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MACRO
MUSINGS:
Tres Mujeres
by Justice Litle
Editor, Consilient
Investor
November 7, 2007
Nothing is built on
stone. All is built on sand, but we must build as if the sand were
stone.
– Jorge Luis Borges, Argentine writer
CRISTINA! CRISTINA!
CRISTINA! the headlines chanted.
On October 28th,
Cristina Fernández de Kirchner became Argentina’s newly elected
President. She did so with the blessing of her husband, Nestor
Kirchner… who also happens to be Argentina’s outgoing President.
There was little
traditional campaigning. The Sunday Times noted Ms.
Kirchner’s “enthusiasm for mascara and designer handbags,” arguing
that flash and glamour were the crux of her campaign. Due to the lack of
credible opposition, the Economist dubbed it “The coronation
of Queen Cristina.”
Cynics whisper of a
Kirchner family dynasty, with Cristina acting as placeholder before
Nestor’s eventual return to power. Supporters argue that Cristina is a
proven leader in her own right, with a political track record to rival
her husband’s.
Either way, Cristina
has succeeded in a way her mentor from the past, Eva Perón, did not.
“Evita” sought the office of Vice President in 1951. In spite of the
people’s great love, her candidacy failed. (Evita was named
“Spiritual Leader of the Nation” before her untimely death… but
that’s not quite the same thing.)
Powerful husbands,
powerful wives. In the soap opera of global politics, Evita and Cristina
are two of the tres mujeres (three women) who sought to follow
their spouses in the corridors of power. You can probably guess the
third. (Hint: she wants to be President too.)
Speaking of which, the
next President of the United States—be it man or woman—will have an
irresistible urge to ‘do something’ about the falling dollar and the
economic turmoil sure to follow in its wake. The implosion of the
world’s reserve currency is under way, with major political
consequences to follow.
The Argentines know a
thing or two about implosion, of course… and what Argentina has
experienced, American may yet experience in some form. Like Blanche
Dubois, the United States is all too dependent on the fiscal kindness of
strangers—much as Argentina was prior to the economic collapse of
2002.
Journalist Paul
Blustein recounts the horror and the spectacle of the Argentine collapse
in his book, And The Money Kept Rolling In (And Out): Wall Street,
The IMF, and the Bankrupting of Argentina. It makes for grim but
fascinating reading:
Like an
engine that has seized up for lack of oil, the Argentine economy ground
to a virtual halt, as additional restrictions on bank withdrawals led to
a breakdown in the system by which people and businesses paid each
other, and the bank credit that companies needed for day-to-day commerce
dried up. National output shrank 11 percent in 2002, leaving nearly one
quarter of the workforce unemployed and a majority of the population
below the poverty line, even as prices soared for basic food items such
as bread, noodles, and sugar. Average annual income per capita, which in
the late 1990s peaked at $8,500—double Mexico’s level—sank to
$2,800 in 2002. Although that low level was attributable in substantial
part to the 75 percent decline in the exchange rate of the peso against
the dollar, it reflected the privation felt by millions whose living
standards plummeted and personal savings withered in value.
The
impact struck Argentines of every social class. One of the country’s
richest women was forced to auction off paintings by Gauguin, Degas,
Miro, and Matisse. Members of the middle class became nervous wrecks
over their lost nest eggs; in one widely publicized case, a fifty-nine
year old woman who could not get her dollars out of her bank account
walked into her bank, doused herself with rubbing alcohol, and set
herself ablaze. Hardest hit, in general, were people on the bottom
economic rungs. Among the most heart-rending tales were those of
children suffering in rising numbers from malnutrition, and even dying
from it—a shocking phenomenon in a country abounding with cattle
ranches and wheat fields. Residents of fashionable Buenos Aires
neighborhoods grew accustomed to averting their gaze when hordes of
people called cartoneros would descend on their streets in the
evening, ripping open plastic trash bags in search of anything saleable.
In a grisly symbol of the nation’s abasement, an overturned cattle
truck outside the industrial city of Rosario in March 2002 attracted
hundreds of shantytown residents wielding machetes and carving knives,
who slaughtered and diced up twenty-two Angus steers on the freeway,
then fought over bloody hunks of meat.
Elsewhere Blustein
notes the tragic popularity of dollar-denominated mortgages. When the
peso plummeted, millions of Argentine homeowners woke up to discover
their financial liabilities had swallowed them whole. (Shades of
subprime?)
And yet, despite the
fiscal carnage, life carried on. Buenos Aires—the bustling capital of
Argentina—is still a beautiful city with a beautiful culture, as your Macro
Musings editor recently discovered. (Whoever said “don’t mix
business and pleasure” must not have traveled much…)
During our brief stay
in Buenos Aires, we took in the Casa Rosado—Argentina’s
salmon-colored version of the White House—against the backdrop of a
Che Guevara youth rally on the Plaza De Mayo. We wandered the oddly
sterile pathways of the Cementerio de la Recoleta, where Eva Perón is
discreetly buried. We marveled at the feral cats (who look just like
housecats) and beautifully groomed dogs roaming all over the city. We
sampled weekend street fairs, a tango performance, and multiple helpings
of Buenos Aires nightlife (which really doesn’t get cranking until 11
p.m. or so.) Overall, we soaked up as much Argentine culture as five
days would allow.
The city of Buenos
Aires was founded in 1536 by Pedro de Mendoza, a Spanish conquistador.
Originally dubbed Ciudad de Nuestra Señora Santa María del Buen
Ayre, or “City of Our Lady Saint Mary of the Fair Winds,” that
considerable mouthful was later shortened to the current name, Buenos
Aires, which translates to “Good Airs.”
The citizens of Buenos
Aires are known as Porteños, or “people of the port.” Some Porteños
joke their city’s name should be changed to Malos Aires (Bad Airs) on
account of the pollution. Fortunately there is ample wind and rain to
cleanse the skies—usually with warm sunshine to follow.
The Porteños are
famous for their sense of style and infamous for their vanity. Among
other things, Buenos Aires is known as the cosmetic surgery capital of
the world. If you visit, you’ll quickly see why the city is also known
as the “Paris of South America”—the combination of old world
architecture and South American flair is unforgettable. (In what other
city of thirteen million, for example, can one find palm trees next to
the French Embassy?)
On our first night in
town, an expat dinner companion highlighted a key difference between
Buenos Aires and London. “When I go to London these days,” he said,
“I feel like a penniless refugee with my nose pressed up against the
glass.”
Prices have skyrocketed
across the pond, but they are still reasonable in South America. The US
dollar looks seasick next to the Euro, but continues to hold up against
the Argentine Peso. Good hotel rooms, good steaks, and good wine can
thus all be had for a fair price. (If you are bargain savvy and at all
handy with castellano—the Castilian Spanish spoken throughout
South America—you might even get a great price.)
Though the Argentine
economy appears to be back on track, the new president will have her
hands full containing inflation. Argentina’s official inflation rate
for the past 12 months is 8.6 percent, but private observers estimate
the true rate to be at least double that.
Indec, the country’s
national statistics institute, has lost all credibility as a reliable
data source. Accusations of data manipulation run rampant, and Indec
officials seem to come and go through a revolving door. In a truly
cringe worthy statement, Ms. Kirchner has promised to copy US
methodology to ensure the accuracy of future inflation measurements. Doh!
To us, that sounds like shoring up a rubber yardstick with silly
putty… but hey, what can you do.
Part of Argentina’s
inflation trouble is an addiction to exports, which requires keeping the
peso “competitive” (i.e. weak). As the US dollar falls (and falls),
more pesos must be printed to keep pace with the downward slide. Like a
number of other job-hungry countries, Argentina has chosen to import
inflationary US monetary policy for the sake of export-led growth.
It’s not a sustainable path.
And what of Hillary,
our third mujer who would no doubt love to emulate Cristina’s
path? If Hillary becomes the next POTUS (President of the United
States), she may well take a page from the Peronistas… and
possibly enact her own version of Peronism, with an American twist.
Peronism—the
political movement Cristina and Nestor Kirchner are aligned with—is a
bit of a strange brew. It has a strong whiff of populism to it, but a
slight tinge of fascism too. (Juan Perón, husband of Evita and
eponymous founder of the movement, was a fan of Mussolini.) Upon
describing the various flavors of Peronism, Wikipedia offers
the following general characteristics:
*
Strong authoritarian centralized government, with strict control of
opposition forces.
*
Freedom from foreign influences.
* A
third-way approach to economics which purported to be neither socialist
nor capitalist, but to incorporate elements of both in a
corporativist manner.
*
The combination of nationalism and social democracy.
That sounds a bit like
what the US may be in for. As America’s social fabric is rent asunder
by economic hardship, calls for political action will only grow louder.
“Freedom from foreign influences” could translate into protectionist
sentiment. And as free market criticism grows—look what Wall Street
has done to us! etcetera—the fuzzy notion of a “third way” could
grow more appealing. And if things get hairy enough, the general
populace could start baying for blood… or treasure… or both.
An increase in
“authoritarian centralized government” thus seems practically
guaranteed for the United States, as evidenced by the fascistic
tendencies of the frontrunners in both parties. What’s worse, the
average American seems to like all the iron-fist talk…
explaining why said front runners are so happy to deliver it.
Don’t cry for
Argentina—but remember what happened in Argentina, and remember that
something like it could happen elsewhere. In preparation for what’s to
come, getting a little money out of the country might not be a bad idea.
(Getting brushed up on international investment opportunities couldn’t
hurt either.) The timeframe is unclear, but a Katrina-sized political
backlash seems inevitable at this point in the game. It’s just a
question of how and when and how big.
And that leads to
another twist… even if (or rather when) the dollar completely breaks
down, and the US economy lurches toward a period of iron-fisted
intervention and madcap political scapegoating, not all markets will
crack. Some could continue to rise. Others could fall sharply, stay down
just long enough to fool the majority, and then head up with greater
resolve than before. (There is still a lot of money sloshing around out
there… a lot of potential growth… and room for potential
manipulation too.)
Whoever next occupies
the White House, and however Argentina’s new President fares, the
coming years will be a time for caution and courage in equal measure.
The key will be finding ways not just to survive, but to thrive. As the
Porteños like to say, “Buena Suerte!” (Good luck!)
© 2007 Justice Litle
Editorial Archive
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Justice Litle
Editor, Consilient Investor
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