Argentineans Find BMWs, Bitcoin and Gold as Inflation Hedges

The Argentine Peso continues to massively devalue to the point that they have become symptoms of hyperinflation. 

In barely a few days the peso has sunk to its weakest level ever at 10.45 pesos vis-à-vis the US dollar. As of last week, the implied annual rate of inflation, based on 9.87 pesos/USD, is at 98.7% as estimated by Cato’s Steve Hanke. In short, the peso fell by whopping 5.9% in less than a week. 

Yet Argentines don’t just hold cash and see their savings erode, they have sought refuge partly through purchases of luxury cars.

From the Bloomberg:

Argentines are buying more BMWs, Jaguars and other luxury cars as a store of value as inflation decimates their deposits and pummels the nation’s bonds.

Purchases of cars from Germany’s Bayerische Motoren Werke AG (BMW) and Jaguar Land Rover Automotive Plc, owned by India’s Tata Motors Ltd. (TTMT), jumped the most in April among brands sold in Argentina. The sales were part of a 30 percent surge in car sales from a year earlier that was the biggest increase in 20 months, according to the Argentine Car Producers Association. While used-car prices rose in line with inflation last year, or about 25 percent, peso bonds tied to consumer prices fell 13 percent. The drop was the biggest in emerging markets.

Car sales in Argentina increased by the most in almost two years last month as a ban on buying dollars made Argentines turn to vehicles to protect savings against the fastest inflation in the Western Hemisphere after Venezuela. Luxury models are becoming more attractive because they are imported at the official dollar rate, said Gonzalo Dalmasso, vehicle industry analyst at Buenos Aires research company Abeceb.com. Argentines with savings in dollars are able to purchase cars at half the cost by trading in the unofficial currency market.

It is not clear how the operations of these high end car merchants remain viable considering the wide disparity between currency rates from which such trade has been conducted. The blackmarket rate is nearly about 50% below the official rate, this should translate to significant economic losses for these firms.

On the other hand, used car sellers appear to be losing money as selling prices has only been expanding at the statistical inflation rate of 25% when real inflation rate has been above 90%. 

The unevenness of returns suggests of something fishy behind the surge in luxury car sales.

Though barter has reportedly been one of the options taken by these firms. From the same article:

The decree prompted BMW to export rice and Porsche Automobil Holding SE to begin exporting olives and Malbec red wine. Shizuoka Subaru Motor Co. agreed to export chicken feed, Hyundai Motor Co. began sending soy flour to Vietnam and Mitsubishi Motors Corp. (7211) started shipping peanuts.

These reports are really questionable.

Rather I suspect that these luxury car dealers are cronies or political allies, who are subsidized by Argentina’s politicians through the government. In turn, Argentina’s political elites and their allies could have been the major buyers of these high end cars.

In short, subsidies to exotic car traders are really transfers or subsidies to the political class and their cronies in disguise.

Yet the average Argentinean seeks gold and bitcoins as refuge.

More from the same article:

Argentines are buying cars, gold and even virtual currency such as bitcoin as they look for ways to preserve their savings as the peso is forecast to fall 17 percent this year.

It's pretty obvious that Argentina has gone into a debt default route via inflation. Again from the same article:

Argentina’s dollar-denominated bonds aren’t a better alternative as a U.S. legal dispute on repayment of the nation’s defaulted debt caused average yields to soar to 13.92 percent, almost three times the average in emerging markets, according to JPMorgan Chase & Co.

The notes have plunged 10 percent his year.

The rate banks pay for 30-day deposits of more than 1 million pesos was 15.38 percent on May 10….

The cost to insure Argentine debt against default within the next five years through credit default swaps rose 107 basis points to 2,770 basis points, according to data compiled by CMA Ltd.

While inflation and a gap in the exchange rates is fueling sales, the same reasons are also deterring investment in the car industry, said Cristiano Rattazzi, President of Fiat Auto Argentina SA.

See what I mean? The gap in inflation and exchange rate has simply not been consistent with soaring sales for the toys for wealthy class unless they have been subsidized. 

Unfortunately for the political elites, when hyperinflation will hit critical levels enough to spur social violent unrest, these luxury cars will easily become objects of agitation and consequently will be transformed into junk.