How to Profit from Argentina's Next Crisis
By Tom Dyson
June 18, 2008
This week, Buenos Aires supermarkets may not have any fruit, vegetables, or meat for sale... And ships in Rosario –
Argentina's busiest port for produce – "drift idly" according to the
International Herald Tribune.
Argentina is one of the "breadbaskets" of the world. It exports more soybean
oil than anyone else. It's also the second-biggest corn exporter (after the
United States), the third-largest beef exporter, and the fifth-biggest wheat
exporter. Argentina's farm exports have risen 48.2% since 2003. Farm
exports were the main reason Argentina was able to rebound so fast from its
economic meltdown in 2002.
With the bull market in commodities making farmers rich, you'd think
Argentina would be one of the most prosperous countries on Earth right
now...
Unfortunately, when the Argentine government saw how much money
farmers were making, it slapped an export tax on food products. Farmers pay
46% to export soybeans right now... And if soybean prices keep rising, the
tax will jump over 50%. The government has banned beef exports.
In Argentina, farmers are the upper class. The people there think of farmers
as rich landowners. By taking the farmers' money with these export taxes and
giving it to poor people in the cities, the Argentine government figured it
would gain popularity. The politicians also figured the taxes
would reduce exports, keep food in the country, and drive down prices...
They'd win popularity that way, too.
They didn't count on the farmers.
In the last three months, farmers have gone on strike four times. Now the
truck drivers have joined in. The truckers lose millions of dollars every time
the farmers strike. So the truckers are protesting against the farmers by
blocking all the highways.
According to political polls, the Argentine president's popularity has collapsed
in the last three months. But her government is sticking to its position and
won't negotiate. Argentina's politicians argue the tax policy is the key to
alleviating poverty and have called the farmers greedy. Last week, Interior
Minister Florencio Randazzo said farmers were "intolerant, ungenerous and
anti-democratic." He called them "coup-mongers."
Now there isn't enough food in Argentina. And without the billions of dollars in
foreign-exchange earnings the country gets from exporting food, the
government is going bankrupt. According to an article by the Financial Times,
Argentina now has more debt than when it announced the largest-ever debt
default in 2001.
You have a couple ways to profit from the impending collapse...
Last month, I met an Argentine farmer in Paraguay. Paraguay is Argentina's neighbor.
The farmer had come to buy millions of dollars worth of Paraguayan farmland
on behalf of a small farming village in Argentina. This village used to be one
of the richest farming towns in northern Argentina, he told us. But the
government's new laws are ruining the way of life. So the town's farmers
pooled their money together and sent this guy to Paraguay to buy up as much
land as possible.
Paraguay's land is just as fertile... it's cheaper than Argentine land... and the
political risk there is a mere fraction of Argentina's political risk. This is why
Paraguay's farmland is about to soar and Paraguay's currency – the guarani –
is one of the top three best-performing currencies in the world so far this year.
I also like Brazilian meatpackers. Brazil's food industry is stealing Argentina's
market share. Meanwhile, the shortage of Argentine food in world markets is
supporting prices... and Brazilian meatpackers are earning higher profit margins.
Good investing,
Tom
Editor's note: Tom Dyson is a regular contributor to DailyWealth, a free investment newsletter focused on the world's best contrarian opportunities. We write with a simple belief in mind: You don't have to take big risks to make big money with your investments.
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ATLAS SHRUGGED AND DUMPED THE ARGENTINE STOCK MARKET
One casualty of the Argentine crisis is the stock price of IRSA – the most prestigious real estate developer in the capital, Buenos Aires.
IRSA is managed by one of the smartest investors in the world, Eduardo Elsztain. You could call him the "Donald Trump of Argentina." Shares in his company have fallen 41% in the past year.
Investors can learn a valuable lesson from this meltdown: Sure… you can make quick money trading blow-ups like this, but long-term investments are treated far better in free market bastions like Hong Kong and Singapore.
These two Asian city-states "get it." They keep taxes low and encourage entrepreneurs to hire new workers and take on risk. Stocks and prosperity are rising in these places. Argentina taxes its most productive citizens to death. Stocks and prosperity there are declining.
This is the lesson learned by anyone who has read Atlas Shrugged. This is the lesson being learned by Argentine stock investors right now. Argentina is a beautiful country blessed with awesome natural resources. This shouldn't be happening. Shame on the buffoons in La Casa Rosada.
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Oil prices averaged over 200 days surpassed $100 a barrel for the first time on the New York Mercantile Exchange, an indication of the durability of a rally threatening global economic growth.
Oil futures traded in New York have almost doubled in a year on surging demand from emerging markets, and as the declining U.S. dollar drives investors to seek alternatives to equities and bonds.
The so-called 200-day moving average indicator crossed $70 on Nov. 7, $80 on Feb. 8 and $90 on April 23. Traders use moving averages of different periods in conjunction with other statistical patterns for buying and selling decisions. |
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Higher transportation costs may also lead to price hikes for many finished goods. And guess who pays for that?
"Everything you purchase in the supermarket, the clothing we put on our backs, the wood that goes into a home – it's all transported there somehow," said Kevin Smith, general manager of the Dallas operations facility of Dart Transit Co., a trucking company based in Eagan, Minn.
"So as the price of fuel goes up, everything is going to go up," he said. A gallon of diesel averages about $4.70 at U.S. pumps, according to the U.S. Department of Energy. That's more than 67 percent higher than the $2.80 a gallon it cost a year ago.
Regular gasoline prices have increased about 33 percent over the last year, rising to $4 a gallon now from $3 a gallon then. |
– Dallas Morning News |
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Employer health care costs are poised to rise almost 10 percent in 2008 – more than double the annual inflation rate – and nearly that much again in 2009, according to an industry report released Tuesday.
The study by PriceWaterhouse-Coopers predicts that medical costs will increase 9.9 percent in 2008 and an additional 9.6 percent in 2009. |
– Associated Press
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