Lessons from the Argentine

In today's missive, I plan on sharing just a few of the lessons learned since moving to Cafayate in the Salta province in scenic northwest Argentina.

It's my hope that my observations will be of use to you in getting through the challenging times still ahead for the major developed economies. That's because, as I probably don't need to tell you, the Argentines have almost unparalleled experience in surviving the regular financial crises their government has proven so adept at creating.

In fact, since Juan Perón took office in 1946, not a single ten-year period has passed without being molested by a serious crisis, and often more than one.

There's little question that the roots of the ongoing crisis lie with Perón, who complained upon attaining power that the country's previous economic success had resulted in his tripping over the gold bars stacked in the hallways of government offices. Far better, to his socialist way of thought, to distribute those surpluses to the masses in the form of welfare programs, accompanied by widespread nationalization of large property holdings and businesses. The result was inevitable: by 1949, just three years after Perón began his term, the surpluses were gone and the country's economy was in shambles.

Rather than wake up and smell the mate, the passionate Italian heritage of so many of Argentina's large immigrant population caused the nation to lose its collectivist heart to the charms and rhetoric of Juan and especially Evita Perón, essentially enshrining the Perónistas as pretty much the only game in town when it comes to national government.

While there have been attempts to unseat the Perónistas, and there are some rational subsets within the ruling party, the use of pandering social hand-out programs and other monetary incentives aimed at the masses have allowed the Perónistas to build a bullet-proof political machine.

As a related aside, one of the reasons for their hardened grip on the national government is that every citizen is required by law to vote or face a fine. And so people with no idea of economics or the consequences of certain anti-market policies accept the government's ever-changing rationalizations as to why the economy is heading once again into crisis – always someone else's fault – and vote for the Perónistas. In no small part thanks to a very efficient political machine that transports people to the polls, as often as not providing a free meal and a small handful of pesos to reward continued loyalty.

✓ I guess that's the first lesson I'll be sharing today – beware of any legislative move to require all citizens to vote, which in the US is a very real possibility once voter apathy pushes participation down to the range of 25%. In 2012, just 48% of eligible voters showed up to actually cast a vote.

While it can only be a guess on my part, based on my personal observations and what I have been told by my Argentine friends, the country appears to be in the latter innings for the next financial crisis. That's because inflation is currently running at upwards of 25%, and the tortured set of policies designed to keep hard currency from flowing out of the country are resulting in economic aberrations that feel as if we are approaching some sort of endgame.

If the country can continue operating as smoothly as it does for another year, I'll be surprised.

So, why, pray tell, would anyone want to live here?

While I could respond at length, just last week a very successful Swiss businessman with wine operations in Buenos Aires and Mendoza, visiting Cafayate to look for property, may have said it best.

Over a cup of coffee at the Clubhouse at La Estancia de Cafayate, one of the group asked the wine maker why he has had his operations in Argentina going on twenty years, given the often chaotic business environment. In reply, he looked at the questioner and with a smile on his face answered, "When you fall in love with a woman, or a place, you overlook their blemishes, yes?"

It is also worth noting that for a globally diversified, non-peso-based individual, the steady travails of the Argentine economy can be hugely beneficial, as inflation generally works in your favor.

Furthermore, with over a half-century of experience in coping with crisis, there is much to learn from the Argentines. If my many friends and acquaintances here are representative, despite the current inflation and government regulations gone mad, they have arranged their affairs in such a way that, for all appearances, they don't have a care in the world.

Therefore, given the direction the debt-laden democratic deadbeats are headed in, I think the lessons from the Argentine are well worth learning.

Lessons from the Argentine

Following, in no particular order, are just some of the lessons I have learned since moving here.

The Government Gets Almost No Respect

The Argentines I have met universally view their government officials very rationally, which is to say, with next to no respect. The possible exception is the local beat cop, who is viewed as a peacemaker and little more.

As far as the ruling elites go, it is taken as gospel that they are all self-serving crooks with no clue how business works or what the consequences of their steady stream of hare-brained schemes are. Thus the steady effluence of bad policies from the corridors of power is universally greeted with disdain – that is, if anyone pays any attention to them at all.

A classic example is the body of recent regulations related to currency exchange. If an Argentine wants buy US dollars, for instance to travel outside of the country, they must fill out forms requesting permission to exchange their pesos for dollars. Even in the unlikely event that they receive said permission, the government office in charge of making the exchange will tell you that they don't have any dollars and to come back next week… "next week" meaning something equivalent to "time without end."

Enter the money changers. While they are supposedly illegal, just a couple of days ago in Salta City, I was taken by a friend to a street where the money changers operate in the open, with police visibly walking by unconcerned in the slightest by the guys standing around loudly offering to exchange pesos for dollars or vice versa.

In my case, my friend's contact, a cheerful and rotund fellow who operates out of a coffee shop, invited me to squeeze in behind the tight counter where two cashiers, between ringing up cups of coffee for customers, were thumbing through thick stacks of US$100 bills. I have no idea how much money was stacked up behind that counter, but my exchange of $500 was a fly speck by comparison.

Within just a couple of minutes, with a warm handshake and a muy amable, I was on my way with an exchange rate closing in on twice the official rate.

"Why aren't these places a target for robbers?" I asked my friend as we walked away.

"Nah, things just don't work like that around here. And if you tried, you probably wouldn't make it ten feet down the street. These guys are all protected."

Stepping back from the perspective we North Americans have had drilled into our heads starting in kindergarten, here in the Argentine people recognize government for what it is – an active threat – and have no moral or ethical compunction about devising workarounds.

Are the police patrolling the street of the money changers getting some sort of bribe to act as private security? Sure, why not?

Does anyone care? Not that I could tell. In fact, if you ask the Argentines if they are uncomfortable breaking the latest nonsense law, they look at you as if you were crazy.

Lesson: There was a time when governments were small and largely inconsequential, but those days are gone, and you need to recognize that your government is now an active threat to your financial well-being and act accordingly, even if that means pulling up stakes and heading to jurisdictions where you are welcomed as a tourist and not viewed as a milking cow.

Appearances Aren't Everything, But They Matter

In Argentina, people will treat you as you look. Thus, if you show up to a bank or even just to do everyday shopping in a pair of fashionably torn jeans, the odds are good the person on the other side of the transaction will view you as a poor unfortunate who can't afford a decent pair of pants. As a consequence, depending on the personality type of the person you are dealing with, they might treat you with sympathy or disdain.

It is for this reason that most people tend to dress as well as they are able, regardless of their station in life.

It is fairly easy to understand how these sorts of cultural norms come to pass. After all, most people hereabouts don't own expensive watches, flashy cars or Gucci handbags – the sorts of trappings that are used to signal status in the US or Europe. Of course, in the West these things are likely to have been bought with borrowed money, obfuscating a person's real status.

By contrast, here in the Argentine personal debt is almost unheard of; what you see tends to be what you get, so most people dress the best they can.

Years ago there was a best-selling book titled, Dress for Success, but the lessons from that book seem to have been largely lost on many Americans, for whom tank tops and basketball shorts now pass as formal wear.

Lesson: Resilient people know making a good impression is a good thing. If you want to be treated well, dress appropriately.

Go Along to Get Along

It seems to me that back in the United States, people are becoming increasingly isolated and detached from their communities.

In the little town of Cafayate, it is wonderful to see how well people work together. To provide just one example, most of the year the owner of the café next door doesn't hire a waiter because the business is too inconsistent. Instead, when the place gets busy, his friends pitch in. Thus on any given night your table might be waited on by the local computer technician, a heart surgeon or the scion of one of the most prominent wine-growing families in town. While I have so far declined invitations to wait tables (my Spanish is still a work in progress), I regularly help putting out, or putting away, the heavy wood café tables.

You see this sort of cooperation all around – with people always willing to go out of their way to help you with a problem, and vice versa. Friends hug and kiss each other on the cheeks in greeting, all a part of creating strong bonds that come in handy when the economy heads into the tank.

Lesson: Economies work best when people work together. When times get tough, you'll need all the friends and cooperation you can muster. Build circles of friends that you know you can rely on if push comes to shove.

Be Attuned to Entrepreneurial Opportunities

Though a relatively thick slab of Argentines rely on the Perónistas for handouts – for example, the government stupidly incentivizes pregnancy by offering single mothers a government stipend – most know they have to rely on their own efforts to provide for themselves and their families.

Thus, pretty much everywhere you look, you will see the handiwork of opportunistic entrepreneurs.

For example, one recent morning – and January in Cafayate is vacation time, so the town is busier than usual with tourists – at the front entrance of a nearby school, an enterprising individual showed up with a truck load of two- and three-seat bicycles for rent. I'm not sure how much he charges, or how he secures his inventory against someone just riding off into the sunset, but all of a sudden his bicycles are to be seen all over town.

One of my favorite local micro-entrepreneurs is the baked-bread seller just down the block from the house we are staying at in town while waiting for our house in La Estancia to be finished. His entire shop consists of a 50-gallon oil drum cut in half and hoisted onto a portable but sturdy rebar frame. Toss in some wood, set a fire, and within 30 minutes, he's toasting up delicious flat breads, with or without cheese.

The café owner tells me the guy sells upwards of 100 pieces of baked bread every day, earning a good living by local standards. At the end of the day, he shovels the remaining coals into a metal tub that he disposes somewhere, bundles the whole apparatus into a push cart and wheels it away.

Likewise, it is traditional around here on Saturdays and Sundays for street entrepreneurs to cook whole chickens over a similar apparatus on the street corner, and you'd be hard pressed to find a better roasted chicken anywhere.

Are these vendors supposed to have some sort of permit? Probably. Do they? Almost certainly not. Do any of them pay any taxes on sales? Don't make me laugh. Do the police wander by for a few pesos or a piece of chicken to look the other way? Maybe. But regardless, the economy works, as people do what they have to do to get by.

Lesson: In tough times, there may be simple ways to supplement your income. How much simpler can you get than a bakery operated out of half a 50-gallon drum? Of course, if you live in the Land of the Free, even operating a lemonade stand now requires permits and health inspections, but I'm sure that there are other simple businesses you could think of that would allow you to fly below the radar and make some cash along the way (fully declared to the IRS, of course).

Be Prepared

In two separate conversations, I mentioned to Argentine friends the theme for today's missive – about how the people in the US and the other large failing democracies have much to learn from the Argentines about coping with crisis. In both instances, they said something to the effect of, "Yes, we have learned that we can wake up any day and be in the middle of another crisis. So we are always prepared."

In the US, few people have had the experience of, and therefore can't imagine, waking up one morning to find all the banks closed.

In the last big Argentine financial crisis, around 2001, the biggest problem was there was no cash on the streets. If you had the foresight to have built a stash, or you had a working credit card, you were fine. Otherwise you were in it up to your neck.

With multi-trillion-dollar derivative positions overhanging global markets, the risks of a global financial collapse can't be discounted.

Here in the small agricultural town of Cafayate, I suspect it would cause little more than a blip, provided you've got a stash of cash or trading goods. I sincerely doubt that will be the case in the big cities.

Lesson: Do a mental exercise around the question of how you would access the basic needs of life if the global financial system collapsed tomorrow, or another and worse 9/11 occurred – maybe even a cyber-attack – that effectively shut down normal commercial operations and just-in-time food deliveries to your neighborhood.

Staying Active and Keeping Excesses in Check

The majority of Argentines are very physically active. Perhaps it has to do with a culture that appreciates good looks, an attribute of the Italian heritage frequently commented on by visitors, but regardless of the reason, the fact of the matter is that outside of siesta time, the Argentines keep on the move.

They regularly play sports – fútbol, tennis, golf, polo – late into life. They bicycle, horseback ride, go to the gym regularly or just take long walks. Tying this point back into what constitutes a resilient society, people know that they have only themselves to rely on – that the government isn't going to do it – and so if they get sick, they will be a drag on their family.

While I know a lot of Argentines who smoke, in my experience they don't smoke reflexively… to wit, constantly. Instead, they smoke only a few cigarettes a day, for example to punctuate the end of a leisurely meal. Likewise, while there are certainly borrachos (drunks) in every society, at the cafés in Cafayate, you are far more likely to see the locals sipping soft drinks or coffee in the evening, with wine reserved for and lingered over at dinner.

Lesson: Life can be very challenging if you don't have your health, especially in a bad economy. So stay active and remember: everything in moderation, including your excesses.

There's Big Money to Be Made in Messy Markets

I briefly touched on this particular observation in a recent missive. Namely that in messy markets – such as that of Argentina where you never know what sort of regulatory foolishness is next going to be handed down from on high – there is a lot of money to be made.

READ ENTIRE ARTICLE HERE: http://www.caseyresearch.com/cdd/lessons-argentine

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