5/17/2024 - Economy and Finance

Sharing a fixed or being the Wolf of Wall Street?

By horacio gustavo ammaturo

Sharing a fixed or being the Wolf of Wall Street?

Argentina, Bolivia, Uruguay, Venezuela include in their colloquial language the phrase "tener una fija".

In general, it is used to identify a certainty or something that is considered certain to happen.

In horse racing parlance, a "fija" is a sure win that is awarded to a competitor before the start of the race.

I have always been suspicious of fixed odds, simply for the reason that whoever really has the certainty of the information loses part of the prize for divulging it, i.e. the more bettors know the outcome in advance, the less prize they will receive.

In the world of finance something similar could happen.

When an expert gives a recommendation, he runs some risks:

  • - being accused of market manipulation,

  • - paying more expensive because by anticipating what he is going to buy, others could get ahead of him and push up his price.

So why, if someone had a chip, would they share it, running the risk of being accused or making a worse deal?

Market manipulation describes a deliberate attempt to interfere with the free and fair functioning of the market and to create artificial, false or misleading appearances regarding the price of an asset in the market, be it securities, commodities, currencies, debt (bonds) or even digital assets.

There is a classic figure of market manipulation typified as Pump and Dump which consists of several market players organizing and agreeing to artificially drive up the price of a financial asset. Once euphoria is created in the market and more investors enter, driving the price even higher, the participants in the Pump and Dump sell their assets and make a profit.

This scheme that trapped, traps and will probably continue to trap many investors making them lose billions of dollars was a source of inspiration for the directors of the movie "The Wolf of Wall Street", which is about how Jordan Belfort, and his brokerage firm Stratton Oakmont, carried out numerous "pump and dump" schemes in the 1990s by artificially raising the price of shares of companies of dubious value and then selling their shares at inflated prices.

Another resonant case occurred in early 2023, when the electronic game retailer GameStop was the subject of an exceptional phenomenon on Wall Street. A group of retail investors, linked through the social network Reddit agreed to buy shares of the company by artificially inflating its price, causing significant losses for institutional investors who had bet against a company whose business model was exhausted and whose balance sheets indicated imminent insolvency.

Could Argentina be a victim of the Pump and Dump?

Since President Milei won the election in October last year all financial assets have revalued.
From the national currency itself, our beloved peso, which appreciated against other currencies by more than 20%, the sovereign bonds that improved their parity by more than 70% and the shares of local listed companies that have gone through a real rally doubling their value during this period.

Undoubtedly, the promises of change were accompanied by local and international investors with an important propensity for risk, as we all know the ups and downs of the economy and the pendulum swing of local politics.

The proposals of the free market and the advancing freedom were the propellants of this vindicating spirit of Argentine assets.

However, (unfortunately some of them appear), some issues that we will detail below could have cast doubts on the significance and scope of the changes that were proclaimed.

  • Intervention in the price of health insurance. Beyond the urgency to address the effects of price liberalization in the health sector, the way in which the adjustment was carried out, by means of media actions and social networks, institutional resolutions, typical of the dirigiste past, and lack of anticipation of the consequences of the decisions taken, made a yellow light on the traffic light of the way of change. Libertarians restricting the freedom to set prices.

  • In parallel with this intervention, another issue to be addressed is the discretionality with which decisions are made regarding the sectors in which to intervene and those in which to let the market regulate itself, as is the case with the price of fuels, which tripled its value in only 5 months.

  • The default with Cammesa, a company that groups electricity generators and transporters, by a state that offers bonds with a maturity of 14 years to pay the matured and contractually agreed debt, once again making Argentina a country that does not comply with its contracts and obligations.

  • And as if this were not enough, in the agreements on public utility tariffs, reached just a few weeks ago, the inflation adjustments foreseen with the service providers were suspended .

  • Another issue to be considered, and not a minor one, is the suspension for more than five months of payments and continuity of public works. Many companies and workers are still uncertain as to whether the projects will continue. Beyond philosophical or ideological positions, the contracts signed are to be fulfilled, otherwise, the state, that is, we, will pay for the works in the form of lawsuits for non-compliance and higher costs, and consequently we will have the expenses without the finished works.

In the midst of all these circumstances that hit the waterline of the libertarian model, the famous businessman Elon Musk invites through his social network "X" to invest in Argentina, while the former partner of George Soros, Stanley Druckenmiller, praised our president, whom he referred to as "the only leader of the free market in the world", commenting that he had increased his financial positions in Argentine assets.

Strange, isn't it?

Time will tell if they are generous philanthropists who want to share their financial expertise with the rest of the world so that they can also get rich, or if it is a new pump and dump and they are looking to encourage naïve investors so that they can come out winners of artificially inflated assets.

Strangely, after these comments, Argentine assets adjusted their values downwards.

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horacio gustavo ammaturo

horacio gustavo ammaturo

I am Gustavo Ammaturo. I have a degree in Economics. CEO and Director of infrastructure, energy and telecommunications companies. Founder and mentor of Fintech, DeFi and software development companies. Blockchain Product Designer.


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