realities facing the US.

There are at least two scenarios that could "sink" the US economy overnight and seriously devalue the US dollar.

1. The $270 trillion (Yes! trillion) unregulated derivatives market could experience another LTCM (Long Term Capital Management) meltdown and cause the collapse of the entire US financial system. These are highly leveraged bets that can go bad and do go bad, i.e., LTCM ($1.25 trillion in derivatives based on only $3 billion in assets), the fall of Barings Bank, the bankruptcy of Orange Count, etc. That is why Warren Buffet calls them the "financial weapons of mass destruction." JP Morgan/Chase alone holds some $48.3 trillion worth of derivatives (in notational value)--this is almost 5 times the GDP of the US!

2. If foreign governments like China and Japan stop buying US Treasuries AND started to sell them in significant amounts, the US would be forced to really raise interest rates (not the minuscule 1/4% it's been doing) to attract buyers for the US Treasuries, and this would cause the collapse of the US housing market. But I suspect that what the so-called Plunge Protection Team (comprised of the US President, the Fed Chairman, the US Treasury Secretary, and a few others) would most likely do is secretly funnel billions of their newly created dollars (from thin air no less!) through the privately held hedge funds located in the Caribbeans to buy up US Treasuries--this is probably the main reason why the Fed decided to stop issuing M3 (widest measure of the US money supply) statements at the end of March 2006. Either way, it will not be pretty in the US economically.

Will the US Dollar loose 40% or 80% in the next 1-5 years? It's hard to say exactly. But don't assume that the Dollar/Peso ratio is going to remain fixed at 1:3.

How would this potential collapse of the US economy affect Argentina is hard to say, given that Argentina already has experienced devaluation and a severe recession. I think that there is a better than 50% chance that a "poor" country with abundant natural resources and a highly educated population like Argentina would improve and even benefit in such a scenario.

One more thing: When I said that the US housing market accounts for 70% of the GDP, I meant to say that it is the US consumer spending that resulted from the housing market bubble, i.e., homeowners using their houses as a giant ATM machine, that accounts for some 70% of the GDP.

4/09/2006 09:32:00 PM  
Anonymous Anonymous said...

I think the answer is a bit more sinister than what anonymous is letting on. He may just be attempting to prevent you from going into a panic but either way be afraid for the dollar.

In my version Bushco is actually hastening the decline of the dollar. Why in the hell do you think we keep borrowing from the Aisan Central Banks? We have absolutely no intention of re-paying our external debt and are borrowing as if tomorrow will never come because figuratively speaking, it won't. When things like "dollar bills" and "credit" are eradicated there will only be one currency that talks - military might!

Bush is in the process of snapping up 1/2 to 2/3 of the world's proven oil reserves right now. Why do you think we are hearing all the saber rattling regarding Iran. They are essentially the only "rogue" state in the Middle East standing between the US having complete petro-hegemony in the region and possessing only a fraction of the pie. Once Iran is neutralized, the US can count on plenty of oil from Iraq (neo-colonial state/military base), Saudia Arabia (client state), Kuwait (client state) and Iran (soon to be neo-colonial state) - not to mention sizable gas reserves in Iran. Then the real game begins in earnest.

Rapid devaluation of the dollar - or even better, just eradicate it. There will be no more need for money as it is all fiat currency anyway. The US will from that point forward be able to broker with the Apache Attack Chopper, Predator Drone, F-16 and Tomahawk Cruise Missile. Getting the point yet? Believe it or not the dollar's collapse would be a blessing in disguise. When the dollar collapses, all currencies pegged to the dollar collapse in its wake and even those economies that are just deep in dollar holdings like China, Taiwan and Japan to name a few will suffer greatly. Most likely all currencies collapse and then governments have no more rational for playing nice. What are we going to do - start bartering apples for iron-ore - doubtful. The only way to procure those things will be through force, and this is where Bushco has proven itself shrewd if not demented.

4/10/2006 11:38:00 PM  
Blogger johnny said...

Anonymous,

What drivel you speak ! Bush is neither shrewd or demented ! A squeaky puppet that needs "oiling" yes !

4/11/2006 11:29:00 AM  
Blogger Ted said...

Interesting. Where does the Trilateral Commission fit into all of this?

4/11/2006 12:04:00 PM  
Blogger Ted said...

I assume that last anonymous post is a joke. The US government keeps borrowing from Asian central banks because it sells treasuries to anyone who wants to buy them. How will the whole eradication of currencies thing work? Will my employer have to start paying me in Apache helicopters? If so, how will I use them when I go to the grocery store, for example?

4/11/2006 02:28:00 PM  
Anonymous Anonymous said...

this must be the only blog that Mike from BAapartments has not commented on....wonder why ?

4/17/2006 10:29:00 AM  
Blogger Chris said...

Anonymous, there are many additional factors that would quickly change the outcomes you suggest. China has problems never mentioned by the Western industrialized nations for good reason. The implosion coming within China flips your outcomes on their heads. A good read on this is an essay in Foreign Policy, March/April 2006 entitled "The Dark Side of China's Rise". Further, the EURO is a risk. The EU's long-term structural problems and its inability to adapt will see the continent in developing-nation status by 2050 (not England or Ireland). The key to curing the trade imbalances is already taking shape within China...a growing middle class demanding a bigger slice of the pie. Short of very protectionist tariffs on chinese goods, the only true balancing mechanism is a persistent incremental increase in wages in China. Even if the Yuan were floated, this change would not solve the imbalance...not when chinese factory wage laborers make a dollar a day...they'll still be able to flood the world with cheaper products. Only dignified wage increases for the chinese masses will create the balance sought. Remember the scare we had from the Japanese in the eighties (followed by 10+years of deflation)...remember the scenario that unfolded which lead to the collapse of the Berlin Wall? I'm not sure of your age, but if you were a forward thinking adult during those times, you'd understand how impossible we thought those developments were...likewise, trying to calculate the unfolding processes if this or that happens is not a simple matter. Argentina with or without a meltdown is headed for serious economic problems...those Argentines who have been in the country for generations know about these cylcles...what's happening now has been tried...it doesn't work. The real problems are not being addressed there-- not for the lack of trying but because the problem for Argentina is a mixture of culture and conditioning as much as the lack of the prerequisite conditions for inflows of capital which would lead to possibilities of growth and dynamicism. The innovation that lead the US to its position is more critical and underlies economics more than one wants to admit probably because it is somewhat intangible and difficult to quantify. Yes, there are problems in the USA, but in a relative world where your posistion is always vis-a-vis your neighbor's underlying economic, cultural and political flexibility, the USA fares quite well. China won't be the "scary" neighbor many now fear...in fact, I wouldn't be surprised if we didn't add a few dozen countries to the map within the next 50 years. It's an exciting time.

4/20/2006 08:54:00 PM  
Blogger realbuenosaires said...

Chris makes some good points about Argentina. This country won't unfortunately, change. Ask any Argentine what the future holds for their country and they will almost always answer along the lines of 'economic crisis, corruption, nothing ever changes and it never will'. It's an unfortunate fact that the culture that makes Argentina such a great place to live and Argentines such a nice people is the same culture that means this country will never fulfil its potential, at least in our lifetimes.

The happy go lucky, devil-may-care and fatalistic attitude that makes Argentines (and the country) such fun is not conducive to good business practice. Argentines have suffered so many shocks and crises that they have no faith in the government, the police and financial institutions. I can't see this ever changing and neither can any of the Argentines i know.

Every ten years, a new government comes into power, declares that everything its predecessor did was wrong and starts to change everything again. Argentines prepare for this by sending all their money abroad, resulting in capital flight and a total lack of confidence in the economy. This inevitably leads to major recession, something the government can't control because it is invariably broke due to the fact that no one pays their taxes here.

This is a very simplistic explanation of the way things work and there are other factors in play, but it is the basic truth.

Despite what many people believe (and despite the fact that i'm shooting myself in the foot here as it's how i earn a living), property values are not going to keep on rising forever like they have done in europe and the US for the past 15 years or so. 2-3 years tops in rising values, followed by a couple of years stagnation and slightly reducing values, followed by a downturn or possible collapse around the time the next government comes in to mess everything up again. Prices will then almost certainly start rising again and breach the previous highs after 3-5 years. This has been the cycle for a long time here and as it's nigh on impossible to bring about the structural changes this country needs to improve its economy, it will continue to be its cycle for generations to come.

Tourism will probably offset the collapse a little but inflation is running at 12% a year and eating into US tourists pocket. The only real way to combat this inflation is to let the peso rise from its artificial value of 3-1 to the value it should be (around 2.3-2.4 to 1), something that will increase costs for US and other foreigners and discourage the tourists from coming. Tourism will certainly increase here but not to the levels the government is predicting should inflation increase dramtically or should the peso rise.

Many people are enchanted by Argentina, and rightly so, but they have idealistic thoughts about where this country should be and what its potential is. Fundamental change is necessary in the culture if things are to ever change and it is extremely unlikely that this will happen. If it does change, it won't be the Argentina we know and love...

4/21/2006 06:24:00 PM  
Blogger apartmentsba.com said...

I've been away on holidays the past 2+ weeks with my girlfriend in Buzios, Brazil so wasn't posting or really checking emails.

I find this post interesting. Actually Anonymous makes some good points that I actually agree with.

Part of the reason I get so many investors is that I have correctly called not only the tourism trends the past several years, the real estate market but ALSO the exchange rate. I publically called that it would stay between 2.75 - 3.25 which it did.

I still continue to believe it will trade in that range for a while. I also think real estate prices in good areas will continue to go up over the next few years as I called several years ago. One thing that separates me from other people that just talk is that I'm putting my money where my mouth is and have been adding on real estate in Argentina to my personal portfolio for the past several years and continue to.

Anonymous makes excellent points about the USA economy. I share many of his beliefs. The USA is one of the best and most powerful countries in the world but it stands to experience severe problems in the future. I'm not saying it will happen overnight, this year or next year but the USA government is doing many of the things Argentina did to get into trouble. They are simply spending money they don't have.

Things go in cycles. I'm not saying real estate in Buenos Aires will be good forever. Few things in life are. I've always thought ups and downs were good. True and skilled investors actually capitalize on ups and especially the downs in any market.

It's good to have a good exit strategy in any scenario or investment. I got out of the USA real estate market and stock market and invested in Argentina when many said I was crazy to do so. I was right and I continue to believe the Argentina economy will improve and get stronger. I also believe tourism will get stronger in Argentina as well.

There was a reason I got involved in real estate in Argentina. There is no fundamental trust in the banking system here. The one true safe investment is real estate. If you are buying in the right areas the opportunities for capital appreciation and rental income growth are unbelievable.

I think the best part of what "Anonymous" posted is the following: How would this potential collapse of the US economy affect Argentina is hard to say, given that Argentina already has experienced devaluation and a severe recession. I think that there is a better than 50% chance that a "poor" country with abundant natural resources and a highly educated population like Argentina would improve and even benefit in such a scenario.

The key thing is moving with the trends. You can bet when the USA market crashes (and I believe it eventually will).... I will be moving back some investments and picking up real estate and other assets in the USA. The best time to buy is when there is blood in the street.

I highly recommend all of you to read a book one of my clients gave me. I just read it on vacation. He told me that after reading it they could have based the book on my life. I tend to agree. Read it. It's called "The Cashflow Quadrant: Rich Dad's Guide to Financial Freedom".

We can all agree to disagree but I think if you are thinking and acting intelligent that is what matters. The best thing about public message boards is you can see historically over time who was right and who was wrong.

Good luck all.

Mike

4/22/2006 01:36:00 AM  
Anonymous Anonymous said...

I am the first Anonymous in this post.

This matter of the US economy is very complex to say the least.

China (or Japan) by itself would not want to shoot itself in the foot (i.e., by massively selling US Treasuries that would cause the US dollar to fall significantly and thereby cause its remaining US Treasuries to lose in value, and also damage its export trade with the US.)

However, there are geo-political forces at play that could force China to throw all caution to the winds. If Taiwan decides to declare its independence (or if China experiences severe internal problems that could only be "solved" by going nationalistic), China would be force to invade. A war between China and US "defending" Taiwan would severely impact the current China-US trade relations to say the least.

In the US, Bush's popularity is so low that he is where Nixon was during Watergate. There is a great possibility that the Democrats will take over the House and/or Senate in November. If that were to happen, the Democrats will attempt to impeach Bush just as the Republicans did to Clinton. Given this probably possibility, Karl Rove and the neocons are not about to sit around and do nothing. Look to a Iran war before November to rally around the President. And look to a possible 2nd 911 ("false flag" operation) on American soil as the rallying cry to invade Iran. This Iran war will seriously effect the US economy when oil prices go over $100 a barrel.

Nations have always waged wars to divert attention from economic collapses and problems. 911 was no exception.

911 is THE pivotal issue of this decade and for America's future. I have studied this issue of what really happened on 911 from an engineer's perspective for over one year now, and I can tell you that if there is a conspiracy theory it is the US government's version of what happened on 9/11/01.

Check out this online video and see if you can answer the serious questions and allegations that this video asks and raises:

911 Loose Change 2nd Edition

4/22/2006 04:15:00 AM  
Blogger maskow said...

Dear Expat-Arg,

I constantly sing the praises of your fine blog. I've been here more than two years and I describe you to my people here and in Yanquilandia as my go to guy for the numbers.

Would you possibly consider posting somehing on this subject: http://yanquimike.blogspot.com/2006/04/not-specific-to-buenos-aires.html

No pasaran, eh?
Mike

4/25/2006 03:18:00 PM  
Blogger familiaoconnell said...

Word on the street is Kirchner is sick..chronic stomach problems or worse. Christina will be put up as president. This is the non-peronist worst nightmare. The right and left cant compete with a sick, Eva Peron like ending to Kirchner. It will be easy to rewrite history and attribute the uneven recovery to Kirchner and forget that it was despite him.

6/03/2006 06:15:00 PM  
Blogger Amy said...

Gentlemen in Argentina,

You have painted a doomsday scenario for the US$ that makes not one scintilla of sense. However, some of you write well while making your case, such as Anonymous #1.

As an international equities analyst, I am quite familiar with the derivatives market and how it operates. It is not my intention to lecture you, but only to say that the assumptions posited by Anonymous #1 are flatly ridiculous. Derivatives are priced based on the underlying securities, they do not have any other price or meaning. Therefore, if they totaled gazillions, rather than trillions, it wouldn't make any difference to anyone but Anonymous.

One other small point that was grossly misstated was the percentage of the US economy that is driven by real estate and housing prices. The real number is 20%, not 70% as was stated on this blog. It has been 20% since 1985, through ups and downs, and nobody is going to change that with a Doomsday theory.

Now, let me state my view of Argentina's economy viz the economy of the USA.

Argentina needs to re-industrialize if it will have a good economy in the future. The left-leaning president and his ministers have not only hurt the banking system, they have driven out manufacturers. To have a good economy, the country needs a larger middle class so that goods and services will be in demand. The focus on this blog on tourism is, frankly, silly. Argentina needs to attract industries that create jobs that in turn will put money in the pockets of the masses.

As for the US economy, it is so strong and dynamic, that the Federal Reserve Board scared the bejeezus out of the markets by threatening to raise rates again to cool down the economy. The dollar is weak because of our trade balance. Americans make high wages, and companies are going to China and India (etc) to get goods built. Yet, income in the US is up and we are in full employment (under 5% unemployment = full employment.)

Finally, a word about Bush. He has the world's worst job in this era of terrorism, but he asked for it. Since 9-11 he has to balance the threat of terrorism with his citizens' insatiable desire for oil. He is in a Catch-22 not of his own making, but he is blamed for everything.. The last time I looked, a US President has absolutely no power whatsoever to control oil prices, the economy, or hurricanes

So, friends, let’s all hope that Argentina's government leans a bit more to the center to generate wealth for its 90% of the population that could benefit with a few more pesos in their pockets.

Amy

6/12/2006 08:01:00 PM  
Anonymous El Americano said...

"Finally, a word about Bush. He has the world's worst job in this era of terrorism, but he asked for it. //Amy"

Lol. I think you meant to say, "He's DONE the worst job in this era of terrorism"

We're attacked by Osama Bin Laden; Bush goes after Saddam.

Osama hides in Afganistan/Pakistan; Bush invades Iraq.

North Korea boasts about it's nuclear developement plans; Bush threatens Iran.

North Korea boasts again about its nuclear developement plans;
Bush threatens Syria.

North Korea, pissed-off by now that noone is taking its boasts seriously enough, actually fires off some test, nuke-capable missiles;Bush supports Israeli invasion of Lebonon and the bombing of civilian infrastructure.

Bush proclaims war on terrorism; Bush terrorizes the world by going on a country-invading, civil-rights threatening, torture-abiding, let's-bomb-every-raghead-we-can spree.

Wow. Talk about "winning the hearts & minds". Yeah ...THAT'LL sure diminish the threat of people wanting to come over here to kill us. After all, in Iraq when we're not dropping 500 lb bombs on peoples homes we always make sure to drop some dehydrated milk & candies for the kids. Just to show 'em we care you know?.

And about GW Bush in general; let's face it. The man is a MORON. He probably couldn't even balance his own checkbook. Hell, he struggles just to put a coherent sentence together ..and usually fails. This mans policies and administration have done more damage to the U.S. than Bin laden could have ever DREAMED of committing.

Yeah you sure got it right at the end of your comment:

"HE SURE ASKED FOR IT !".

7/26/2006 10:38:00 PM  
Anonymous Anonymous said...

I am living in iowa and just got back from Chicago. I went and picked up a pensionado visa application. I keep seeing in different blogs that you need to earn between 2000 to 2500 pesos a month to retire there. On my application it says you need to earn 2000 pesos that comes out to about 650 dollars. They wernt very helpfull at the consulate, thinking about contacting ARCA and see if they take payments.

7/31/2006 09:03:00 PM  
Blogger DLP said...

More recent polls say Kirchner's popularity is around 60% now, and 45% judges him as good. Only 15% say he's very good.

The growth is real but the salaries - and especially retirement people - have lost too much because of the inflation generated by the devaluation. There is still about half of the workers outside of the formal labor system, that means they do without social services and retirement that correspond to workers inside the system.

8/12/2006 04:41:00 PM  
Anonymous Anonymous said...

what makes you people such experts on politics?? hmm?? are you people even in the military?? hmm?? and besides what gives you the right to diminish the title of out leader??? honestly i dont think you could do jack squat, and on what premise do i state my aquisations? the fact the being president is no easy task, look at prior presidents they've all had their problems, but that doesnt mean we have to critisize everything they do, how would you feel if everyday i had to comment on your poor performance at work or how irresponsible you are raising your children. You may say your trying but NO!!!! i rather stick with what i think i know about you.

1/11/2007 04:58:00 AM  

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