Chile Forum

According to xe.com, the CLP is about 522 for one USD.
Grapes and cherries are going to be expensive this winter in the USA. Probably hurt the farmers in Chile if exports slow down.

I don't think we are ever going to see 600+ to the dollar again. Perhaps short spikes above 600, but nothing more than that.

yea, I am trying to wrap my brain around the impact of inflation in the U.S. and other countries on Chile. If Chile has little to no inflation but commodity prices stay high in a global recovery with strong demand for copper and gold what kind of exchange rate can we expect?


We all knew sooner or later Chile was going to break through that 500 peso level, and never look back. The pesos has been in the 500 - 600 for something like 5 years. Hopefully if it does happen, we get another 5 years of adjustment to a new 400 - 500 range, rather than a sudden drop to th 300 - 400 range. Like always, it will really depend on the copper demand globally.

Politicians and economist in Chile have always talked about going to parity someday with the dollar naturally, without cutting zeros off the currency. It might just happen sooner rather than later.

I also think there is going to be some serious food price inflation globally going forward, as China for a second year is having a bad rice harvest. I would expect farmers in Chile will get a much needed boost of demand. Chile does not do things like grains and soy like Argentina, but the higher end foods such as vegetables, nuts, and so on.

By land now, because it is never going to get cheaper in Chile.

scrjnki wrote:If this scenario plays out, look for 750-1000+ pesos/dollar

Thanks, that's the clearest explanation anyone has posted regarding the "1000 peso theory". I'd be a bit sceptical of it like others, but it's important to understand that scenario.

admin wrote:yea, I am trying to wrap my brain around the impact of inflation in the U.S. and other countries on Chile. If Chile has little to no inflation but commodity prices stay high in a global recovery with strong demand for copper and gold what kind of exchange rate can we expect?

Yes, inflation's hard to pin down. In the short term it causes a currency to strengthen, but common sense says it must devalue it against more stable currencies in the long run. Regarding copper, I suppose it should be possible to find stats to quantify past investment in Chile financially versus in mining businesses.

400-500 pesos long term would basically make Chile as expensive as any first world country, apart from housing, which just wasn't overinflated like Europe and the US, and for the time being labour, whilst the poorer classes here are still catching up with the economy.

I had thought about buying a parcela, especially with high inflation, but personally I need whatever modest savings I have to offset and pay my mortgage if things don't go as planned...

James.

See that is the problem. Chile is not the neighbors with all kinds of local yo-yo political factors to deal with that impact the currency more than real economic factors.

Yes, it would make Chile as expensive as a developed "more stable" economies, because Chile already is as expensive as many developed countries in a lot of areas. I mean really, for example start looking at real effective wages in Chile against say the United States right now in terms of purchasing power. Exclude the top super earners, and exclude the games they play in the States with the minimum wage earners such as for example tip earners, contractors, part time employees, and so on. Subtract or add health care coverage from their wages and a few other odds and ends, and things around Chile start looking pesos for pesos about the same as dollar for dollar goods and services, if you exclude imports and so on.

Anyone got a good link for comparisons of baskets of goods in Chile against other countries?

I see some internal instability arising if Chile wages don't move up with commodity price induced inflation in domestic basic goods and services. In most low-level sectors of Chile where the majority were making more than the minimum wage, there really has been no increase in wages from what I can tell in around 6-7 years. In fact, even mid-level earners have seen a stagnation in wage growth due to the world economic crisis employers market.

Something else I seem to never see mentioned in international development economics is real networths vs. annul incomes. For example, if someone makes $1000 a month, but is able to say save or invest 50% of that over many years, leverage that for home loans and credit, it makes them much more rich than say someone in another country that makes the same, but only is living paycheck to paycheck. Chileans for the most part, own homes, cars, property, general junk, and so on. Credit is generally available to many (although a pain to deal with).

There is an article in El Mercurio-Valparaiso that estimates the mighty dollar will be around 500 pesos at the end of this year. It also predicts less than that around April 2010.

For the most part not from what I've seen. A lot of that show of ownership in the mid class to low class is actually due to credit which I believe the statistics show is now quite widespread and common in those sectors. Most of these folks are putting away very little savings if at all and if it were not for their employers paying into AFP and FONASA coverage things would be much worse.

I don't know. I suspect home equity in Chile is quite high, even among the relatively low wage classes. There are big programs such as matching savings accounts, low interest loans, and low income home building programs in Chile that make it possible for almost everyone to own at least one property.

I also keep in mind every time I hear people talk about the poor in Chile, all the guys in rural areas that although they might make only a few hundred thousand pesos a month are grazing their sheep on million dollar properties. Most either inherited the land or it was simply given to them by the government. That mouth full of grass their horse just ate cost $10.

Cars, unless bought used most likely credit. Most household junk, probably credit or on quotas.

Houses, exception would be the subsidy. That would be the only reason for "ownership" in those classes, not because they actually saved for a real down payment.

admin wrote:……
On the other hand, my gold stock went up ……

Might want to do some due diligence on their hedge book to make sure they do not have a large gold short position they may be forced to cover.

the famous Jim Sinclair wrote:
From Jim's Mailbox, November 5, 2009

Dear Jim,

How do the majors seem to survive covering short of gold derivatives without going broke?
Why did they wait so long?

CIGA Arlen


Dear Arlen,

Have you not seen that each of the majors experiencing this do two things:

1. They sell everything they have that is not in full production.
2. They float major bond deals to fill the hole caused by the losses taken.

As to why they wait so long, it is my opinion they would not even now have covered except for a hidden margin call feature of the short of gold OTC derivative. A clause in the arrangement focuses on the bond rating and balance sheet condition of the hedger. The loss on the hedge is calculated against the company's assets and liabilities. If the balance sheet is challenged to the limit it triggers an obligation to pay up or close the commitment. Many of the reductions and closing of hedge books has not been as much a decision as it is a contract requirement.

Regards,
Jim

This dollar business has me worried... we've been looking at getting a depto in Santiago, and also a used car.. and now the dollar is tanking. The car probably will happen regardless, but I'm not too hot on buying something with a UF mortgage. Cost of living is growing in increments, too. If it starts to flirt with 400 I may just pick up and head north with my dollar salary.

bleh.