Mexico's Central Bank buys 100 tonnes of gold bullion

The main LatAm goldbug story out today is that Mexico has finally done the right thing and its Central Bank is a buyer of gold. During February and March, The Mexico Central Bank (known as Banxico) ploughed more than U$5Bn into buying around 3.25m troy ounces of gold (that's 100 metric tonnes). So according to those preliminary numbers, Banxico paid over U$1,500 for each ounce (1538). Apparently the FT broke the story, but we don't link to them cos they have a stupid firewall. Instead, hear more about the news via this Spanish language link.

UPDATE: On rummaging round the Banxico website it's not easy to spot the datapoint, but it's worth noting here that Mexico's total international currency reserves (i.e. us dollars) stood at U$125Bn as at April 2011 so the gold bullion purchase works out as 4% of Mexican reserves. Hardly a game-changer in itself, so goldbugs will be better advised to obsess over the trend.

The dollar's bottom is in! Proof here!

Contarian indicator of the day (perhaps even the year) is brought to you by Reuters as it reports the following (Spanish language link):

Peru's Central Bank said Wednesday that it had decided to reduce US dollar participation in the composition of its international reserves from 80% to 62%, due to fears of volatility in the US currency caused by the global financila crisis. Continues here

Or in other words, when the dumbasses in suits bail on the dollar the bottom must be in. Short the Euro now!

Peru Central Bank cuts big

Peru's Central Bank tonight cut a full 1% off its baseline lending rate, taking it from 6% to 5%. Here's a Bloomie report on the cut, but what it basically means is "we don't care about inflation but we're in the crapper on the growth front." But hey, I could have told 'em that. In fact, I have....since December.

It also means that Peruvians should go and buy themselves a few US dollars instead of holding Nuevos Soles, as the S/3.135 = U$1 won't last very long. See you 3.3, bitches! Here's a three month chart that tracks the major locally traded currencies against the US Dollar. Peru's Nuevo Sol (PEN) is the blue line and will soon be joining the Argentine Peso at the "down 5% vs greenback" level.

Peru interest rates: Otto 1, Dumbasses 0

As predicted yesterday, Peru's Central Bank just cut its base lending rate by a quarter point. Beats me why you're still reading the dumbass economists of this world. As a final auto-horntoot, here's how yesterday's post began*.

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This Reuters article tonight reports that seven of nine economists (a.k.a self important dumbasses) say that Peru's Central Bank (BCRP) will not cut its prime lending rate from the current 6.5% at its meeting tomorrow. Well, let's go out on a limb and say that Velarde&Co will show those seven to be wrong. Otto is siding with the other two and says the BCRP will in fact cut rates by 0.25%. Reasons:

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*As my wife will quickly tell you, I'm insufferable when I'm right and even worse when wrong

Peru's central bank should cut its rate tomorrow

This Reuters article tonight reports that seven of nine economists (a.k.a self important dumbasses) say that Peru's Central Bank (BCRP) will not cut its prime lending rate from the current 6.5% at its meeting tomorrow. Well, let's go out on a limb and say that Velarde&Co will show those seven to be wrong. Otto is siding with the other two and says the BCRP will in fact cut rates by 0.25%. Reasons:

1) CPI inflation came in at a benign 0.11% for January. With less inflationary pressure clearly in the pipeline, the worry about paying more for imports is lessened.

2) A lot of the "feared" drop in the Nuevo Sol has already been baked into the market. The Sol has appreciated significantly in the last couple of weeks, now standing at S/3.245 to the greenback.
3) It will go hand-in-hand with FinMin Carranza's crisis planning (even though his own plan is pissing somewhat into the wind). During Carranza's first term as FinMin there was no love lost between himself and bank chairman Velarde, but this will be a chance to show that Peru's two main macro institutions can work together.

4) Exports (and the lamentable "buy Peruvian" campaign just re-started by Twobreakfasts) will benefit from a weaker Nuevo Sol.

5) The BCRP will have to cut anyway! So it may as well start now.

So it's Otto versus the local pros. Look out for the announcement this time tomorrow.

Peru: the first of many downward revisions

It didn't take long for the smiles to begin leaving the faces of Peru's financial glitterati. After being told since November by Twobreakfasts, by FinMin Luismi Valdivieso, by the Central Bank and by any official bullshitter you could point a stick at that Peru's GDP would grow 6.5% in 2009, the first revision has appeared.

Buried in this upbeat note from Reuters is the Central Bank's new forecast of 6.0% GDP growth. Now that may still seem good to you, IncaKuloNewser, but these are the same people who confidently predicted 2008 inflation at 3% for 2008 (it finished more than double).

Otto can also confidently predict things. Confident predictions include that between now and March we'll have one more downward revision of GDP to maybe 5%. Then around September 2009 4% or so, but nobody will care because the gov't will keep screaming about how inflation is dropping and all is well and it's not their fault that GDP isn't living up to expectations anyway.

Meanwhile, remember that at the end of this GDP rainbow there's no pot of gold for the 40% (and climbing) of Peruvians that live under an already very low poverty line.

Chile, interest rates, inflation, Bachelet and the central bank

Bachelet proves she can maintain her composure and smile
even in the most difficult of circumstances

President Bachelet gave a very interesting interview to Chile's Radio Cooperativo on Wednesday. Part of the show was devoted to the question of interest rates, as the analytical world and their spouses all say that Chile's central bank is about to cut the rate by 0.5% (it's currently at 8.25%) in order to stimulate growth (or so the theory goes). Anyhow, here are a few direct quotes from Bachelet in that interview after being subjected to the OttoTrans™:

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"Inflation is in full retreat and I understand that this will be a criteria that the Central Bank is going to evaluate when defining its interest rates policy.....this is what I hope for, although I am respectful of the Central Bank's autonomy, but I believe that the numbers we're seeing augur well for some good decisions."

"The only good news at the moment, from the point of view of economic future is that expectations and estimates of the experts say we are going to end 2009, some say, with inflation at 2.6%. We ended ths year (2008) at 7.5%."

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It's not just Chile, of course. The whole region is now benefitting from the drop in prices (just check the Peru PPI figure in yesterday's chart, for one example). The countries of South America are net commodity exporters thus the drop in world commods prices is a net negative. However there is most definitely a silver lining to the cloud, and that silver lining is the easing of inflationary pressures.

So as growth was the strong point pumped by every regional government in 2005 to 2008 ("Growth!! Growth!! Look at how we're growing and don't worry about the inflation number, it's not that important anyway...now vote for me, suckaz") so the inflation rates regionwide will be the Presidential talking point of 2009 ("We have the important inflation figure under control. don't worry about growth, that will come back quickly enough because I'm wonderful and smart and have controlled inflation...now vote for me, suckaz").

In the words of Kurt Vonnegut, "So it goes.".

South American currencies offer excellent value right now

Consider this the official headsup post. Reasons:

1) The panic flight to dollar bills and bonds has likely ended. As best signal, look for the T-Bill yield to jump tomorrow. This will signal the top in the USD.

2) Commodities of all shapes and sizes rebound in dollar terms. South America is the land of commodities, people. From precious metals to base metals to grains/softs to sugar/ethanol, to hydrocarbons...we got the lot.

3) In broadstroke terms, the US bailout package is inflationary and baking higher prices into world economies going forward (unless of course you believe you can create a couple of trillion's worth of money out of thin air and think it won't dilute the pool). This will kick in after the storm has passed.

4) South America is implementing policies that will strengthen currencies right here and right now. The latest (and pretty typical) decision is the lowering of Brazil banks reserve requirement (following on from other regional states). Other tactics likely to be used include asset repatriation and continuing tasty high interest rates.

5) The run on many local currencies has been little short of dramatic, and there is plenty of rebound space in the short term. Check the Brazilian Real, the Chilean Peso, the Colombian Peso, the Peruvian Nuevo Sol, the Mexican Peso for excellent exmaples and trading ideas.

6) There are no, repeat no countires about to default on bonds. Not Ecuador, not Argentina, not Venezuela. we've talked about this one before. Or put another way, if any LatAm state goes down, about a dozen other Eastern European, Asian and MidEast states will have to go down first. And then there are all those currency reserves down here that add strength. Brazil $200Bn, Mexico $80Bn, Argentina $50Bn, Peru $34Bn, Venezuela $38Bn....hell, even Bolivia has over $8Bn tucked away these days. Chile, Ecuador, Paraguay etc etc etc As risk management goes, LatAm offers a logical alternative right now.

These reasons add up to one thing: buy S.Am/LatAm currencies right here and right now. Top of the shopping list should be Chile, Brazil, Colombia and Peru (and that's Otto's order of preference, too). However you need to 1) keep it nimble and be prepared to take profits at any time, and 2) DYODD, dude. It might seem strange to relate South America with financial strength right now, but this is Pachakuti, remember?