By RAÚL DELLATORRE
For investors and speculators who bet on the Javier Milei alternative before October 20th, the past week saw considerable losses
The financial markets in Argentina experienced another extremely busy week, the second in a row of violent changes in the prices and composition of assets in investors' portfolios. And, to the extent that the movements of speculative capital were linked to the political factor, what happened was that the jumps in the last week took place exactly in the opposite direction to those that occurred in the previous week.
If until Friday, October 20th, the migration of capital to assets in dollars, in the hope that a possible triumph of Javier Milei at the polls on the 22nd, led to a stratospheric jump in the value of the American currency, the week following difference of almost seven percentage points in votes in favor of Sergio Massa produced exactly the opposite effect: a desperate race to “disarm positions in dollars” and get out of the window of high bets on a mega-devaluation of the peso.
In concrete terms, for investors and speculators who bet a lot of money on the Javier Milei alternative before October 20th, the past week has seen considerable losses. In the “future dollar” market alone, Rofex, in financial jargon, an estimate made by market and financial policy analyst Alejandro López Mieres calculates losses at around 238 billion pesos (680 million dollars at the official exchange rate or 250 million , in parallel) for those who, the previous week, bet on a rise in the official dollar.
On October 20, the future dollar exchange rate for the end of December reached 812 pesos. This means that private sector operators bought contracts betting on this value for December 31st. If the official wholesale dollar (which is currently frozen at 350 pesos) exceeded that value on that date, they would earn the difference. If it reached a lower value, they would lose, paying the difference. In other words, there were those who were betting on a mega-devaluation of the official dollar of at least 130%, as the expectation was to gain from an even greater devaluation. It was a possible political decision to imagine, hoping that on December 10th Javier Milei would assume the presidency. They bet on that.
But Sunday's election results may have dampened such expectations, to the point that many have now hastily sold these contracts and the value of dollar futures has collapsed. On Friday, October 27th, the dollar rate for the end of December, which a week earlier was at 812, fell to 608. The dollar futures for June 2024, which on Friday, the 20th, reached 1.530. it dropped this last Friday to 1.105,30, and with a downward bias.
Those who, the previous week, had purchased these contracts or futures bets, now resell them bearing the partial loss, so as not to bear even greater losses while the values continue to fall. The counterparty in these operations is the Central Bank which, through its interventions in the open market, ended up raising those 238 billion pesos in just one week.
Victory in arm wrestling
Alejandro López Mieres, researcher at Institute of Thought and Public Policies (IPyPP), research center linked to the left-wing party Popular Unit, had already drawn attention, before the elections, to speculative movements and the race for dollarization in the portfolios of important investors in the local market, including financial entities.
“There was no other explanation other than speculation regarding a scenario of brutal devaluation [of the peso]. This was clearly seen in the dollar futures market, and then the Central Bank played its cards well, albeit limited, staying very close to the intervention ceiling that the IMF established for it. It was, however, the only counterpart to those who were betting on the rise of the dollar, playing, above all, with large volumes and in the short term. The Central Bank ended up winning the fight.”
Similar results, although difficult to quantify, were certainly recorded in the stock and bond markets, or in the currency market (Blue, dollar MEP etc.), where other bets were made, with a similar degree of audacity and cost, on the change to “dollar assets”, abandoning, “at settlement price”, the assets in pesos, in the hope of seeing, on Sunday elections, their investment portfolios dyed green. This demand caused the prices of those assets targeted by speculators to rise enormously until the 20th, deflating at an accelerated pace in the week that followed, when those same investors began to sell them.
Megadevaluation yes, small and medium-sized companies no
In this context, it is curious that on Saturday, the 28th, Emilio Ocampo, chosen by Javier Milei to be the eventual president of the Central Bank, with the mission of imploding it, casually expressed a very harsh criticism of the monetary authority. , for having taken a favorable position towards small and medium-sized companies(SMEs), in his view, too risky and, eventually, too costly in the face of “a potential future devaluation”.
The measure that Emilio Ocampo questions is the permission, given by the Central Bank, for importers from small and medium-sized companies (SMEs) of inputs or products constitute a demand deposit, remunerated by the variation in the official dollar (dollar linked), from the moment the imported merchandise is dispatched, until the date of effective settlement of the invoice, so as not to be harmed by the entity's own delays in settling the dollars at the official value. This way, small and medium-sized companies would have coverage against possible exchange rate variations between those dates.
What does Emilio Ocampo criticize? “This decision further weakens the already fragile asset situation of the Central Bank and restricts the scope for action of the authorities that take over on December 10, 2023. Furthermore, it is a privilege for a few, which will be financed with greater monetary issuance and, consequently, with greater inflation”, said the economist summoned by Javier Milei.
In reality, the decision in favor of small and medium-sized companies should not worry Emilio Ocampo so much, taking into account the extraordinary gains that the Central Bank obtained last week, thanks to the unfortunate decision of speculators who, following the recommendations of the electoral front Freedom Advances, by Javier Milei, disposed of their assets in pesos before the elections, and confidently awaited the coming to power of the masterminds of the brutal mega-devaluation that would take place as a movement prior to the dollarization of the economy.
Ultimately, bad advice from Freedom Advances to which speculative capital responded, it provided the Central Bank with sufficient funds (if necessary) to guarantee small and medium-sized companies payment for their imports. They may not even be necessary, as the threat of mega-devaluation dissipates.
*Raúl Dellatorre and iseconomist and economic journalist. Author, among other books, of El Rodrigazo, 30 years later: an adjustment that changed the country (Intellectual capital).
Translation: Ricardo Cavalcanti-Schiel.
Originally published in the newspaper page 12.
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