CHAPTER 15

Argentina

FOUNTAINS OF WEALTH

There used to be a saying “as rich as an Argentine.” It was a dream that could easily have been reality for longer than the century during which it was true. Argentina was once second only to Great Britain in terms of wealth. That was a mere hundred years ago. Things changed rapidly in this country that once was the envy of not only South America but Europe and North America.

Argentina is an ideal country for money generation. It practically grows in the fields. The country is blessed with magnificent farmlands, mineral wealth, rivers, mountains, and natural ports on the Atlantic Ocean. Unfortunately, it’s also a political minefield with governments that seem to pride themselves on competing for “who can be the most incompetent and corrupt regime” in the nation’s history. Nepotism takes on a whole new meaning here as the current government is displaying. The current president, Cristina Kirchner is the widow of the prior president, Nestor Kirchner, who won the presidency with a whopping 22 percent of the votes cast after his opponent withdrew from the race.

Back in the late 1800s Argentina was literally minting money. Its economy was expanding on the back of mineral wealth and agriculture. It was too rich. And that resulted in massive waves of immigration. The wealth was controlled by a small group of elites and, as is usually the case, the rest of the population began to demand a share and a vote. At first, entitlement programs were small but sufficient to promote harmony. The elites, while also a minority, also controlled the political scene. This changed in the early 1900s when more liberal voting practices were enacted. The combination of population expansion, entitlement spending and voting dynamics changed the landscape of Argentina forever.

By the mid-1940s, the country was declining under the burden of massive entitlement spending. Then came the deathblow in the form of a government led by Juan Perón and his populist wife Eva. They embarked on a program to emasculate the middle classes and distribute their wealth and property to the poor through a program of welfare that would bankrupt the country completely. Of course, there were healthy doses of corruption that accelerated this process. Suffocating taxes, an overregulated business environment, and threats of government seizure of cash and property brought the Argentine era crashing to earth by the middle of the twentieth century.

After decades of mismanagement, dictatorships, purges, and coups, Argentina finally found its footing in the 1990s and began a steady climb higher . . . until it once again adopted a populist mantra and proceeded to go on a massive spending spree. The problem was that the monies were borrowed and when it came time to pay them back, Argentina defaulted on its debt and was forced to restructure once again. The other thing that remained constant was corruption, of course.

The Naked Eye

To the naked eye, everything looks calm, collected, and even sophisticated on the surface. Traipsing down one of the magnificent avenues in Buenos Aires in the springtime is very similar to doing so in Paris. Of all the South American cities I have visited, I would have to say that Buenos Aires is the city that all aspire to be. It boasts wide, Jacaranda-lined avenues, beautiful parks, outdoor cafes, and even a celebrated cemetery, the Recoleta Cemetery. The cemetery, home to the graves of many of Argentina’s famous and infamous such as Eva Perón, is located in one of the most affluent neighborhoods, Recoleta, boasting some of the city’s best restaurants and hotels. It’s a gorgeous area and a spot you should consider staying in during a visit to Buenos Aires. Everything you need is a short walk away.

Sitting at an outdoor cafe, sipping coffee and watching the well-dressed and well-coiffed locals wandering past you might suspect that prosperity flows well these days from Argentine taps. The buildings in Buenos Aires are beautifully kept and the French architectural styling could fool you into thinking you were sitting at a cafe near the Hotel George V in the eighth arrondissement in Paris. The only thing missing is the smell of fresh baguettes and the French chatter.

Dig a little deeper, and talk to the locals and you’ll see that the surface is truly barely skin-deep. There is massive dissatisfaction with the government among the merchant class. There is little that is pro-business about Argentina. It’s still about entitlements for the have nots and deficit spending and finding ways to either tax those who “have” or change the laws just enough to make financial assets less appealing. As a result, Argentines do two things. First, they buy hard assets like land and buildings. And second, they convert their money from pesos to U.S. dollars at every opportunity. Buenos Aires is one of the few major cities in the world that I have been to where I can spend dollars as freely as pesos . . . maybe more so. In the recent past, the government has frozen bank accounts, introduced new pension laws that restrict investments by their owners to government-backed debt, devalued the currency . . . in short, done just about everything wrong economically that a government can do, yet the city and the country still thrives below the surface. It’s a testament not only to the Argentines, but to the wonderful country that they love to live in and boast about despite it all. Argentina is a beautiful place.

Dirt . . . Not so Cheap

One of my friends, Doug Casey, is developing a major property in a place called Cafayate, in Salta Province, about a two-hour flight northwest of Buenos Aires. He’s pouring millions of dollars into a home/hotel/golf course development aimed at an audience that appreciates the beauty of Argentina’s countryside: its mountains, its dry air, and clean living. I mention Doug because he is one of the best emerging market investors that I know—he’s been to every one of them, more than once. He’s been around much longer than me and has been investing in places like Thailand long before it showed up on any analyst’s screen. Doug has a lot of confidence in Argentine property values. Property is a popular theme for investing among foreigners. Argentina is also a more welcoming place for Europeans thanks to the influx of so many in the early and mid-1900s. Asia, another favorite of both Doug and me for property is a much tougher society to crack. If you are going to take a trip to Salta or Cafayate in particular, stay at the Patios de Cafayate, one of the most beautiful properties in the region. The hotel is reminiscent of the type that you would find in California’s Napa region. Beware though . . . there is only one small airstrip in Cafayate, and the winds have to be just right to land. If they’re not, the pilot will detour to Salta, a larger city about a two-and-a-half-hour car ride away. This in itself is not so bad. Salta is a pretty town and the drive from Salta to Cafayate is quite pleasant and scenic, with some spectacular rock formations along the way. One thing that I was extremely impressed with about Argentina in general was the road system. It’s an easily navigable country and potholes are not an issue.

Another friend, the person who hired me to do what I do more than 20 years ago, Bill Bonner, is also a large landholder in Argentina. Bill owns property all over the world and has a knack for buying things early. He’s still shopping for more land in Argentina. Esteban Rosberg, another friend, is developing vineyards in Mendoza. He also owns a well-rated boutique hotel in Buenos Aires called the Fierro. Once again, the theme here is not the stock market but hard assets.

Land prices here can vary significantly depending on location. However, it’s still much cheaper here than say Napa or Sonoma or Paris. It’s even cheaper than Miami or Denver, for that matter. But for South America, Argentina is near the top of the list if you are looking for prime property. That said, if you are interested in an alpine home site in a great location, look into Bariloche (San Carlos de Bariloche) in the foothills of the Andes, where one can be had for less than US$100,000. You can purchase a fully furnished, rentable home in this location for less than US$300,000. A similar spot in the Rockies would set you back three or four times that, at least.

During the last meltdown and Argentinean debt default, apartments in Buenos Aires could be had for much less than US$100,000 in fabulous locations. Deals can be had here if you wait for the right time. And, that right time occurs about every five years in Argentina. If there is one thing you can count on, it’s economic crisis. The government is extremely corrupt and few outside the small ruling circle trust anything that happens behind closed doors. This lack of progress and continuation of failed policies that depend on debt issuance and taxation continue to create an unpopular situation for the business class. That will continue to put Argentina in the crosshairs of boom-and-bust cycles that occur more frequently.

A Future Powerhouse

If the country could get its act together politically and fiscally, Argentina could easily become the per capita powerhouse of South America for decades to come. It has excellent infrastructure in place. It has a level of sophistication in its major cities that just is not found in emerging markets. The fact that Argentina is still considered an emerging market should be a source of embarrassment to the population.

Fertile farmland and pastures of the Pampas, navigable rivers, spectacular tourist destinations like the Andes and Patagonia, large urban centers, strong cultural expositions . . . these are all hallmarks of a much more developed country. The country has just enough going for it to make it a worthwhile destination for some of your investment dollars. If the people I mentioned earlier are any guide, those dollars should be heading for real estate or other hard assets and not into the stock market or into bank accounts—regardless of the stated return. The past has shown that the government has no qualms when it comes to changing laws overnight or even finding new ways to part you and your money.

Strengths

Location. Argentina borders many of the countries in South America. It has excellent ports, ocean access, river access, great roads, and a developed airport system throughout the country. The country has massive mineral deposits, rich farmland, a fairly educated and sophisticated population by South American standards, and a strong business class.

Weaknesses

The government. Argentina has high debt levels, inconsistent banking regulations, and a volatile economic and political climate. It is prone to periods of social unrest and there is a strong bent toward populism. Its debt default in 2002 is a dark cloud for the country as far as efforts to attract foreign capital are concerned.

Opportunities

Real estate and vineyards. Argentine wines, especially Malbecs, are becoming well known throughout the world and have an attractive price point.

Threats

The government. Corruption is rife and a major stumbling block for anyone banking on long-term success. The country has a weak banking system, a weak monetary system, and is prone to bouts of hyperinflation.