Latin America joins Bretton Woods 2 (Big Time)
Latin America may not think much of W (or the US — more here), but they seem to have no problem financing W’s Treasury.
I previously have mentioned that Brazil’s reserves increased by close to $25b in the first quarter. Nothing much has changed. Brazil added another $2b to its reserves last week.
Brazil isn’t alone. Argentina added $4.8b to its reserves in the first quarter. There are rumors (denied) that Colombia is considering soft capital controls to limit the peso’s appreciation. The central bank certainly has been active: it apparently bought about $3.9b in the first quarter to try to hold the peso down (more here). Even Peru is joining the game. It has bought over $500 million so far in April to try to limit the sol’s appreciation.
Compared to China’s reserve growth, these are fairly small numbers. But they are big for Latin America. They add up.
Right now, the world’s private investors want to finance current account deficits in the emerging world – not the United States’ current account deficit. Not that the US equity market cares.
Why should it when central banks in the emerging world are still willing to turn private flows looking for yield into demand for low-yielding US Treasuries?
What is this trading tips thing here? Advertisement?
yes, an ad.
Damn, I thought you guys had some special insight on what stocks the People’s Investment Corp was gonna buy….
i wish …
China’s Economy Surges at Faster-Than-Forecast 11.1% http://bloomberg.com/apps/news?pid=20601089&sid=afoWaw5gretI - Inflation accelerated to 3.3 percent, the fastest pace in more than two years, and breached the central bank’s 3 percent target for the year.
Volatility Management in a Complacent World http://www.informationarbitrage.com/2007/04/volatility_mana.html - So where we are today is at a time when the costs of insurance are both relatively and absolutely low yet the urge is for investors to sell it, not buy it. Because short-term performance considerations (which directly drive most fund managers’ compensation, as well as the ability to gather additional assets to manage) can often drive sub-optimal portfolio decisions. And this is certainly not good for fund investors. And it is at times like these when the smart, savvy, long-term oriented managers with an appreciation for history take a contrarian position. And I might wager that this is precisely what is happening. We’ll see the wheat separated from the chaff in short order. Just wait and see.
I haven’t got the slightest idea what you boys are talking about
As for Latin American countries accumulating reserves, it does make some sense for the USD is still the regional anchor, inevitable dollar depreciation aside. FX is piling up mostly due to carry trades and rises in the prices of commodities–which these countries are abundant in. What is “haircut” in Spanish and Portugese?
Not an expert in Latin American affairs, but I do know that the US dollar is currently used to intermediate imports and exports between Brazil and Argentina. There are plans to gradually reduce the role of the US Dollar in Latin American economies. Dollar hegemony is only a problem because the US has totally abused the global reserve currency status by running massive budget and trade deficits. Venezuela, Brazil and Argentina are ruled by leftwing governments, but the days of the CIA backed “coup d’ etat” are clearly over. With booming sales of commodities to the Chinese, the rising economies of Latin America are improving the standards of living for the entire region. And most importantly, my shares in 70% state-owned Petrobras Brazil have zoomed much higher in the past month. The vast Amazon has potential for even more 10 billion barrel reserves, like the light crude oil deposit discovered earlier last month.
Two Chinese companies will sign a deal with a Saudi company to invest in a $4 billion aluminum plant by the Red Sea, in another sign of Beijing’s growing ties with Riyadh.