Some notes from the Red Zone Profits.
Housing for a Song
I was treated firsthand today to a glimpse of the growing housing market on the outskirts of Buenos Aires, and I was not disappointed in its potential. My gracious host from Pulte Homes Argentina went so far as to pick me up from my hotel early this morning and drive me about 30 miles north of downtown Buenos Aires, to the areas of Tigre and Pilar. (Pulte Argentina is no longer affiliated with Pulte Homes US - private company Grupo Farallon bought out the division in early 2004.)
We drove in one of the few SUVs on the road, on a smooth highway into the BA suburbs. Nice shopping centers, complete with McDonalds, Wal-Mart and Home Depot dotted the road. Still not much sign of the widespread poverty that plagues the country. When we arrived at the first of several gated community properties of Pulte Homes, I couldn't believe the homes. I'm not quite sure what I expected, but it sure wasn't this. Hundreds of 
beautiful, westernized houses line the streets, with a supermarket, clubhouse, and shopping center right down the block. Two, three and four bedroom houses, complete with backyard decks, patios, even swimming pools - go for about US$200-$300,000. Outside of Baltimore, or especially Washington D.C., these houses would easily go for upwards of US$700,000.
An unusual feature of real estate here is that, for the most part, Argentines do not use mortgages and pay cash for the houses! If they do take out a mortgage, a downpayment of at least 50% is required. This means the housing prices are not sinking in a sea of mortgage dollars, and prices are more real. Another interesting fact is that, generally, real estate prices remained in dollars, not pesos, during the devaluation. That means that prices did not nosedive in 2002, but it also means that to invest in real estate here, in dollars, is a very safe bet.
Though the entire country is much bigger than the US, landwise, it only has about 40 million inhabitants and the vast majority live in or very near Buenos Aires. The trend now, for those who can afford it, is to leave the downtown congestion and move north to places like Pilar and Tigre, where you can have a lush backyard, quiet atmosphere, yet only have a 20-30 minute commute to the city. More and more houses, communities, offices and shopping centers are now being developed.
I have much more to say about the real estate situation here in due time, as well as some solid, cheap companies we can play to capitalize on the solid growth here. Stay tuned! Hasta manana.
Erin
Businessmen and Black Wages
I happened upon my first Argentine protest today, quite accidentally, walking from the Plaza de Mayo (home of the President's quarters, Casa Rosada, and Evita's famed balcony). I heard the heavy sound of drum beats, shaking the street beneath my feet, and just had to investigate. 
But I wouldn't exactly call it a riot - in fact, the protest for human rights was quite peaceful. It was more of a musical performance than anything else. The working class activists gathered in front of the Ministry of Human Rights building, protesting the "black wages" paid under the table. Later, northwest of downtown in the Barrio Once, I spotted another protest, complete with cerimonious gunshots. These "anzianos", older citizens, were petioning for higher pensions.
In broken Spanglish, I asked the taxi driver about the protests, and he responded that they are a Wednesday ritual. 
I'll have to do a bit of research, but if Argentina is anything like Italy, the protestors must obtain a permit to protest and are told which streets and what time is acceptable. However, the general feeling I get from the people I've spoken to here is overall content with the government, led by President Nestor Kirchner.
This is not to say I ever felt unsafe watching the protests, and for the most part have felt very comfortable walking the city. Though a tremendous part of the Argentine population (a staggering 40%) live below the poverty line, I have yet to see concentrete examples of this way of life. In the city, business men in tailored suits bustle down the streets, women adorned in leather and mink stoles stroll along beside them, many showing signs of plastic surgery. Cell phones abound, as in the US, and many sport iPod earpieces. The people look healthy (as in not obese, like so many Americans), well-groomed, very European. Not the picture of a Third World country.
The poor are present, of course, but no more so than the beggars that line the New York City streets, or the Italian gypsies. There is a distict dichotomy between rich and poor, to be sure, but I don't find it to be much more pronounced than other cities of its magnitude. Buenos Aires reminds me of a mix between NYC, Rome and Paris, with a Latin flair. You don't have to go out of your way to come upon a McDonalds or Burger King, and most music and many magazines and even television shows are in English. The cars are small, virtually no SUV's or trucks, and mostly brands like Fiat, Peugot and VW. The majority are not brand new models, but they're not exactly ancient either. Surprisingly, I have spotted multiple dealerships and city showrooms for Ford, Chrysler and Toyota, and new models of these types of cars are not uncommon on the streets, if you can see past the plethora of taxis. By the way, a taxi ride across town costs about 6 pesos, or less than US$3 - the same ride in NYC would easily cost upwards of US$20.
My ride to Pilar and Tigre, about 45 km north of Buenos Aires, tomorrow may demonstrate more of the poverty here in Argentina. My contact here is taking me on a tour of several construction projects just outside the city, and will show me the real estate climate of the city and surrounding areas firsthand. Stay tuned for more about this trip - as well where I learned NOT to invest in Argentina - soon.
Ciao!
Erin
P.S. I've gotten several subscriber emails requesting that I bring home some Argentine steak to share! Here's the best I can do!
Trading Stories on the Trading Floor
What a day! I think one could safely travel around Buenos Aires for weeks without running out of things to do, places to visit, shows to see and restaurants to try. I got up early today and took a brief tour of the Recoleta Cemetary, the final resting place for the very rich and well-connected dead, including Eva Peron. The giant maze of masoleums and crypts also holds the remains of many important generals, ex-presidents, and military figures. In the evening, the conceirge at my hotel helped me score last minute tickets to an opera in the grand, historic Teatro Colon. Titled Lucia di Lammermoor, based on Sir Walter Scott's The Bride of Lammermore, the beautiful opera was set in Shakeperian England, sung in Italian, and had Spanish subtitles projected on a small screen above the stage!
But the big order of business this afternoon was a private tour of the Buenos Aires Stock Exchange (Bolsar), which was hard to arrange but well worth the struggle.
I was met by my very friendly guide, Mr. Sacco, who eagerly ushered me around ornate conference rooms and a large impressive meeting room used by the President and top members of the exchange for monthly gatherings. Down a winding, marble staircase I was led down to the "old" trading floor - a vast room with very tallceilings and large columns, now used just to pass through, or to grab a seat for an informal meeting. In fact, this "old" trading floor is even open for public concerts on Friday nights, boasting a rotation of classical and jazz bands.
The "new" trading floor was surprisingly quiet, as about 95% of the trading in Buenos Aires is done electronically. Nothing like the frantic screaming in the pits of New York and Chicago. Conventional electronic tickers surround the room, and just behind the floor are rows upon rows of seats - some reserved for exchange members, some for brokers, and a line purchased by individual investors.
Adjacent to the floor is a smoke-filled room occupied by traders taking a break to play a game of chess! One note here: as I was led around the exchange, I did not see a single woman, other than one secretary. I was given some strange, very curious stares by the traders and exchange members I passed, and assume it is not customary at all for women to become members or even walk around the exchange.
As exciting as it was to see the exchange itself, the real higlight of the visit was my meeting with Senor Osvaldo Mignini, General Operations Manager of the exchange. Though he spoke with a thick accent, for the most part I could understand his candid talk about the state of the markets very clearly. When discussing the complete economic collapse in 2002, Sr. Mignini became momentarily quiet and discernably troubled as he briefly discussed the desparation that ensued. Mr. Mignini spoke confidently about the Argentine market potential over the next 5-10 years, naming banking and utilities as two of the sectors he felt were most undervalued and most likely to profit in the coming years. He also seemed confident that Argentina has finally learned its lesson in the perils of borrowing too much abroad, issuing too many bonds, and noted that he felt Argentine bonds to be a relatively safe investment.
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Armed with business cards, pamphets, a "Fact Book", and huge weekly listing, description and quarterly number report of all the 150+ companies traded on the Bolsar, I left the ornate exchange with the names of several companies to look into, and a warm feeling of welcome from my Argentine hosts. Tomorrow I will interview one of the largest natural gas transporation companies here in Argentina.
Hasta Luego!
Erin
Bienvenidos a Buenos Aires!
After a long 11-hr flight, I arrived in Buenos Aires to find a distinct chill in the air, but wouldn't exactly call it very cold. Since Argentina is below the equator, and parts of it actually touch Antartica, the seasons are reversed. After sweating out ninety-degree heat in Baltimore before I left, the fifty-degree temperatures are actually rather refreshing.
My first impression of Ezezia Airport was that it was very clean, and the city itself hasn't failed to disappoint, as it is fairly clean itself. Much cleaner than New York or Rome. A twenty minute cabride from the airport to my hotel downtown in the Retiro neighborhood was a mere $20 for two, and the prices have only gotten cheaper.
The first lesson I learned in Buenos Aires - eat late. I'm not talking like 8pm or 9pm, which would be on the late side for dinner in the US. No, not until 10:30 or 11pm do the restaurants really begin to get a steady flow of dinner customers, and you can still find people eating large meals at 1am! As for the food - it seems that the portenos (city dwellers) of Buenos Aires consume some sort of meat, namely beef, for breakfast, lunch and dinner. The free-range Argentine beef is absolutely spectacular - tender, juicy, and also incredibly cheap. A dinner of sirloin (bife de chorizo), salad, wine, and dessert totaled the equivalent of US$18 for two! And I'm not talking a small steak either - check out this picture!
As for beer, Quilmes, brewed in a local suburb of the same name, is the Budweiser of Argentina. In fact, at the bar I didn't see a single beer drinker not swishing a Quilmes. This bodes well for our position in beverage company Quinsa (LQU:NYSE), owner of the Quilmes brand.
Buenos Aires is a city drenched in fascinating culture. Quirky street performers and sultry tango dancers can be found on every corner. The people are friendly, and since it is winter here there is not the influx of tourists that you would find in the warmer months. In short, it's just as enchanting as I'd read, and then some.
Tomorrow I have arranged an exciting private tour of the Argentina stock exchange, Bolsa de Comercia. I'm anxious to see the trading floor, and to meet with the Operating Manager of the exchange. I'll give you a full report tomorrow evening. Hasta Luego!
Erin
Turmoil to Tango
I've heard that just a few years ago, had you encountered a friend who was recently returned from a sojourn in Buenos Aires, she would have likely told you all about the steakhouses (Parillas), full of the juiciest, most tender steak they’ve ever eaten. She would have recounted stories of long nights filled with seductive tango dancing and free flowing red wine. She might have gushed about the lively, European feel of the cobblestone streets and colonial buildings.
But she also would have relayed another long-lasting impression of the city: expensive.
As famed Argentine writer Osvaldo Soriano describes, “In Buenos Aires in 1985, it was no longer possible to buy anything at night for what it had cost in the morning. While I am writing this article, the cigarettes that I smoke as I sit here in front of my typewriter went from 11 to 13 and then to 14 australs.” [The austral was the currency in Argentina before the peso]. Citizens considered themselves lucky if inflation stayed in the single digits… per day.
To curb the problem, the government issued new pesos, pegged 1-1 with the U.S. dollar. A strict currency board required the central bank to keep enough dollars – or gold – on hand to back every single peso.
By the late '90s Argentina was a Wall Street darling, with U.S. players pumping money into the Buenos Aires markets like there was no tomorrow. The country was borrowing vast amounts of money and, by 2001, the rubber band snapped and a catastrophic economic collapse ensued.
Fortunes evaporated overnight. Riots broke out on the streets. Poverty levels soared to new highs. Unemployment rose to 20%, the economy contracted 11%, and prices on real estate fell in the range of 30% to 70%, creating some of the best bargains in the world.
The flailing Argentine government could not even begin to payback its IMF loans or honor its bonds. In turn, the country devalued its peso, removing its ties to the U.S. dollar. Today, one dollar equals roughly three Argentine pesos.
It’s a quite fascinating story, but I’m not here to give a lengthy history lesson. I’m here to spot the dynamic profit opportunities in the wake of disaster. But if you are looking for a more detailed account of Argentina’s complete economic collapse, I recommend And the Money Kept Rolling In (And Out), a comphrensive and surprisingly easy to read relation of Argentina’s story, by Paul Blustein.
***I'm embarking on my journey to Buenos Aires tomorrow evening on an 11-hour sojourn in coach to check out all this profit potential first-hand. Assuming my legs will still remember how to function after all those lost hours, shoved helplessly underneatht the seat in front of them, I'll be meeting with CEOs of several promising Argentine companies, and even touring the stock exchange (seen to the right) for an inside perspective.
I have arranged an interview with one of Argentina's largest natural gas companies during my visit next week, and am very anxious to get the word on the gas situation from the horse's mouth. I'm also curious about the real estate market - does the word "bubble" pepper every sentence, the way it does here? Are prices - and demand - out of control? I'm hoping these questions will be answered during my meeting with the head of a large real estate company. Also, my kind hosts at Pulte Homes Argentina have arranged a morning construction tour just outside the city for me so I can see the homebuilding firsthand.
I'll even make a stop at the city’s brand new Foreign Debt Museum. That's right, only in Argentina would you find a reminder of the perils of borrowing too much abroad. I hear all the museum exhibits and explanations are strictly in Spanish, so I'll do my best to translate for you.
In case you're not familiar with the latest Argentine saga, here's the quick and dirty. Three years ago, Argentina defaulted on the biggest debt in history. Just two months ago, private creditors and bondholders finally accepted a successful debt-restructuring offer, and the country has managed to sell nearly US$100 billion worth of debt in a harsh, take-it-or-leave- it offer.
Though the political turbulence is far from being resolved, on the economic front, the worst seems to be over. But, until there are concrete signs of Argentina's economic recovery, there are still opportunities in this country for savvy investors. This could, however, be your last chance to scoop up these undervalued bargains.
The benchmark Merval index in Argentina has been one of the world’s best performing indices this year, rising around 65% over the last twelve months – and that’s down from a peak in March!
As I said earlier, we’re not going to catch the beginning of the wave, but I believe there will still be plenty of tide to surf in this emerging market for the investors who get in now. I want to say these stocks are cheap, but I don’t want to confuse the meaning with “junk”. So let’s say instead that these are undervalued, quality companies, readying to reach their full potential over the next months.
Stay tuned right here to follow along on my investment tour with me. In the meantime, you can be one of the first to get in on the Argentina plays I’ve already released to Red Zone subscribers – if you act now! Feel free to shoot me an email at ebeale@taipangroup.com with any questions you'd like me to find answers for down there, comments, or even travel advice. Talk to you soon from the Southern Hemisphere.
Erin Beale
The Big Dog Brands
Hi everyone!
So I told you I would talk for a while about brand names that are big in S. Korea. Obviously, these are mainly domestic Korean brands, but still, here goes.
As for the non-domestic: a lot of the eateries, mainly fast food or chain restaurants, are American. 7-11, Burger King, McDonalds, Popeyes, KFC - all very prevalent and easy to find. American luxury fashion brands are also very big - Coach, Chanel, all the big ones.
For cars: This is one of a few areas where Korean society is EXTREMELY homogeneous. Virtually everyone drives a Kia or Hyundai, and all in either black or silver. Im not exaggerating - I have video from the highway, and there is not one single car of any color. Weird, huh? So i saw dealerships for all types of car, even completely impractical ones - Hummers (as wide as half an avenue) and McLarens (why own a 200mph car when youre in bumper to bumper traffic all day?) So most people settle for the Kia or Hyundai in the end. The nicer model Hyundai, called the Equus (we dont have them here) resembles the Mercedes E-Series very closely and are quite nice on the inside. Mopeds/scooters are also very very popular, virtually all students and delivery people have them. Im still looking into the best brands for investment. Harley-Davidson has a strong following there as well. More on the cars in the full report.
Like I said last time, for drinks: Korea is the #1 importer in the world of Whiskey (I believe) and #2 for cognac. Hence Ballantines, Jack Daniels etc. are very strong there. This is a drinking culture. Also Soju, though for this Im still looking for the best brand for our purposes.
And then came tech. Obviously, Illsave the elaboration for the full report, because this is my bread and butter. But in sum: Samsung, LG, Pantech/Curitel and oh yeah, more Samsung and LG. They do everything: phones, computers, flat panel televisions, home appliances, the whole gamut - and most people buy from them. In fact, I'll explore it more later but Samsung and LG have sooo many branches - each has convencience stores, brokerages, insruance, credit cards, consumer electronics, home appliances, fashion - the list could go on. I feel like Samsung still has the edge, but LG is very competitive. As a point of reference, I own a 32" LCD tv. The list price is around $4-5000 (thank you online shopping for bargain hunting!). In Korea, a Samsung or LG LCD of similar size would probably run no more than $1000-1500 list price. Yes, domestic brands do have a big advantage.
One more to mention now: SK Telecom. These guys are very important, and I will have a lot on them in the full report. They are already one of the worlds most prominent telecoms (even though they are almost exclusively Korea-only, unlike most of the big Western telecoms). They are everywhere, have the best phones from Samsung and LG to work with, and are the main investor/distributor for a very big new technology called DMB (digital media broadcasting) - basically many channels of live tv and radio, straight to the phone. Like I said, Ill have much more on this in the full report.
And one last point, to make up for all my prior teasing: The meeting I referenced was with Dr. Beomjae Yoo, the Director of the Intelligent Robotics Research Center at KIST (Korean Institute of Science and Technology). KIST has one of the worlds most impressive humanoid robots right now and I learned some VERY incredible things talking with him. More on this in the full report.
Until tomorrow,
Alex Chinn
Drinking, Golfing, Betting, and Betting on Drunken Golf
Hi everybody!
So last time I told you that today I'd examine some of the cultural trends I noticed so far in Korea. Most of these are pretty apparent to the naked eye just from walking around Seoul. Some of them also require a decent amount of research to capitalize on.
Today I'll tell you about some of the ones Ive noticed. When the full report comes out next week, I'll have specific companies that we can use to profit from them.
So where to begin? It seems like there are two main preoccupations outside of work for the average Korean. These are the two main leisure activities around here: drinking and sporting. OK, now that wont sound too far off anywhere in the world. But there are specific modes that are prevalent in Korea for these two outlets.
Drinking is serious business here. This is a drinking society, where the amount of soju (local liquor, like sour vodka) consumed weekly is equivalent to five litres for every man, woman and child in the country. Business meetings often involve getting college-age drunk. Aside from local drinks like soju, the main foreign drinks around here are whisky and scotch.
Second, I mentioned recreation and sporting. There is plenty of individual sporting activity around here; travel the city and youll see plenty of people rollerblading, cycling and playing soccer. There is a good deal of viewership for baseball, European soccer, basketball, rugby and billiards as well. However, it seems that the Koreans like no sport more than golf. There is a dedicated 24 hour golf channel. Every hotel has a driving range. And it seems that there is AT LEAST one golf store on every block. Tiger Woods is the new Michael Jordan - his face is EVERYWHERE here.
One other thing that whets the Korean appetite- gambling. Again, this is not uncommon anywhere in the world. However, it is remarkably prevalent here. I like to gamble myself, and before I left I asked a Korean friend if there were any casinos in Seoul. He gave me that slow blink that indicates "I cant believe you even had to ask". There are no less than two dozen full casinos here, with another dozen in the works. More frequent are small betting parlors on almost every block, usually featuring only slots with the occasional horse betting station.
Thats all for today. Tomorrow Ill have some info on important brand names that hold a lot of sway in Korea. Some you may know already, some you may not. Remember, in my full report Ill detail how to profit from the trends I've talked about here.
And as one side note, my inside man has informed me that the big surprise has come through! I have one of the most exciting meetings of my life coming up soon; I just hope they'll let me take photos! I'll have details on that once it happens; I dont want to spoil it in advance!
Until next time,
Alex Chinn
Yoboseyo! Welcome to Seoul!
Yoboseyo Everyone!
Well, here I am in Seoul. Between the jet lag and running around town, Im a little behind on this blog. I'll update daily for the next business week to make up for the delay.
Today, Ill just talk a little bit about Seoul - the city, the people, the general stuff.
I arrived at Incheon Airport and took a 40-minute ride to the heart of Seoul. That might actually be a bad way of phrasing it; there is not definitive heart to Seoul. The city is a lot like New York - there are several boroughs, each separated by river and highway. The difference between here and NYC is that all of the boroughs are huge - no Staten Island here! Each holds a few million people at a population density that one comes to expect from a buzzing Asian metropolis.
The city is huge and extremely difficult to navigate without the use of taxis. I mastered the London Underground in two days, but the subway here is more than I could learn in a month.
As for the people, they have for the most part been very friendly. Virtually nobody outside of the hotel has been able to speak English. The Kazakhstani bartender I met last night told me that I was only the second American she'd ever seen in her bar - which is on a main avenue, just two blocks from my hotel (and several other major hotels!) Despite the de-isolation of Asia that has occurred in the last few decades, this is still a very closed society. I have yet to see any non-Asians on the streets, except in the hotel (I expect this will change when I visit Itaewon, the foreigner area over by the US military base). However, the use of the English writing is everywhere - many signs, billboards, even business names are in English! Most are in some mix called Konglish, with one or two English words surrounded by Kangul (Korean) script. Those that are in English completely rarely make sense - my favorites so far have been "Bang Bang Plaza" and "Real Estate Fortune Tellers". It seems many more Koreans can read English than can speak it.
Tomorrow I'll have details on social trends that we investors can capitalize on, plus a few notes on companies that I've encountered. And just to be a tease - my inside man here in Seoul may have arranged a VERY special surprise for me and for all of you. Ill have details on that in the next day or two.
Until tomorrow,
Alex Chinn
