Jan 28 2014

Argentina financial crisis: What is going on in Argentina?

The economy in Argentina is undergoing another deep financial crisis.  When you have giant pools of money trying to exit your country you know you are in for a deep challenge.  The problem with Argentina is deep and complex but boils down to nepotism, a weak environment for growing businesses, and currency flight.  The latter usually occurs because of the other reasons.  Back in December the government imposed a tax on credit card purchases in foreign currencies.  In spite of this 35% tax money continued to flow out of the economy.  The market has gone fully into banana republic mode.  Inflation is out of control and the debt spiral is in full motion.  This isn’t the first time that Argentina has undergone a financial panic and crisis.  The last one was only in 2002.  The government has done an incredibly poor job and the economy is paying the ultimate cost.

It we look at the premium being paid for dollars we find that things can go bad rather quickly.  If we look at data on the unofficial dollar premium, we find that inflation in the real economy is much higher than is being currently reported:

Blue dollar premium in pesos


A good site to follow for the on the ground impact of economic collapse is this blog.

“The recent scenes of widespread anarchy due to the police strike across the country are still fresh in people’s minds.Due to recent blackouts, some people have been without power in Buenos Aires for three weeks and inflation according to independent firms is 30%, a very different tune compared to the one sung by the government that claims inflation is 10%.”

Not exactly a pretty picture but this should serve as a warning for those that think inflation is some kind of recipe for economic success.

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Dec 10 2013

Bitcoin and the expansion of digital currency abroad.

The major boom in Bitcoin has been nothing short of dramatic.  What is fascinating is the quick run it has had in 2013 where it seems that all things are going up in value; real estate, stocks, and digital currency.  One of the big reasons for the recent run has been the mainstream expansion of Bitcoin.  Whether for novelty or for protecting assets, Bitcoin does not seem to be going anywhere.  Like the birth of anything new, price fluctuations will always occur.  What is difficult with Bitcoin is how do you price the birth of a new currency?  This isn’t like pricing a company with audited financial statements and verifiable inventories.  This is a new currency.  A means of exchange to purchase products and to hold value.  The price of one Bitcoin touched $1,200 at one point and had a quick fall.  Currently, it is trading under $1,000 but the volatility has been dramatic recently.  The scarcity of one Bitcoin is also one of the reasons for the meteoric rise of the currency.

The rise of Bitcoin



The mega rise has all occurred pretty much in the last couple of months.

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Nov 15 2013

New top in stock market? Stock market at record highs

Are we seeing a new peak in the stock market?  It sure seems that way.  There has been little evidence to justify such a dramatic rise in stocks during 2013.  Speculation is running rampant and retail trading is very low in relation to large bank trading.  It appears that a sizable portion of the buying activity is coming from large investors trying to avoid anything having to do with fixed income.  The Fed is making it very difficult to save in any moderate to safe return investments so the investment community dives head first into the stock market.  Stocks are up a whopping 26 percent in the year.  We should get used to these wild swings in the market even though volatility looks to be very low.  If you have any doubts about where things stand today just take a look at what the stock market has done year-to-date:


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