The Upside of Repression
Remember, financial repression sometimes blows spectacular speculative bubbles. Here’s the Argentine stock market:
And let’s not forget that until recently, the Venezuelan bonds were the best yielding and their stock market outdid the Argentine counterpart.
As in Wiemar Germany, stock markets can go up faster than their home currency is devalued. Unfortunately Trading View doesn’t have the time series on the parallel dollar market in Argentina, but I know it well. Between the stability of the Nestor era in 2004 (USD/ARS @ 3) and the late 2012 level of the index, there was a 65% devaluation, against a 100% appreciation (and that’s looking at the price troughs). But then, hold on to your hats, 2013 to present saw the peso devalue another 70%, (reaching 16 on the parallel market) whilst the index is up 500%. If you invested $100,000 in 2004, you’d have 600,000 pesos buying you slightly more than $100,000 in 2012. But then, if you invested $100,000 , you’d have gotten about 550,000 pesos, put it in the Merval, and you’d have 3.3M pesos you could convert in an unmarked office to about $270,000 today, with the parallel market supressed 20% under the convertibility ratio of money supply to Central Bank reserves.
An important theme when analyzing Argentina, rather than taking refuge in audacity, is to see it as a microcosm for what’s happening in the G8. Argentina, for all its drama, is a member of the OECD, and its antics are just a slightly more flamboyant fractal of how monetary madness works globally. As we wait for the blowing of more extreme bubbles in Chinese stocks, or the popping of the US bubble eventually, and the overarching insanity of new money creation through scarce bonds marked as collateral for derivatives trades with notional values greater than global GDP by a factor of 10+, we must ask ourselves: what will be the bubble when the currency crisis goes global?