Chile Forum

Well, it's part of their rhetoric, but they don't seem to have implemented much of it yet. Of course, were another Allende to come to power in this highly centralized state . . . .

641.75

So the peso dropped to 617 with the rally, we've got a big question mark tomorrow when credit markets open ---

where will the peso be in a week?

I hoping for +625 at least...

641? Rune, what are you chookchas smoking in your chuma?

I know that no one really knows whats going to happen..

But guesses for value of CLP beginning of next week?

At 596 as I post.

Who knows?

Back at 626 today. Drop in Chilean copper exports down by 20% in September (Y/Y):
http://www.bloomberg.com/apps/news?pid= ... 6nEvipnsiU

Even if the banking system is stabilized, construction and manufacturing are not going to bounce back for a while. There's a lot of housing inventory to be sold first. Housing markets tend to crash hard and recover slowly. Given copper and timber are Chile's two main exports, I'm betting that the US dollar is going to stay above 500 for years (works for us as we've budgeted at 500), and maybe above 600 for a while (hey I just got a big raise ). Weather permitting, Chile is probably headed into a stellar produce and wine export season, but that's not enough to compensate net export volumes.

Anyway, that's my forecast barred unforeseen catastrophes of course, but I find the comparisons with the great depression silly. It's not nearly as bad as 1979 (re: inflation or unemployment numbers) and oil already dropped by almost 50% from its peak. Six months ago everyone was afraid of double digit inflation. Now people are talking about 90's Japan-like deflation. It was just too easy for consumers and business alike to get into debt, so some clean-up is both necessary and healthy. In my own business, things are tense but the rug has yet to be pulled from under our feet, and we're still focused on improving our fundamentals and growing. Lean companies have an opportunity to gain market share from bloated competitors ill-equipped to cope with a recession. If credit markets regain some modicum of flexibility and people start adjusting their spending/saving habits a bit, there's a way out of this crisis.

Now the problem is that governments are blaming this on deregulated markets and "unbridled capitalism" which is a red herring (financial markets shouldn't be confused with the free market enterprise), but public opinions might agree and support more bureaucratic overhead and taxation combined with increased public spending (on top of already unsustainable public deficits). I'm cautiously optimistic for the next few years business-wise (I don't see the sky falling), but quite worried about yet another New Deal/Great Society spending and regulatory socialist binge, which cannot be a good thing long term.

Edit: so I should mention that the recent recovery in copper prices seems short-lived to me, given underlying demand trends:
http://www.bloomberg.com/apps/news?pid= ... Qm.zkGrq6s

Not just Chile, see "Currency worries in Brazil and Mexico":
http://www.economist.com/world/americas ... d=12432297

I hope that trend is correct -- I would like to have the USD strong in Santiago for a few years. I haven't seen a change in demand for my freelance work. If it stays steady or continues to grow, this trend of +600-700 CLP to the USD would be very very welcome.

I just wonder how long it will take until car prices in pesos, etc adjust to the value of the dollar, or if they even do in chile? If they stay as they are now, which I hope they do, and the peso stays the same or gets weaker to the USD, I hope to buy a nice little used car in cash in the next few months, which would be nice since getting a loan is probably a real nightmare right now.

The rapid changes in the USD to CLP are not very healthy IMO, that is quite a fast recalibration, and in globalized commodities markets, this could have detrimental effects after it trickles down. For me its good right now, and it could be fine for Chile in the long run, but, its rather fast fluctuation. For me, after watching world currencies for a couple of years, I see this not as one currency going up as compared to another. I see it as One currency falling faster then the other. The yen is hurting bad now too, as well as most european currencies.

If you want to hang onto a low currency, China is a better bet. But its a great time to visit Chile or move some funds for the short term. Everything is on sale!

Dollar up to 658 today (a bit lower now). There's an interesting dynamic at play, where the stronger dollar makes copper look more expensive to non-dollar economies, putting further downward pressure on copper price, in turn putting pressure on the chilean peso:
http://www.reuters.com/article/marketsN ... 8120081022

It's all good for us foreigners, while Chilean public finances remain sound because the budget is calculated with a copper price baseline much lower than actual prices those last couple of years. Also, with 24 billion dollars abroad, that's a lot more pesos that Chile can spend to re-invest locally. A couple useful pointers:
http://www.bcentral.cl/eng/economic-sta ... dex_fs.htm
http://www.imf.org/external/np/sta/ir/c ... curchl.htm

There's a spreadsheet on the Banco Central link above that tracks its international reserves over time. $24.2B At the end of September is the highest number ever, way up from a trend in the $16B-$17B range. Looking at the series by week, there's been an aggressive effort to increase these reserves since April (when the peso was at its peak). The Chilean public sector is also a net creditor since 2006, to the tune of $15B this year. I think Chile is really not a bad place to be to weather the global economic storm. More on Chilean macro eco: straightstocks.com/investing-in-chile/chiles-economy-in-perspective-october-2008/

otravers wrote:It's all good for us foreigners,

Not if you're getting a paycheck in CLP... my salary converted to US dollars went from low to hideous!

jalundberg wrote:... my salary converted to US dollars went from low to hideous!

But, unless, you're trying to save pesoes for a return to the States, what does it matter?

I'm more concerned about internal inflation of the Chilean peso.

First, otravers and murf deserve accolades for their call.

Second, always remember that you are only as good as your last trade.

Third, the next stage depends on wether we really are crashing (read: true depression) or this is temporal disinflation, as the deleveraging of hedge funds and carry trades completes combined with the injection of trillions of printed cash to "save" the system, ready to return to inflation maybe as quickly as this deflation scare developed. If the latter, 85.55 USDX, 643 CLP and 1.81 copper or more extreme pricing in the next two weeks will not last. Lots of cash on the sidelines now getting worried about being trapped in a collapsing US Treasury market and paper fiat dollars, Euros, _______ (pick your trash) while other assets of real value like commodities are sitting at off the chart oversold conditions. If the former, all paper eventually burns and we go back to 0.


Good luck, I certainly need it.