With the mid-term elections approaching, the Macri administration seems to be heading for another unlikely win if the result of the primaries is any indication of voters intentions on October 22. The primaries, or PASO, showed a highly divided Peronist opposition and thus has allowed Macri’s governing coalition, Cambiemos, to take advantage of that division, contingent upon the PASO primaries being a true indication of what is going to happen on October 22.
Perhaps assisting this primary election result was the performance of the Argentine economy, whose monthly economic activity indicator, a proxy for GDP growth, showed a very strong economy at the end of the first half of the year. According to this index the Argentine economy grew 4.0 percent on a year-earlier basis in June. While growth was still weak during the first half of the year, up only 1.6 percent versus the same period a year earlier, it is clear that the Argentine economy has momentum. The Argentine economy should continue to show strong rates of growth during the second half of the year, just in time to support the Macri administration during midterm elections, which have ordinarily turned against the party holding power.
However, as is the case in politics, anything could happen between today and October 22, thus the Macri administration will need to tread very carefully between the very difficult Argentine social and political landscape. Security, street violence and social protests, a high fiscal deficit, high inflation and high interest rates are some of the risks that will threaten the administration as it moves to take advantage of a very fragmented political opposition.
If the Primaries Serve as a Guide…
The Macri administration has been celebrating the better-than-expected results of the PASO primary elections, which are supposed to elect the candidates who will contest the mid-term elections in late October of this year. These primary elections have transformed into a sort of “survey” on how the parties are going to perform in the upcoming elections. The mid-term elections are normally a very difficult test for the party in power, especially if the economy is not doing well. However, the economy has started to do better, and the expectation is that by October 22, which is when the elections are going to be held, this improvement is going to be more broad based, which many analysts say could further help the Macri administration.
Furthermore, mid-term elections are normally a good barometer of whether the current president has any chance of being reelected in two years’ time when the next presidential elections are scheduled. In this sense, and according to political analysts, the results are painting a good future for Macri’s Cambiemos political alliance, and for Macri himself. However, the PASO do not elect anybody into office, they just choose each party’s candidates as well as which parties will participate in the mid-term elections. The parties that receive more than 1.5 percent of the votes will participate in the mid-term elections.
This means that everybody needs to wait until the actual mid-term election in October and, for the Macri administration, hope for the outcome the PASO results have predicted. However, in politics, anything is possible, and mistakes made from today until October 22 will be paid for with votes and electoral results.
During the mid-term elections there will be 127 seats up for grabs in the lower house of Congress out of 257 seats. That is, almost half of the members are going to be renewed. If the PASO primary results stand (a big if), President Macri’s governing coalition, Cambiemos, could add about 18 new seats in the lower house. This will take the Cambiemos coalition from 86 seats to about 104 seats. Quorum in the lower house of Congress is achieved with 129 members, which means that the Cambiemos coalition will still not have enough to attain quorum. However, analysts say that governing will be easier because it will not need to negotiate with as many opposition members as now.
Meanwhile, the Frente para la Victoria (FpV), which is the main Peronist opposition, will go to having 76 members from having 72 members. Smaller parties and some regional/provincial parties will probably elect other members to the lower house as well, which will make the legislative process difficult but not as difficult as it has been during the past two years.
The Senate, on the other hand, will renew one third of its members, which is 24 of the 72 seats. The system allocates two senators per province for the party that comes in first and one senator for the second place finish. There are eight provinces that will elect three senators each: the provinces of Buenos Aires, Formosa, Jujuy, La Rioja, Misiones, San Juan, San Luis, and Santa Cruz. Interestingly, two ex-presidents from the Peronist Party are contesting for a senate seat. In the Province of La Rioja, current senator of the province and ex-president of the country, Carlos S. Menem, has been fighting the courts in order to renew his senate seat. A court said that he cannot run again because of a judicial case against him while an appellate court has allowed him to run for the seat. However, analysts in the country estimate that he will probably not be able to assume a new senate term because the court will probably condemn him to house arrest, as he is in his late 80s. Ex-President Carlos Menem comes from the right wing of the Peronist Party.
The second Peronist ex-president is Cristina Fernández de Kirchner, who represents the left wing of the Peronist Party, and who won the PASO primaries running for a senate seat from the province of Buenos Aires. Her newly created party, Unidad Ciudadana, which is one of the many outgrowths of the Peronist Party in the country, came in first by a very slim margin of votes, about 0.21 percent difference to the candidate of the governing coalition, Cambiemos. So if the October elections come in like the PASO elections, her party will put two senators in the Senate and the third will be from the Cambiemos coalition. Perhaps this is the mid-term election result that everybody will be following, because the election has the potential to reverse the slight margin Mrs. Kirchner got, and Cambiemos could add one more senator to the upper chamber of Congress.
Probably the most interesting developments from the PASO primaries results were that Mrs. Kirchner’s influence on the national political landscape has diminished considerably since she left power. The polls were predicting that she would win comfortably in the Province of Buenos Aires, but it remains as a toss-up. Furthermore, the province of Santa Cruz, where Mrs. Kirchner is from and where the Kirchner’s have had a lock on power for the past several decades, went to Macri’s coalition in the PASO elections, which is an indication of how difficult it will be for the Peronist Party to unify behind a unique candidate.
Recently, the stock market has experienced high levels of volatility. If you are thinking about participating in fast moving markets, please take the time to read the information below. Wells Fargo Investments, LLC will not be restricting trading on fast moving securities, but you should understand that there can be significant additional risks to trading in a fast market. We've tried to outline the issues so you can better understand the potential risks. If you're unsure about the risks of a fast market and how they may affect a particular trade you've considering, you may want to place your trade through a phone agent at 1-800-TRADERS. The agent can explain the difference between market and limit orders and answer any questions you may have about trading in volatile markets. Higher Margin Maintenance Requirements on Volatile Issues The wide swings in intra-day trading have also necessitated higher margin maintenance requirements for certain stocks, specifically Internet, e-commerce and high-tech issues. Due to their high volatility, some of these stocks will have an initial and a maintenance requirement of up to 70%. Stocks are added to this list daily based on market conditions. Please call 1-800-TRADERS to check whether a particular stock has a higher margin maintenance requirement. Please note: this higher margin requirement applies to both new purchases and current holdings. A change in the margin requirement for a current holding may result in a margin maintenance call on your account. Fast Markets A fast market is characterized by heavy trading and highly volatile prices. These markets are often the result of an imbalance of trade orders, for example: all "buys" and no "sells." Many kinds of events can trigger a fast market, for example a highly anticipated Initial Public Offering (IPO), an important company news announcement or an analyst recommendation. Remember, fast market conditions can affect your trades regardless of whether they are placed with an agent, over the internet or on a touch tone telephone system. In Fast Markets service response and account access times may vary due to market conditions, systems performance, and other factors. Potential Risks in a Fast Market "Real-time" Price Quotes May Not be Accurate Prices and trades move so quickly in a fast market that there can be significant price differences between the quotes you receive one moment and the next. Even "real-time quotes" can be far behind what is currently happening in the market. The size of a quote, meaning the number of shares available at a particular price, may change just as quickly. A real-time quote for a fast moving stock may be more indicative of what has already occurred in the market rather than the price you will receive. Your Execution Price and Orders Ahead In a fast market, orders are submitted to market makers and specialists at such a rapid pace, that a backlog builds up which can create significant delays. Market makers may execute orders manually or reduce size guarantees during periods of volatility. When you place a market order, your order is executed on a first-come first-serve basis. This means if there are orders ahead of yours, those orders will be executed first. The execution of orders ahead of yours can significantly affect your execution price. Your submitted market order cannot be changed or cancelled once the stock begins trading. Initial Public Offerings may be Volatile IPOs for some internet, e-commerce and high tech issues may be particularly volatile as they begin to trade in the secondary market. Customers should be aware that market orders for these new public companies are executed at the current market price, not the initial offering price. Market orders are executed fully and promptly, without regard to price and in a fast market this may result in an execution significantly different from the current price quoted for that security. Using a limit order can limit your risk of receiving an unexpected execution price. Large Orders in Fast Markets Large orders are often filled in smaller blocks. An order for 10,000 shares will sometimes be executed in two blocks of 5,000 shares each. In a fast market, when you place an order for 10,000 shares and the real-time market quote indicates there are 15,000 shares at 5, you would expect your order to execute at 5. In a fast market, with a backlog of orders, a real-time quote may not reflect the state of the market at the time your order is received by the market maker or specialist. Once the order is received, it is executed at the best prices available, depending on how many shares are offered at each price. Volatile markets may cause the market maker to reduce the size of guarantees. This could result in your large order being filled in unexpected smaller blocks and at significantly different prices. For example: an order for 10,000 shares could be filled as 2,500 shares at 5 and 7,500 shares at 10, even though you received a real-time quote indicating that 15,000 shares were available at 5. In this example, the market moved significantly from the time the "real-time" market quote was received and when the order was submitted. Online Trading and Duplicate Orders Because fast markets can cause significant delays in the execution of a trade, you may be tempted to cancel and resubmit your order. Please consider these delays before canceling or changing your market order, and then resubmitting it. There is a chance that your order may have already been executed, but due to delays at the exchange, not yet reported. When you cancel or change and then resubmit a market order in a fast market, you run the risk of having duplicate orders executed. Limit Orders Can Limit Risk A limit order establishes a "buy price" at the maximum you're willing to pay, or a "sell price" at the lowest you are willing to receive. Placing limit orders instead of market orders can reduce your risk of receiving an unexpected execution price. A limit order does not guarantee your order will be executed -" however, it does guarantee you will not pay a higher price than you expected. Telephone and Online Access During Volatile Markets During times of high market volatility, customers may experience delays with the Wells Fargo Online Brokerage web site or longer wait times when calling 1-800-TRADERS. It is possible that losses may be suffered due to difficulty in accessing accounts due to high internet traffic or extended wait times to speak to a telephone agent. Freeriding is Prohibited Freeriding is when you buy a security low and sell it high, during the same trading day, but use the proceeds of its sale to pay for the original purchase of the security. There is no prohibition against day trading, however you must avoid freeriding. To avoid freeriding, the funds for the original purchase of the security must come from a source other than the sale of the security. Freeriding violates Regulation T of the Federal Reserve Board concerning the extension of credit by the broker-dealer (Wells Fargo Investments, LLC) to its customers. The penalty requires that the customer's account be frozen for 90 days. Stop and Stop Limit Orders A stop is an order that becomes a market order once the security has traded through the stop price chosen. You are guaranteed to get an execution. For example, you place an order to buy at a stop of $50 which is above the current price of $45. If the price of the stock moves to or above the $50 stop price, the order becomes a market order and will execute at the current market price. Your trade will be executed above, below or at the $50 stop price. In a fast market, the execution price could be drastically different than the stop price. A "sell stop" is very similar. You own a stock with a current market price of $70 a share. You place a sell stop at $67. If the stock drops to $67 or less, the trade becomes a market order and your trade will be executed above, below or at the $67 stop price. In a fast market, the execution price could be drastically different than the stop price. A stop limit has two major differences from a stop order. With a stop limit, you are not guaranteed to get an execution. If you do get an execution on your trade, you are guaranteed to get your limit price or better. For example, you place an order to sell stock you own at a stop limit of $67. If the stock drops to $67 or less, the trade becomes a limit order and your trade will only be executed at $67 or better. Glossary All or None (AON) A stipulation of a buy or sell order which instructs the broker to either fill the whole order or don't fill it at all; but in the latter case, don't cancel it, as the broker would if the order were filled or killed. Day Order A buy or sell order that automatically expires if it is not executed during that trading session. Fill or Kill An order placed that must immediately be filled in its entirety or, if this is not possible, totally canceled. Good Til Canceled (GTC) An order to buy or sell which remains in effect until it is either executed or canceled (WellsTrade® accounts have set a limit of 60 days, after which we will automatically cancel the order). Immediate or Cancel An order condition that requires all or part of an order to be executed immediately. The part of the order that cannot be executed immediately is canceled. Limit Order An order to buy or sell a stated quantity of a security at a specified price or at a better price (higher for sales or lower for purchases). Maintenance Call A call from a broker demanding the deposit of cash or marginable securities to satisfy Regulation T requirements and/or the House Maintenance Requirement. This may happen when the customer's margin account balance falls below the minimum requirements due to market fluctuations or other activity. Margin Requirement Minimum amount that a client must deposit in the form of cash or eligible securities in a margin account as spelled out in Regulation T of the Federal Reserve Board. Reg. T requires a minimum of $2,000 or 50% of the purchase price of eligible securities bought on margin or 50% of the proceeds of short sales. Market Makers NASD member firms that buy and sell NASDAQ securities, at prices they display in NASDAQ, for their own account. There are currently over 500 firms that act as NASDAQ Market Makers. One of the major differences between the NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. Market Order An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace. Specialists Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy. Stop An order that becomes a market order once the security has traded through the designated stop price. Buy stops are entered above the current ask price. If the price moves to or above the stop price, the order becomes a market order and will be executed at the current market price. This price may be higher or lower than the stop price. Sell stops are entered below the current market price. If the price moves to or below the stop price, the order becomes a market order and will be executed at the current market price. Stop Limit An order that becomes a limit order once the security trades at the designated stop price. A stop limit order instructs a broker to buy or sell at a specific price or better, but only after a given stop price has been reached or passed. It is a combination of a stop order and a limit order. These articles are for information and education purposes only. You will need to evaluate the merits and risks associated with relying on any information provided. Although this article may provide information relating to approaches to investing or types of securities and investments you might buy or sell, Wells Fargo and its affiliates are not providing investment recommendations, advice, or endorsements. Data have been obtained from what are considered to be reliable sources; however, their accuracy, completeness, or reliability cannot be guaranteed. Wells Fargo makes no warranties and bears no liability for your use of this information. The information made available to you is not intended, and should not be construed as legal, tax, or investment advice, or a legal opinion.