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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
June 16, 2005 in Erin Beale | Permalink
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