Tango and Cash: Buying Argentina

I have been discussing an investment theme, since my start within iBankCoin’s Peanut Gallery, which I have labeled “Pariahs on Parade”, a collection of beaten down, hated and troubled investment groups. The “Pariahs” all start with the letter “S”, and all of them have begun a slow and distrusted new upward trend. These pariahs are about ready to become serious longs over the next 12 to 24 months in my estimation. I included Shanghai, the “Soviets”, Sugar and now we have South America, in the form of Argentina. All the charts I have been using and sharing since I started are weekly price bars over many months to help me get past the stressful daily noise and find serious new trends.

You might recall Argentina has been in a decade-long fight with billionaire hedgie Paul Singer, who passed on a restructuring offer of 30 cents on the dollar (or about 600M USD) for sovereign bonds he bought for less than 50 million USD and he wants to be paid 2.3 billion, and went as far as seizing a warship to get his point across. I have to give Singer credit for his ability to hold his breath for so long. We won’t have to hold our breath for 10+ years, however, to make some great investments now in Argentina.

I admit it’s a tough idea to pitch. This is a country that had THREE presidents in less than TWO weeks about 15 years ago, certainly not encouraging recent history. It has become a deadbeat in the international capital markets, after 8 years under the Kirchners, and cannot borrow money. Reserves have been drawn down to almost nothing, there is a fiscal deficit of about 7-8% and a wide reality gap between the official exchange rate and the grey market for dollars.

A glimmer of light at the end of a long tunnel: there has been a general election for a new president on October 25 which did not have a decisive winner but there will be a runoff election in a week. There are two candidates left: Scioli, a former governor who is sort of an “heir” to the current administration but likely is a candidate who has to toe the party line to get votes and Macri, the more “market friendly” candidate who has acknowledged Argentina has to take some bitter medicine to be allowed back to the financial markets. The country has an opportunity to reestablish its credibility and credit and I have read there is roughly a quarter to a third of a trillion dollars parked outside the country ready to come back home as soon as economic honesty returns to the country. I read that even the farmers who went on strike and hoarded their grain got ready to get back to business. The age of “Consumerist China” has begun and they will certainly demand grain and beef. Things are happening and we have time to profit from it.

Out of this mess, there is a bull market taking place and the ingredients are in place for a massive trend. This used to be the richest country in the hemisphere over a century ago, and there’s room for a revival.

Below is the Merval index. Already signs that a bull market is building a serious breakout. Narrative aside, there is attractive price action at work.

 

AND NOW FOR OUR WAY INTO THIS idea with the following ADRs:

$GGAL Galicia Financial Group and $PAM Pampa Energia are at the head of the class for me, followed by

$BMA Banco Macro

$BFR Banco Frances SA

$EDN Empresa Distribuidora y Comercializadora Norte SA

$TGS Transportadora de Gas del Sur

Financials and infrastructure stocks like the above seem to be signaling optimism, despite the mystery as to who will be the next president.

      

 

 

 

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