the euro and the dollar, charting the recent action

Not usual IKN fare, but it gets a space today by way of a request.

This visual shows the bounce when the Big Fat Greek Bailout was announced, the subsequent selloff vs the greenback and then the recent climb. The rebound is modest so far, but according to this 90 min candle chart it does seem to have legs.

A loosely connected rant about LatAm currencies

Every now and again, even a dyed-in-the-wool, professional politician will say something that's actually the truth. I was struck by this line spoken by Argentina's Eduardo Duhalde yesterday (as reported in this post).

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"This crisis was born in the USA, it hurts all of us and they have the chance to print money and save their own people. We don't have that opportunity."

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It makes sense on plenty of levels, not least of which the context of Duhalde's argument yesterday, that of "sauve qu'il peut". A couple of mental connections later, and here are two charts that show the evolution of local currencies against the greenback. This one has a 12 month timescale......

.......and we see the Argentine Peso and the Peruvian Sol as having held up the best...so far. But looking at the shorter-term movements.....


.....it's the Chilean Peso that has kicked back strongest in the three month period chosen by default, care of Yahoo Charts. That would be the moment when Bachelet&Co stopped the free-floating rot and due to direct, Keynesian government intervention policies and self-protection, dontcha know....

(Glossary: COP = Colombia Peso, MXN = Mexico Peso, ARS = Argentina Peso, PEN = Peru Nuevo Sol, BRL = Brazil Real, CLP = Chile Peso)

As just one example of the consequences here, the relatively strong dollar helps LatAm exports, of course. However you would expect a strong dollar in a time of strong US economy, not right now in the biggest financial and economic crisis to have hit the industrialized nations (led by the US) in modern times. What's the use of a strong dollar and its ensuing export market advantage when there's no market, except of course to make breathing space and prepare the way for the next round of helicopter flights from Bennyboy?

I could go on and on and on with this particular post, as the angles and tangents are manifold. I could talk about that post way back when I said that the US was keeping its dollar as strong as possible to make sure it doesn't lose its place at the head of the world table. I could talk about inflation risk of weak currencies. There's the whole issue of how soft pegged currencies like the Nuevo Sol and the Argentine Peso have performed much better than the more freely floated regional currencies such as the Mexican Peso or Brazil's Real. The case of the Chilean Peso and its dependence on copper is a particularly fascinating one for a wonk like me.

All those and more. But no, let's stop here. What I really want to say is that Duhalde made a great point yesterday, whether or not he was looking at it in a wider context. The bottom line is that if the USA has decided to protect itself at all costs and let others like us guys down here drown in the muck of its making, then why the **** should we keep playing ball with you guys?

Seriously. What have you guys done for us lately? Your economic policies suck and you still try and tell us how to runs things. You screw up the whole financial world and now you're getting the innocent victims to carry the can.

It's taken me a while but I'm beginning to see that Rafael Correa is absolutely right, basically because I'm not as smart as he is. Take your sovereign bonds, gringos, and stuff them where the sun doesn't shine. We have an abundance of water, farmland, power supply, region-wide democratic governments and importantly a population of caring, kind, willing and hard-working people, from Tijuana to Tierra del Fuego who are evermore pissed at the way the USA and the wider world community has been treating them all this time.

Quid pro quo, dudes. Quid pro quo.

Argentina: The peso forex hits 3.43

There has been a pretty severe move in the Argentine Peso from its recent baseline level ArgP$3.12 or so versus the dollar to the P$3.43 being printed this morning.

Argentina Peso Versus US Dollar, 12 month chart

Reports from the presidential palace are that the Kirchners' are hopping mad about this move and are trying to pin the blame on anyone, from the AFJP (bugbear of the month) to Grupo Rocca (bugbear of the week) to the "business cartel" to a more generalizaed "speculators" fist-in-the-air. I'm not joking, either and here's Critica on the whole charade. Apparently the fools think that the strange thing called 'the market' shouldn't be used to bet against the state.

My four year old daughter has a better concept of finances than the leader of Argentina (and his wife). What would Occam and his razor say to 1) Argentina announces it is nationalizing its pensions system and then 2) its currency suddenly loses 10% against the greenback? If I'm ever required to explain what's going on with the Argentine economy to los Kirchner I'd better remember to extract all words above two syllables. No wonder Martin Redrado is at the end of his tether with these clowns; explaining financial realities to the Ks must be like herding cats.

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?