Why Argentina’s Stock Market Rallied 8% In A Single Day

Argentina’s stock market jumped 8% the day I arrived in Buenos Aires.

The gains had nothing to do with improved corporate earnings or better economic conditions. Argentina’s central bank didn’t promise to inject billions of dollars of stimulus into the market. Something else caused the buying panic.

President Nestor Kirchner died of a heart attack.

Kirchner was elected President of Argentina in 2003, following the currency crisis. He served until 2007, when his wife took over the post. He was campaigning to run for President again next year, and was widely expected to win.

It is quite a statement when the market rallies 8% after a candidate’s death. Talk about being worth more dead than alive.

“Kirchner was a crook,” said a group of businessmen I had lunch with a few days following his death. Indeed, in a country known for electing people of dubious character to higher office, Kirchner raised the standard of thievery.

[ad#Google Adsense]His administration was rife with scandal. It was common to hear stories involving bags of cash stashed in various government offices, and suitcases full of money transported through the airport. Kirchner’s net worth ballooned from less than $1 million when he was elected in 2003 to an estimated $70 million when he died two weeks ago. Much of the increase is rumored to have come from various sweetheart real estate deals and corporate kickbacks on government contracts.

“But he was popular,” I argued. The funeral procession marched down the avenue in front of my apartment. Several thousand people turned out for it.

“It’s easy to be popular when you buy votes,” the businessmen replied. Many of Kirchner’s policies were designed to redistribute wealth – higher taxes and fees for those who achieved, and more “free” handouts for the rest.

“Popularity doesn’t mean the policies are in the nation’s best interest,” one businessman said. “I’ll bet most of the crowd was bused and bribed to be at the funeral.”

I found out later, the housekeeper who cleaned my apartment marched in the funeral procession. She received a sandwich and 100 pesos (about $25) for her participation.

“So who’s next?” I asked the businessmen. “Who will you vote for?”

“It doesn’t matter,” they agreed. “Everyone’s corrupt. We’ll just be trading one thief for another. It’s not even worth the bother to vote.”

And there we have what seems to be the national slogan of Argentina post-currency crisis… Why bother?

Food wrappers and other trash litter the streets, even though there are trash cans on every corner and it takes little effort to properly dispose of the garbage. But why bother?

Dog walkers leave their clients’ poop in the middle of the sidewalk despite the stench and mess it makes. Why bother?

Gentlemen don’t dress for dinner anymore… Many don’t even shave… Why bother?

It’s as if the entire culture has thrown up its hands and decided it’s not worth the effort. There’s no point working hard if what you earn can be taken away from you by government decree, or if what you need is provided for “free.” Why bother honoring your contracts if the government doesn’t honor its own contracts? Why bother playing the game by the rules if those rules change every time you get ahead?

As a visitor, it’s hard to digest this thinking. After all, Argentina appears to have a thriving economy. The government reports strong economic numbers. The stock market is up 40% in the past year. There’s constant traffic in the streets of Buenos Aires. And people are bustling along the sidewalks.

“But we’re peaking,” one businessman said. “And we’re peaking at a much lower level than before.” The rest of the men nodded in agreement. “If only the rest of the government would suffer a heart attack.”

There is a deep distrust and resentment of the government here – which isn’t a surprise since it was government actions that created the currency crisis years ago, destroying much of the country’s wealth.

But that wasn’t always the case. Prior to the currency crisis, the government was largely seen as a regulator and a protector of last resort.

And that is how the U.S. government is seen right now. While it’s not a perception I agree with, it’s apparently the view of the majority of U.S. voters.

Following a currency crisis, however – if Argentina is any example – the government becomes a competitor. It fights with its citizens for each piece of the pie. And its appetite is insatiable.

How do you battle against a larger and more powerful entity? I don’t know. Most of the people I’ve met here in Argentina do so by hiding their wealth. They send it overseas, or bury it in their mattresses. They don’t keep it in the banks for fear of confiscation. So the money never makes its way into the economy and growth is always less than what it could be.

If only the rest of the government would suffer a heart attack… The businessmen’s words replay over again in my head.

If only…

Best regards and good trading,

— Jeff Clark

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Source:  The Growth Stock Wire