Gualfin (“End of the Road”), Argentina
“Give it the works,” Jorge, our ranch foreman, yelled.
The dust billowed up. The cows whined, moaned and honked.
We reached for our clippers.
The results of “the works” were already spread around us. There was blood splattered on the stone walls and wooden barriers. The smell of burnt hair and hide was in the air. And on the ground were triangular pieces of cows’ ears, horns and testicles in various sizes.
One of the dogs had been eating the testicles as fast as they were tossed to him. But he had had enough. Now they were just lying in the dust.
When the order went out for “the works” the team moved into action.
As the least competent member, our job was to clip the cows’ ears. Done right, on the lower part of the ear, the cow seemed to barely feel it.
Meanwhile, Jose – one of the ranch hands – brought over two syringes, injecting a dose of antibiotics as well as some anti-parasite concoction.
Close behind him was another ranch hand, Javier, with the branding iron. He brought it firmly down on the cow’s flank, until smoke rose and the brand was clearly planted.
Jorge was already on the job by then. He opened up the scrotums with his Swiss Army knife, drew out the testicles and cut them off, throwing them off to his right.
There, until he had eaten his fill, Jorge’s dog, Sintenella, snapped at them… often getting them before they hit the ground.
All day, the cattle ran through the manga – the cattle squeeze chute.
“These are mountain cattle,” Jorge explained.
“You can see the difference. They’re thinner. And they are a different breed. Criollo mixed with some of our Braford. And they have horns.
“We usually castrate our cattle earlier and we take the horns off when they are little. These animals get pretty big before we get them in here.”
They came to us in payment for letting them graze on our land.
The system is so arcane that even after eight years we still don’t understand how it works.
There are cattle up in the mountains – thousands of them. Jorge seems to know, more or less, where they are and to whom they belong. But how are we going to get along after he retires?
Today, everyone is on vacation here. It’s May Day – the international worker’s holiday.
But our labors continue. Fortunately, our vocation is also our avocation. “Love and need is one,” as Robert Frost put it.
So even on this holiday, we continue trying to understand what is going on not only on the ranch, but also in the economy.
First, we recall with some satisfaction that we told readers in the March 20 Diary to “Sell the US; Buy Russia.”
Naturally, this annoyed some readers, who saw something unpatriotic in investing in Russia.
But the idea proved to be a good one. Since then, the big Russian ETF, Market Vector Russia ETF Trust (NYSE:RSX), is up 21%. US stocks are more or less flat. The S&P 500 is down about 0.5% over the same period.
How did we know Russian stocks would go up?
Of course, we knew no such thing. All we knew was that they were preposterously cheap and that most investors based their judgments on little real knowledge of Russia.
Extreme valuations – high or low – are usually wrong. And they are most probably wrong when they are mixed with political nonsense, media claptrap and popular prejudice.
As for the US stock market, we judged it preposterously expensive.
Not that it couldn’t become much more expensive. But every day brings more evidence that:
1. The recovery is more fake than real.
2. The US is in a long-term growth downturn.
3. US stocks are overvalued given these underlying conditions.
Jeffrey Snider of investment firm Alhambra Partners tells us that it is unusual for “final sales” – which measure demand from US residents for imported and domestically produced goods and services – to fall.
(By contrast, GDP measures demand from foreigners or US residents for US-produced goods and services.)
But that’s what happened between the last quarter of 2014 and the first quarter of 2015. And this wasn’t the result of some adjustment. This was the real thing, unvarnished and undiluted. Here’s Snider:
Seeing a negative nominal growth rate in final sales is highly unusual, which might as well be expected given that we have been under some form of an “inflation” appeal of monetary theory since 1965.
In the twin of final sales accounting, Final Sales of Domestic Product, there have only been four instances of a negative quarter since 1958. Three of those were during the Great Recession… and Q1 just produced the fourth!
To what do we owe this crummy economic performance? To the Fed!
It has shifted the economy from the hard work of saving and investing to the cheap tricks of speculation and financial engineering:
Reagan’s former budget adviser and Wall Street watcher David Stockman explains:
Self-evidently, the Fed’s 5x balance sheet expansion since December 2008, which has resulted in 77 straight months of zero money market interest rates, has massively subsidized carry trade speculators.
The latter use this free short-term money to fund (i.e., “carry”) their stock, bond and other asset positions, and thereby bid the market for these assets to higher and higher levels.
So doing, they are not bringing new savings into the investment market and thereby augmenting honest demand for stocks, but are merely enlarging their bids with zero cost credit made from nothing.
That is what gives us $1 trillion of stock buybacks and roughly zero real economic growth. Had the figures not included growth in inventories, the GDP figure for the first quarter would have been negative.
And now, our own research department believes US stock market investors are being led into the manga.
“Give ‘em the works,” a voice yells.
More on Monday…
Russia Outpaces Emerging Markets Too
|by Chris Hunter, Editor-in-Chief, Bonner & Partners|
Russia isn’t just outperforming the S&P 500.
It’s also trouncing the emerging market stocks in general.
As you can see from today’s chart, so far this year, the Market Vector Russia ETF Trust (NYSE:RSX) is up 34.6%.
By contrast, iShares MSCI Emerging Markets Index ETF (NYSE:EEM), which tracks a broad basket of emerging market stocks, is up just 9.1%.
EEM tracks a basket of stocks across the emerging markets.
And despite its outperformance, the Russian market still trades on a 12-month trailing price-to-earnings (P/E) ratio of 8.3 versus 13.7 for the emerging markets in general and 18.4 for the S&P 500.
Put another way, you can buy a year of Russian corporate earnings for a 40% discount to a year of emerging markets earnings and a 55% discount to a year of S&P 500 earnings.