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The blue guru says it: is the dollar continuing to rise or is it going flat?

The blue guru says it: is the dollar continuing to rise or is it going flat?

Salvador Di Stéfano, one of the most listened to gurus in the city of Buenos Aires, gave his forecast for the dollar, after a week in which the blue skyrocketed to all-time highs.

In a column he published this weekend, Di Stéfano considered that “if the government persists in its conviction to maintain the anchors of the economic plan, the dollar has no chance of continuing to rise.”

Below is the column from the “blue dollar guru”:

If the government persists in its conviction to maintain the anchors of the economic plan, the dollar has no chance of continuing to rise.

The rise of the dollar was framed in a scenario of high general confusion. The Central Bank last Tuesday lowered the monetary policy rate to 40% annually, and therefore the banks offered fixed terms at 30% annually. This implied that the fixed terms offered 2.5% monthly, and the devaluation of the peso is 2.2% monthly. The result was an annualized rate of 3.7% per year measured in wholesale dollars, a rate lower than the American rate. The result was that many people decided to leave their fixed term to go out and demand dollar bills. We do not know if this is a strategy to dollarize, or a monetary and exchange policy error.

On Thursday the government carried out a mega operation where the treasury placed capitalizable bills, and the banks got rid of repo operations with the Central Bank. The Central Bank reported that the new monetary policy rate was the yield on bills, which generated a change in the monetary policy rate in less than 48 hours. Today the monetary policy rate would be around 4.0% monthly, which would imply that banks should improve the performance of savers, and perhaps in this way stop the departure of savers from the traditional fixed term. Fixed-term savers should explore investing in mutual funds that today are earning much more than traditional investments.

The rise of the dollar has no possibility of lasting over time, in a week the treasury will invite the banks to a new exchange of Central Bank repo debt for capitalizable treasury bills, which will make the relationship between reserves versus monetary liabilities in pesos is located below the current value of alternative dollars.

Regarding the structural view of the economic program, 4 months of fiscal surplus have been achieved, and a new fiscal surplus is expected in May. This shows us that the anchor of the economic program is strictly respected. Monetary circulation grows at levels below the inflation rate, and below the amount of pesos necessary to rebuild the stock of dollars entering the reserves.

It is striking that alternative dollars rise at the same time that the Central Bank buys dollars in the market, and reserves grow. On the other hand, we have a trade balance surplus, and US$800 million dollars would soon arrive to increase the reserves.

Conclusions

. – The rise in country risk can be explained by the poor parliamentary management of the ruling party, which to this day has failed to approve the basic law and the tax reform. Since the tango is danced in pairs, the opposition also has responsibility at this point.

. – We believe that from the structural analysis there is no reason for an increase in alternative dollars. If the amount of currency in circulation grows in a limited way, the rise in alternative dollars will be limited. The analysis in other governments was very different where we had a fiscal deficit financed by emission, and that caused alternative dollars to rise to infinity and beyond, as Buzz Lightyear would say.

. – If Congress approves the basic law and on July 9, Argentina pays the amortization and income of public securities in dollars, we believe that we will see a sharp drop in country risk and a large rise in sovereign bonds in dollars.

. – The increase in alternative dollars will not impact the prices of the economy, since the market has prices that are conditioned to the families’ pockets. Today the price is set by the buyer, and companies have to make an enormous effort to lower costs, increase production, reduce unit costs, and go to market with competitive prices.

. – Bonds in inflation-adjusted pesos emerged unscathed from this scenario, inflation will continue to fall, and these bonds are attractive because they show a profitability that is equivalent to inflation plus an additional bonus, especially in those bonds that mature from 2027 onwards.

. – The shares show their price based on the expected profitability, we do not expect great performance, but they are beginning to show selectivity. The balance sheets of the companies will show us the way. We will expand on this point soon.

. – The dollar is not behind, taxes are advanced. There is no chance that the dollar will continue to rise, as long as the government remains firm in the conviction of maintaining the anchors of the economic plan, and continuing to work under the motto THERE IS NO SILVER.

Source: Ambito

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