Chingo De Dinero

If you want to make a lot of money in the short term, bet against the Argentinian Peso.

Here is why….

• The country is pretty much socialistic in spite of the mass privatization wave recently.

• One of the main drivers of government revenue, tax on agriculture is going to get hurt very badly with the reduction in grain prices.

• The last default is hanging over their heads, so getting financing for the government is pretty much impossible.

• The government has been spending some of its accumulated reserves defending the currency so far.

All these added up show signs that something will have to happen over the medium term.  In the short, you can see the action to try to take over pension funds as a sign the government is getting desperate for funds.  If this does not work, when revenue from agriculture taxes do not come in, the government will have no choice but to default.  I hate this happens, but if you spend more than you make, eventually you will have to face up to the consequences.

The wildcard for me right now is Venezuela…they are closely aligned, but my guess is will falling oil prices, Venezuela has its own problems, and will have to let its friend fight for itself.

Also, will the IMF step in.  Many South American countries are not the happiest with the IMF, Argentina in particular after the privatization wave, but if they do not come in to help, I have no idea what will happen.

There has already been depreciation in the currency vs the dollar, although not as bad a Brazil, which leads me to think without government support, it would be much worse.  Once the government is not able to support the currency, get ready for a quick and far fall!!!

If you have looked at the currency markets lately, it looks like the Dollar and Yen are really kicking butt.  In all honesty, the actions the US Government are taking to help the economy is nothing more than printing money, and putting it in business’s pockets.  That being said, why is the dollar not getting slammed.  I guess it all comes down to relativity.  Although the US is in the dumps, Europe is worse off.  You do not know how happy I am to see this after the last few years of an appreciating Euro.

All that being said, who is doing even better is the Yen.  For years, the government has been keeping it artificially low, which reduces consumption and helps increase production (imports cost more exports are cheaper).  It is almost as if the company has been saving in some roundabout way.  If the government lets the Yen keep appreciating, it will be interesting to see how strong it gets.  Once that happens, there could be some major purchases coming for foreign companies.

Additionally, I keep wondering where China is in all of this.  The Yuan has been pretty steady for a while, after appreciating after the government let it float (somewhat float).  We hear so much about the dollar reserves and the government messing around in the markets…I wonder if they truely let it float, what it would do.  My guess is appreciate like crazy.  Even if they don’t let it appreciate vs the dollar, we are bound to see it stay the same.

All this being said, if you can figure out how to play it you could make a lot of money.  For me, I am looking for cash heavy businesses, trading at low valuations, which will not be majorly impacts if the world economy gets hurt.  This may seem like difficult criteria, but from what I see Chinese online gaming stocks fit this.

Maybe they won’t save the world, but they could sure help the economy.  First, let me start with what they are, HSA are a tax free savings account which can be used to pay for medical related cost.  High Deductible Health Plans are just like regular insurance, except much cheaper and with a higher deductible.  Using the two together, you can control the cost of insurance without sacrificing care.

Let me explain in a little more detail…the idea of health insurance is to protect you from the high cost of low occurrence activities, sure as a coma, or life threatening disease.  But, because typical insurance has low deductibles, many people use it to pay for normal doctor visits, or prescription drugs that they do not necessarily need (fun debate to have with people who use them).  It also removes the cost of not taking care of ones self, which commonly leads to diabetes, which is extremely expensive.  Before I get too far off subject, all of these little cost, and lack of effort of people to stay in shape has lead to more use of the medical system, which has increased cost.  Because people are pooled together, they do not pay cost directly, so there is little individual incentive to take corrective action.

To fix this, the government has allowed for Health Savings accounts.  If a person wants to take responsibility for their health, is willing to pay for the low cost doctor visits or prescription drugs, and wants coverage for the high cost low occurrence accidents this is perfect.  How it works is you and your employer pay your respective portions for health insurance…but unlike typical insurance, not all of it goes to premiums.  Because of the High Deductible insurance, premiums are less (this is because it does not pay for many of the low dollar items which make up a large portion of typical insurance claims).  The savings from the low premiums is then deposited into a Health Savings Account, which can be used to pay for the low dollar items.  Any dollars left over roll from year to year, and can be used for anything although a penalty is levied if not used for health cost.

This situation produces a very favorable outcome, people take responsibility for their health, use less of the low cost items which add up to be a majority of health cost, and are insured for any high cost health issue.  Wow, people will be healthier and the cost will go down.  It is amazing what happens when people are given responsibility for their actions.

We are what we are, humans act how they act, right or wrong, there is no reason to be idealistic and think people will change.  We are selfish and do what is best for us.

Everyone talks about inflation and slowing growth.  Well unless we have stagflation, which has always gone with commodity price growth, we are ready for some deflation.  At least that is the side I am on.  Oil is down, Copper is down, signs of decreased consumption is being shown.  This could be complicated if lending dries up, which could mean few loans for businesses and less production.  But, I doubt this is going to happen.  My prediction, minor deflation in the near future, then strong growth following.  Who knows what the fed will do, but for sure, it will affect the timing of the two.

I am not sure if this has changed over the years, but it seems like more lending is going to consumers and more deposits are coming from businesses.  This can be seen in the large amount of mortgages out there and the relative stregnth in corporate balance sheets.   If anyone has particular information, let me know.