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Rolly


Jan 8, 2003, 4:29 PM

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¿Where is the Peso going?

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Any thoughts on the continuing decline of the peso?

Rolly Pirate



Esteban

Jan 9, 2003, 1:21 PM

Post #2 of 23 (6327 views)

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Re: [Rolly] ¿Where is the Peso going?

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I'd guess that the peso follows the dollar. The dollar is declining rapidly and so goes the peso. However, the price of my cooking gas has gone up considerably. Wages are going up as well as everything else. The US has vowed to keep the dollar from deflation so is blantantly doing the simplest thing....printing more and more money.


lin robinson

Jan 9, 2003, 2:46 PM

Post #3 of 23 (6242 views)

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Re: [Rolly] ¿Where is the Peso going?

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The peso is long due for devalutation, but is being propped up (the retreat covered might be a better image) by the Mexican government. The Mexican economy might be inextricably connect to the U.S. (whose isn't?) but the price of money has nothing to do with that--as note the long term dive of both the peso and the Canadian dollar vs the US buck.
The peso is very probably something like the San Andreas fault...everybody knows it will blow, but have given up being nervous about it. There is some sort of chance that bank reform and bailouts could keep if from a serious tanking, but it will be a long shot. (Remember that the peso has gone, essentiall from 500-1 to 10,000-1 since the mid-eighties.)


scott

Jan 9, 2003, 6:41 PM

Post #4 of 23 (6166 views)

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Re: [lin robinson] ¿Where is the Peso going?

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Right now the peso is going down by itself. $1 CDN was 6.71 pesos when I checked this afternoon. That is very favourable for us, it was as low as 6.1 a few months ago. I don't know anything about economics, but I'm thinking the peso must be over valued and that is why everything seems so expensive here for us Canadians. Either that or our dollar is way lower than it should be. Most likely a bit of both??



Either way I'm very happy to see the costs of living here in Mexico going down a little.

So how long until we're welcome in Baja?


ET

Jan 11, 2003, 11:44 AM

Post #5 of 23 (6050 views)

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Re: [Esteban] ¿Where is the Peso going?

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Estaban writes:
I'd guess that the peso follows the dollar. The dollar is declining rapidly and so goes the peso....


What metric are you using as the basis for your statement "the dollar is declining rapidly"?


dmx

Jan 11, 2003, 3:52 PM

Post #6 of 23 (6018 views)

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Re: [Rolly] ¿Where is the Peso going?

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I have always thought that the peso was overvalued. It is now at the lowest point in about 360 days. Before the end of the year economists in Mexico were saying the drop was simply an"end of the year" thing and it would return to stronger levels. Looks like they were wrong.


lin robinson

Jan 17, 2003, 11:20 AM

Post #7 of 23 (5866 views)

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Re: [scott] ¿Where is the Peso going?

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I agree Scott. The tendency to evaluate the peso in terms of the allmight dollar is shortsighted and a little cultural/myopic, I think. Mexicans suffer from this a LOT, being so obsessed with exchange rates as though all tipo changes suddenly make their beans or rent go up and reflect some sort of divine value on their money. Gringos, of course, tend to see the peso in terms of our buying power (I sure as hell do) but also to over-estimate the effects of the $ on the peso.


scott

Jan 17, 2003, 12:20 PM

Post #8 of 23 (5830 views)

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Re: [lin robinson] ¿Where is the Peso going?

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Live mid-market rates as of 2003.01.17 20:14:15 GMT.

1.00 CAD Canada Dollars = 6.92067 MXN Mexico Pesos

This is exchange rate is crazy. When I was here in November, 1 year ago, ScotiaBank gave me something like 5.75 pesos / dollar. I probably paid a premium for exchanging cash at a branch, but anyways this is quite a difference, isn't it?

Will this start to cause inflation here in Mexico? I don't know much about economics, but I suppose that if it starts costing more to import those electronics from abroad, because the peso is so low, then that cost will just be passed on to the consumers. ?


lin robinson

Jan 17, 2003, 7:35 PM

Post #9 of 23 (5770 views)

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Re: [scott] ¿Where is the Peso going?

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Don't know About electronics...how is the peso against the Yen?
Hopefully the rise in cost of foreign goods will be offset by two factors--increased tourism and investment due to cheaper prices, and a sort of "undeclared tariff" effect which makes domestic goods more attractive than North American goods.


sparks

Jan 17, 2003, 7:39 PM

Post #10 of 23 (5775 views)

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Re: [lin robinson] ¿Where is the Peso going?

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Looked like 10.61 today. Makes those Billions sent back home from up north much more valuable.


Brad.

Jan 18, 2003, 12:23 PM

Post #11 of 23 (5704 views)

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Re: [scott] ¿Where is the Peso going?

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In Reply To

Either way I'm very happy to see the costs of living here in Mexico going down a little.


I think you mean the cost of living for those whose income is in a currency other than the peso. The cost of living for those who earn pesos will rise as the peso loses strength. Consumer electronics aren't the only imports in this country. Many essential items are imported and their higher costs will fuel inflation.

All dollar-denominated debt will become more expensive and corporations will pass this increase on to the consumer. Interest rates usually rise as the peso drops, credit will get tighter and this will add more inflationary pressure.


dmx

Jan 18, 2003, 12:34 PM

Post #12 of 23 (5714 views)

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Re: [lin robinson] ¿Where is the Peso going?

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I have to disagrre with Lin. It has nothing to do with being myopic. Mexico is a country that has to import a lot of goods, especially anything that resembles high tech. These items are priced in US bucks. If an engineering firm needs some specialised software it will cost more as the peso devaluates. Farmers and livestock o[perations also suffer. Much of the feritlizers and herbicides are either US produced or the producer in Mexico pays a fee in US dollars. Thus even local produce can increase in price. Remember Mexico is a third world country without much local industry. If the peso drops in relationship to the USA dollar then goods increase in price. Many exporters price their goods in US dollars regardless of the country of origin. All the US consulting firms charge in good old yankee dollars. I could go on.


tomgibbs

Jan 18, 2003, 1:59 PM

Post #13 of 23 (5708 views)

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Re: [dmx] ¿Where is the Peso going?

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Are wages increasing at the grass roots, as well? If they don't then, I would think, the poor and middle class will get caught in even a tighter pinch between limited income and rising prices for imported finished goods. This condition accompanied by failed optimism of Mexican-USA policy could fuel more outbreaks of nationalism, both politically and culturally.

One tempering economic condition is that the 3rd largest form of Mexican income, immigrant money sent home is pegged to dollars, and thus increased in value. being 3rd, I assume, must make it larger than the value of Mexican exports. The bugaboo here is that this money is not evenly distributed throughout the country, as certain states are more highly represented than other (i.e. Zacatecas - high <> Chiapas - low). However, in total, it is slanted heavily toward the poor and under educated parts of society. This is a most efficient form of foreign; however, distribution is very unequal even in a single community. One family with a lot of sons who fled north could be relatively well off, in contrast to their neighbor who, believing in his country, played by the rules, and encouraged his children to think locally.

A college educated friend in southern Chiapas told me by phone last week that it was very sad, many young educated friends are not able to get jobs and are driving taxi or minding tiendas and such. Whether patience and understanding will continue to contain rising expectations, I couldn't guess. I do know that one of the first things that money from el norte buys is a TV, and the first thing it does is to show someone what they don't have and can't get. I'd love to know what people who watch TV actually think. Are they following the plot, or are they counting the cosas in the background?

I would be curious how the dropping peso will play out in the real estate area over a year or two. Are tourists area real estate prices rising, holding, or falling in peso value? And in non-tourists areas, what's happening?


obe

Jan 18, 2003, 3:08 PM

Post #14 of 23 (5704 views)

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Re: To Gringo`s what is the diff ????

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You mention that the peso has gone from 500 to 1 to 10,000 to 1. that doesn`t mean that an item that was $ 1 when it was 500 to 1 now cost 5 cents. when it was 500 to 1 I was paying $15 for the same hotel rm that now costs $ 75. In my oppinion { maybe a little over simplified } is to say that in the SHORT run you may save a few Dollars when the peso goes down BUT in the mid term the prices will go up, and it will cost you the same or a little more in DOLLARS

dollars,dollars and dollars is the KEY


scott

Jan 23, 2003, 1:59 AM

Post #15 of 23 (5561 views)

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7.077 Pesos / 1 Canadian Dollar

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This exchange rate seems exceptionally good. I am wondering why there is not more interest on these forums regarding this issue. As I think I suggested before, perhaps its the Canadian Dollar going up while the peso is going down. For Americans the difference might not be as pronounced. But I'm serious, this is nearly 1 full peso extra for every measly Canadian dollar. For every three dollars I take out, I can get a free can of Pepsi. This is based on 6.1, which is what we were getting earlier this year.


(This post was edited by scott on Jan 23, 2003, 2:02 AM)


esperanza

Jan 23, 2003, 6:26 AM

Post #16 of 23 (5548 views)

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Re: [scott] 7.077 Pesos / 1 Canadian Dollar

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Scott, the 'good news' for you may not be the best of news for everyone. Clearly the value of the peso is falling as compared with both the Canadian and the US dollar. But how is that good news for Mexico? While you mention that you're able to acquire a 'free' can of Pepsi with the difference in the current tipo de cambio, the daily minimum wage in Mexico increased on January 1...but not enough to buy even an extra kilo of tortillas a day. Your attitude smacks of 'let them eat cake'. (That's Marie Antoinette, by the way, and she said it before you were born.)

http://www.mexicocooks.typepad.com









Michael D

Jan 23, 2003, 10:44 AM

Post #17 of 23 (5482 views)

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Re: [esperanza] 7.077 Pesos / 1 Canadian Dollar

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Surprised at your comment re Cake. The poster was sympathetic to Mexico. Read the post before firing at friends that Mexico needs!!!!.


pau

Jan 23, 2003, 11:29 AM

Post #18 of 23 (5463 views)

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Re: [esperanza] 7.077 Pesos / 1 Canadian Dollar

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First, do not want to take side in this discussion. The peso 's devaluation against the US or the Cadadian dollar can only be good news for Mexico, tradewise. It will make goods produced in Mexico more competitive against those made in Canada as well as China. Simple minded view, more goods exported from Mexico, more jobs for Mexican. Naturally, the other side of the equation, prices for imports, would negate some or all of the benefits of a lowered currency.


dmx

Jan 23, 2003, 5:37 PM

Post #19 of 23 (5407 views)

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Re: [pau] 7.077 Pesos / 1 Canadian Dollar

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Pau: You should do some studying on currency values begore making comments. You are only partially correct. It will help some exports, But hurt a lot of other mfrs. Mexico is a third world non technical country. Most technology is imported and p[aid for in USA dollars. Therefore the weaker the currency the harder it is on the Mfr. The same holds true for the agriculture industry, as they import herbicides and ferilizers. In most cases a weak currency will help to a certain point and after that becomes inflationary. Mexico imports a lot of goods. Most of these goods cannot and will not ever be produced in Mexico. They will now cost more money.


esperanza

Jan 23, 2003, 6:35 PM

Post #20 of 23 (5400 views)

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Re: [dmx] 7.077 Pesos / 1 Canadian Dollar

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Thanks, DMX...my point exactly. The person on the street in Mexico feels the crunch when the peso is devalued; they call it 'devalued' for a reason.

http://www.mexicocooks.typepad.com









pau

Jan 23, 2003, 7:21 PM

Post #21 of 23 (5388 views)

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Re: [dmx] 7.077 Pesos / 1 Canadian Dollar

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If you will re-read my message, you will see that I also talked about the other side of the equation at the end. Was it not what you commented on?
Currency devaluation was not necessarily all bad. It really depended on how the government/country reacts to the challenge. Did not the US dollar devalued when the US was flooded with Japanese imports and the country was in recession. Look at what happened to the US economy afterwards.
From what I understand, Mexico right now has an unemployment problem. It is also competing with Canda for exports to the US under NAFTA. China is getting to be a big problem for Mexico for luring factories in Mexico to relocate. So, why isn't a lowered peso helpful? Sure it is terrible for the poor. But is a steady peso and no jobs better?
Just my layman's view.


Brad.

Jan 23, 2003, 9:07 PM

Post #22 of 23 (5392 views)

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Re: [pau] 7.077 Pesos / 1 Canadian Dollar

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Pau, I'm not in favor of devaluations either but you do make some valid points. If the currency becomes too strong it will eventually lead to an unmanageable trade imbalance and larger current account deficit and after awhile the government's dollar reserves become depleted. If they drop to a low enough level it leads to the catastrophic devaluations that everyone here remembers all too well. The large devaluations of the past have always done far more harm than good...hyper-inflation, high unemployment and defaulting on bank loans etc. Fobaproa is a great example.

The current slide has so far been held to a minimum without any overt intervention by Banco de Mexico, they did boost the corto a little last week with the hopes of slowing it down a little. Also foreign reserves are still very healthy, the high oil prices are keeping the coffers full and helping to offset the loss of other exports.

Hopefully there won't be another large devaluation like in the past. By my figures it has lost 20% against the dollar since the end of March 2002 and hopefully that will be enough for awhile. They have already revised upward their inflation target for the year ansd it is still far, far lower than what for many years was a normal level. Maybe if the peso levels off somewhere between 10.50 and 11.00 it will help boost the export segment but still keep inflation levels acceptable. And Scott still gets to add another Pepsi to his budget.


(This post was edited by Brad. on Jan 23, 2003, 9:12 PM)


tomgibbs

Jan 31, 2003, 8:11 AM

Post #23 of 23 (5324 views)

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Re: [Rolly] ¿Where is the Peso going?

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It mentions 28 day bonds, are there actually 28 day bonds available for purchase?


January 31, 2003 With Mexican Peso Falling, Officials Search for AnswersBy ELISABETH MALKIN



EXICO CITY, Jan. 30 — The Mexican peso is falling, and no one seems to be able to say exactly why, or to do much to slow its fall.

Late this afternoon, the peso was trading at 10.94 to the dollar, down 5 percent in January alone and more than 17 percent from its high of 9 to the dollar last April. It has fallen even more steeply against the euro.

In a sign that investors are worried about further deterioration, the yield on a benchmark Mexican government bond, the 28-day Treasury certificate, has jumped to 9.08 percent this week from 6.98 percent at the end of December.

Government officials and most private analysts say the trend must have little if anything to do with conditions in Mexico, because those conditions are positive at the moment. Foreign-exchange reserves are at a high of more than $48 billion, high world oil prices are pouring dollars into government coffers and the country is having no trouble financing its current account deficit.

Guillermo Ortiz, governor of the Bank of Mexico, declared this week that much of the fall in the peso was speculative, driven by global uncertainty over a war against Iraq and the slow pace of the American economic recovery. "The bank is only worried about the volatility in the financial markets and the exchange rate's depreciation in as far as they have an effect on inflation," he said on Wednesday.

The fall in the peso raises the prices of imported goods, and that could prompt workers to demand higher wages to make up for lost purchasing power, perhaps touching off an inflationary spiral that Mr. Ortiz wants to avoid. On the other hand, it benefits exporters, whose goods become more competitive abroad, and many exporters complained last year that the peso was too high.

Mr. Ortiz has suggested in recent interviews that the bank is ready to intervene directly in the foreign exchange market to stop the slide. He backed away a bit from that idea on Wednesday but did not rule it out.

"The bank will use all the instruments at its disposal to try to reduce the impact of this volatility," he said. Direct intervention seems unlikely for now. A decision to buy pesos in the market would have to be made by a six-member commission, with the finance minister, Francisco Gil Díaz, having the deciding vote; he opposes intervention.

"The government does not want to use this instrument yet," said Hector Chávez, chief economist at Banco Santander Serfin in Mexico City. "They think the worst is yet to come."

That leaves Mr. Ortiz with the option of raising interest rates, making government bonds and other debt securities more attractive for foreign investors to buy. To do that, the central bank uses a mechanism called the corto, which limits liquidity in the banking system; it has done so twice in recent months.

But high interest rates choke off economic growth. The government expects growth of just 3 percent this year, an improvement over the estimated 1.1 percent growth of 2002 but too slow to create many new jobs.

Still, in Mr. Chávez's view, tighter credit may do less harm than a falling peso. "What is more dangerous, inflation or delaying growth a bit?" he said. "If high interest rates remain for a few weeks, then there's a small impact on the economy. But if the exchange rate remains at 11, then people will start factoring that into their inflation expectations."
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