Monday, December 28, 2015


The pointy-head guys have come up with a new theory about which everyone has known since the beginning of time.  Weather affects mood and the feeling of well-being.  The weather across most of the fly-over zone was awful today: freezing rain and high winds.  I am in a lousy mood so I probably shouldn't have taken this on, but the more I thought about it the more it seemed that the weather would probably have little to do with my outlook for this hemisphere.

First the good news:  Argentina.  It's been a long time since I have thought any good thoughts about the Argie-Bargies but the the election of Macri appears to have created a real opportunity which if seized upon and given enough time might produce more than acceptable results.

He has started off like a house-a-fire with an immediate devaluation of the Peso and a demolishing of the multi-tiered FX system which was so desperately needed.  He has also removed all taxes on exports the imposition of which was beyond dumb but simply put in place to provide even a greater slush fund for the Peronistas to distribute but not as much as expected as exporters simply stopped exporting thereby reducing even more rapidly the level of desperately needed FX reserves.  To be sure, the removal of the same will amount to a windfall for commodity exporters who simply hoarded their products but it had to be done.  The actions will also create a short term rise in inflation but that, too, need be borne.  Badly needed imports of critical goods will hopefully restart.

At the critical center of a revival will be the need to conclude the stand-off between the government and the creditors who regarding unrestructured debt.  The government has made noises about its willingness to reopen negotiations and the creditors should take advantage of this opening.  There is a deal to be done here but what will be required first is a cessation of hostilities and I would suggest a mediator to be agreed among the parties.  There are a few people who would command the knowledge and absolute trust to perform this roll but I can think of two.  Why they have not been approached (if indeed they have not)  I do not understand but if there is a roll for government, this is one.  The Fed and the Treasury can make a match here.  If this mess is settled an entire new vista opens not only for Argentina but for the continent as well.  It is the only time in years that I have been optimistic.  It must get done.

So much for the good news.   The remaining outlook is dismal with the exception of Mexico, which, while disappointing in its advancement, is none-the-less head and shoulders above all others in Latin America.  "Too far from God and too close to the United States" might have been true at one time, but not recently insofar as Mexico is concerned.

Brazil is in dismal shape both economically and politically with the very real chance that the President will be impeached (probably correctly) for awful economic leadership and corruption within her administration that is almost obscene even by Latin standards.  Brazil is a real country--an economic powerhouse and a country immensely rich in natural resources all of which has been squandered over the past four years.  To be sure, the collapse in commodity prices have crippled the economy but it has been the blind dependence on the continuation of the commodity boom--read China--that has placed the nation in this perilous position and that is leadership.

The commodity collapse has affected all countries which have a heavy reliance but it is also important to understand that as a result we are looking at a seismic shift in the financial situation of countries who were once rich in foreign exchange reserves becoming...or having become...highly indebted nations whose current account difficulties grow by the day as receipts decline and as a result of the strengthening of the dollar due to economic and monetary policy.  Brazil, once the darling of the investment community, is now rated BB- or Junk, effectively removing then from any access to the global capital markets.  Substantial corporate debt is denominated in foreign currencies, primarily dollars.  A competitive search for hard currency between official and private sectors will probably occur.  Unfortunately, we have seen this movie before; it doesn't end well.  It is claimed that Brazil's problems are primarily political.  Once that might have been true, it is not so now.  Brazil at this stage is the lynch-pin; a collapse would spell a massive set-back for the entire region more dangerous that the situation of Venezuela which could very well dissolve into severe civil conflict within the space of six months.  That situation is truly political and could at its worst drag in regional players and ultimately, the United States in its most violent form.

The fear I have is that there is nothing in the immediate future that can quickly improve the situation. Commodities, so dependent on one hand to developments in China and in Venezuela's specific case, oil, have troubled short term futures.  China's economy is clearly at a cross-roads and the prospect for an oil price rise is bleak.  Further, the damage done to Venezuela's industry is as of now uncertain but it is suspected that great damage has been done as a result of the complete politicalization of PETROVEN under the Chavista regimes which might take a decade or more to reverse even given the necessary capital.  Unfortunately, with crises in so many other parts of the globe and a Presidential election, Latin America will undoubtedly receive short shrift by this administration and it always has in the past.  This time, however, lack of attention might prove devastating.  As for the rest,  de minimus non curat lex.  As these go...

Still freezing rain out there.  Supposedly, we have a gradual warm-up as the night progresses.  I'm not optomistic about that either so I feel lousy.  Maybe I'll put on Annie and get optomistic.  But if the sun doesn't come up tomorrow...

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