Chief Investment Strategist, The Freeport Society
I took a trip to Mendoza, in Argentina’s wine country, earlier this year, and I remember feeling really uncomfortable walking out of a currency exchange shop with a massive paper sack full of cash.
I quickly realized it didn’t matter because no one wanted to steal it anyway. It wasn’t worth the effort. The bag full of cash was barely enough to pay for dinner that night.
Argentina’s experience with inflation serves as a warning to us. And that nation’s recent election should, too.
Argentina shocked the world on Sunday by electing Javier Milei to be the country’s next president.
Why should North Americans care? I’ll explain shortly, but first understand that we won’t be endorsing any presidential or political candidates here.
Yet, when I hear “anarcho-capitalist” – as Milei fancies himself – I get interested. It takes me back to my idealistic college days of reading Atlas Shrugged and imagining a world where free markets are left alone to work their magic.
His rise to power will affect us, mostly in indirect ways, so let’s talk about the man.
To be blunt, Milei is extreme… and abrasive. His critics refer to him as “el Loco” – the Madman. He regularly revs chainsaws at his political rallies to symbolize his approach to state spending. And with his lambchop sideburns, he looks like the lovechild of Austin Powers and Wolverine from the X-Men.
Yet he won the election by a wide 12% margin: 56% to 44%. That’s a landslide… and a major slap to the face of the Partido Justicialista that has ruled Argentina for most of the past 40 years.
So, why did Argentines embrace el Loco? And why should we care?
Today, let’s answer those two questions. And let’s get you – and your portfolio – prepared for what comes next.
What Made the Chainsaw So Appealing
Two charts tell us all we need to know.
It starts with inflation.
The inflation we’ve experienced in the United States since the start of the COVID pandemic has been intolerable. Yet, even at its most extreme, it can’t hold a candle to what Argentinians face.
Before the pandemic, Argentinian inflation was regularly clocking in at 30% to 50%. In the aftermath of the pandemic… and the country’s ninth sovereign debt default… inflation shot over 100%. In October of this year, it hit a recent record of 142%.
Along the same lines, the Argentine peso has plummeted in value.
In 2002, one U.S. dollar would have bought you approximately one Argentine peso.By the end of 2010, that same dollar would have bought you about four pesos. By 2018, it was up to 20. Today, it’s well north of 300.
Let’s look at this from the perspective of an Argentine saver. Back in 2002, you could have swapped your peso for a dollar. Today, that same peso would be worth exactly $0.003… or three-tenths of a penny.
When the Measuring Stick Is Faulty
And let’s stop to consider the measuring stick. The dollar has been mismanaged for quite literally my entire life on this earth.
The Federal Reserve has tried its hardest to destroy it, and when central banks actively try to destroy the value of their currencies, they generally succeed.
A dollar printed the year I was born is worth a lot less than a dollar printed today.
And yet Argentina’s peso has managed to lose 99.68% of its value against even the dollar.
Milei is ambitious. He wants to abolish Argentina’s central bank and replace the peso with the dollar. (Again, we know the dollar is a mess, but it’s a major improvement over the status quo.) He also plans to massively slash state spending to reduce Argentina’s dependence on debt… dependence that has led to nine defaults since independence from Spain.
We’ll see what Milei is able to do. His party won only seven out of 72 seats in the Argentine Senate and 38 out of 257 in the lower house, so getting his more ambitious proposals like dollarization approved won’t be easy. It also doesn’t help that Milei has no experience in making political deals and is better known as a TV shock jock than an actual policymaker. But let’s wish him well. If reform can happen in Argentina… it can happen anywhere. Even right here in America!
Is This Our Future?
Argentina’s problems are an extreme case, but the same cancer plagues every major industrialized country, including the United States.
We’ve had decades of deficit spending enabled by servile central banks. We haven’t suffered a default yet, but only because Congress keeps passing spending stopgaps.
And while dollarizing is a major step in the right direction for Argentina, it’s not a perfect solution by even the wildest stretch of the imagination. The dollar itself remains a smoldering dumpster fire of a currency.
Milei’s election is yet another stroke of the fires of chaos that are coming to characterize this decade.
So ,what are we as investors to do?
First, watch Argentina’s progress closely. We are walking that same path, albeit it more slowly and with less fanfare.
Second, know that there is still hope if we fight for our freedoms – our right to live, liberty, and the pursuit of wealth.
Third, while I don’t believe there is a single panacea solution for our portfolios, a multipronged approach will be the most effective:
- Own traditional hedges like gold… and newer ones like Bitcoin.
- Hold the Rich Man’s Currency… the shares of bulletproof companies that have proven their ability, for decades, to navigate inflation, deflation, and everything in between. I share several in our free The Five Best Stocks for 2024 report.
- Read The Freeport Navigator regularly because this is where we’ll help you navigate this age of chaos. We’ll deliver you those reports most Tuesdays, Thursdays, and Saturdays.
To life, liberty, and the pursuit of wealth.