Tag: Argentina

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A Call for Patience in Argentina

An excellent article about the need for patience with the unfolding political and economic situation in Argentina.  My emphasis is in bold with my comments in italics

Herd Behavior: Why A Lack Of Patience Could Spark Argentina’s Next Crisis

President Mauricio Macri is making the right economic moves, but that is hardly enough to prevent the next crisis.

By Bianca Fernet – Oct 26, 2016 at 12:29

It’s been almost one year since President Mauricio Macri shocked the world by winning Argentina’s presidential elections, and the country is in a state of flux — hovering in an uncertainty characterized by hope, anxiety, fear and just a few whiffs of the dreaded stench of failure.

Besides displaying a shocking lack of political PR and taking on a few petty wastes of time, this government is doing most things within its power correctly to right the course of a vessel that seemed destined to crash. (This includes eliminating a parallel exchange rate from the previous administration, completing an oversubscribed bond sale, and eliminating export taxes on many agricultural commodities like corn and wheat).

Despite these positive steps, one sinister question looms: Has the Macri government managed to avert the looming economic crisis entirely, or is it merely kicking the can down the road? It’s scary, but Argentina is in uncharted territory. Rather than boom, the economy is in a prolonged recession that could be heading for an all too familiar outcome — bust.

Yet this time, the question really isn’t about economic fundamentals. The real variable threatening Macri isn’t economic at all — it is time. (To me, this says that many potential foreign investors recognize Macri’s attempts to repair some of the underlying fundamental economic issues facing the nation.  I believe, based in part on the oversubscribed bond sale, that there are many more foreign investors waiting on the sidelines to see if a resilient Macri administration and patience from the international community can allow these economic changes to positively affect the foreign investment climate of Argentina)  Time, that fickle mistress, is persistently stalking Macri’s administration and is not on his side. And Argentines aren’t exactly famous for patience.

Now that Argentina is back on the world stage, there seem to be no shortage of Argentina investment-themed symposiums, conferences, forums, delegations, road shows, panels, seminars, and other names they give to the indistinguishable gatherings of hundreds of white men in suits assembled in windowless spaces to watch powerpoints and exchange business cards over mediocre coffee and stale snacks. (While I don’t necessarily agree with all of the author’s points here, I appreciate both her sarcasm and perception, especially the part about windowless spaces and mediocre coffee).

In the past, representing Argentina at these business rituals meant repeating some variation of the tagline, “Argentina: it’s not so bad!” Now the conversation invariably veers first to new opportunity, but then quickly pivots to the question of Argentina — same old risk?

People love to say that “Argentina has a crisis every ten years.” A nice round number, except it is 2016 and the country’s last real crisis was in 2001 (no, the 2009 global downturn doesn’t count). The truth doesn’t follow simple formulas. (This saying may actually be more applicable to the US market with the collapse of the dot com bubble in the early 2000s, the Great Recession in 2008/2009, and the unstable economic times of today.)

To understand the situation, let’s think of economies like dinner plates, spinning atop sticks. Balance is essential.

iStock_000012016504_Medium
A balanced, diverse economy leads to stability

 

A poorly balanced plate will wobble dangerously and even crash to the floor from external conditions. Take a look at Argentina’s neighbors. Chile was thought to be as stable as they come, but a sudden drop in world copper prices have caused the country to wobble. Brazil was the next big thing in biofuels, technology, renewables — you name it. But a plunge in oil prices spun out the endemic corruption and tipped that plate right over.

So what do spinning plates and susceptibility to external crises have to do with Argentina?

From a purely economic standpoint, Argentina is just about the most stable, well-balanced, solid plate there ever was. The economy and the geography are large and diverse (One of the few countries in the world with the ability to be completely self-sustaining, hosting an abundance of natural resources, an educated population, and of course, famed agricultural land covering nearly 55% of the country).  Argentina was resilient through the global economic crisis of 2009. Sure, soy is important piece of the pie but even when soy prices took a nosedive in 2014, Argentina’s plate wobbled a bit but kept on spinning. The good news is that despite more than a decade of Kirchnerism, during which Cristina Fernández de Kirchner and her band of merry thieves administration carried out a heist worthy of its own Netflix series, the plate was somehow able to keep spinning.

Macri’s government has acknowledged systemic flaws and is leading the country to come to terms with uncomfortable and unpopular realities, such as that 30 percent of Argentines live in poverty. The administration has acknowledged persistently high inflation and taken painful steps to bring it down. It has dismantled the capital controls that created a de-facto dual currency system (RIP Blue Dollar), settled with the holdout creditors (aka “vulture funds”) and are setting clear rules for doing business (To further highlight the points I made earlier).

Sad Aranguren
Aranguren’s sad face 🙁

Perhaps most laudable, the administration has forced the population to acknowledge that energy subsidies for both electricity and gas are unsustainable and has launched a clear plan for prices to rise to meet generation costs. It’s not easy being Energy Minister Aranguren, the public face of these unpopular hikes. The man basically looks like he needs a hug all the time.

Yet that analysis misses a fundamental point of Macri’s challenge: to succeed, he won’t just have to right a plethora of economic distortions and rise above a mire of tragicomic corruption, he must also change a culture (This will take time, patience, and resilience on Macri’s part, but I think it can be done).

If Argentina’s economy is a plate, its next crisis won’t be caused by an external shock that throws an overweight area off balance. Argentina’s next crash will be caused by its people, who run from one side of the plate to the other, like an emotionally charged herd. Call it passion, color, soul, whatever you want — but we in Argentina are opinionated, loud, and most importantly impatient.

And without political patience, Macri will fail.

The key test will come next year, when the midterm elections will serve as a de facto referendum on his policies, many of which while are unarguably necessary albeit damningly unpopular.

Macri’s real challenge is not only to convince the world that Argentina can change; rather, he must lead his own people through a painful recession and politically maneuver entrenched powerful interests to restore an attractive labor market and an unsubsidized energy matrix.

(image/finedininglovers.com)
(image/finedininglovers.com)

There is no doubt he is dedicated, but the question looms as to whether it is possible to convince a country of fiery, passionate Argentinos to endure a recession without throwing a tantrum and inexplicably sprinting off the edge of the plate (It is easy to understand that Argentines are looking for quick evidence of progress, as I’m sure many Americans will on the heals of our US elections, but after over a decade of systematically taking apart the economy, it will take time to fix the country’s inflation and poverty problems).

 

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Argentina – A Huge Change, A Renaissance And Likely A Boom 

Rio Negro seen from the shores of BarilocheRio Negro seen from the shores of Bariloche

A great article by Doug Casey on the need to diversify and why he chose Argentina, not only for a diversification play, but also for a second-home destination.  I’ve bolded/italicized areas that I think are especially interesting.  As always, let us at AG DTours know if you’d like to learn more about gaining first-hand experience and knowledge about South American agriculture, especially in Argentina where we also have a family farm, before you invest.

A Huge Change, A Renaissance And Likely A Boom – Doug Casey

Some years ago I came to the conclusion that it would be wise to have a permanent footprint outside the US It was a wise decision from many points of view. Living in more than one country allows you to vastly broaden your range of experiences, connections, and possibilities.

Frankly, living in just one country is not just limiting. It’s potentially dangerous. The question is, which of the world’s countries is “best”?

There are a lot of possible answers to that question, and they change over time. When my grandparents left the Old World, there was no question that the US was the best choice. I’m extremely happy they chose to move there and not act like potted plants, rooted to the soil where they were born.

But things change. For decades, America has been changing…in the wrong direction. There’s too much fear. Too much force. Too many taxes. Too much regulation. Too much debt. It’s become as homogenized as an endless field of genetically engineered Monsanto corn, and is becoming just as unpalatable. The system itself has become unstable. I’ve been to over 145 countries, many of them numerous times, and lived in ten of them. I see the world as my oyster. All that travel has given me the opportunity to make some interesting comparisons.

That’s led me to Argentina. I came here for the lifestyle. But now I expect to make a bundle. Here’s why.

Why It Was Good in the Past

I’ve spent about half of each year in Argentina since about 2006. I admit that a major draw for me was polo; I was an avid player for over 20 years. That sport reflects the culture of the country. The whole place could easily be featured in a Ralph Lauren ad.

I love the sophistication of Buenos Aires (it’s a lot like Paris, but at a fraction of the price). But I like the wide-open spaces even more. Argentina is the eighth-largest country in the world but with only 40 million people, and most of them are in and around BA. That means most of the country is empty. The huge expanses of land mean there have never been movements for “agrarian reform” which have plagued the rest of the continent. Title to property is actually more secure than in the US, with none of the eminent domain, frivolous lawsuits, and confiscations that now plague the US

The Argentines like to make jokes about their origins, and they’re funny because they’re true. One goes, “The Mexicans came from the Aztecs, the Guatemalans from the Mayans, the Peruvians from the Incans, and the Brazilians from the jungles. We came from the boats.” Of course that’s true. Argentina is, by far, the most European country in Latin America, both ethnically and psychologically. It’s an outward-looking country; all of the others are insular and inward-looking. The other Latin countries tend to resent the Argentines, who are perceived as elitists.

Another popular joke is, “What is an Argentine? He’s an Italian, who speaks Spanish, lives in a French house, and thinks he’s British.” That’s true too, although it doesn’t give enough credit to all the Irish, German, and Jewish immigrants. In other words, Argentines are more like Americans or Canadians than, say, Ecuadorians or Venezuelans.

At many dinners and parties English, Spanish, French, German, and Italian are spoken interchangeably by everyone at the table. That doesn’t happen in too many places in the world. The place is more like Europe than Europe itself, but lacks the destructive EU and millions of highly problematical migrants.

Why You Should Be There Now

So I came to Argentina for the lifestyle. But value made it a great place to combine business with pleasure. And I’m not just talking about the low cost of living and high standard of living. For years, my friends thought I’d gone off the deep end, putting millions of dollars into the “country where money goes to die.” But they forgot that the time to buy is when you’re afraid to, when things look grim.

Everybody understands – intellectually – that you should “buy cheap and sell dear,” but they act according to their emotions. They talk the talk, but they don’t walk the walk. The same people who have been afraid of Argentina, because they hear terrible things about its government’s finances, are currently unafraid to buy a $700,000 500-square-foot “crap shack” in LA’s Compton ghetto.

Over the years I’ve become accustomed to being paid to live in places that I like: Aspen, Marbella, Hong Kong, Palm Beach, Vancouver, and Auckland, among others. They were all great values when I wrote about them. All of those cities have done vastly better than the average, even while the average has done very well. But the great post-WWII real estate boom is at its peak and coming to an end for many reasons. Now there are only pockets of value – anomalies – left in the world, where appreciation of property will, in effect, pay you to live there. Argentina is one of the very few places where it’s great to live, and you’re going to be paid for just being there.

The opportunity has been created by the chronic mismanagement of the Peronist Argentine state. There are many bad things about a disastrously managed economy, currency, and banking system…for locals. But, from a foreigner’s point of view, they’re a blessing in disguise. For one thing, a total lack of mortgage money means that the prices of property are real, not inflated by borrowed money. What that means is, in Argentina, prices for equivalent houses and land are 10-20% of those in North America. That’s about to change; one’s going up, and the other is headed down.

I’ve said for years that the country would boom if it only had a government that was simply not insane. That’s not asking much. But in the sixty years since Peron first took control it hasn’t had one. Until now.

I admit to being not only delighted but surprised by the election of Mauricio Macri last month. It seemed people had been so corrupted by 60 years of Peronism that it could only get worse, at least until a real crisis pushed the reset button. But not only has the terminally corrupt and mentally unbalanced Cristina been deposed, but polls now show that the new Macri government has 70% popular support. It could amount to a sea change in populist thinking.

When I first came here in 1980, I felt like I was stepping back into the 50s. I rather liked the way the culture was in a time warp; in many ways, the 50’s were a mellow era. But the 50s-era technology was annoying; it’s now as good as that in the US Politically, however, the Argentines were about twenty years ahead of the US in doing stupid things. Now, they may still be about twenty years ahead of us politically, but they’ve finally stopped being stupid. The US, however, seems to be imitating Argentina, with a time delay. That may mean the US still has to go through the meat grinder. While Argentina, isolated and largely insulated from the rest of the world’s problems, could do well as the Greater Depression deepens.

It’s a big deal that Macri has huge popular support. That’s despite (or more likely because) not just thousands, but scores of thousands, of “gnocchis” are being fired by the new government. Right now. Fans of Italian food (which includes most Argentines) will recall that a gnocchi is a fat little piece of dough that just sits on your plate looking inert. It’s a term Argentines use to describe most government employees. But now the gnocchis are being released into the real world. They’ll necessarily go from being a drain on the economy to finding actual work. There will be lots of whining and protests, of course, but reality will win out. Everybody, even those that had one, resented the make-work jobs, the featherbedding, and the blatant theft.

As an example, take Aerolineas Argentinas, the national airline. At a time when almost every other airline in the world is coining money, Aerolineas is losing over a billion dollars a year. The airline was essentially used as a slush fund to employ thousands of gnocchis from La Campora, the totally corrupt Kirchnerite youth group. That’s going to end.

As you know, I approve of Argentina’s famous $100 billion debt default. That’s not because I approve of stiffing creditors; to the contrary. But those who were stupid enough to lend money to a profligate fascist government deserve to be punished. And, even after things are settled with holdout creditors, the market will be loath to lend to the new government. Excellent; they’ll be forced to live within their means. Most of the money was either stolen or frittered away, anyway; at best, it was misallocated. The default keeps the next generation of Argentines from becoming indentured servants to pay it off.

It’s too early to tell, but this election has the potential to be as radical a change as the rise of Deng was in China, overthrowing decades of Maoist stagnation. It seems unstoppable. During the Kirchner years, agricultural production collapsed because of “retenciónes”. This was a tax, ranging from 10-40%, depending on the product and its current price, payable to the state before grains, meat, or what-have-you was allowed to be loaded on a ship. Then farmers paid income tax on any leftover profit. Now that the retenciónes are gone, exports could easily double. Billions of dollars will flow into the country. Under the new regime, foreign companies will develop Argentina’s massive shale oil reserves as well; they should become a major oil exporter.

Even more important, Argentines (the smart ones) are said to have over $200 billion abroad. Now that the climate has changed and assets are very cheap, they’re going to bring a lot of that home. That will be compounded by scores of billions more in new foreign investment. And more production in every area as the economy is liberalized because, right now, everything that isn’t price-controlled is subsidized. The past government wound up making almost everything uneconomic as a result. Three years ago, for instance, the country was actually importing milk. That’s about as nonsensical as Arabia importing sand.

Will investors have to worry about Argentina’s chronic currency inflation, now at about 25%? The new government is quite conscious that this makes them look like a banana republic. They also know that it makes it impossible for the lower and middle classes to save. Every indication is that they’re going to stop printing money. This will add to the new prosperity in many ways. For one thing, it’s going to allow corporations to plan and act rationally. Despite the fact I’m bearish on most world stock markets, Argentina’s is a buy.

Will the trend hold? Again, I’m fairly optimistic. It’s not just that the strength of the coming boom is likely to get a lot of people to put two and two together at last. But Argentina has always had – by far, there isn’t even a remote competitor – the strongest classical liberal/libertarian tradition in Latin America. And, after the US, one of the strongest in the world. It’s been quashed since Peron, but it’s making a comeback. The free market reforms that Pinochet made in Chile transformed that country from a backward socialist-oriented mining province into the best economy on the continent. But the Chileans have been backsliding because they never had the right philosophical underpinning. The Argentines do, and they’re going to rediscover it.

One last thing. Many of you may be (or certainly should be) thinking about getting a second citizenship and passport. The Argentine passport is quite useful, with visa-free travel to 129 countries (for comparison, the US is 147, Chile is 124, and St. Kitts is 113). Citizenship is available after only a two-year residence requirement. Most countries require five years, unless it’s an economic citizenship.

What to Do?

I suggest you take advantage of the cold weather in the Northern Hemisphere to come down here and take a look [AG DTours can provide this service for you]. For the lifestyle and the diversification, of course, but since prices haven’t really started to move yet, for the financial opportunity. Spend some time in BA. Consider going to Patagonia, and seeing San Martín de los Andes. Mendoza is worth a visit. And definitely come to Cafayate, in Salta Province. I’ll be there at our Harvest Event (more on that below), and will be happy to share a glass of wine with you. And a cigar, if you’re also an aficionado.

If you’ve been looking for a chance to play a big trend and buy at the bottom, this is it. Don’t let the boat sail without you.

Source: A Huge Change, A Renaissance And Likely A Boom | Gold Eagle

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Argentina Articles South American Agriculture Uncategorized

A Glimpse into Argentina’s Economic Future

Traditional Asado
Traditional Asado

Below is an except from Doug Casey’s May 2016 Casey Report.  Doug is an American investment advisor, author, and owner of a wine and residential sporting estate project called Estancia de Cafayate in Salta Province, Argentina.  As a ranch owner myself in Argentina and after having spent a considerable amount of time there over the past year, both before and after Macri’s election, I think his assessment of Argentina’s economic future is spot on.  We, at AG DTours, think the time to invest Argentine agriculture is now.  Enjoy…especially his description of an asado; a truly unique experience.

“So, word got out here in Argentina that I was turning 70. And that meant a fiesta was in order. I hate celebrating my birthday, but it would be churlish to wave off people who like that sort of thing.

I was invited to a party put on by some of my neighbors. Vintners, horse breeders, ranchers, farmers, and the like. An interesting group. Rich, sophisticated, the local upper crust; I’d only met perhaps a third of them before that evening. It turns out that most of them get together weekly, at one estancia or another, and have an exotic asado party. I served as this week’s center of attention and entertainment.

It was different from similar parties I’ve been to in Buenos Aires (BA) in that everyone here was speaking Spanish, with a smattering of English. In BA, the conversation at a dinner table is typically multilingual—Spanish, English, French, German, and Italian can all be used.

People were patient with me, understanding that Americans generally lack linguistic sophistication. My French (now rusty and affreux) is still better than my Spanish, mainly because I went to school for a year in Switzerland. My German is even worse, even though the 500 basic English words are all German cognates.

Argentina, of all the countries in the world, most resembles ancient Rome.  The whole country revolves around BA, the way the early Roman Empire revolved around Rome.  Successful people all have a place in the capital, one in the country, and another on the ocean for when it’s hot in the summer.  And they socialize like the Romans, with dinner parties that last well into the wee hours, as a matter of course.  First, you’re served hors d’oeuvres and champagne. Then various sausages and warm meats. Then the main course and vegetables. Then pasta. Then fruit and a desert. You’re now halfway through. Next come the after-dinner drinks and cigars. Finally, coca leaves, which most everyone chews for the rest of the evening. And conversation for the whole six hours.

What did we talk about? Many things, of course, including the economy, the world situation, politics, and the recent Argentine and upcoming US elections.  Everyone had heard it said that Hillary was going to be the next president.  Nobody liked the idea, if only because Argentina has had uniformly disastrous experiences with populist female politicians.  Peron’s first wife, the famous Evita, acted as a shadow president and, some would say, set the tone for the country’s long decline. Then came Peron’s second wife, Isabel, an Evita look-alike/act-alike, who was first his vice president then succeeded him as president after he died. Then came Cristina Kirchner, the wife of another president who died in office.  Everyone (including myself ) was shocked, but extremely thankful, that Cristina’s surrogate was beaten by Mauricio Macri.  Macri is hardly John Galt, but my guess is that the country will experience a boom in the next few years. Why? Agricultural products are at rock bottom after a long, deep bear market; tens of billions of additional money will flow into Argentina with higher agricultural prices. The new government has discarded agricultural export taxes ranging to 40% (before income and other taxes); as a result, production will likely go up 50%, bringing in many more billions. Some of the estimated $200 billion that Argentines have abroad is now likely to come back. And with the settlement with the holdouts from the government’s $100 billion default of 15 years ago, lots more money will flow into the country. A general deregulation of the economy, now in progress, will further increase prosperity. So, I told them, things were likely to get better in Argentina…”