Dollar Reserves Vs Dollar Rates

[Redbeanz]

And then, there is always Venezuela....

http://etfdailynews.com/2015/10/30/venezuela-sells-billions-in-gold-to-repay-its-debt/

 

[Ries]

no one is able to predict a crowd- some will panic, some will be "irrationally exuberant", some will buy and hold, some will listen to Glenn Beck.

And, more and more, the trend with corporations is not to release actual forecasts and results, but to make up a rosy picture, and release that-

like this- http://www.nytimes.com/2015/11/01/business/valeant-shows-the-perils-of-fantasy-numbers.html
but its only sixty billion dollars, right?

who can predict WHICH plane crash will arouse the conspiracy nuts?
who can predict a sudden death, a bad storm, an earthquake?
who can predict a crook, or a failed employee covering up his mistakes?
The London Whale, for example?

If you can predict the brain chemistry of several billion people, my guess is that there would be ways to make more money and accrue more power than simply foreign exchange arbitrage.

Somebody like Bernie Maddow did predict the guillibility of investors, and their desperate desire to believe that the future could be predicted- it worked for him, for a while, but look where he is now?

 

[AmigoArtistico]

With the [dollar] reserves being drawn down to such a precariously low level, what simultaneous but opposing factors are causing the parallel dollar rate to drop? It seems too early for the rate to be affected by optimism over a possible Macri win, in the face of the very real, not just possible, lack of hard currency in the reserves. This week's new tightening of dollar transfer restrictions is clearly aimed at preventing further dollar reserve drops, but at the same time, that kind of move usually adds to fears and makes more people seek the security of the dollar. Indeed, the official rate edged up this week, while the blue rate fell. I would love to understand this whole dynamic.

Can anyone explain in simple terms?

Very simple: supply and demand.

I had just nearly finished a much longer post, listing all the factors I could think of on both the supply side and the demand side that can help to explain the current price, but I hit the backspace key and the browser took me to the previous page, without saving my post or warning my in any way (my mistake for writing something long in a web browser).

So, here's my very short version of why the price of the blue isn't higher, as you seem to think it should be.

Start with the price of the "contado con liquidación" or the "dólar bolsa". They are two similar forms of the same thing, and they are often referred to as the dólar implicito, since they, by their nature, give you the implicit price of the peso vs. the dollar. If you don't know how it works, you buy a bond or stock in Argentina, in pesos, while simultaneously selling the exact same bond or stock in New York, in dollars. If that bond is selling here for ten pesos and in New York for one dollar, that would give you an implicit price of 10 pesos/dollar. Since there are almost no "official" dollars available to businesses anymore, most business is transacted at the "contado con liqui" price, since this is the price most businesses who need dollars are paying for those dollars. (You should be aware that the government is spending lots of money to keep the price of the implicit dollar artificially low, which is another factor in the discussion, but dollars are generally available to businesses at the above stated price range.)

I've been following the correlation between the implicit dollar and the dollar blue for a long time, and I have observed that in times of greater uncertainty (elections, the default, etc.) the dollar blue is usually between two and three pesos above the implicit dollar, and in calmer times, the difference is closer to one peso. There was even one time when the two were almost equal.

Anyway, this correlation can explain much of what's going on now. With the prospects of Macri winning the election much more likely than anticipated, the blue has retreated a bit.

However, there are a lot of other things going on which should continue to affect both the "contado con liqui" and the blue. The government is constantly intervening in the market in various ways, the reserves, as you point out, continue to dwindle, government spending is wildly out of control, the "dólar ahorro" plays it's part, though less now than before, because of the elections, the general uncertainty of the future regardless of who wins the election, and the very high expectation of a significant devaluation of the "official" dollar, which is unfair and ridiculous to try to pin on the next government, since the "official" dollar is a myth, and even the implicit dollar is low due to massive government intervention; in other words, the devaluation is already here, and has been for a long time now.

There's much more I could add, but in the final analysis, in any market, the simple answer is the most fundamental law of economics: the law of supply and demand.

 

[AmigoArtistico]

...but dollars are generally available to businesses at the above stated price range....

oops... The "above stated price range" -- mentioned above -- was in the previous, deleted post.

The implicit dollar has been trading lately around $14.00, with occasional dips due to government intervention. It closed today at $13.69 according to Ambito.com (even though it's impossible to put an exact price on it, due to the way it works, they always put a reference price).

 

[Redbeanz]

When I started this thread, what puzzled me was that, while it was clear that there was more determining the parallel rate than simply the obvious ones, still, I did not posses enough information to guess what other determining factors were.

I went back and read articles like Bianca Fernet's "Size Matters," from last April. And this week a banker friend gave me a tutorial on the "savings dollars" situation. Ending the short dry spell, once the spigot was turned on again at the end of October, there were more people than usual claiming their "savings dollars" and converting them to blue.

Still, would that have been enough to account for the slide from 15.75 to 14.3 in 2 weeks?

Bianca Fernet to the rescue, once again: the Macri effect, all the usual factors, in addition to the "size matters" ones, and possible smurf manipulation to boot.
http://www.bubblear.com/is-the-macri-effect-responsible-for-argentina-blue-dollar-volatility/

And now the slide seems to possibly be reversing. As someone pointed out, this is no more predictable than Las Vegas. But understanding it a little more can at least be helpful. (And no fake Eifel Tower, no gondolas, no Cirque du Soleil, no pyramids!)

 

[Gringoboy]

I agree with what you say about Bianca; she's the best writer by a long shot at The Bubble.