Don’t follow leaders
Watch the parking meters
– Bob Dylan
If you’ve been watching this space, you know that our dear leaders have been wildly successful. Not at creating peace and prosperity… or conjuring up a genuine economic recovery. But at their main mission: transferring wealth, power and status from us to them.
The trouble with American voters is they lack enough cynicism to understand what is really going on.
The pols say they are trying to boost jobs or make the world safe from terrorism. The poor voters believe them.
President Obama says he aims to give the average hardworking American a better future… improve his health care… or help him find a parking space. The typical citizen gives him the benefit of the doubt. If the programs don’t work out… well… at least he’s trying.
Obama should come to Argentina – a country second to none in terms of cynicism. The typical Argentine taxi driver has a clearer idea of how politics works than a typical professor of government at a prestigious US university.
“Oh, it’s getting exciting now,” said our taxi driver this morning. “Poor Cristina. She claims we have the best economy in the world. But she’s lying. Every time I go to the store things are more expensive. And I’m not making any more money.”
You will not find the truth about what is happening in Argentina listening to a speech from la presidenta. Instead, watch the taxi meters.
We took a 15-minute taxi ride to the downtown airport in Buenos Aires, Jorge Newbery Airfield. (We’re on our way to the family ranch in Salta in northern Argentina.) The fare was 35 pesos. Two years ago, the same journey would have cost about 25 pesos.
On the Road to Bankruptcy
But in the intervening period the peso has gone down faster against the dollar than cab fares have gone up. Two years ago, Buenos Aires was relatively expensive. Now, for a person with dollars or euro in his wallet, it is cheap again.
At the official exchange rate, 35 pesos is equal to about $6.50. But the unofficial exchange rate is about 10 pesos to the dollar. So, to us – as long as we exchange our money on the black market – the cab ride costs us only $3.50.
We just arrived here from Europe. In Britain, where we just came from, $3.50 won’t even buy a subway ticket. The equivalent taxi ride would cost at least $20. As for Paris, forget it… In the first place, you wouldn’t be able to find a cab. You’d have to call one. The last time we did this the cab already had €12 on the meter before we even opened the door!
“I’m just a cab driver,” our Argentine philosopher-cum-taxi-driver continued. “I get paid – not very much – for taking people from one place to another. I even have a meter on the cab so there’s no question about how much you pay.
“What does Cristina [Cristina Fernández de Kirchner, Argentina’s president] get paid for? Lying to us. Stealing our money. Generally making a mess of the economy.
“But at least she puts on a good show. You turn on the TV, and there she is – with more lies.
“The amazing thing is that everybody knows they are lies. We all know the cost of living is going up three times faster than she admits. We all know the country is headed for bankruptcy. We all know the central bank is printing up funny money to pay her bills.
“But nobody cares about that. She’s just doing her job. Just like you and me. My job is to drive a taxi. Her job is to lie to me.”
No Strangers To Cynicism
We are no strangers to cynicism. But our taxi driver had so much of it he could have given it out all day and still have had some to spare.
Later on, we met Rob Marstrand. Rob is chief investment strategist of our family office investment advisory service, Bonner & Partners Family Office. Rob has plenty of cynicism too. He is a former investment banker from London who now lives in Buenos Aires.
“Now, it’s great. Because the quality of life is rather high – at least if you get paid in dollars or pounds. You eat well. You can rent a nice apartment. And you get a good laugh every time you turn on the news.”
Like many expatriates here, the part of Rob’s brain that does quick math calculations is expanding. He is paid in one currency. He keeps score in another. He pays his bills in a third. And he trades between the three of them at different rates… depending on whom he is dealing with.
When you ask the price of an apartment, for example, the answer usually is: “It depends.”.
How much will you pay in dollars? How much in pesos? How much at the official rate? How much at the unofficial “Dólar Blue” rate? And how much will you say you paid?
Typically, you pay some officially, at the official rate. The rest you may pay under the table in dollars. You may have to show up at the settlement with a big suitcase full of cash or make a transfer to a bank account in Miami.
“It’s all very exhilarating,” says Rob. “If you like doing math. I had to set up a spreadsheet to keep up with it.”
Stay Away From Argentine
Stocks for Now
From the desk of Chris Hunter, Editor-in-Chief, Bonner & Partners
Rob Marstrand recently filed a detailed report for Bonner & Partners Family Office about investing in Argentina.
According to Financial Times data, the Argentine stock market trades on a 12-month trailing P/E of 3.4. That compares with a 12-month trailing P/E of 18.5 for the S&P 500.
And the Argentine stock market is even cheaper than the Greek stock market, which trades on a 12-month trailing P/E of 4.4.
So, is Argentina a buy for value-minded investors? From Rob:
On the surface, stocks may appear cheap. But scratch that surface just a little, and you find a country with a weak currency, high inflation and an uncertain economic outlook. Plus, elections in mid-October look likely to remove the government’s majority in Congress.
Argentine stocks are not as cheap as they seem at first glance. They are cheap only because of the “hall of mirrors” effect from a particularly trenchant case of peso inflation…
Here’s a chart of the official and unofficial dollar-peso exchange rates going back to May 2011. The official rate is in green. The unofficial rate (the so-called “Dólar Blue” rate) is in blue.
Even going by the official exchange rate, the peso is down -18% versus the dollar over the past 12 months.
Our conclusion: Argentine P/Es may look tempting from afar. But when you buy Argentine stocks, you’re buying a piece of the companies’ net assets and their future earnings streams – in pesos.
Those assets and earnings could be worth significantly less in a year or two when measured in US dollars.
Steer clear for now…