Argentina Dodges Worldwide Financial Crisis By Accident

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“Thank God for Argentina,” said our old friend Doug Casey last night.

On Friday, the U.S. stock market lost another 127 points. Almost all the news is bad. Consumers are slowing down their spending – retail stocks are down about 40% from their high. Even Wal-Mart – where people go when they don’t want to spend much money – is down about 20%.

U.S. factories – those that are left – are going quiet too. Word came out last week that factory output slipped 6% in the third quarter; it’s biggest drop in 17 years.

On Sunday, we went to church here in Buenos Aires to the sound of bagpipes. A church around the corner from our apartment has services in English. Out front was a bagpiper in full dress uniform of the Scottish Highlanders. What was he doing there? We don’t know. We continued on down the street to another church.

“Render unto Caesar that which is Caesar’s,” was the key line in yesterday’s service. Our Spanish is poor. But we’d heard the story before, so we knew the plot. The feds of the Roman Era in the Levant tried to lay a trap for Jesus. They figured he was a rebel…a malcontent…a troublemaker. If they could get him to say that a man shouldn’t pay his taxes, they would be able to put the cuffs on him and make him to do the perp walk. But Jesus was too smart for them. Instead of falling into the trap, he gave them a sly comeback: Tossing them a coin with the emperor’s mug on it, he said the famous line. What did it mean? No one quite knew.

But Caesar’s money was what the Caesars made of it. They clipped the gold and silver coins…then debased them with other metals. And when people tried to give them back to Caesar in payment of taxes – at face value – at least at one point, the imperial tax collectors refused to take them! They wanted better money.

“Empires built on debt start to crumble,” is another weekend headline from the New York Times. The Roman Empire over-reached…and over-spent…and began to crumble shortly after Jesus died. Now, another empire seems to have over-done it…

*** The U.S. Empire is built on debt too. And now, with a $1 trillion deficit, the debt is mounting up fast. How long can this go on? We’ll find out…but we wouldn’t want to have too much of Caesar’s money when the world figures out that Caesar is broke.

Argentina is full of surprises. One big surprise is that the land of the pampas has mostly resisted the worldwide financial crisis. On the weekend, the Financial Times gave out the news that:

“US faces worst recession in 26 years.”

Europe has a major slowdown in front of it too. And Asia – well, if stock prices are predictive of economic trouble, Asia is going to see the biggest slump of all.

“What a week!” quips Dan Amoss. “Of course, you could say this about each of the past four weeks. The credit markets are flashing early signs of calming down, so hopefully the stock market can get back to the business of valuing companies, rather than remaining a source of cash to stuff under the mattress.”

But Argentina? The country seems to have been spared. It is blessed by its own mismanagement…saved by its own incompetence.

Incompetence…sloth…and mediocrity are greatly underrated, in our opinion. “For the race is not always to the swift, nor the battle to the strong,” it says in the Bible. Right. Sometimes the race goeth to the guy with the sprained ankle…and the battle is won by the pacifists!

Of course, when the going is good, the good get going fast.

But now the going isn’t so good and the folks went so fast wish they hadn’t gone at all. If Lehman hadn’t been so quick to take advantage of the credit bubble in other words, it might still be in business.

What brought this thought to mind was airplane reading. We picked up a book in the Madrid airport – a biography of Heinz Guderian. Does the name ring a bell, dear reader? It should. Because if Heinz Guderian’s tanks had not raced so fast across Poland in the spring of 1939, Adolph Hitler might not have been encouraged to invade France. And then, if Guderian’s new invention – the Blitzkrieg – had not been such a success in France, Hitler might have put his map of Russia back in the drawer, made peace with England and WWII as we know it wouldn’t have happened.

But in the early days of WWII the battle went to the swift! And Heinz Guderian was one of a handful of military men – a group that included Charles de Gaulle and George F. Patton – who were beginning to understand that the world had changed. In Lincoln’s war against the southern states, Stonewall Jackson first announced the key insight: the attacker always lost. A soldier had little chance of getting across open ground when determined defenders stood on the other side. The invention of the machine gun seemed to make that insight obvious to everyone – though generals in WWI forgot the lesson with astonishing regularity…and at an appalling cost.

Tanks changed everything. Suddenly, the advantage shifted to the attacker. Heinz Guderian, with his tank divisions, could sweep through northern France so fast that the French commanders didn’t know what was happening. They couldn’t organize a defense; by the time they set up a defensive line, Guderian was already on the other side of it. Even though the French had more tanks than the Germans, they had no plans for a defense against Blitzkrieg; it was the first time they had seen it.

If Guderian had been a bumbler or a fool, the whole thing might have turned out better. Instead, the Germans were cursed by their own success.

When the Nazi regime fell, the Perons gave out passports to allow many top officials to escape to the pampas. But by the look of things down here, the Nazi fugitives must have neglected to pack their organizational genius. Argentina bumbles along. Even in the midst of the biggest boom in farm prices in 30 years, Argentina still couldn’t seem to make a profit. The country is rich in farmland. It is rich in minerals. It has one of the world’s largest underground lakes. But by the time the Argentines got ready to take advantage of high prices – the boom was over.

“Yes, I like it down here,” said Doug. “This is about the only place in the world where prices haven’t come down. Because they never went up. Argentina is mostly unaffected by the credit crisis, because it never had any credit. Even the government. You’d have to be crazy to lend money to Argentina.”

*** ‘You’re looking surprisingly jolly for someone with so much money invested in the mining business,’ we teased Doug over dinner.

“Well, like I told you, thank God for Argentina. I invested a lot of money down here. And so far those investments look pretty good. Some of them look very good. I’m enjoying it down here. And I’m even getting in the cattle business. And it looks very profitable. Of course, this is not like your operation up in the mountains. My cattle actually have something to eat…”

“Besides, I don’t think we’ve seen the last of the mining boom,” Doug continued. “The Asian economies are probably going to continue to grow. And they’re going to need more resources. I think this may turn out to be like the period in the early ’70s – when mining was hit hard. A few years later, of course, it was booming again.

“In fact, this could turn out to be one of the greatest opportunities of our lifetimes. Because the industry has been hit so hard, you can get some astonishing deals. You can buy a mining business for less than the cash in the bank. I know of one that is selling for half the cash in the bank. And another that is paying a 23% dividend. These kinds of opportunities only come along once in a lifetime. Or maybe twice.”

Our friend Ed Bugos, over at Gold and Options Trader whole-heartedly agrees. In fact, he has an arsenal of tiny metal mining and exploration companies, called “Leapers” by Ed, which are frequently located in Vancouver, British Columbia.

“And by the nature of these companies,” explains Ed, “they’re very small worth as little as $25 – $50 million. The stock shares are cheap, too… often trading for just pennies. In fact, they’re so cheap, you can buy 1,000 shares or more for just a few hundred dollars.

“But just one piece of good news can send the shares soaring hundreds, even thousands of percent. The most common way for a Leaper to do that is to reach the next milestone in a mining company’s life cycle.”

Bill Bonner
for The Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
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