Colombian stock market collapse, dollar gain

utopiacowboy says on May 22, 2006, 15:01:

I must admit that I was completely wrong and it still puzzles me. The dollar has strengthened recently against all currencies but what mystifies me is that the Colombian peso was declining against the dollar even when the dollar was getting hammered by everyone else. I guess I have to look at the bright side. Sure her apartment in Medellin is worth less (in dollars) but at the same time her monthly payments into the Colombian pension fund are less too (again in dollars).

I wish Viewpoint would comment on this - I'd like his perspective on what's going on here.

Disclaimer: any comment I make is inane and is not to be taken seriously, and is so patently ridiculous that no one should take it seriously, even as an insult.

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tomtom33 says on May 22, 2006, 15:09:

What goes up.... The Colombian stock market has more than doubled in each of the past two years. Did anyone really expect that to continue unabated?

I'm very good at making things up to explain what has happened. However, don't ask me about tomorrow.

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caslug says on May 22, 2006, 16:24:

It'll be interesting to see.. if there will be any changes to the unemployement numbers. In the US, when the dotcom went dotbomb, lots of start up companies burn thru their IPO funds and went belly up putting lots of folks out of work. BUT the economy was, more or less able to absorb it, of course the new jobs didn't pay as well as the old jobs.

COL economy has less cabability to "absorb" a hit than US. BUT i dont think most middle class COL own significant stocks? COrrect or no? If you don't own stocks then it doesnt matter, life goes on.

ANother question is what type of investor is in the Market? Int'l, large finacial institution(ie, govt, pension group, etc.,), wealthy folks(small percentage in COL) or average(middle class/lower middle class) individual investor? In COL, are company pension plan guarantee/protected by govt?

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NewBoy says on May 22, 2006, 17:37:

Emerging Market currencies are being hit across the board, along with other markets, its not Colombia specfic.

There are several reasons why, which can be looked up quite easily on the web, so no point me repeating them.

The US dollar has dropped against most major currencies the last month or so, only showing some strength against the minor emerging marker currencies, the dollar has a long way to drop yet against a basket of currencies.

I doubt the peso weakness will last.

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viewpoint says on May 22, 2006, 17:43:

UC Emerging market securities and currency simply have been a little too overbought vs. the risks inherient in these countries. The swing to the left that started with Venezuela, then spread to Bolivia, then to Ecuador and showing up in the recent electrion results in Peru and Chile show south american countries moving more in the direction of the leftist governments of past years. This could well happen in Colombia in the next election after Uribe serves his next and final term.

Although other (certainly not all) south american economies are currently enjoying fisical surpluses, Colombia isn't one of them.
The micro economics of Colombia really aren't all that good althought historically Colombia has an except credit history of meeting it's obligations. The Colombian government doesn't deliver well to the countries lower class masses and if organized by a popular leftist leader the balance of political power could swing further to the left. It should be no surprise to anyone to see a correction in the Colombian PESO and other foreign currencies, equity and fixed income markets.

Between now and the election the Colombian currency should stay in this same or a little wider range 2400-2700. If the Colombian currency gets much weaker (towards the higher end of this range) I would be a buyer of income producing Colombian assets (real property or fixed income (TES) bonds) because I think that the endangered currency in the world right now is the US dollar (over the longer term) unless the USA can stop the bleeding.

Any Colombian companies that are saddled with a lot of US dollar debt, the cost(s) of that debt service increased about 10% in PESO terms over the past few weeks. The largest privately owned telephone company in Colombia just issued US$170,000,000 of bonds less than 10 days ago and now the debt service for them since they were priced two weeks ago has increased 10% in PESO terms. If they had any equity it probably disappeared in two short weeks. If the PESO declines another 10% they will be in deep shit unless they are hedged. Everyone was lulled to sleep by the past two years of waking up to a stronger peso, lower interest rates, lower inflation but now the boat is rocking.

The interesting thing is that this correction has happened at a time when many SA countries have been refinancing their USA or other foreign currency debt (paying it off) by issuing their own local currency debt. This correction takes a little wind out of that sail.

I think interest rates in the USA are going up another 50 basis points maybe 100 basis points and that probability is taking it's toll on other currencies. How long it lasts before the USA dollar continues its retreat no one knows but probably not all that long.

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platano says on May 22, 2006, 22:37:

Viewpoint, it will probably take about one year... From the point of view of an innocent bystander...

the US economy, being based on credit-and-mortgages, is in for some rough going. In the near term there should be a near-hyperinflationary wave and then, as we enter winter, there will be a deflationary period of asset liquidation. Foreclosures will increase due to the number of people who have variable rate mortgages and can't keep up with the combined pressure of gas price increases and higher interest rates on their mortgages. I only hope it is not as ugly as Argentina was.

What all this means for the Colombian peso is a strengthening of the peso. It should arrive at below 2000 by June 2007. Just my opinion.

plátano

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platano says on May 22, 2006, 22:59:

Mario, Thank you for sharing what you wife said. I appreciate it. Saludos to her.

plátano

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viewpoint says on May 23, 2006, 04:19:

Platano As always I enjoy the information you share with us as it has always been on point and well thought out. The big difference between the peoples of Colombia and the USA is that for the most part the greater majority of Colombians are used to dealing with adversity and making the best of it on a daily basis (with no or little government assistance) but in the USA with its many federal "redistribution of wealth" programs there is a whole class of people that are able to avoid many of the adversities of an economy that doesn't touch (contribute to) their dining room table.

I still remember (over 25 years ago) Paul Volker stating that we was going to raise interest rates to combat inflation. Everyone thought maybe at maximum 2% but he raised them over time 12% (to 20%) and he killed inflation (and almost everything else). There are forces in motion now that will take interest rates higher for many reasons that are well beyond the control of governments to repair. The Jimmy Carter presidency almost took the USA to it's knees through incompetence and the Bush doctrine will be remember for taking the USA to it's knees fiscially.

You are right about the adjustable rate mortages and they are compounding the problem now by issuing interest only mortgages requiring no principal payments for 10-15 years. The (faceless) lenders will be the owners of the overpriced real estate in the overpriced areas of the USA. It won't take much of an increase in interest rates to bring the USA credit system into the "house of pain".

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Tinto (Moderator) says on May 23, 2006, 06:29:

Foreclosures galore I better pull an all-nighter soon and start paying attention to those Carlton Sheets infomercials. He tells me I can buy investment properties for NO MONEY DOWN and for PENNIES ON THE DOLLAR!



On a serious note, a high rate of foreclosures should not be much of a surprise. Pain has been predicted ever since the mortgage lenders starting writing them and ever since people flocked to coastal condo sales parties to buy another condo or three because they were sure to appreciate 30% in a year.

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lpdiver says on May 23, 2006, 06:29:

did anyone consider it might be an election based spike?

T

"cook some rice!"

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Gator says on May 23, 2006, 08:00:

Nope The Central Bank has been trying to strengthen the dollar for months. Anyone interested in Cartagena might keep an eye on the real estate market there-I would not buy in an unfinished building.

"SIC FRIATUR CRUSTUM DULCE. OBESA CANTAVIT."

"Credidi pretio parvo emere et magno vendere tibi in animo fuisse!" .

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viewpoint says on Jun 8, 2006, 14:28:

Colombian Stock Market Down 9% During the day the Colombian stock market was down 9%. There's blood in the streets. They killed the bull.

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viewpoint says on Jun 9, 2006, 08:21:

COLOMBIA
Following the overall global weakness in markets and under the
environment of global risk aversion the IGBC stock index plunged 9.4%
yesterday, (the worst performer among markets). The bearishness in the stock market that started since early May, exacerbated further
yesterday with strong deleveraging of equity positions. With yesterday's move the stock market eroded completely this year's gains. The COP was also hit hard yesterday following other Latam currencies and closed 1% weaker -- USD/COP 2525.

We expect the COP to continue to see strong volatility near term,
hovering at USD/COP 2450-2550. Lingering risk aversion would be the main risk to our new USD/COP 2400-year end forecast. Given our forecast for a 1.7% of GDP current account deficit, a decline in commodity prices poses further weakness risk to the peso.

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miamimike says on Jun 9, 2006, 09:46:

Surprises me no one speaks of China's Impact on the Colombian Economy and the resulting job losses from the massive chinese imports into Col. Yesterday the Bike Shop I go to in North Miami Beach has amongst their Mechanics, a Mechanic from Medellin. He related to me how in the past his family had a large Bike shop in Med where he fabricated custom frames but due to Chinese Imports he shuttered his doors a few years ago. He also told me other small Col business friends of his find themselves in the same boat. A serious problem according to him.I'm surprised posters here don't attribute more of Colombia's Financial Dilemma to China because as here in the USA, China exports to Col unfairly, that is, like the USD which floats its currency, so does Col, whereas China has its currency frozen at artifically unfair low exchange rates(I know they say they are floating it now but not really, its hardly budged so for all purposes its frozen)Soon more Col businesses go out of business due to these cheap chinese imports, more money, as here in the US, leaves the country. I wonder how much Col debt the Chinese hold at this time? As for us here in the USA, this massive debt for Col does not bode well long term.

My Avatar-- Sarah Palin Says " "You know the difference between a pit bull and a hockey mom?? Lipstick!" Now on a Short Verbal Tether by the Honorable John McCain

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viewpoint says on Jun 10, 2006, 05:36:

Yesterday I send to an electronics supply place in Panama City to buy some computer gear. I bought mouses, keyboards, splice cables, flat panel monitors. The mouses and keyboards were branded GE and while I was waiting to pay for them I looked at the packaging and all was made in China. Every item I purchased was made in China without exception.

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Gomezman5 says on Jun 10, 2006, 07:06:

China & Colombia's economy I am sort of surprised at how China is also affecting Colombia's econonmy in the way mentioned by Mike. I certainly believe what you are telling me Mike. But a question: Our production costs that much lower in China? After you take into account the costs to ship the items to Colombia, and you add in Colombia's rather high customs taxes, is it really that much less expensive than using the resources of Colombia's rather cheap labor costs? If that is the case, than Miamimike brings up a valid point.

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caulfield2 says on Jun 10, 2006, 08:21:

I just think China has such a huge advantage in technology now and cost efficiency that it can offset the transportation issues and tariffs.

I don't know about the hourly wage rates, but I think Colombia's might actually be higher than those of China. The other problem is that there is simply not an economy of scale to produce technology in Colombia, as there is a dearth of knowledge workers.

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caslug says on Jun 10, 2006, 16:42:

china and COL price differences As Mike said, China is holding it's Yuan artifically low, economist say it's between 30-40% low than i would be if it floated. So Chinese goods are that much cheaper. Internation shipping cost is very cheap, you can ship from China to COL a 40 ft container(about 40,000 lbs of goods) for about $600USD/container. What CAN make chinese(asian) goods MORE expensive in the buying country is Tariff/duties, some countries(USA) has very low tariff while others have high(COL). ANd that depends on the good.

I notice that electronic products are VERY expensive in foreign country that import them. COL or otherwise. I'm here in Vietnam, and i'm seeing electronic products(which are made in china) higher cost than I can find in the US. Similar situation that I found in COL. And VN is a poorer country than China/COL and is NEXT to china, yet price is higher than US, screwy huh!??

I'm doing lots of international trading between US and China/Vietnam, and it's funny. Those countries have high tariff AGAINST foriegn goods(especially consumer products), so our customer find creative ways of bringing it in. Point is every country has high tariff/duties against FOREIGN goods, so ALL consumer(outside of US) is always complaining of higher cost on imported items! ja, ja.. This is why sometimes I'm pissed that I can't get quality, cheap items that i'm used to getting in the US, when i'm overseas.

Stuff that are "manufactured" in the local country are always cheaper. Example, food, clothes, local cosmetic, local manufacture goods, etc., That's why you can buy cheap quality clothes in COL, yet can't find cheap quality electronic/computer parts.

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miamimike says on Jun 11, 2006, 01:37:

Gomezman Next Time you are in Bogota Check it out yourself Go to any mall or San Andresito and look at the merchandise. Finding something "Hecha de Col" is like searching for the Holy Grail! Shoes, T Shirts, Jeans, Underwear ect., all made in China and all the jobs also! I know when I first went to Col many years ago, lots of shoes, clothing, cookware was made within Col not so today and all that Money(most) goes back to China. Look at the currency exchange-tells the whole story! I really think Labor is much cheaper, when all benefits are factored in, in China. The lower china economic class is moving on up so how long it will stay that way is anyone's guess! Too bad about the Col Clothing and Shoes because Colombia made some Dynamite Women and Men's clothing, It riveled anything made in Italy! Funny about two weeks ago I was in our Neighb orhood Target Store and I saw some really nice Mens Sport Coats hanging on the rack, beleive the Brand they were sold under was Merino. First time in years I saw Col made Clothing in Miami(other then Ropa Interior para las mujeres)LOL

My Avatar-- Sarah Palin Says " "You know the difference between a pit bull and a hockey mom?? Lipstick!" Now on a Short Verbal Tether by the Honorable John McCain

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Dolfi says on Jun 12, 2006, 02:12:

Who can compete with slave labour?

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viewpoint says on Jun 12, 2006, 13:02:

BZ 16s: 95.25-96 things are getting pretty ugly, Colombia stock
index down 10.5%, record, they stopped trading, Bovespa is down
4.3%, Merval down 5%, spot is at 2.3120.

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Tinto (Moderator) says on Jun 12, 2006, 13:11:

Economists like to try and forecast the "wealth effect" that household equity and stock equity has on the purchasing patterns of people. It will forever be an imprecise task but I imaine the stock market tumble plus rising interest rates could have negative consequences for pockets of the Colombian housing market.

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utopiacowboy says on Jun 12, 2006, 16:14:

There's blood in the streets of all the Third World markets. When the global recession comes and it is coming, the nations that deal in commodities and have been riding high are going to be brought low. Very low. At least I'm hoping for a brutal recession that wrings these excesses out.

Disclaimer: any comment I make is inane and is not to be taken seriously, and is so patently ridiculous that no one should take it seriously, even as an insult.

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Rubiazo says on Jun 12, 2006, 23:28:

I think that if there is a global recession the USA will be the hardest nation hit. And frankly, it fucking deserves it!

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aztec says on Jun 13, 2006, 02:41:

"that if there is a global recession the USA will be the hardest nation hit. And frankly, it fucking deserves it!" Rubiazo

WHY?

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caulfield2 says on Jun 13, 2006, 05:47:

Everyone knows there is another housing bubble developing in the United States, fueled by those buying houses for investment purposes with ARMs and Interest-Only Loans. When the tide turns the other way, things are going to get really ugly.

We also know that a large percentage of US debt is owned by foreign countries, banks and individual investors...as well as the fact that the average credit card balance for American families is now somewhere between $10-15,000.

Eventually, the whole house of cards is going to start collapsing...which is going to scare the heck out of Baby Boomers in the process of retiring but might be the best thing to ever happen to those born in the late 70's and 80's who have really only experienced the recession of the early 90's and then the stock market collapse of 2000-2002 in the Nasdaq.

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viewpoint says on Jun 13, 2006, 06:48:

RUBIAZO The rest of the world better pray there is no serious recession in the USA as it's economy is the economic engine (of consumtion) of the world (today).

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viewpoint says on Jun 13, 2006, 06:56:

COLOMBIA:
The local market continued to be under pressure yesterday driven by
the equity market, which dropped 10% intra-day, prompting the BVC exchange to suspend trading. The sharp correction in the stock market, which trades around US$40-50 million daily, continued on the back of position deleveraging, which has accelerated through May pushing another round of sell-off. Alongside the bearish tone in the equity market, nominal rates continue to drift higher,
with the 15-year TES benchmark rising 16bp to close at 9.93%.

Meanwhile the COP continued to weaken giving up part of last week's gains, reaching an intra-day high of USD/COP 2,549, although it closed a bit stronger at 2,543. In our view, it still early to call the end of market volatility and further downside due to position squaring in the TES rates and equity markets is likely.

The central bank announced yesterday it would postpone its policy
meeting from this Friday to next Tuesday (June 20). The explanation given by the central bank was that Finance Minister Carrasquilla could not attend the meeting scheduled for this week. Separately, the BanRep's monthly CPI inflation survey released yesterday showed 2006 year-end CPI inflation expectations remaining still well within this year's 4-5% inflation target, but one-year-ahead expectations still in the upper range of next year's 3-4.5% target range. Market
inflation expectation for end-2006 came down to 4.19%,and one-year-ahead inflation expectations down to 4.17%. XXXX expects the BanRep to hike rates by 25bp next week to 6.5%, as part of its preemptive rate normalization process in order to avoid inflation pressure build-up, which could compromise the central bank's long term 2-4% CPI inflation target range.

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Rubiazo says on Jun 13, 2006, 10:10:

The US hasn't caught a cold yet though so I'd say YOUR ass doesn't know what it's talking about.

And besides, i DID say Colombia was in danger for that. That is one of the reasons i don't like that free trade agreement, it makes Colombia too vulnerable to a potential American economic collapse.

And the dollar is NOT skyrocketing across the board, it is still weak as hell vs other currencies! It closed yesterday around 2.29 BRL 1.10 CAD and 1.25 EUR.

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ronaldo says on Jun 13, 2006, 10:23:

LABOR COST IN CHINA You can hire production labor in China for .03 cents an hour. You do the math.

Ronaldo.

Ronaldo

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ronaldo says on Jun 13, 2006, 10:33:

MORTGAGE PROFITIBILITY FOR LENDERS I would like to have some of these overpriced real estate you are talking about that the lenders (banks) will be holding when they are forclosed on. No big deal for the lenders (banks) as they will get them for nothing, so it does not matter what price they are. If they forclose on a $300,000 mortgaged house and sell it for $150,000 they will not lose $150,000, but to the contrary they will still make $150,000 on the deal. Is this a great business, or what?????

Ronaldo.

Ronaldo

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ronaldo says on Jun 13, 2006, 10:41:

WHO SAYS THAT WE ENDED SLAVERY Sorry to inform you but we never ended slavery, we just deregulated it. Today we have "volentary slavery" by virture of credit, by a bunch of dummed down people who are chasing "the good life" with as little as possible
thought or work and not enough intelligence to know why they are still slaves.

Ronaldo.

Ronaldo

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