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.
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.