Journey to the End of the Earth

A closer look at one possible future for America and her first world friends...

(Source: Getty Images)

Joel Bowman, checking in on the state of the world from Houston, Texas…

Welcome to another Sunday Session, dear reader, when we pull up a seat at the virtual saloon, take a good, hard look at the world around us and wonder, “What on earth is going on here?”

First up today, a British friend, living in Argentina, sent the following message from the fin del mundo...

BTW, did a Disco order the other day... they didn’t bring water or loo roll. Seems to be shortages because of inflation scares.

(English translation note: Disco = local supermarket chain; loo roll = toilet paper.)

Another friend, this one an Argentine, replied on the same group chat: “We are not a country but a Game of Thrones spinoff.” 

Poor Argentina. The porteño politicos never met a crisis they didn’t seek to make worse. So when global inflation ticked over 8... 10... 12% in developed nations, they saw it as a personal challenge, a threat to their undisputed authority on the matter. Official inflation down on the pampas is running at a white hot 60%... but unofficial reports put the number much, much higher. Hence the shortages. When people expect (in this case, correctly) that prices will be higher tomorrow, a penny saved quickly becomes a fraction of a penny earned.

Meanwhile, the locals have taken to the streets, pots and pans in hand, to protest the predictable actions of their political overlords. Here they were, out the front of the Casa Rosada (presidential palace) on their Independence Day, yesterday, July 9...

(Source: Getty Images)

Editor Gone Loco?

Economic calamity... political crises... civil unrest... a lack of basic goods and services... Who on earth would want to live in such a dire place? Indeed, our frequent musings on the regrettable state of Argentine politics and economics have a few dear readers scratching their heads. For example, Vincent E. wonders...

“I have been a reader for over 10 years now, and a subscriber for much of that time. I have a question that has stuck in my mind for some time now, so I thought I would ask...

“If Argentina is an example of what is coming in America, why do Bill Bonner, Doug Casey, and Joel Bowman choose to live and spend so much time there? Is it because of crisis opportunity? I don't get it...”

Sensibly, reader Jeff chimes in, too...

“So my question to Joel; if Argentina is so bad why do you choose to live there? I realize that Bill has a 10,000 acre ranch where no one can really affect his life but you make no sense.”

First of all, it is true that your editor frequently makes no sense. But that’s no reason to drag Argentina into the discussion!

Secondly, we never said Argentina was “bad,” only that it was a disaster. The situation is hopeless, as the Viennese used to say, but not serious. Which brings us to today’s feature essay...

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Journey to the End of the Earth

By Joel Bowman

Science, my boy, is made up of mistakes, but they are mistakes which are useful to make, because they lead little by little to the truth.

~ Jules Verne, Journey to the Center of the Earth

When it comes to the commission of errors, few people on earth are as dedicated to the cause as the Argentines. They go about the business of fouling up their economy with such terrific gusto, one can only marvel that they have anything left to foul up at all. And yet, a good many expatriates – your roving editor among them – voluntarily choose to spend their most precious resource of all, ticking time, down at the end of the earth... Why? 

Are we, too, simple-minded crackpots... lunatics... gluttons for punishment? Almost certainly. But those are merely necessary character traits... not, in and of themselves, sufficient. Here, a closer look...

First, there’s the most obvious reason... the cost of living in Argentina, for anyone earning, saving or investing in dollars, is unusually, almost perversely low. 

When we embarked on our most recent trip north (a month or so ago), the spread between the official exchange rates and the “blue rate” (the unofficial rate you get on the black market), was already widening. Since then, it’s blown out even further. 

To put it in crude figures... a bank will give you roughly 127 pesos for your mighty greenback. But, due to capital controls (Argentines are limited to $200 worth of foreign currency purchases per month, a measure designed to stop them from abandoning their paltry peso altogether), there exists a non-trivial premium for dollars on the black market. 

(Everyone knows about these markets, by the by. The police even stand guard out front of the exchange houses, known as “cuevas” or caves, for added security. In many cases, the cuevas actually pay the officers for their vigilance. If you’re uncomfortable making the exchange on the street, most people know “a guy,” who will ride to your apartment on a motorcycle with a backpack full of cash to trade. And yes, in case you’re wondering, they also gladly accept crypto for fiat... at the black free market rate, of course.) 

The Spread Widens

Before we departed, the cuevas were paying 220 pesos per dollar, a healthy premium over the official rate. But the peso is wobbly... and the market has all but lost confidence in the government’s ability to make good on its flighty financial promises. To wit, a fortnight ago, the state took $250 billion pesos ($2 billion) worth of inflation-linked notes and other securities to market. But demand is tepid, at best. Yields on the secondary market quickly lurched above 12%, for an all-in, inflation adjusted rate of 72%. Hardly assuring. 

Needless to say, locals want out of their fast-depreciating fiat and into something (relatively) stable. But they cannot make the purchases easily through official channels. So the black market commands a premium. 

Add to all that the ever present political uncertainty. Recently, the country’s economic minister just up and quit over the weekend. There’s a lot of political bickering in the ruling coalition party, and the minister’s replacement hails from the far-left Kirchnerista faction, which lives on making unfunded promises and printing money to pretend to pay for them. 

Not good for the peso, in other words. 

And so, in the space of 48-72 hours after the minister’s resignation, the peso fell from 230 to the dollar... to 290. Trading has tightened up since then, but it’s still hovering around the 270 - 1 mark. 

In other words, measured in dollars, everything in the country just got a whole lot cheaper. About 25-30% cheaper. What does that mean, in practical terms?

Writes another friend, a Colombian, who lives in the same old, belle epoch-style building as we do, in Buenos Aires...

“I had dinner at Don’s last night. Starters... steaks... desserts. The usual. $30k for three of us... and $10k of that went on wine.”

A little context: “Don’s” (Don Julio’s), was rated the number one steakhouse in all of Latin America in 2020. It’s also #13 on the Top 50 Restaurants in the World. And our dear friend, who also happens to be the project manager on Bill’s wine partnership, is not shy with the carta de vinos. 

At the current exchange rate, that works out to roughly $24/head... or $37 with (very expensive) wine. 

Lunch for two the next day at a popular Vietnamese joint, “with [many] beers,” was $7,500. About $14 per head. 

It’s the same story for utilities... most of which are heavily subsidized by the state (legacy promises from past elections). Here is our last round of monthly bills... 

Metrogas (gas): 3,017 pesos... ~$11.17…

Aysa (water): 1,340 pesos... ~$4.96…

Edenor (electricity): 1,156 pesos... ~$4.28…

Recall that it is winter in Buenos Aires. Our friends are graciously house sitting for us, using the facilities as they wish. In summer, the cost of electricity goes up (marginally, for AC) and the cost of gas goes down (no heating required), but as you can see, it’s hardly worth noticing. 

Reliable Crises

Such has been our experience, on and off, since we first moved to the Paris of the South, back in 2010. As any common sinner among us well knows, to err is only natural... but such inevitable mistakes and missteps are useful only if one takes the time to learn from them. And yet, so enthusiastic are Argentine politicians in the original commission of their errors, they rather appear to have forgotten the part about correcting for them. Hence their more or less decennial crises, their cyclical currency catastrophes and their tendency to oscillate wildly between the cheapest and the most expensive country in the world in which to live. 

Owing to precisely these crises, there’s a kind of stoic resignation to the Argentina character, a hard won pragmatism that can only be earned through years of patience and endurance. They see their politicians for what they are... self-interested thieves enriching one and other at the public’s expense. 

Such an environment offers one a clarity of vision experienced in few other countries. In our native Australia, the vast majority of the population believe - and firmly - that the solution to life’s various ailments are to be found in some future political candidate. If only they “vote harder” in the next election, things will turn around. The nation is forever one law, one edict, one political promise away from turning the corner. 

Argentina suffers from no such delusions.

A short while back, your editor’s wife organized an online symposium for her classics community. The topic at hand: The Fall of Nations and End of Empires. Among the guests speaking at her event was the modern historian, Niall Ferguson. 

“The thing about the Argentina people is they’ve been put through so much by political incompetence and corruption,” observed Mr. Ferguson during the session. “That in fact there’s quite a lot of resilience there.” 

Having spent the past dozen or so years there, we can confidently confirm Mr. Ferguson’s assertion. We don’t know a single person who doesn’t have a ready supply of cash on hand (held in dollars and/or euros; not pesos). Most have a stash of gold, too, however modest... including bullion and smaller coins. 

Moreover, everyone is aware of the various currency exchange rates... and is perfectly capable of the kind of mental math that hasn’t been taught in developed world schools in a generation or more. Even people struggling to get by, who earn barely enough to stretch from one week to the next, have a stronger grasp of real world economics than, say, your average PhD student in the west (who, in enthusiastic demonstration of his ignorance, will happily plunge himself into enormous debt in order to waste years of his youth learning about the finer points of Modern Monetary Theory and assorted other Keynesian claptrap.)

Not so for the Argentine nanny... Uber driver... grape picker... kitchen hand... She understands supply and demand in a way that few pointy-headed econometricians will ever comprehend. 

When her government tells her she is not permitted to buy more than US$200/month of foreign currency, she understands immediately that capital controls mean a black market premium on dollars, euros, etc. So, she pools her meagre savings with her fellow niñeras and finds a gringo, with peso expenses, who’s willing to make the exchange with her at a favorable rate for them both. 

Where she can, she makes her purchases in “quotas” (installments), relying on her elected officials to safely destroy the value of her currency so that when repayments come due, they are worth “centavos on the peso.” She pays her taxes late and for the same reason. And she works for cash in hand, keeping a small kitty for everyday expenses, and converting the rest into durable goods. She is a responsible, reliable, honest, hard-working, antifragile individual... and she is a pleasure to employ.

On which note... 

True Wealth

In answer to the common, misguided charge: aren’t you just taking advantage of the situation? It’s perhaps worth pointing out... we do not make the prices. Nor do we inflate/destroy the currency... or decide the exchange rates… or make economic policy. We simply pay the bills as they come due. We also support a handful of locals – Argentines, Bolivians and Paraguayans – directly, good people whom we employ in various capacities, and whom we happily recommend to other gringos, who in turn are only too glad to compensate them at above market rates. 

Many times over the years have we heard that cringing wince from the conspicuously compassionate brigade, angels of mercy who are so empathetic to the plight of “poor people” that they hope never to have to meet them, lest their oversensitive hearts explode. 

Alas, poverty doesn’t go away by ignoring it or by merely “feeling bad” because it exists. Rather, it is alleviated, to the extent that it is, only by win-win, value-adding commerce... by supporting honest people doing excellent work... by patroning their restaurants, visiting their bodegas, buying their clothes, hiring their services, shaking their hands, looking them in the eye and even bringing them into your family home. 

Living in so-called “poor” countries (which in so many non-financial senses are often among the richest nations on earth), one begins to understand how truly vulgar ostentatious wealth, and how noble the work of a simple man, can be. Our seven year-old daughter knows what real poverty looks like, up close... and she is aware how fortunate she is not to be in that position. But she also sees how many people in “rich” nations take their material wealth for granted or, worse still, derive their sense of self worth from the type of car they drive or the size of the house they live in. 

When locals ask, as they often do, why on earth we would forgo our life in stable, predictable, functional Australia for one in chaotic, unpredictable, dysfunctional Argentina, we reply, “We came for the steak and wine. And we stayed... for the steak and wine.”

But the truth is, it’s the priceless, personal relationships that make a man truly rich… and the experiences he enjoys with those dear to him that he most cherishes in this life. 

As for running out of “loo roll,” at the rate the Argentine government is printing up paper money, one shouldn’t expect that problem to last for too long, either.

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There are, of course, many other aspects to living in Argentina than we could possibly fit into a pithy Sunday article... there’s healthcare (world class and affordable), safety (localized... but nuanced), real estate prices (down a third from their 2020 all time highs), work and residential visas (we know “a guy”) and plenty more besides...

So if you found this article at all helpful, and would like to know more, let us know in the comments section below and we’ll endeavor to answer your questions in future issues.

In the meantime, look out later this week for another episode of your Fatal Conceits podcast. We sat down with long time friend of Bonner Private Research and popularly requested guest, Byron King, to discuss the energy situation in Germany, France and the Netherlands… plus the ongoing war between Russia and the Ukraine… its impact on world markets – oil, gas and gold – and plenty more besides. Look out for that episode this Thursday. (The transcript will be available for Bonner Private Research members only. If you’re not already signed up, but would like to do so, you can join us, here…

And that’ll do for another Sunday Session. Look out for Bill’s regular missives tomorrow and, whatever you’re up to this weekend, be good… or be careful.

Saludos!

Joel Bowman