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

June 23, 2005 in Erin Beale | Permalink

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!

June 22, 2005 in Erin Beale | Permalink

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.

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

June 22, 2005 in Erin Beale | Permalink

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

June 20, 2005 in Erin Beale | Permalink

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.

June 16, 2005 in Erin Beale | Permalink