The future of the dollar in Argentina

rickulivi

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I have a crystal ball, and I look at it every day so I can anticipate what's going to happen in the financial and real estate markets. Unfortunately, it's always very foggy, so I am never able to actually see the future. Today, however, the sun came thru for a few minutes and it let me see what's going to happen to the dollar in Argentina. Here's what I saw:

1. The dollar has not found its equilibrium or market value yet. Whether it's $25 pesos, $30, $40 it's not clear, but I am sure it will find its true market value in a few days. Going forward, the dollar's market price should equal its current equilibrium price plus each month's inflation. Therefore, the days of cheap dollars are over for a considerable time (maybe a few years).

2. The equilibrium price of the dollar should be high enough to create a surge in exports, a drop in imports, and a tourism boom into Argentina. This new market value should also dramatically reduce the incentive of locals to travel abroad for fun, shopping or both. Forget Miami; welcome Mar del Plata!

3. Imports should be readily available because no one will buy them, not because you can't get them like now.

4. A pretty strong recession should be coming along, if not already materialized, for anyone depending on the sale of consumer goods because people's purchasing power will drop significantly.

5. Any industries or services that are geared for export and import substitution should do very, very well.

How can this scenario go wrong, and perhaps see a dramatic spiraling of inflation? It depends on whether Argentine's, their powerful labor unions, and the monopolistic employers, are willing to accept a dramatic drop in living standards, and profits, for the common good. That is, will society at large accept to see salaries and profits not keep up with inflation, or will Argentina live thru one strike after another one, one "piquete" after another, until things slow down even more, causing a Venezuela like future? My crystal ball could not answer this question, nor tell me who will win the World Cup.

Very interesting times in Argentina.
 
You say you look into the crystal ball to anticipate what happens in the financial and real estate markets. So why don't you tell us what you saw about the real estate market too then... Seeing as you are sharing... :p

As for the rest... I guess time will tell...
 
The real estate market in Buenos Aires is expensive for an investor; not only are prices high, but rents are super low in dollar terms, so it's tough to make a buck. Last year tried to buy a small hotel, a local, and walked away each time. The economics did not add up to me. To pay for the transaction, I had to sell some Argentine bonds paying 8.75%, so any real estate deal had to make a lot more than that. I could not justify it. By the way, glad to know that the IMF has stepped in; my bonds will get paid!!!!

It's different if you plan to be a homeowner, because in your desire to have your own place, you maybe willing to pay the prices they ask for. I was a very strong supporter of the initial Banco Nacion's UVA's hipotecas a year ago. They were charging a very low interest rate, I think about 3% plus UVA, so they were a great deal. Plus, no one was anticipating this current storm; at least not me! The original assumption was that UVA's were only going to go as high as salaries did, so you had a lot of protection. However, recently the Banco Nacion raised their rate way up to 5% or 6% plus UVA, so that took out a lots of the attractiveness of that loan. Furthermore, real estate had prices shot up due to demand thanks to the hipotecas. Today, with inflation accelerating, and with the real possibility that salaries will not go up as fast as inflation, you may end up in a real bad situation because your UVA may go up much faster than your salary.

My advice? Do nothing for now. There's too much dust in the air, and we need to see where things might settle. On the other hand, there may be more than one desperate owner that bought his apartment with an UVA, and now is trying to get rid of it given all the mess occurring right now. So, do nothing but keep looking for opportunities. They maybe many of them waiting to be grabbed by someone.

Hope this explanation and advice helps but it's free, so you know the value of free advice. At least, I hope you know it's true value! I need to take my nap now, so I will take time to respond to any other inquiries.
 
I would agree that its probably a bad time to speculate on real estate, unless you have plenty of money and a very long time frame. But Argentines are consistently buying property, even now, IF its a good apartment, in a good building, in a good barrio.
2 of the apartments in my 5 unit building have sold in the last 9 months, both to Argentines who will live in them, both within 2 weeks of being listed, both for full price.
The things that make Recoleta, or Belgrano, attractive, are going to survive, and, as we are seeing in the USA, the real estate market will become more global for desirable properties.
 
[QUOTE="rickulivi, post: 357319, member:


I had to sell some Argentine bonds paying 8.75%, so any real estate deal had to make a lot more than that. I could not justify it. By the way, glad to know that the IMF has stepped in; my bonds will get paid!!!!


Question, why are you holding 8.75% bonds when inflation is devaluing your principal by 25% or more?

The reason that many people I know are buying real estate is not to live in, not to rent at a profit but to hedge against inflation.
 
El ladrillo will always be a hedge against inflation :rolleyes:
 
Jefff1234
These Argentine bonds, the Bonar 24, are issued in US dollars and the principal and interest is paid in US dollars. Very cool!

I would not necessarily buy them today because they are selling at a premium, and they start paying off principal next year. Thus, at today's prices, your actual rate of return will be much lower than 8.75%, but then, with all the turmoil happening in ARgentina in the last few days, they are quite attractive again. I bought them during Cristina's time, and they were selling below par. They were originally issued to pay Repsol for the expropriation of YPF. When Repsol received them, they turned around and immediately sold them in the open market, where I bought some.

Buying real estate as a hedge against inflation may not, in fact, be a real hedge against inflation. Inflation is a very complex phenomena, especially in a country like Argentina, that loves to spend beyond its income; loves to close it doors to imports; loves monopolies, and has perhaps the strongest unionization laws in the world. By the way, we in the US are going that way too. We''ll shortly have a trillion dollar federal deficit, and the trade deficit is about $400 billion a year, which is horrendous. And Trump is closing the economy too with all his tariffs. Do you see the similarities between Argentina and the US? Scary for those of us that spend most of our time in the US.

In the US, since 2012, real estate housing prices have gone up a lot; depending on the area, anywhere between 50% to 100% or more. But there was little or no inflation, so why the jump? The reason was mainly due to the Federal Reserve's policy of keeping interest rates super low, so it made affordability very easy, which combined with low prices after the crash, made it a great deal to buy real estate in the US. Now, with interest rates starting to go up, you will surely see housing real estate prices drop. Coincidentally, inflation is starting to accelerate in the US, which will cause interest rates to go higher too. As these increase, housing prices will drop further. Notice that inflation is going up and real estate prices will drop. What happened to real estate as a hedge against inflation?

In sum, don't buy the typical argument that real estate is a good hedge against inflation. The issue is a lot more complex than the simplicity exposed in that statement.

My wife is calling me for dinner, so I must go. Plus, I am sure she has cooked a fabulous dinner, so I wouldn't want to miss it!
 
For investment purposes it's hard to beat bricks 'n' mortar and arable land especially if you're prepared to work them.
 
The Dollar mayorista has gone up 51 % since Jan. 2018 ...!!

And so have the prices of many "consumer" products in Argentina. 1529335129758.png

PS: Of course there are some exceptions,but they are becoming increasingly rare as sellers try to "figure out" which products consumers will continue to buy or stop buying as they raise their prices.

Some of my favorite sellers on Mercado Libre have paused most of their publications. Almost all of them have discontinued any discounts (10% - 30%).
 
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