The peso and the markets. A brief review

An unexpected correction in Argentina with a run on the Peso creates an emerging market crisis among its neighbors. A week later with rates at 40%, the country is still in flames; Another round of Trump’s instability, sometimes riding in the right direction but in the wrong manner, keeping his “bad boy” attitude; Independent catalans lead again by one vote, their one virtue is that they can communicate well among Europeans, and know how to use their key weapons with mastery. It is all about divisiveness.

Frankly, it is hard to understand this Argentinian crisis. A government praised with full support from the international community, doing the homework in its “gradualism” and especially in telling its full truth to its electorate, conveying and fully articulating the message that the adjustment would be hard from day one, but for once sustainable.

Efforts containing the budget, 5% excluding interest payments on debt, maybe not enough on inflation, have proven effortless; the economy has blown up! Peso once tied at par with the dollar is now breaking $25, with stock market on free fall. Hard one for politicians, young and vigorous at the different levels, who were just launching a very dary, maybe slightly cute, 100 year bond not long ago. Could this detonate a new “tequila” style sell off?
Now it is the IMF’s turn to figure out how to stop the bleeding. Questionable to the very least is the decision to keep a free and floating exchange rate, especially in countries so sensitive to this kind of damage to their dollar debt. Reason to contemplate again limited pegs with annual adjustments based on inflation differentials and other key variables. We do hope for the best.

Again and again the Trump administration keeps stepping up the tension. Is this really necessary? New exchange of missiles between Iran and Israel on the Syrian border, after being quiet for generations.

Trump’s reach is extensive and not always wrongly directed. Full pressure on pharmaceuticals worldwide to make them affordable is not necessarily a bad move. It even makes sense! Maybe what irritates the world most is not his decision-making but his personal cockiness.

Spain remains in state of alert. Newly appointed president of regional assembly by a very narrow
66/65 vote, Torra keeps up the rhetoric and announced, the first one, his immediate trip to visit his mate Puigdemont in exile. Whilst in the meantime, Rivera, winner of last Catalan elections, suggests replicating 155 rule. Fractures are now huge and could grow even larger.

And yet most Western markets back to all time highs. Is this consistent with all the instability surrounding us especially in an emerging market crisis.

Finally, will apple be the first trillion dollar stock?

 

Rafael Salama Falabella

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