The black Monday of August 12 already left its mark on Argentine history. The reason is well known to all, but it should be noted: the notable rise in the dollar and the most important fall in the actions in a single day. It was 48% in dollars. Nothing less.
This triple telluric movement of devaluation, increase in Country Risk and remarking of prices due to financial stress, which only needed an excuse to occur, will severely impact the productive economy. We will see it in the coming weeks.
Today we are going to analyze with a zoom the misinterpretations that many specialists made of the debacle. “The market does not want this candidate”, “the market wants another”, “the market is afraid of a change of driving” are some of those readings we question.
We will present our arguments to demonstrate that the collapse of Monday does not respond to “feelings” or “favoritism” of the market but to the horizon of uncertainty that appears for the short term.
Let’s start with some important definitions:
Who makes up “the market”
The word comes from the Latin Mercatus, which has its origins in the verb mercari (buy) and merx (merchandise). It is also linked to Mercury (god of commerce) and shares roots with terms such as merchandise or mercenary.
In economics, the market is usually defined as “a physical or virtual enclosure where suppliers and demanders of a good or service come together to interact with each other”.
In the classification of market types, it is common in economic sciences to propose the possible existence of a market of perfect competition, where no particular agent can influence the price of the good or service and, both sellers and buyers, He calls them “price-acceptors” because they cannot manipulate the values.
This description reflects an ideal situation rather than a real one. The probability that it occurs, in reality, is highly unlikely. However, the theory allows us to analyze the critical local situation and observe that the opposite of perfect competition occurs.
In Argentina, there is a financial oligopoly made up of a handful of agents (companies and individuals) that, due to their large size and strength, can decisively influence asset prices, destroying the liberal dream of building a market consisting of a sum of wills that act transparently and without communication with each other to modify values at ease and piacere.
That said, we can risk an alternative definition of “market”: it would be a homogeneous group made up of investment banks, hedge funds and other relevant financial institutions that, from their home country and using their almost unlimited capital as a catapult, seek to influence in peripheral countries for their benefit.
So who does the market want?
Let’s start at the end: the market doesn’t want anyone. This is because the market has no emotions. Therefore, he does not hate anyone either.
We are talking about a universe of pure interests, where the only thing that matters is the expected return based on the assumed risk.
The thesis that the market “wants” the current driving and “hates” the previous one does not hold from the quantitative: if we take the performance of the Merval in any of the cycles in which the party that now appears like the one that governed greater chances of assuming political power and we compare it with the performance of the stock index in the three and a half years of Macri in the Casa Rosada, the results measured in pesos are overwhelming: in the periods 25/5 / 2003-10 / 12 / 2007 there was an increase of 238%, while between 10/12 / 2007-10 / 12/2015 the increase was 493% (in 8 years), while the government of Cambiemos can only show an improvement of 132% with inflation higher than in previous years.
Measured in dollars, the result is even more favorable to the previous driving due to devaluations at the end of 2015, much of 2018 and the current one.
The market does not love or hate. It is true that in the discursive most of its most important and influential actors turn their ideology and talk about their preferences, but here, as in other areas, there is a huge distance between what is said and what is done.
The only thing that moves the market is the expectations of obtaining a return that justifies the risk of the investment (or reading about the possible risk of an investment, to be more precise).
The risk/return ratio becomes difficult to calculate in these moments of political uncertainty, so many prefer to leave the market waiting for clearer signals, those that should arrive averaging September.
Investors who follow market movements will continue to look forward to the best time to buy. They don’t like to play the hero. Come very high to the risk. Otherwise, how to explain, for example, that a state bond that expires next year (Bonar 2020) pays a prize more than 30 times higher than a similar bond issued by the US Treasury.