Banco Central Certificates

[Escott]

Escott you are correct in pointing out that the DR economy is volatile and that iluvdr lucked out as have many (including me). But it is unfair to say that those that stuck to their guns lost their shirts!

Lets say for argument sake you had US$100k in 2000. The exchange rate hovered around 16 to 1. If you exchanged your money back then you had RD$1.6 Mil. Banco Popular was paying around 14-16% on CDs (if I recall correctly)

1.6 * 15% = 1.84 mil (2001)
1.84 * 15% = 2.116 mil (2002)

In 2002 banks were paying 19-21+% on CDs

2.116 * 20% = 2.539 mil (2003)

in 2003 BC at close to 60%

2.539 *55% = 3.935 (2004)

Exchange rate in 2004 is at 29 to 1 which would be
3,935,000 / 29.5 = ~US$133k

Earning US$33k in 4 years is not equivalent to loosing your shirt! It's equal to making ~8% on your US$100k every year for the past 4 years. Some would consider that quite a respectable return. Albeit, it was LUCK to the enth degree.

NotLurking.

I understand your math. Let me just say that I have done better with investments in US Dollars in the DR over the same period of time Even though the PESO has appreciated through the roof which is just dumb luck and voodoo economic driven.

To each their own. I wish everyone success. Peso investment return that you show is just a freak show Do the numbers at 48 to one and see how you come out, after all it was only 7 months ago that I got 48.

So to summerize, not only have I more than doubled the return you outlined based on completely dumb luck, I sleep better at night. I wouldn't recommend the Peso Rollercoaster to anyone and I believe it is NOT a prudent investment. Only thing holding the peso up today is, uh, duh, I don't have a clue and either do you other than the government NOT paying bills and thus not having a need for dollars which would drive it down.

Regards,
Escott

 

[sagfil]

while we are still here discussing about the exchange rate I inform you that the rate for the Banco Central certificates dropped from 26% to 18%!!!!!!!!

 

[Escott]

Primo: Is the Banco Central secure?
I would think yes, once again I don't know of any National Bank in the world that as gone bankrupt in the last 10 years.
Secondo: Is the currency stable?
No one could objectively answer that question, but base on the present social and economical situation in the DR the answer to the opposite question is obvious: Is the currency unstable. The answer is NO.
Therefore buying into the CB CD's seems like an attractive move in the short term even at the interest rates of 24% annual.
I rest my case!

No National Bank in the world gone bankrupt in last 10 years? What about Argentina and Ecuador before that?

Is the Currency stable? Lets see, it appreciated 60% in 3 months against every currency in the world for NO reason and you have to ask that question?

 

[Escott]

Oh well, where's the flaw or fault in the math &/or logic. Please someone talk me out of this. Lee

I wouldn't want to talk anyone out of anything. If you get on this rollercoaster when it is heading south you may be in for the ride of your life. If you got on when it went the other way, albeit only once in 20 years you will be a happy guy with irrational exuberance like a few others here. So if you feel the peso is going to go to 16 to 1 from here you are in good shape.

Good luck.

 

[NotLurking]

NotLurking, while not exactly spot on, your math does point out a very dangerous observation.

@Modongo:- Please enlighten me. Where have I fudged the numbers or missed the mark in your opinion? The exchange rate and CD interest rate figures I used, to the best of my recollection, reflect the actual market for the time period quoted. This exercise, although using a fictitious US$100k initial investment (capital), is not a hypothetical! That was a very close depiction of how the CD at banco Popular and Banco Central behaved in DR during the past 4-4 1/2 years. The exchange rate today is irrefutable and all figures quoted can be 100% verified as financial data is usually will recorded.

@Escott:- I do not advocate, promote, advise or in any other way recommend to anyone what they should or should not invest in. I try to tell them the fact and let them decide what they want to do. People on this board are grown enough to know what they can and can not do. Taking investment advice from a message board on 'face value' without due diligence is not a good idea. Those that blindly follow such investment advice deserve what they get.

NotLurking

 

[Escott]

@Escott:- I do not advocate, promote, advise or in any other way recommend to anyone what they should or should not invest in. I try to tell them the fact and let them decide what they want to do. People on this board are grown enough to know what they can and can not do. Taking investment advice from a message board on 'face value' without due diligence is not a good idea. Those that blindly follow such investment advice deserve what they get. NotLurking

I agree but feel it is a disservice NOT to point out what could NEGATIVELY affect investments. There are people who by the luck of Gawd managed to pick the time before the Pesos rise in value to invest. If that is true they made a lot of money. I know people who lost their Arses investing at 24% in Pesos so the percent is as meaningless as tits on a bull if the pesos is heading south where it usually heads with the exception of the last 8 months in 20 years.

I don't tell anyone what to do but try to caution people of what the down side can be.

Regards,
Scott

 

[iluvdr]

Some people are death, dumb or blind

Is there only a couple of us on this post that seems to understand that investment in any product always carry a risk?!
Wake me up if I am sleeping... bottom line, it all comes down to is the risk worth it? I believe so...others don't share the same feeling and try to back it up with all sorts of pseudo economic data. I am not going to totally disregard some comments made here, but most of them don?t tickle me.
Notlurkin's exercise is a good example on leveraging the risk. I have my own method. Let say you invest US$100k for the next 4 years at an average of 25% (keep in mind that if the pesos depreciates the rates will go back up!)
Now let's take a very pessimistic approach that the peso depreciates to RD$50 to $1.00 US. I would have invested at today's rate RD$2,800,000 and made at the end of my 4 years over RD$6,000,000 (interest on interest) that would be at 50:1, $150,000.00 US that's more then 12% a year!!!
The question is: when do you come in and when do you come out? I believe that in the long term as in the sort term this is a good investment. For those targeting the mid term it may look a little bumpy! As for the Central Bank going under, Well, Argentina's National Bank never went Bankrupt! The currency just depreciated and people who had there money lock in at 1 peso for 1 Dollar had to suffer the consequences.... As for National Bank going bankrupt, it is the equivalent of a whole country going Bankrupt and NO it has not happen since the Soviet Union collapsed...

 

[iluvdr]

So how was the sexless 1000 US Dollar a day "ESCORT"?

You should try it some time... or maybe you do, with your wife :classic:

 

[mondongo]

@Modongo:- Please enlighten me. Where have I fudged the numbers or missed the mark in your opinion? The exchange rate and CD interest rate figures I used, to the best of my recollection, reflect the actual market for the time period quoted. This exercise, although using a fictitious US$100k initial investment (capital), is not a hypothetical! That was a very close depiction of how the CD at banco Popular and Banco Central behaved in DR during the past 4-4 1/2 years. The exchange rate today is irrefutable and all figures quoted can be 100% verified as financial data is usually will recorded.

NotLurking, I merely said that your numbers were not "spot on". I did agree with most of your post. But since you ask, financial data is recorded at the Central Bank website. Since I am a nit-picker, I usually download the CB data onto my laptop. If you would like some of this data, you can easily get it at the Central Bank....or I can send it to you.

Be warned, however, that the Central Bank has a habit of continually editing its own documents.

The only number that jumped out at me was your usage of 55% for the interest of 2004. The avarage interest rate in 2004 paid by the Central Bank was around 40%. CD's at banks usually paid less than the Central Bank certificates.

 

[mondongo]

I agree with iluvdr in that the DR Central Bank is not likely to go bankrupt. The worst scenario is that the CB will not be able to meet its foreign currency obligations, and would thus convert all foreign debt to local currency debt at its own exchange rate. The math in your example, however, is not exactly "spot on", either.

 

[NotLurking]

NotLurking, I merely said that your numbers were not "spot on". I did agree with most of your post.

I can't imagine you disagreeing with those numbers since in most cases I used the most conservative numbers. It is an exercise in futility to be debating what could've happed and doing 'what if' assessment at this stage in the game...what happened, happened and there is no going back! hehe

But since you ask, financial data is recorded at the Central Bank website.

Yes I think everyone that lives or has an interest in the DR knows this...it's quite obvious.

Since I am a nit-picker, I usually download the CB data onto my laptop. If you would like some of this data, you can easily get it at the Central Bank....or I can send it to you.

Be warned, however, that the Central Bank has a habit of continually editing its own documents.

I'm quite a nit-picker too. Thanks for the offer of sharing your data but it is not necessary. I have had the pleasure of rummaging the waste-land called BC financial reports.

The only number that jumped out at me was your usage of 55% for the interest of 2004. The avarage interest rate in 2004 paid by the Central Bank was around 40%. CD's at banks usually paid less than the Central Bank certificates.

You are quite astute and have a knack for quoting the obvious but only at your convenience. The key word in the about quote is average. If you take sample interest rates from the two extremes the BC was paying in 2003-2004 you'll arrive at the 40% average. That is not to say that the highest interest rate paid was not close to 60%. In fact, I have first hand knowledge that the BC paid 57% during the fiscal year of 2003-2004 (to some invertors....compadres?) and I can attest to the fact that I was paid more than the 40% on a CD at BC; hence, why I used the 55% number. The lowest interest rate paid for the period of 2003-2004 that I'm aware of was 30% (could be lower but I don't know anyone that ACTUALLY got lower). The average is in fact close to what you stated.

57 + 30 = 87
87 / 2 = 43.5%

NotLurking

 

[mondongo]

NotLurking, nice job in getting in just the right time when you bought your 40%+ interest Certificates. Enjoy the double positive of the high CB rates and the currency appreciation. Who knows how long it will last.

I don't know if you are trying to get into a p*ssing contest with me. What I said previously is true, and I can provide that data to back up my claims.

Let me give you a couple more examples of why you should be taking these posts as a learning opportunity, since you clearly dont have the data you claim to have:

--> The highest interest rate paid by the Central Bank in 2004 was not 57%, but 60.77%.

--> The lowest rate paid by the Central Bank was 25.06%, not 30%.

Note that above figures only reflect the Zero Coupon bonds that the Central Bank auctions weekly. The Central Bank also allowed the public to buy certificates that had fixed interest rates that were not directly linked to the weekly auctions. These were typically slightly lower. I have that info, too.

 

[Firefan]

He he!

He he, Must again say that the emotions involved here are funny considering we are talking bank certificates! :classic:
That said; it is simply a risk/return evaluation as already pointed out. Nobody knows the future. Some will find the risk worth the return, and others will not.
Some (like me) will decide it might be worth investing a bit of money they can lose, while others will empty their whole nest egg into it. So be it! Cheers! FF

 

[NotLurking]

Dear Mondongo, no need to enter into a pissing match. That is child's play and I'm well beyond that. Aren't you? Please look at my post with less passion. Perhaps you'll understand what I said as opposed to misrepresenting it.

I don't know if you are trying to get into a p*ssing contest with me. What I said previously is true, and I can provide that data to back up my claims.

I didn't say you lied! I did however imply that you misrepresented the facts in relation to the 55% interest rate I quoted. You first attacked it, "not exactly spot on" were your exact words, suggesting I somehow doctored that percentage rate. Now you come back 'swinging' quoting 60.77%. Well which is it? Am I spot on or not? Please make up you mind.

Mondongo, it is disingenuous of you to 'now' act as if I'm trying to discredit you. Come on are you for real? First you imply that the BC reports are trash by stating that the BC changes their published data on the fly, now you're quoting that same crap data to support your argument. In other words, you stated that the data is unreliable but use it if it is convenient for you. The data is unreliable by your own admission and I did not use it to corroborate my previous post. I only used first hand knowledge and not hearsay or ->trash data<- according to you anyway...HAHAHA that is just to funny.

Let me give you a couple more examples of why you should be taking these posts as a learning opportunity, since you clearly dont have the data you claim to have:

HAHAHA learn from who? you? May I ask what? Perhaps you can learn from me a thing or two.

--> The highest interest rate paid by the Central Bank in 2004 was not 57%, but 60.77%.

--> The lowest rate paid by the Central Bank was 25.06%, not 30%.

Again, clam down, take a deep breath and pull your head out of the sand long enough to read what I actually wrote. Pay close attention to the sections in bold italic.

In fact, I have first hand knowledge that the BC paid 57% during the fiscal year of 2003-2004 (to some invertors....compadres?) and I can attest to the fact that I was paid more than the 40% on a CD at BC; hence, why I used the 55% number. The lowest interest rate paid for the period of 2003-2004 that I'm aware of was 30% (could be lower but I don't know anyone that ACTUALLY got lower). The average is in fact close to what you stated.

Note that I agreed with you on the average percentage rate. Also note that the figures quoted are from first hand knowledge! I did not use hearsay or trash figures. Just so that we are clear and you don't spin it, I did not use figures published by BC or any other source. My figures are 100% verified by me and were clearly marked as such. Do you understand now?

Note that above figures only reflect the Zero Coupon bonds that the Central Bank auctions weekly. The Central Bank also allowed the public to buy certificates that had fixed interest rates that were not directly linked to the weekly auctions. These were typically slightly lower. I have that info, too.

You are quite astute and have a knack for quoting the obvious but only at your convenience.

NotLurking

 

[Escott]

You should try it some time... or maybe you do, with your wife :classic:

I am going to tell my mother on you. Nyah, nyah, nyah nyah...

FWIW, my wife was never that cheap even before we split up 6 years ago. She still isn't that cheap even after. Hell I even kicked in 5000 for a new car when she traded in the Mercedes I bought her.

How about trinkets? Last diamond ring cost over 30k. Man, I paid way more than $1000 US a year just for the insurance on the trinket every year.

When it is all said and done I got a lovely daughter out of it and it was ALL worth it! She arrives in the country tomorrow for 8 days and then I return to NY with her to see her test for her 3rd degree blackbelt. This just came up and I had no plans of seeing cold weather this year but it is going to be fun to watch the concentration on her face and watch her will her way through this.

So how was the 1000 US Dollar Sexless "escort"? (hehehe Yeah RIGHT!)

LOL

PS> When Mondongo and notlurking are finished with each other I want a piece of your arses! lol

 

[mondongo]

Data Reliability

NotLurking, do you agree that:

1) data from the Central Bank regarding interest rate paid on its certificates should be reliable? For example, if you buy a certificate that will make regular RD$1000 payments into your Banco Popular account....it should be very easy for you to verify this?

PS A brief response would be greatly appreciated.

 

[NotLurking]

NotLurking, do you agree that:

1) data from the Central Bank regarding interest rate paid on its certificates should be reliable? For example, if you buy a certificate that will make regular RD$1000 payments into your Banco Popular account....it should be very easy for you to verify this?

PS A brief response would be greatly appreciated.

I concur.

 

[mondongo]

thanks for the brief response

I have weekly data dating back to fall of 2003 of the Central Bank Zero Coupon certificate auctions. Maturities from 7 days to 365 days are included in the data.

NotLurking, are you aware that:

1) Along with the weekly Zero Coupon auctions (DR$45Billion outstanding), the Central Bank also sells directly without an auction (these are probably the ones you have bought, DR$79Billion outstanding)?

2) The data i have show that the direct certificates pay very slightly less in interest (than the auction certificates, for the same maturity). Do you find this reasonable?

 

[NotLurking]

I have weekly data dating back to fall of 2003 of the Central Bank Zero Coupon certificate auctions. Maturities from 7 days to 365 days are included in the data.

NotLurking, are you aware that:

1) Along with the weekly Zero Coupon auctions (DR$45Billion outstanding), the Central Bank also sells directly without an auction (these are probably the ones you have bought, DR$79Billion outstanding)?

Are these numbers current? If so, they are off by RD$ 3.1382 Billion between them...anyway... yes you can buy certificates from BC by filling out a form (available online) and upping the cash. simple.

2) The data i have show that the direct certificates pay very slightly less in interest (than the auction certificates, for the same maturity). Do you find this reasonable?

Actually I have no clue as to why that is so. Do you have any theory? Perhaps it has to do with volume discount? Or just that the regulars that buy in the auction get a tiny incentive?...for commission?

NotLurking

 

[Lurch]

PS> When Mondongo and notlurking are finished with each other I want a piece of your arses! lol

I was hoping to have another go now that I have a little free time, but since he brought your wife into it, I shall defer until Mondongo and yourself have finished class (slightly frustrating isn't it?) . :tired: