We asked our favorite analyst in Buenos Aires, Robert Marstrand, if he thought it was time to buy Argentine stocks:
"I'd like to see another official devaluation and loss of confidence first, then maybe there would be a buying opportunity. A lot can change in this part of the world in a week, let alone a year! We're not at the worst point yet."
That leaves 12 months for things to go in either direction, either better or worse. We have no particular opinion as to which way they will go, but we have a preference: worse. The worse things get the more people will want a decisive change. Almost no other country takes such perfect aim at its own foot. A few more missing toes is a small price to pay for a new direction.
Besides, there's a big advantage to a messed-up economy. When you conduct your financial affairs as loosey-goosey as the Argentines, you find that no one will lend you money. Then, gracias a dios, you are forced into...solvency!
For every peso of bank credit in Argentina, there are 7 pesos of GDP. Long term mortgage financing is almost unknown. Credit cards? They exist...but with 40% inflation, outstanding credit card debt is minuscule. When President Menem tied the peso to the dollar, he brought forth a flood of credit. The whole economy floated high for a while. But the 'dollar peg' was abandoned when Argentina couldn't pay its bills. Then came a credit drought; debt of all sorts has pretty much dried up and blown away over the last 10 years.
Meanwhile, the price of soya - Argentina's main cash crop -- has fallen 35%. GDP is falling, despite the government's claims to the contrary. The peso is sinking. Dollar reserves are disappearing.
"It is actually a good situation," explained an Argentine economist with his head screwed on right. "We know that Cristina is going. And we know that her replacement will be better. And we know that Argentina is fundamentally a rich country...with little debt of any sort. I think we're going to see a big boom when people realize how bright our prospects really are."
Unlike the US. Argentina has not been involved in a war since the ill-fated Malvinas adventure 32 years ago. Its military spending is a rounding error for the Pentagon. And its social welfare, health and pension programs have been so eroded by inflation that there is not much left of them.
The outlook in America, by contrast, is not nearly so bright. We have debt aplenty. And we become less and less able to pay it. According to the latest Census Bureau report median household income has fallen to $51,939. That's down from nearly $57,000 in 1999. Meanwhile, the Federal Reserve reports that median income fell 5% in the 2010 to 2013 period.
America faces another 24 months with the current administration. And there is no guarantee that its replacement will be better. A Clinton may win. Or a Bush. 'Past performance is no guarantee of future performance,' is a line the SEC insists on. As an investor, we know it is true. As an American, we hope we can count on it.
Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.