Ambition makes you look pretty ugly,
Kicking, squealing, Gucci little piggy.
~From the song “Paranoid Android,” by Radiohead
Meet Cristina Fernández de Kirchner, la presidenta who ruined Argentina… again.
Her sworn enemies, a large and growing contingent of the Argentine population, refer to her disrespectfully as “CFK.” In an expression of solidarity with the long-suffering people of the Pampas, we shall henceforth do likewise. But we will not tweak CFK’s nose just for the fun of it. Our interest is financial. As such, we suspect CFK’s disastrous policies are setting up a spectacular opportunity to invest in Argentine real estate. For that, we dollar-earning foreigners say, “Gracias, CFK!”
CFK’s presidency has been something of a rolling disaster. From her election in December 2007 through to events that transpired just last week, her administration has remained embroiled in scandal and mired in ineptitude.
Her government’s price controls, import bans and capital controls have proven as calamitous as they are well documented (about which, more here, here and here). Indeed, a veritable litany of tortured economic indicators line up to condemn her appalling performance.
As bondholders struggle to calculate losses from Argentina’s “abnormal default” back in July, international capital markets remain – for all intents and purposes – closed to the basket-case nation. Real estate prices in the capital city, Buenos Aires, are down 20% year over year… continuing a trend now confirmed for 30 consecutive months. Power outages are not uncommon. Business activity is slumping, while the inflation rate, as figured by the unofficial (see: reliable) measure, is north of 40%… and climbing.
Not surprisingly, Argentines desperate to escape the Kirchner government’s rapidly depreciating currency pay a hefty premium to convert their pay into dollars (or euros… or just about any other non-peso asset). For the reader’s reference, this unofficial rate is termed “dólar blue.”
Less than two months ago, we ran the chart below in an issue of The Daily Grind. The “blue rate” at that time was around 12 pesos to the dollar. Today, the blue rate is flirting with 16-to-1, or roughly double the “official rate” of 8.5-to-1!
It seems only a matter of time before the modern peso goes the way of past pesos, new pesos, australs and the rest of the stillborn redenominations littering the nation’s inflationista past.
Whether the modern iteration is laid to rest during CFK’s remaining time in the Casa Rosada, we cannot guess. Suffice it to say, the race between the end of her presidency and the demise of the peso is shaping up to be a close call.
Interestingly, CFK’s personal finances are not suffering in quite the same way as those of “her people.” Estimates of the Gucci-clad presidenta’s wealth are difficult to come by, though best guesses put it at somewhere between US$12 million and US$15 million, an extraordinary sum considering the deteriorating economic backdrop against which it was supposedly achieved.
The host may be dying, in other words, but the parasitoid continues to feast…
Of course, it’s not “merely” economic measures by which CFK must be judged. Her social policies, for example, are equally flawed.
From the get-go, it was clear that CFK would be no friend to that quaint notion known elsewhere as “freedom of the press.” Her government controls roughly 80% of the nation’s media, either directly or indirectly. The “programming,” therefore, is exactly as you would expect. Under its Fútbol para Todos (“football for all”) program, which began in 2009, TV Pública Digital Argentina broadcasts all major Argentine soccer matches… interspaced, of course, with pro-government “public service announcements.”
It’s “bread and circuses” for the semi-digital age… such as Argentina can achieve it.
Not unlike her late friend and political ally Hugo Chavez, the former comandante de Venezuela, CFK routinely uses the “national broadcast” rule to pepper radio and television coverage with her unlettered political soliloquies, drawing ire from the few voices still around to defy her reign.
As such, glimpses of the “real” CFK are hard to come by. One such opportunity arose when she delivered a “unique opportunity” to students at Harvard University a couple of years back.
During the open Q&A session that followed her speech, CFK was questioned about the controversy generated around the notoriously massaged official figures, in particular the soaring inflation rate. (At the time, unofficial figures were reporting a 25% annual rate.)
“Oh, really?” she snapped. “Come on! And you believe that? If Argentina’s inflation rate was at 25% like some people say, the country will blow up in the air.”
No doubt many Argentines are eager to see her eat those words, even if that victory proves, ultimately, to be a Pyrrhic one.
But the dollar-holding value investor need not cry for Argentina just yet. As Jim Grant, founder and publisher of the venerable Grant’s Interest Rate Observer, recently wrote:
Like Russia, Argentina is so bad that it almost can’t get worse. Notice: almost. In human affairs, there’s always room for deterioration. The speculator in Argentine debt and equities may possibly suffer a permanent loss of capital. However, we judge that – again, as with Russia – valuations favor the optimist.
Grant is bullish on the “country that ruined itself”… and so are we. Opportunity resides in the unloved corners of the market where most investors fear to tread. If CFK has her way – and all indications are that she will – Argentina is likely to present some attractive opportunities for the intrepid contrarian. Continues Grant:
In a sense, Cristina Fernández de Kirchner, the disastrous two-term Argentine president, stands to do the value-seeking investor not one good turn, but two. In misgoverning, she’s wrecked the economy. By stepping down, she’ll improve it. Her policies have destroyed asset values. Her leaving will crystallize the opportunity to participate in the recovery of those values.
Your editor is headed back to his sometime-home a month from now. We’ll have more from the scene of the crime in future issues. Watch this space…
Cheers,
Joel Bowman
for Free Market Café
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