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Tuesday, November 24, 2015

A New Day In Argentina

A New Day in Argentina

Is it a new day in Argentina?
Are contrarian investors in the country about to make multiples on their investments?
These are the major questions on the table after Mauricio Macri won the Argentine presidential election on Sunday.
Longtime Casey Research readers know Argentina is one of Doug Casey’s favorite countries in the world. Doug, who founded our firm, has a home there and multiple Argentinian investments, including the spectacular La Estancia de Cafayate development.
La Estancia de Cafayate is located in the heart of northern Argentina’s wine country. It offers one of the world’s premier sporting and lifestyle experiences. It features miles of beautiful hiking trails, a world-class golf course, and a luxury athletic club and spa.
Doug and numerous other freethinking individuals call Cafayate home. It’s become a modern day “Galt’s Gulch.”
Macri’s victory could have major long-term implications for Argentina. To get a boots-on-the-ground take, we asked Doug for his opinion.
•  Here’s Doug Casey:
Sunday night, there was great rejoicing among the people I associate with here in Argentina. Mauricio Macri, the pro-business mayor of the city of Buenos Aires, defeated Daniel Scioli, the Kirchnerite governor of Buenos Aires province, by 52% to 48% of the vote. This was an important election for anyone who has money in this country (including myself).
Let me give you some brief background. For the last 12 years the country was ruled first by Néstor Kirchner (from 2003-2007), then by his wife Cristina, who was elected in 2007, then reelected in 2011. Nestor died of a heart attack in 2010. Nestor had the good luck to come into office at the dead bottom of a horrendous crisis. From there, everything cyclically recovered, aided by higher commodity prices; the Argentine economy is based on agriculture. People, idiotically but predictably, attributed the better times to the Kirchners, as opposed to a commodity boom. Néstor was just a garden variety leftist. But Cristina turned out to be a raging statist ideologue, modeling herself on her idol, Eva Perón.
The Argentine economy has been in a steep decline since the accession of Juan Perón in 1952. Perón was an admirer of Mussolini and Hitler and, like them, instituted a regime of strict state control of the economy, enriching well-connected businessmen, while giving all manner of “free” goodies to the peons. The peons felt they were getting something for nothing, so subsequently always elected a politician who claimed to be a Peronist.
Cristina took it to another level. She nationalized Aerolíneas, and La Cámpora, her youth group, is said to extract about a billion dollars a year from the airline. She nationalized the country’s biggest oil company, so, of course, there’s been no energy development even though Argentina has some of the world’s biggest shale deposits. She put export duties ranging up to 40% on soybeans, corn, wheat and cattle; then farmers are expected to pay ordinary income tax on whatever profit is left. She nationalized the county’s pension funds, spent all the FX reserves, and filled the government with tens of thousands of her supporters. Meanwhile, it’s alleged she personally stole over $10 billion, not counting what subordinates and cronies have scammed.
So, back to Sunday’s election. If Scioli had won, it would have been more of the same, just on a lesser scale. But there’s a good chance that Macri will get rid of lots of gnocchis (as featherbedding government employees here are called), will repeal the export taxes, defang La Cámpora, reduce money printing, etc., etc. He’s no Ron Paul, but there’s reason to believe he has, at least, a basic understanding of economics.
He’ll be forced to take radical action since Cristina has run the country until its wheels have about come off. But if he does it, a couple hundred billion dollars Argentines have offshore could come home. And as much more from foreign investors. Sure, people in the government will still steal - that happens everywhere but maybe Singapore. But, as I’ve said for years, if the country gets a government that’s only not criminally insane, the place could, and should, boom. At a minimum, asset prices, which are now extremely low, should rise to world levels.
I came down here because I liked the lifestyle - and despite Cristina it remains one of the world’s best. But now, there’s also a good chance that those of us who put money here in the last decade, after years of being laughed at, could make a bundle. And the lifestyle will get even better...