(Interviewed by Louis James, Editor, International Speculator)
L: Doug, we've
had a lot of people write in with questions about Argentina since the
government moved to nationalize YPF. First, I have to tell readers that we
saw la presidenta going off the deep end
some time ago and sold all the Argentina plays in our portfolio. But you live
there, have invested there, and are a famous contrarian – so what do
you think? Is the market's understandable reaction to the expropriation overdone,
making it time to buy, or would you still stay out of Argentina plays?
Doug: I'd first
like to distinguish between living in a country and investing in a country,
which are two totally different things. As a general rule, I'd say that right
now I have very little interest in investing in companies doing business in
Argentina – though I've got to say that the Argentine stock market is
yielding about six percent in dividends and selling at about eight times
earnings. That makes it one of the cheapest markets in the world. It's been
heavily discounted due to corruption, government stupidity, and a generally
poor business environment.
L: So is that
discount appropriate or overdone? I suspect that Argentine companies are in
no danger of being nationalized, so they might be excessively discounted. On
the other hand, the folks behind the curtain, pulling the levers on the
machinery of the state in Argentina are clearly fools or knaves – I'm
not sure any business is safe in Argentina.
Unfortunately, that's true. Argentina's politicians have been just terminally
stupid ever since Juan Perón. Even though
he was a criminal personality, an overt admirer of Mussolini, and openly
sympathetic to Hitler, Perón has become such
a cultural icon that you can't do anything in Argentina today without at
least calling yourself a Perónist. It's
rather like in the US, where, if you don't think that FDR was a hero for getting the US out of the Great
Depression, you're persona non grata. Perón
is Argentina's Roosevelt.
More recently, former president Nestor Kirchner –
late husband of Cristina, the current president – was a total disaster.
All of his policies were completely wrong-headed and destructive, but he had
the good luck to get elected just as the commodities boom got under way, and
demand for Argentine agricultural and mineral products soared. That paid for
a lot of social spending and made him look like a hero, even though
everything he did was the exact opposite of what needed doing.
This is true of Cristina too, but she's actually
outdone her husband in implementing economically suicidal policies. Every
single week, her government does something that's bizarre, counterproductive,
or absurd. The most recent and serious blunder, of course, was the
nationalization of YPF – but just a few weeks ago, her government tried
to ban the importation of books. It wasn't because they cared what was in the
books, it was part of the effort to limit imports in
L: I read
about that – the excuse was that foreign printers might use ink that
could be dangerous. I remember thinking that was crazy, and she does seem to
check into hospitals a lot...
Doug: They had to
back down on the books. That would have been just too much, to deprive a very
literate country of about 85% of books in Spanish and almost 100% of those in
other languages. Although it would have been a boon for Kindle –
something they probably didn't even think about. But importing anything to
Argentina is a huge hassle these days.
Nationalizing YPF actually make no sense on any basis.
She says she did it because the company didn't invest enough in Argentina
– but there's a reason for that: the current regime has made it very
dangerous to conduct any sort of productive business in Argentina. As a
result of its policies, Argentina has gone from being self-sufficient in oil and
gas – and an exporter – to being an importer. She's telling
everyone that nationalizing YPF will result in more investment in Argentina
and hence more production, but that's a fantasy. Like any national oil
company, YPF under its new management is going to be horribly inefficient and
riddled with graft and corruption. If they do somehow generate any earnings,
they'll just be wasted by the government on social programs that buy votes
but don't make any lasting improvement in the country.
Of course, YPF started out as a parastatal
in the '20s, so the company has always been a political football. Under Perón it accumulated scores of thousands of
unneeded employees. In Argentina they're called "gnocchis,"
after the heavy, doughy, inexpensive pasta that kind of just lies on your
plate and does nothing. In fact, Argentines traditionally eat gnocchi on the
last day of each month, partly because it's cheap and money is short at
month's end and partly because it's a joke about useless government
employees. The average guy in Argentina is well aware of how corrupt the
system is. It's why Argentines are always making jokes about themselves
– lots of black humor.
On the other hand, there's an explanation for these
actions other than insanity. Rumor in Argentina has it that when Nestor was
first elected, the Kirchners had a net worth on the
order of ten million dollars. That's not a lot for a governor...
Yes, what a couple of slowcoaches; any self-respecting Latin-American
politician ought to have been able to abscond with at least a hundred
Yes, at least a hundred million. Over his entire term, Carlos Menem is said to have walked away with as much as
$15 billion. Why should anyone settle for less?
L: So you're
suggesting that maybe she's not crazy, but rather a successful political
entrepreneur who may yet set a new record at enriching herself at the expense
of the people she claims she's trying to help?
Doug: Far be it
from me to accuse any serving political figure of possible impropriety. Just
because her policies are stupid from the point of view of the people of
Argentina, that doesn't mean they are not very intelligent from her point of
view at the apex of the political food chain. But it's not just Argentina; it
happens all around the world, though perhaps most visibly in Latin America
and Africa. People starve while politicians make themselves
fabulously wealthy – and enjoy the power trip too.
Here in the US, politicians tend to be more cautious
and often wait till they're out of office to collect their payoffs. Take
Clinton. There was the time when Hillary made something like $99,457 in
"profits" trading cattle; it was one of the most transparent
payoffs I've ever seen. My only question was how the other $543 found its way
to her purse. And it was quite funny when Bill was soliciting donations to
cover his legal fees over the Monica scandal. He knew he'd be getting tens of
millions in speaking fees, directors' fees, book contracts, and sweetheart
investments, among other things. I'd guess those two are worth 100
extra-large now. In the Third World, there's not enough trust nor capacity
for delayed gratification to wait until one is out of office. Anyway, a
hundred million is really just pocket change for those who get to run a
country these days. Hardly worth the aggravation of getting elected.
But by "intelligent" you mean that for a parasite that achieves
such success qua parasite – not that such destructive parasitism
is actually an intelligent choice for a human being... If a parasite grows
without moderation, it eventually kills its host and hence itself. That
aside, such behavior is unethical, meaning that it coerces and damages
others, which creates enemies and opposition. That can get the
parasite-in-chief tied to a stake in front of a firing squad well before the
host succumbs to the parasite's destructive policies.
Argentina has quite a history of coups... as does every other country in
Latin America. And, for that matter, most every country in the world
throughout history. Lots of firing squads.
L: Do you
think that Cristina is actually the defining force of her government? She
sort of inherited a mantle – and a political machine – from her
husband, taking over when he died. Do you think these crazy-looking ideas and
policies are actually hers, or is she just a mouthpiece for that machine?
Well-connected people I know in Argentina say that she's quite a powerhouse
herself. She may or may not have much raw IQ, but she's very politically
intelligent – a great manipulator of other people. That's the essence
of being successful in politics in any country.
L: So you
think she actually believes something along the lines of what she says? It's
her thinking that calls the shots in her government?
Doug: Well, I
wouldn't call it "thinking" as such; it's more of a reflexive, gut
reaction to events. She says she has an economic model, but it's ludicrous to
posit a model in which it makes sense to ban books, nationalize industries
you've made less profitable, threaten the British with war, debase the
currency at a prodigious rate, and so forth. It's really just ad hoc
populism with a strong dose of fascism thrown in. She's modeling herself
But what's really scary are
the people around her. This is typical of almost any government, however.
Look at the people who were around Clinton. Look at the people who were
around Bush, from Cheney on down. Look at the people around Obama. The people
just under the maximum leader are usually much more dangerous than the actual
I'm not an expert in Argentine history, but this may be the worst crew
Argentina has ever had – or at least as far back as Perón.
L: That's a
pretty high bar.
[Laughs] It really is. You know, it's dangerous enough saying negative things
about politicians in the US, the way things are evolving. It's really a bad
idea in a Latin-American country. I'm not sure it's actually in my interests
for us to be having this conversation...
But there's all kinds of
evidence for what I'm saying. Take Aerolíneas,
the national airline, which was nationalized in 2008. It's used as a piggy
bank and loses something like $700 million a year.
The bright side is that these people are in office
mainly to enrich themselves. So far, they have not
shown much of the harsher authoritarian tendencies associated with
nationalist-socialist governments, nor the growing obsession with controlling
people we see in the US. Fortunately, on that front, they are also much less
competent at such things.
L: I knew a
man who used to say, "Thank God we don't get all the government we pay
for." Unfortunately, we seem to be getting a lot more of it in the US
Government incompetence is one of Argentina's many charms. It's really a pity
those in charge are hell-bent on milking the place to death economically,
because it's by far one of the nicest places to live in the world – by
many measures. But economic foolishness has been a hallmark of Latin-American
governments from day one; nothing new on that count.
L: Can you
expand on that? Aside from the investment question, that's the other thing
people ask about: Are you crazy to live in a place run by maniacs?
Doug: Well, as I
just said, the quality of life is tough to beat. It's important to remember
that through all the economic chaos, bank crises, hyperinflation, and so on,
the government has never seized private land. That's never been a problem in
Argentina. And it's unlikely to ever happen, because it's a huge country
– the eighth-largest in the world – but has a fairly small
population, only 40 million. In fact, land redistribution all over the world
is passé, simply because the world is moving into cities.
Nobody except farmers and lifestyle-conscious rich folks really want to be
out in the countryside anymore.
Almost all the troublesome news comes from Buenos
Aires, a relatively small province, although it contains about 40% of the
country's population. Once you get out into the other provinces, it's a
different world – like going back in time, to a quieter, more peaceful
age. But even in Buenos Aires, none of this stuff affects you directly; it's
just background noise. BA is sophisticated, cosmopolitan, has a relatively
low crime rate for a big city, and the government leaves you pretty much
L: I dunno, Doug, if the new government rules prevent you from
taking out more than 1,000 pesos a day from an ATM, that
could get pretty inconvenient.
Doug: Not for me
– I don't have an ATM card.
L: No cell
phone, no ATM card – you're quite the caveman for a technophile.
Doug: True. True.
But you don't want to have a bank account in Argentina anyway – that
would be asking the fox to guard your chickens. This is why lots of European
banks have lots of informal representatives in Argentina; they facilitate
financial transactions for foreigners and rich Argentines. This is something
else Cristina has come down on, and the many Swiss and other bankers in town
have had to close down their offices and either move across the river to
Uruguay or disguise themselves as brokerages. It's an inconvenience. But on
the other hand, credit cards work fine, and large transactions are still
typically conducted in cash – which is to say briefcases full of the
stuff. There are, unfortunately, not too many countries where that's still true.
L: Okay, so,
for good living, you've got great wines, pretty countryside, secure land
title, etc. If your income is derived abroad – not in Argentine pesos
– could this political and economic chaos make living in Argentina
Financial chaos is the friend of someone who has assets outside the country.
Life is not currently as cheap in Argentina as it was a few years ago –
at the height of the last economic crisis, it was probably the cheapest
country in the world. It was so cheap, it was embarrassing. One thing that's
absolutely in the cards is that Cristina and crew are going to destroy the
currency... nothing new here – they've done it almost as many times as
Brazil since WW II. Argentina will collapse economically again – that's
baked in the cake at this point. The government now controls the exchange
rate, with the peso officially at 4.30 to the US dollar, but domestic
inflation is running at about 25 percent per year. Prices in pesos have been
rising much faster than the peso has fallen in forex,
so at some point, something has to give. Argentina is not expensive, but it's
not currently a major bargain. That will change when the
"something" does give, and Argentina will become a bargain again.
Sadly, few foreigners will take advantage of it then,
just as they didn't during the last crisis, which was the best time to buy in
recent years. People from abroad saw Argentines banging pots in the streets
on TV and decided to stay away in droves. It was very convenient for those of
us who did visit. There were no cars on the road. There were no lines nor
reservations needed at restaurants. Everything was cheap as dirt.
In the long run, of course, these crises are very bad
things. They destroy livelihoods – and lives. Each event is a scythe
mowing down another swath of the middle class.
That just shows what a fantastic and wealthy place
Argentina was a hundred years ago, as things have gone downhill since then
– especially over the last sixty years – and it's still a great
place to hang out. It's my favorite place in the Western world to spend time.
version: you wouldn't want to invest in most businesses operating in
Argentina, but you still love it as a place to hang your hat?
Doug: Yes. People
sit at home and watch blatherings of talking heads on
CNN about some far-off place like Argentina, and they imagine they know
what's going on. They don't. They should get on a plane and go see for
themselves – few places are as great as the travel shows make them out
to be and few are as bad as the peddlers of bad tidings on the news shows
make them out to be. Remember that journalists have a pecuniary interest in
sensationalizing everything. Sure, Cristina's government is probably one of
the dumbest in the world today, but you can still enjoy the best steaks
– accompanied by some of the finest wines in the world – in peace
and comfort, in a beautiful setting, for relatively little. It's a nice
L: Do you
think Argentina is stuck with Kirchnerism until it
crashes, or is there any chance of Cristina and her cronies getting voted
Doug: The way
things are going, the crash could well come before the next election. If that
happens, I would expect Cristina's gang to be voted out – but that
doesn't mean that whoever replaces them would be any better. Just as I keep
saying about the US: After Caligula, we'll get a Claudius, and people will
think it can't get any worse, but then we'll get a Nero. I expect the same
thing in Argentina.
But it's possible that things could get so bad
that someone rises to power who actually makes
things radically better. It happened in New Zealand. In the mid-1980s, nobody
would have guessed that New Zealand, which was becoming the shallow end of
the gene pool, would see a socialist by the name of Roger Douglas rise to power and act with a lot of common
sense. He fired two-thirds of government employees, got rid of import duties,
and cut the income tax by 50 percent. New Zealand went from being a tired
backwater to quite an acceptable place in a very short time. If it could
happen in New Zealand, it can certainly happen in Argentina as well.
L: I met Maurice McTigue, who was a minister in that government. He
told me how that socialist government did something no liberal government
could have done: they cut subsidies to farmers. Not for ideological reasons,
but simply because they had no money. These were massive subsidies, and the
farmers cried foul and proclaimed their doom, but once forced to find new
markets for their products, they actually did – and found better ones
and made more money. Maurice told me that he'd come to the conclusion that
subsidies make farmers poor.
Doug: Right; they
had no choice. I'd like to think the same thing is possible in Argentina.
There actually is a substantial classical liberal presence in the country,
people who understand basic economic realities and who could step in with the
right ideas, especially if commodities turn cyclically downwards, leaving the
country with absolutely no choice but to change.
L: You're not
just showing a bias because you love the place, are you, Doug?
Doug: I might be,
but the fact is that governments all around the world are headed in the wrong
direction. Since World War II, people all around the world, even in "the
land of the free and the home of the brave," have come to see the state
as both father and mother, protector and caregiver.
At the cultural level, it's become universal now, especially throughout
Europe and North America.
I'm afraid we've lost the intellectual battle.
Socialism and fascism have won, and the average person has been totally
corrupted in his values. We can see that in people's cries as we get deeper
into the Greater Depression; they want nothing more than for the state to
kiss everything and make it better.
L: It's rather
ironic. If the battle for the hearts and minds of the people has been lost,
it also seems true that the battle in the field of economics has been won.
Keynesianism has been disgraced. Even socialists and central planners seem to
understand that markets are necessary – if you destroy the price
system, you fly the economy blind, and massive decreases in prosperity
follow. Even the Chinese say they have "market communism" now.
true, but hardly the only contradictory thing in our topsy-turvy world. We
won't know how it's all going to work out for this period of history until
the global economy really collapses. I think that will push a massive reset
button, accompanied by the full regalia of chaos: riots, wars, the works. Life will look quite different on the other
L: Is there a
point at which Argentina can get oversold?
Doug: Yes, sure.
I'll buy absolutely anything in any place, if the price is low enough.
L: What would
"low enough" look like?
Doug: It'd look
like when I was recommending New Zealand in the '90s – that's when it
was about the cheapest nice place in the world, as Argentina soon will be
again. But for equities, it's too early to buy Argentina – I don't
think it's bottomed yet, nor will it until the next elections. After the
current insane policies cause the Argentine economy to hit a brick wall, and
the current crew have been tossed out, that would be
the time to look for investments. The sensational headlines at the time will
keep the masses out, so it should be a real buyer's market.
Our readers know I have a lot of money in Argentina
right now, so I should add that it's all in real property out in the
prettiest parts of the provinces away from the capital. I have no fear of
expropriation. Overall, I'm actually not worried about Argentina. What's
happening now is par for the South-American course – things like this
have been going on for a hundred years, and people know how to get back on
their feet, pick up the pieces, and get going again.
L: So, there's
a light at the end of the tunnel?
should, or at least could, turn a corner and improve radically in a few
years. But I'm less hopeful for the US. Both Obama and Romney are bad news.
But conditions are going to be way beyond anyone's control. And I'll bet the
US elections of 2016 will bring an authoritarian ex-military type, some
charismatic general. So the worst is yet to come in the US.
Cheerful again – and we didn't even get 'round to talking about WW III.
Doug: It's the
way it is. Those who want to look down on Argentina for its madness would do
well to remember that Cristina has not cornered the market on sociopathic
behavior. No place is exempt. You can run, but you can't hide.
But if you want to end on a happy note, I'll say that
of all the places in the world I've been, and can think of to be now, I'd
still rather be in Argentina than just about anywhere else.
L: And for
Doug: Colombia is
probably the most interesting place to invest in Latin America today. The
people in charge understand markets and the place is on a sharp learning and
Colombian president told the press the other day that business was welcome in
Colombia, saying, "We don't expropriate here!"
Though, as a contrarian, I have to say that Venezuela is looking more and
more interesting. Its stock market is even cheaper than Argentina's, yielding
about eight percent, and selling around six times earnings, last time I
L: And there's
a definite catalyst for change looming in the future?
Doug: That's right:
Chávez has terminal cancer. But these are dangerous waters – it
may be hard to imagine, but whoever replaces him could be worse than
Chávez. And even if it goes well, it could take years for Venezuela to
improve. It's an interesting spec, but only for the most patient speculators,
and those with money they can laugh off losing.
L: Sounds a
bit ghoulish to speculate on a man's death.
Doug: None of us
get out of here alive, and his number is visibly coming up. More, he's an unethical
maniac whose policies have wrought more damage than can ever be accurately
accounted for. That would include loss of lives. I won't shed a tear when he
graces our world with his departure. It makes more sense to care about the
people of Venezuela and not care about the psychopath who's ruining it. The
place will need foreign injections of capital and ideas. I'd invest for
profit – but it would also be the best thing a foreigner could do to
actually help the people.
L: Very well
then, there's looking on the bright side. Thanks for your time and insights.
Doug: You're very
welcome. And I'm anxious to get back to Argentina. I really enjoy the place.
[Doug's Argentine retreat is nestled in a secluded,
1,360-acre wine and residential sporting estate in the beautiful province of
Salta. Residents and visitors enjoy a world-class lifestyle that features
incredible mountain views, world-class wines, equestrian facilities, hiking
trails, an 18-hole championship golf course, quaint shops, fine restaurants,
and a host of other amenities. For more details about this modern-day
Shangri-La, read on.]