The market fears a “déjà vu” of the Alfonsin spring: to devalue or not to devalue, that is the question

But there is no meeting in which skepticism is not expressed about the benefits of money laundering after the Macri experience, in reference to who guarantees that tomorrow the conditions will not change. That is why Much is being bet on the black money accumulated in recent years due to the stagnant economy, which would be reflected in real estate and some financial investments. Nothing more.

In one of those meetings the memory resurfaced, perhaps due to the time of year, of Spring Plan that the radical government of Alfonsín launched in 1988 by the hand of the minister Juan Sorrouille after the Austral Plan began to crack in order to reactivate and avoid devaluation. The issue of devaluation is also being debated today, and this experience is valued because Primavera was launched in anticipation of the 1989 elections.

Financial Scope of August 1, 1988, days before the announcement of the Spring Plan.

But That summer there was no other choice and they devalued, accelerating inflation, and giving way to the first hyper, The rest is history. The funny thing is that the economist’s warnings Ricardo ArriazuA few days ago, the danger of devaluing sparked furious criticism, especially among colleagues, let’s say, from “the same camp.”

An influential economist and faithful witness of recent history pointed out to a group of clients that The President should not make the same mistakes as Macri in listening only to those around him. Not only because they lead him to say many stupid things, but also to condemn himself with false promises or forecasts, such as, for example, the inflation rate. In this regard, in another, more reserved meeting, between a small number of economists, political scientists and businessmen, it was honestly criticized that Milei prioritized lowering inflation. However, one of the participants, a regular diner at Olivos, He openly denied that “Javier” was obsessed with inflation even though he publicly said so. So, if true, it demolishes a myth among analysts and colleagues, that the Government only looks at inflation.

Interested in short Lecaps?

In the run-up to next Wednesday’s Treasury auction, a group of traders exchanged views over a private whiskey tasting after The Central Bank (BCRA) will again lower the interest rate on active repos to 45% nominal annual from 48%, While the stock of active Repos is almost zero, the balance of LEFI held by banks has dropped to a minimum after having fallen by more than $4 billion between the end of July and the beginning of September.

In this regard, one of the operators pointed out that the stock of active repos on day 4 was just over $530 million, and according to his estimates it will remain that way as long as the banks continue to have significant LEFI balances on their balance sheets. Another colleague provided the information that although the entities continue to reduce their holdings of LEFI, which are at their lowest since they were created, at almost $6.85 billionthere is still time before banks will be in need of liquidity and go to the repo window.

For a consultant, The fact that the cost of the Pases is lowered could be an incentive for banks to agree to extend the duration of their Lecap holdings.taking into account the recent dynamics of the LEFI stock, and recalled that This month, the economy must seek the roll-over of more than $14 billion. Quick on the uptake, an operator placed the whiskey glasses on the table, after moving them, the schedule: on the 11th the “S13S4” for almost $7 billion expires and on the 26th another $7 billion expires, mostly from the “S30S4”.

For now, in another financial stronghold, the first tender of the month is awaited with considerable caution, waiting for the Treasury to be more generous with the yields it offers. Meanwhile, it was noted that the Negative rates on the CER curve where the shortest instrument on the curve (T4X4), which matures in October 2024, ended at CER -0.6%, while the BONCER maturing in December (T5X4) stood at CER + 1.7%. Their reading is that the signs of inflationary inertia and relative price adjustments are partially winning the downward push for the PAIS tax in the short term.

That’s why some people find the middle part of the curve more attractive. One of the most watched is the “TX26” considering the postponement of the end of the cepo. At that meeting, the head of the Treasury of a multinational recommended the “view” of one of the main Latin American and Caribbean countries, which considers that, at the expected levels of inflation for the coming months, It does not seem advisable to take long positions in Lecaps, the longest term they find attractive being February 2025 (“S28F5”), since even with inflation falling in the margin, the level of the gap is high enough for having very long terms to compensate for the risk. Even with forward rates above 4% effective monthly from January, the risk is that the rollover of short rates continues to be at increasingly higher rates against short rates with resistance to the downside. What does seem interesting with the long Lecaps is the possibility of having synthetic dollar-linked instruments with very competitive rates against short-term CER debt. To the extent that there is an exchange rate correction, regardless of its value, given the lag in inflation, at current rates a “dollar-linked” synthetic is better than a Boncer.

There will be a blockage for a while

At the tables everyone is wondering Whose idea is it to close the gap from above, which is precisely what many fans have not won in the market. If the candy was the exit from the cepo, nobody expected that the offer would be that the CCL converges to the official one, in addition to the reduction of the PAIS Tax. The head of the desk of a private bank emphasized this idea, which This meant taking the real exchange rate to historic lows, since if the “crawling” continues at 2% per month and inflation between 3% and 4%, the real exchange rate at the end of the year would be the lowest since November 2015 and December 2001.

That is why all eyes are on the external sector. Of course, there is still talk of monetary “taps”, and it is even noted that some leather was lost and the President should know it, but The issue of reservations dominates the horizon. And if anyone stands out when it comes to pineapples, it is the “Blend” dollar. In addition, there is talk, not only in the market, of How amazing the season will be in Punta del Este and Miami this year with the looming exchange rate outlook and even with the PAIS Tax.

One of the City’s most legendary economists told his clients that there was a trap for a whilegiven that The pesos in the cap guaranteed a certain roll-over of the debt in pesos and generated a certain money supply. Behind the scenes they refer to economic policy as a “Austrian Massism”. There was also a reserved discussion on Zoom about the still Non-existent negotiation with the IMFthere was nothing, and only the arrival of the new vice president, the Chilean Daza, was like having a frog in the same well as those of the Fund, nothing more. In a call with Wall Street and London, local investors witnessed the vision of the London research that considers that Milei’s plan to lift capital controls will not succeedbecause they believe that The current account surplus and the 2% crawl policy are insufficient to generate reserves and eliminate exchange controls. For them, the Government has two options: devalue or secure a new Fund program, who do not see it before 2025 because they consider that The IMF will wait for bondholders to be paid and there are more concrete measures for a stable exchange rate regime before increasing its exposure to Argentina.

The US elections were also part of the menu, for obvious reasons, beyond Milei’s alignment with Trump, and it was commented that nine weeks before the elections the presidential race and the path of each candidate to victory, based on the average of five national polls, Kamala Harris leads with 47.8% against Donald Trump’s 44.6%. On the one hand, Harris has a solid lead with a 3.2% advantage and fewer undecided and protest votes than usual at this stage, while if Trump makes late gains among undecided voters, as he did in 2020, he will likely win the Electoral College. On the road to victory, Harris cannot win without Pennsylvania, but Trump could lose Pennsylvania and still secure a narrow victory by winning Arizona, Georgia, North Carolina, and Wisconsin. One of the global strategists recalled that the election is decided in the bidding of the “swing-states,” as they call Pennsylvania, Arizona, Georgia, Michigan, Nevada, North Carolina, and Wisconsin, in reference to the swing states or those where the polls do not emerge a clear winner, which is where the dispute is concentrated. These states make up 10% of the electoral college, but they are the ones that decide because in the rest, that is, in 43 of the 50, it is already known who will win: in New York the Democrats, in California the Democrats, in Texas the Republicans, in Florida the Republicans, and so on with the rest.

And they closed with the Reversal of US Treasury yield curves After more than two years, the positive slope returned. The inversion of the curve lasted 26 months, being the longest period since the 1980s, and historically, the last six recessions were preceded by an inversion of the curve, although on two occasions this did not happen (1988 and 1998), giving false signals. Therefore, The inversion of the curve is a necessary but not sufficient condition for the arrival of a recession in the US. For now, they pointed out that The market expects strong rate cuts in the next six months, something that seems exaggerated given the current macroeconomic data.