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The Daily Reckoning Australia

Buenos Aires, Argentina - Melbourne, Australia

Wednesday, 29 October 2008

From Dan Denning at the Old Hat Factory:

--Around noon yesterday here at the Old Hat Factory, a little daemon whispered in your editor's ear, "The bottom is in for the year of the ASX."

--"Huh?" We looked around to try and spot the little green devil. He's been in our ear before. But he was nowhere to be found. We could still hear his voice.

--"Think about you fool. It is now safe to be dogmatically bearish on the front page of the newspapers. The hedge funds have been forced to liquidate. The mob followed on the fund industry's heels, sold everything, and headed for the hills. The hills are full! Can't you see what this means?"

--"No."

--"The selling has exhausted itself for the year you moron! Roubini recommends a $400 million stimulus package. It's a sign. The liquidation of the long commodities/short dollar and yen trades has got to be nearly over. The moves in the currency markets have been massive. It can't go on. And if it does...well if it does then this is the second Great Depression and you'll have other things to worry about."

--But what if you're wrong?

--"Then I'm wrong. If you're going to be in the equity markets at all for the next year, you should own the world's best businesses. You're not going to see them this cheap again for awhile. If you don't want to own theses businesses, why bother being in the market at all?"

--God may not whisper in everyone's ear. But we find daemons more than willing to have a chat, usually when our judgement is most in doubt. Still, we couldn't help following through the thoughts of our little green devil to their logical conclusion. And in his own way, he makes perfect sense.

--Bob Prechter and the Elliott Wave theorists (if we're not mistaken) believe that 'social mood' is what determines the direction of the stock market. And the market then leads the economy. But what leads the social mood?

--Well, that's a tough one. At the Border's on Chapel Street this weekend, we noticed that Bill Bonner and Lila Rajiva's book, Mobs, Messiahs, and Markets had moved up to number seven on the hardback best seller list. People are trying to understand why investors act like a flock of birds or a school of fish, all seeming to move in the same direction at once, without cause or explanation.

--People are wacky. The great mistake of market analysts (and most socialists) is to assume that people are rational and make economic decisions after calm, rational calculation. This is a figment of the rational imagination.

--People often take leave of their senses. And these days, it's hard to say just why some people are selling and no one is buying. As we've said here, we think it's the massive unwinding in leverage that's forcing stocks to be sold. There are simply not enough buyers to sop up all the selling (at least not until last night in New York, when some of that cash got back in the game).

--It doesn't help that you have a slowing global economy and a credit crunch. When you combine all that, the social mood turns decidedly sour. The beer goes flat. The smoke, rather than being a pleasant cloud in the lungs and making everyone look sophisticated and cool, just burns the eyes.

--What our little daemon told us yesterday, we think, is that the social mood couldn't possibly get any more sour. "Consumer confidence drops to record low," reports Bloomberg this morning. There was dust and tumbleweeds blowing through the markets this week. It was fast becoming a barren wasteland.

--But yesterday in New York, the first intrepid investors popped their head out from above their fallout shelters. Squinting in the sun, they found that perfectly healthy world-class businesses were lying around in the street for the taking. They were taken. The Dow was up double digits.

--Don't get us wrong. This still feels like the beginning of the 50% rally the Dow experienced in late 1929 and early 1930. But a man can take only so much depression in one quarter.

--It is not hard to see a simultaneous round of global interest rate cuts, a massive stimulus package in the U.S., and the election of Obama in the States (did somebody say Messiahs?) as just the things to turn the social mood around. And that's what makes for a rally.

--An improvement in the social mood won't do much to improve the structural causes of the mess we're in. FedEx CEO Fred Smith was recently interviewed in the Wall Street Journal. He made some fantastic points about why we are where we are...and how to get out of it.

--"Things became so flipped upside down," in the financial economy. "The assets at these banks became the liabilities and the liabilities became the assets. These people were making these fantastic returns -- at places like Fannie Mae and Freddie Mac -- but in reality they weren't adding a lot of value. I have said time and again that there is a fundamental tendency in good times in the financial sector to over-leverage. Our national policies actively encouraged all this debt."

--Smith points out that Anglo-Saxon capitalism favours speculation over actual capital accumulation and production. It does this through a tax policy and monetary policy. The corporate tax rate in the U.S. is 38%, compared to 25% in Germany. When you throw in loose monetary policy-money available at cheap rates to borrow and speculate with-you see how a company like GE went from being a company that made things to a company that made loans.

--If the regulators failed to restrict the amount of leveraging possible in the financial system, then corporate boards and CEOs equally failed. They took the easy way up, banking quick financial profits with borrowed money. They did not realise-or more likely ignored the fact-that leveraging financial returns with borrowed money is not a long-term business strategy. Leverage is the root of all our cotemporary financial evil.

--The last two months have seen the collapse of leverage and the deflating of the credit bubble as money drains from the global financial system (faster than the Feds can pump it back in). The hedge funds are delivering. The banks, despite infusions of new capital, probably still have too much leverage. What's Paulson going to do about that? Hmmn.

--In the meantime, you can be sure that there will be more corporate dirty laundry aired in the coming months. Unwinding that bank leverage may involve more selling of assets, perhaps to the government at an artificially high price (or to sovereign wealth funds and private equity if market prices prevail). The credit crisis, though improved, is not entirely over. More bad debts from mortgages loom on the horizon. And Europe faces trouble from emerging market debt.

--But for now, the social mood seems to have lightened. How long will it last? We'll ask our green devil if he shows up again. We'll see if we can get him to tell us what he's buying, between drinks of champagne.

----------------------------------



And now over to Bill Bonner in Buenos Aires, Argentina:

The masks are coming off. It's the end of the party, now we get to see what people really look like.

And it's not a pretty sight.

You'll recall that one of the fairest of the Bubble Era's revelers was the idea that, over the long run, you would make money in stocks. All you had to do was 'buy and hold.' Who didn't like her? She seemed so easy...so willing...so fetching and attractive.

Yesterday, the Dow lost another 203 points. Investors are down 44% so far this year. Worldwide, they've lost $10 trillion this month - far worse than the crash of '29.

The most successful economy of the 20th century was the United States of America. The second was probably Japan. It rose from the bombed-out ruins of WWII to become a worldwide export powerhouse, dominating the auto and electronic equipment industries.

But yesterday, stock prices in Japan fell to more than a quarter-century low. Investors in Japanese stocks - including your editor (who is better at giving advice than taking it) - have made nothing in 26 years.

Here's the press report:

"Tokyo's Nikkei 225 index closed down 6.4 percent to 7,162.90 - the lowest since October 1982 - with exporters like Toyota Motor Corp. and Sony Corp hit hard. The losses came despite a report that the government was considering massive capital injection into struggling banks in a bid to calm jittery financial markets."

"Decades of pain and still no relief," adds the Financial Times, noting that investors in Japan have been waiting for a recovery for the last 18 years.

With the mask off, stocks in Japan are giving investors a Halloween fright.

But what other masks are coming off?

How about the sweet mask worn by housing? 'Housing always goes up.' And, 'you can't lose money in property.' Remember those beauties? Those masks hit the floor a year ago. Since then, the whole world has looked at the property market and gasped in horror. How could houses be so ugly, homeowners have wondered; they look like they just woke up.

Oh and there's oil...down to $63 yesterday. Oil was supposed to go up forever. At least, that was one of the favorite masks of the late Bubble Era.

But there are still a few Bubble Era masks that have not yet come off. In fact, the belle of the ball is the mask on 'progress.' People still believe that the world grows and improves - if not steadily, at least episodically. It's certainly true that long periods of history show what appears to be economic progress. Things get better. But occasionally, something terrible happens - plagues, wars, revolutions, Great Depressions and Dark Ages. Then, the world turns backward. The bull market in progress turns into a bear market of progress turns into a bear market of backsliding.

Today, people are losing faith in stocks and housing...but they still have faith in progress. Just a few months ago, they thought capitalism would make them rich. But wicked capitalism has disappointed them badly; it didn't guarantee rising asset prices after all. So, now they turn their sad eyes to the feds. 'Oh ye all-knowing, all-seeing, all-powerful ones...hear us. Save us - from capitalism!

They figure the feds will do the trick... And sure enough, all over the world the federales are playing along. The G7, the IMF, the central banks, the finance ministers and Treasury Secretaries - all have put on their own masks...strutting around, pretending to know what they are talking about. Curiously, France's president Nicholas Sarkozy is a leading strutter. He's trying to organize a New World Financial Order...based on something other than the dollar.

These poseurs don't look too bad - as long as they leave the masks on. Take them off, of course, and you will see the same silly clowns who CAUSED the crisis in the first place.

That is what is so amusing about this stage in the collapse of Western Civilization. You see, most of the world's financial press has come around; they see things much the way we do. They see, for example, that the U.S. Fed erred - big time - by fixing the price of credit too low for far too long.

Of course, there's nothing in the Manual of Capitalism that allows the feds to fix the price of credit or support the housing market. This was the government at work, not the market. With the misleading signal coming from the credit markets, the capitalists just did what they always do - they overdid it.

Still, the world's press, pundits and politicians have convinced themselves that the fault lies not in themselves...but in capitalism. And now, they expect the feds to do something about it.

But that's just the way it works...one hallucination gives way to another. One delusion on the way up; another on the way down.

*** Even star mutual fund managers are getting walloped by this market. Chris Mayer offers us a few examples:

"Managers with great track records are faring poorly, and it may help you feel better about how you are doing. Jean-Marie Eveillard, for example, has been running money for 50 years. He's beaten the market handily for a long time. He is a cautious type. He likes gold stocks. He likes Japan. He's down 27% this year. Robert Rodriguez, another cautious money manager who holds a lot of cash and runs FPA Capital, is down 29%. These are among the best of the best, as the market is down more than 40% this year. William Fries at Thornburg is down 43%. David Winters at Wintergreen is down 37%. Wally Weitz at Weitz Value is down 39%. The list goes on and on...

"So you see, nothing is really working well in this market right now - at least not for investors in stocks. However, there are a lot of cheap stocks out there, bargains I haven't seen in a long time. Unless the world comes to an end, which it has a habit of not doing, future investors will be a happy lot. Count me a cautious buyer of stocks."

Caution is the name of the game here...

And the bargain hunters were abound this morning, setting up a rally worldwide in the markets.

Also boosting the markets is the anticipation of the Fed's two-day meeting, that begins today. It is widely believed that the Fed will cut rates...but it remains to be seen what, if any, lasting effect it will have on the markets.

Lurking behind this rally is this unsurprising tidbit: consumer confidence in the United States hit an all-time low in October. The Conference Board reported that expectations have turned "significantly pessimistic with the percentage of consumers expecting business condition to worsen over the next 6 months rising to 36.6% from 21% and those expecting fewer jobs rising to 41.5% from 26.9%"

*** Perhaps the biggest delusion of the financial world now is that the dollar...and dollar-based Treasury obligations...are a safe refuge. In a sense, of course, they are. The U.S. government is in no danger of defaulting on its loans. In an emergency, it can always just print up the money. But that's the problem. An emergency is coming. More on this when we get a chance to think about it...

*** "I'll be all right down here," said our old friend Doug Casey. Doug has bought a place in Cafayate, a town that reminds us of Santa Fe or Aspen, before they were ruined by rich people. He's building a world-class resort - complete with golf course, riding trails, tennis, health spa, library...everything he wants.

Cafayate also has several things going for it that Aspen and Santa Fe did not. First, it is prettier and the weather is better. It is always sunny, with pleasant temperatures. Wherever you look, you see beautiful mountains. What's more, it produces some of the world's best wine.

Doug's place is right in the middle of a vineyard. In fact, he's got it set up so that revenue from the vines pays much of the operating costs of running a golf course and so forth.

"Another big plus," says Doug, "is that this place isn't going to suffer too much from the credit crisis. Nobody down here had any credit."

*** Doug is not completely right about Argentina's credit situation. Believe it or not, there were lenders - mostly big banks - who were foolish enough to extend the nation credit. Naturally, the Argentine government treats these angels like taxi drivers in Buenos Aires treat other foreigners.

Almost every time we go to the airport, the taxi driver tries to pull a fast one. "My meter is broken," said one, "the standard fare is 200 pesos." (It is really about 70 pesos.) "We crossed into another zone," said another, "so I have to add another 50 pesos." "It's night time," came another invention, "after dark you have to pay a surcharge."

It's all good fun. The taxi drivers are merely establishing the going rate. The price for a run to the airport is much higher for naive foreigners, but why shouldn't it be?

So is the price for lending to the Argentine government.

This from MoneyWeek:

"In December 2001 [Argentina] reneged on its $95bn of sovereign debt.

"At the time, that was the biggest default in world history, though these days such a number looks like chicken feed compared with what the world's bankers have recently managed to mislay. Only in 2005 did Argentina sort the final details, with a 'take-it-or-leave-it' 70% 'haircut' on face value, again the largest sovereign debt markdown ever.

"Three years later, it's back to square one. Inflation is rocketing (some estimates put it at 20% annualized) and the government is once again running out of cash. Argentina's borrowing needs will swell to as much as $14bn next year from $7bn in 2008, says RBC Capital Markets. And any confidence that the country will be able to repay what it owes is fast flying out of the window.

"Argentina's 8.28% government bonds are due to be redeemed in 2033. Fat chance of that, the way things are looking right now. Now priced at 22 cents on the dollar, they currently yield 31%, as against 'just' 12% a month ago. And still no one wants them.

"What's more, the price of credit default swaps - market insurance that investors can buy to protect themselves against default (Read: All you need to know about credit default swaps for more) - covering the country's sovereign debt has more than quadrupled over the past month. These CDS now stand at more than three times the Icelandic level, and suggest there's almost a 2:1 chance that Argentina will go bust this year."

Does this worry your editor - who has substantial (for him) investments in Argentina? Not at all. As a dear reader pointed out, the average Buenos Aires taxi driver knows more about financial crises than Bernanke, Paulson and Greenspan put together. The Argentines know how to get through a crisis, in other words, and still put steak on the table and wine in their glasses.

We're going to learn from them.

*** Finally, another dear reader sends a news item explaining why there was a bagpiper in front of our neighborhood church last Sunday.

It was the "kirking of the tartans," said the headline. Turns out, the local Scottish Argentine society does this every year...a kind of blessing of the clans, performed by the local priest. "Kirk" in Scottish means church.

[Editor's Note: Bill Bonner & Lila Rajiva's new book, Mobs, Messiahs and Markets, is now available in Australia from The Educated Investor. Order here for a 15% discount.]

Exibições: 34

Comentário de Alexandre César Weber em 1 novembro 2008 às 16:07
Peixes nadam, pássaros voam e o Banco Central imprime dinheiro. Algumas coisa mudam para permanecer a mesma coisa.

A dúvida é quando o G7 vai mandar a conta para o G20.



Disappearing on the Pampas
Paris, France
Friday, October 31, 2008


“U.S. consumers cut back sharply,” says the front page of today’s International Herald Tribune .

“Decline is biggest since ’80; data show a shrinking GDP.”

Well...what did they expect?

We are in an especially cheerful mood here at the Paris headquarters of The Daily Reckoning . Why? Because everything is happening as it should. God is in his Heaven. The Queen is on her throne. And the Big Boom is turning into a Big Bust.

As predicted in this space, many times, consumer spending is falling hard. But what else could it do?

Let’s look back over our shoulder to see how we got to this place.

The feds goosed up the slumping economy in 2002 with history-making inputs of new cash and extra-easy credit. What followed was an once-in-a-lifetime bubble in housing...which lifted up the entire world economy. Americans bought things they couldn’t really afford with money they didn’t really have. And the whole world rejoiced.

But when housing prices got so far out of whack that the average person couldn’t dream of buying the average house, something had to give.

Housing began to fall...taking the mortgage-backed speculative finance business down with it.

At first, few people took it serious; so it took a long time for homeowners to react. But they had to cut spending sooner or later.

In an economy that is nearly 80% based on consumer spending, less spending is bound to cause a recession.

And when businesses take in less revenue, their stock prices are sure to fall.

All that has happened, just like it should.

But what should happen next?

First, we should begin to see some shocking unemployment numbers. It takes time to prune payrolls, but we should be seeing the deadwood on the ground very soon. And then some green wood. Good, young employees will be cut along with the baby boomers.

A new hotel opening in Las Vegas put out a call for employees. It got 67,000 applicants for 500 jobs. And American Express said yesterday that it will cut 7,000 employees.

Unemployment is officially at about 6% now. It will pass 10%...and keep going up.

Then, we will begin to see a big increase in bankruptcies, defaults, and foreclosure. Even after layoffs and cutbacks, businesses will be unable to pay their bills. Laid-off workers will find it tough to find new jobs; they will declare bankruptcy too. Corporate bonds will become worthless. Billions in automobile and credit card debt – along with mortgage debt – will become uncollectible.

What else will happen?

Globalization will walk backwards. This time, there will be no need for Misters Smoot and Hawley. Mr. Market will do their work for them. Global trade will collapse as the consumers of first and last resort – Americans – stop spending.

We’ve already seen this happening in the capital equipment area. Volvo got orders for 41,970 of its big trucks in the 3rd quarter of 2007. In the 3rd quarter of 2008, meanwhile, Volvo got a total of 155 orders.

As Mark Gilbert reports at Bloomberg , if no one buys trucks, you don’t have to ship trucks. Shipping rates are collapsing too. Now it barely costs 10% as much to ship a truck as it did at the beginning of the year.

It’s a “descent into Hell,” says Michael Bloomberg himself, describing what waits for the next U.S. president.

*** So, you see, dear reader, what MUST happen DOES happen. Sometime it takes longer than you expect. And often it doesn’t happen exactly the way you expect. But it is a relief to know that gravity still works...what goes up still comes down. ‘Regression to the mean’ is another old law still in force; when things become extraordinary, you can bet they will go back to normal sooner or later.

But what does this mean for stocks? And what about gold? The dollar?

Hey, you’re asking a lot from a free publication. But what the heck...we’ll make some guesses and remind the reader that he is likely to get no more than he paid for:

Stocks typically regress to the mean, along with everything else. The ‘mean,’ depending on how you measure it, would put the Dow between 6,000 and 9,000. But Mr. Market is can be a devilish fellow. He usually causes stock prices to regress beyond the mean, before he lets go of them. This could take the Dow down to 5,000...perhaps to 3,000...before it finally reaches a bottom.

And before we make guesses about gold and the dollar, we will tell you another thing that MUST happen.

Fish gotta swim. Birds gotta fly. And the feds gotta try to pump more liquidity into the system. All over the world, government officials are taking command of the situation. Well, they are taking command of banks...of trillions of dollars worth of bailout funds...interest rates...and financial rules.

Yesterday, for example, Japan announced that it would spend 5 trillion yen, about $273 billion, in a “stimulus” package. Also, the Bank of Japan told the world that it, too, was cutting rates. This news came as a surprise to us. We didn’t think Japan had any rates left to cut. But the BOJ nevertheless announced that it would shave the short stump of its main rate down to 0.3% and that henceforth it would make commercial loans at 0.5%.

By contrast, the U.S. Fed still has 100 basis points to work with. And the U.S. Congress is said to be planning another stimulus package of its own – surely wrapped in bright Christmas paper. The price tag might be another $400 billion, according to our sources.

Not only are the feds trying to bail out the U.S. economy, they’re also lending $120 billion to a group of foreign countries in order to help them swap their currencies for dollars. At least, that’s what it says in the paper...the actual transaction is a mystery to us.

The Russians are bailing out their own rich people. At least they’ve got some real money to work with – a fund of $200 billion. And the IMF has pledged to lend $100 billion to wherever it is needed.

You can also count on more rate cuts...trillion-dollar deficits...show trials...giveaways...and grandstanding. There will no doubt also be a “jubilee” movement – demanding forgiveness of debt.

The big questions are when and how will these things affect the feds’ ability to borrow? We don’t know the answer...but we have watched Treasury yields rising ominously over the last few days. That could be a sign that the worst is over for the economy. Or, it could be a sign that lenders are worried about US public finances.

If the world economy continues to weaken...and turns into the FWD (First World Depression), as we think it will...none of these measures will do any good. Finally, the U.S. government will run out of credit, out of money, out of time, and out of luck.

Then, the Bank of Ben Bernanke will do what it has promised to do: it will print money. And when that happens...or even when investors begin to suspect that it might happen...the dollar will collapse and gold will rise.

*** “Here’s my question,” begins a Dear Reader. “If in any business deal someone loses or spends money and then someone makes money on the other end of the deal, my question is where did all of the money go? Who is holding on to it? Why? I don’t understand the concept of a global recession. Please help. Thanks.”

*** Another reader answers the question:

“I feel terrible. I feel like this thing has taken 10 years off my life. I took your advice. I think. I put half my assets in cash and gold. Okay...gold went down, but not catastrophically, so I’m okay there. But the other half, I put into stocks. Not US stocks. I bought India and Japan and some other foreign markets that I believe you had mentioned. Maybe over the very long run, those stocks will prove to be good buys. I don’t know. But I’m down about 50% in those investments...meaning, I’ve lost 25% of my wealth.

“Where did it go? It just disappeared. Nobody made any money on the other side of the trade. Because I didn’t sell. I held on, thinking that the bottom was in each time they went down. But they just continued to sink. I still have them. And now I’m afraid they could go down another 50%...but I’m so far down already I don’t care.

“I’m a big boy...I don’t mind the loss of money so much. But I can’t stop thinking that this money I made over the course of a 40-year career in business. It didn’t come from speculation. It’s not easy-come, easy-go money, in other words. Instead, it’s a quarter of the wealth I’ve accumulated over 4 decades of work. So, it’s as if an entire decade of my life had been lost.”

More below...





The Daily Reckoning PRESENTS: The average cab driver in Buenos Aires knows more about financial crises than Trichet, Brown and Paulson put together. His training comes neither from Keynes nor Smith. And what the typical Argentine has learned, the English and the Americans are about to discover for themselves. Bill Bonner explains...

DISAPPEARING ON THE PAMPAS
by Bill Bonner

Last week, at the annual convention of the nation’s mortgage bankers in San Francisco, protestors used bullhorns to heckle attendees; they demanded a moratorium on foreclosures.

Meanwhile, south of the Rio Plata, a mob formed in Buenos Aires too. Their gripe was that the government of Christina Fernandez de Kirschner was grabbing their pension money. ‘No way,’ replied the queen of the pampas. We are just going to “rescue” it from the wicked capitalists. Like a Doberman rescuing a hot dog, the Argentina government will swallow $26 billion worth of private pension funds. The federales say they are taking the money into protective custody. It will just “disappear,” say protesters.

The signal on the flag here unfurling is that, compared to the Argentines, the American mob is a bunch of naïve chiselers. At least the gauchos can tell the difference between self-delusion and grand larceny. But the average cab driver in Buenos Aires knows more about financial crises than Trichet, Brown and Paulson put together. His training comes neither from Keynes nor Smith. The great Anglo-Saxon economists may have laid out their theories of political economy. But they left some important holes. Argentina’s presidents have filled in the blanks. And what the typical Argentine has learned, the English and the Americans are about to discover for themselves.

Leaving Argentina, our cab driver tried a familiar flimflam. Hearing a foreign accent, he said: “My meter is broken...but the fare to the airport is always a flat 200 pesos.” On the pampas, no self-respecting taxi driver gives a sucker an even break. But then, rarely do markets or governments, either.

“What is the message that the government is giving to the people today?” asks Argentine economist, Roberto Cachanosky. “That it is ready to take their revenues and their savings with no limit...and also, that they will continue to give out information and make announcements that, to say it gently, have no connection to reality.”

“The only secure retirement is one backed by the state,” said a member of the Peronist party, proving Cachanosky’s point. As the country approached bankruptcy in 2001, its leaders followed the traditions of all Peronists, Democrats, Republicans, and National Socialists; when they get themselves in a jamb. First, they lie. Then they steal.

Argentina has a parallel system of state-owned and privately-owned pension accounts. Its state system pension payments were cut by 14% in 2001, and then cut an addition 66% when the peso was devalued the following year. Now, the Kirschner government is nationalizing the private accounts. Set up in 1993, these funds must invest 60% of their money in Argentine bonds. Naturally, bonds backed by the Argentine government are not necessarily the strongest credits in the world. Argentine peso bonds – like pensions – are adjusted for inflation. But the government lies, with a measure of inflation that is less than half the real 30% rate. As to the dollar bonds, it steals. In 2001, it defaulted on $95 billion worth of loans made by overseas lenders. It didn’t settle up until 4 years later – stiffing the foreigners for 70%. And now the government is in trouble again; it must make a big payment to overseas lenders in 2009. Its main exports – soybeans, gas and oil – are down about 50! % this year. And the country has more public debt than it did when it defaulted seven years ago. That’s why the private pension accounts are being seized; the government needs the money.

Things have a way of disappearing in Argentina. After WWII, hundreds, maybe thousands, of Nazis arrived in Buenos Aires from Europe, never to be seen again. Whether people are wanted by the law, or not wanted by the lawmakers, they have a way of vanishing. In the 1970s, when the generals running Argentina wanted to get rid of their opponents, they called on the old Nazis to help ‘disappear’ thousands of them.

Money disappears too. More than a half century ago, Evita Peron posed as an angel. She set up charitable organizations to help the poor and handed out Christmas presents, personally. After the holidays, she went back to her tricks – making the money disappear from the charitable funds and re-appear in her Swiss bank account. And then, after her spirit gave the world the slip, Evita’s own corpse disappeared. People wondered what had happened to the husk of her, until it was retrieved by Juan Peron 16 years later.

Senora Fernandez is a practiced magician too. Her recent acts of larceny have included disappearing Aerolineas Argentina from its Spanish owners...and then disappearing the profits of the nation’s farmers, first by preventing them from selling on the open market and then by imposing a confiscatory tax (later withdrawn) on exports.

“Nationalizing private pensions is theft,” said Juan Domingo Peron himself. The Peronists say they are only acting in the public interest – like the U.S. Treasury and the Bank of England. We would never have done this had there not been a world while financial crisis, they explain.

“The question that many people ask themselves,” continues Robert Cachanosky is: ‘what rate of interest do you need to compensate for the risk of keeping assets within the reach of a government desperate for more funds?”

Answering Cachanosky’s question, today, you can buy 8.28% Argentine bonds at 22 cents on the dollar – giving you a yield of 31%. By comparison, a US 10-year Treasury note, at less than 4% yield, looks like a broken taxi meter to us.

Enjoy your weekend,

Bill Bonner

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