Argentine-Style Bulls

Cronyism, corruption and crackpottery... from Washington DC to the Pampas...

(Source: Getty Images)

Bill Bonner, reckoning today from Cherbourg, France…on our way back to Ireland for a baptism...

“This model of crooked politicians, crony businessmen, union leaders turning their backs on workers left us with this mess. In that context, we went from having a rich society to a poor one, where the only ones who prospered were from the damned political class.” 

~ Javier Milei, candidate for president, Argentina

Guess what stock market is up 42% this year?

The S&P Merval in Argentina, of course. The inflation rate is over 100%. But these stock prices are quoted in dollars.

In other words, you would have made a lot more money in Argentine stocks than in US stocks. 

Why? Investors put their money into stocks to avoid losing it to inflation. The result was a stock market boom.

Everything Passes, Everything Breaks

Whatever else may happen, our guess is there will be an Argentine-style bull market in chaos and confusion in the years ahead. Things will go up that should go down…politicians who make things worse will claim to be creating a ‘new era of prosperity.’ Prices will rise…or fall…for no apparent reason.

What can you count on in such a topsy-turvy world? 

“Tout passe, tout casse,” they say in French, to explain the way of the world.  

It is also our unofficial motto here at Bonner Private Research. Or, as Nietzsche put it,
”amor fati.” We have faith – that everything that is born will die…that every upswing will be followed by a downturn…and that no song…no empire…no bull market will last forever.

Over time, everything degrades and fades away. We saw yesterday how the Industrial Revolution slacked off after 1970. We saw how the dollar was corrupted into a currency that the political class could use to make themselves rich. We’ve all seen how American politics has degenerated into a comic opera…where fat ladies sing every day and nobody cares.

Over time, freedom gives way to politics. A dynamic, entrepreneurial economy is taken over by central planners and hacks. And small government yields to Big Government, with its millions of rules regulation, lawyers…prisons…fines… missiles…sanctions…2% target inflation…malinvestment and claptrap. How much these things slowed down the economy is incalculable, but the US Chamber of Commerce puts the cost of government regulation alone at $1.9 trillion annually. Winslow Wheeler puts the cost of empire at another $1.5 trillion.

Remarkable Naïveté

Joseph Stiglitz does not share our cheerful fatalism. In 2018 he wrote a remarkably naïve article…cited yesterday…in the ‘Scientific American’ magazine, no less. There was nothing the least bit scientific about it. Instead, Stiglitz ignored the fading industrial revolution completely. As for the fraudulent dollar, he didn’t mention it. And instead of wishing to wipe the slate clean of stifling rules and regulations, he wanted more of them.

Whenever you see a Nobel laureate saying that ‘we need to do this’ and ‘we need to do that’ you can be sure that what follows is drivel. Stiglitz did not disappoint us:  

..we need more progressive taxation and high-quality federally funded public education, including affordable access to universities for all, no ruinous loans required. We need modern competition laws to deal with the problems posed by 21st-century market power and stronger enforcement of the laws we do have. We need labor laws that protect workers and their rights to unionize. We need corporate governance laws that curb exorbitant salaries bestowed on chief executives, and we need stronger financial regulations that will prevent banks from engaging in the exploitative practices that have become their hallmark. We need better enforcement of anti-discrimination laws: it is unconscionable that women and minorities get paid a mere fraction of what their white male counterparts receive. We also need more sensible inheritance laws that will reduce the intergenerational transmission of advantage and disadvantage.

…We need to guarantee access to health care. We need to strengthen and reform retirement programs, which have put an increasing burden of risk management on workers (who are expected to manage their portfolios to guard simultaneously against the risks of inflation and market collapse) and opened them up to exploitation by our financial sector (which sells them products designed to maximize bank fees rather than retirement security). ..we have to have urban housing policies that ensure affordable housing for all.

Good gracious, is there anything we don’t need to do?

In short, he said, we need more control…more laws…more regulations…more handcuffs…more penalties…more prison cells…and more loops for the holes to go in – more of what got us into this mess in the first place.

Hot Air and Bad Ideas

But wait…you would think a Nobel prize winner might dig a little deeper. How, exactly, does that work? Our political system created the problems. How is it going to solve them? Who’s going to write these new laws? Who’s going to enforce these new rules and regulations? What Solomons will govern this brave new world? What angels will police it?

Amid all Stiglitz’s gassy do-goodism is a small breeze of reality:

A vicious spiral has formed: economic inequality translates into political inequality, which leads to rules that favor the wealthy, which in turn reinforces economic inequality.

He’s right about that. Our system is rigged up. Stiglitz:

It is not the laws of nature that have led to this dire situation: it is the laws of humankind. Markets do not exist in a vacuum: they are shaped by rules and regulations, which can be designed to favor one group over another.

But if the old rules favored the wealthy…why wouldn’t the new rules also favor the people whose lobbyists write them? And wouldn’t members of congress, still eager for some emolument, vote on them?

‘The People’ have no lobbyists. They have no way of knowing what regulations are coming down the pike…or to whom they will deliver their hidden goodies.  The voters are like wax, ready to be molded into whatever shape the insiders want.

Why should we expect anything different?

Stiglitz doesn’t address the subject. But that was in 2018. Stiglitz did not say so directly, but with a wink and a nod, readers knew what he meant. With so much inequality afoot, he warned that a demagogue might be able to stir up popular resentment and endanger our democracy. It does not bother him that ‘our democracy’ did nothing to prevent the problems he complains about. And then, in 2020, in the middle of the raging covid stream, our democracy changed horses.  

But the water continued to flow as before.  

In Russia, Putin opponent Alexei Navalny faces another 19 years in prison on what look like trumped up charges. In Pakistan, Imran Khan, the country’s democratically elected president, faces 3 years in jail after the CIA conspired to remove him from office. In Niger, President Bazoum is said to be under house arrest and running out of food. And now, America’s leading demagogue is facing prison time too, after a new administration, more to Stiglitz’s liking, took control and the Justice Department went to work on the opposition.

Already, with the new team on the job we’ve been washed by another torrent of new laws, new rules, new regulations and trillions in new expenses.

Cronyism, corruption, crackpottery…at least, there are some things you can still count on.       

Regards,

Bill Bonner

Joel’s Note: If Argentina is the ghost of America’s future, the republic may wish to remain among the living a while longer. When we left Buenos Aires a few months ago, official inflation had already topped 100%. A couple of days ago, according to Bloomberg, it was seen passing the 115% annual rate, the highest since 1991. Recent polls cited by newswire Reuters forecast 150% before the year is out…

What does that mean, practically speaking? As with all things in Argentina, there’s the “official” way of doing things… and the “actual,” “real world” way they get done (to the extent they actually get done, that is). De jure vs de facto, as the lawyers would say.

Abiding by Gresham’s Law – roughly stated as “bad money drives out good” – Argentina operates on both an official exchange rate… and an actual one. Known as the “blue rate,” this parallel exchange represents the real world value of the peso vs. the USD, euros, gold, bitcoin, etc. It’s what desperate porteños pay to escape the fast shrinking cage that is their national medium of exchange/store of value.

Back in May, as your editor at large were flying north for the summer, the exchange rate was ~500 pesos to the US dollar. Yesterday, that rate eclipsed 600:1. A friend and amateur economist (everyone in Argentina is an amateur economist, not by choice, but by necessity) notes that, had the parallel rate only kept pace with official inflation, the rate would be closer to 700:1 by now.

Argentina’s general elections, set for October, promise to be a referendum on the economy. The situation is getting so bad, even young people are beginning to turn away from the usual “tax and spend” policies of the ruling Peronistas.

Presidential candidate, Javier Milei (quoted above), has promised if elected to burn the central bank to the ground. Sounds like a decent start…