Lessons from the Argentine

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.

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 cafe 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 cafe 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 cafe 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 cafes 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.
In the case I recounted previously, an Argentine owner at La Estancia, a retired executive from an international name-brand electronics firm, told me that they made upwards of four times the margins the same company made in more settled markets.

The reason for this is obvious. Namely that if the business environment is simple and straightforward, it will quickly be inundated with well-financed competitors, putting a squeeze on margins.

On the other hand, when the very idea of entering a market sends shudders down the spine of Western businessmen, then the number of competitors is greatly reduced and the margins can be pretty much what the market will bear.

Thus, while the selection of things like name-brand electronics and household goods is relatively small, you can still get most of what you need locally – and at a reasonable price, provided you are not a peso-based individual for whom the inflation has driven prices high. The companies that I see dominating the market, i.e., willing to go where others are not, are Philips, Samsung, LG and, to a lesser degree, Sony. Note that none of the firms are American.

(While I haven’t look at the metrics of the firms just listed, it seems to me that Samsung is building a dominant market share. If they are repeating this sort of success globally, then they might be worth an investment.)

Earlier this week, we passed through Salta City on our way back from a quick trip to Uruguay and stopped in at the new Jumbo market, whose headquarters is in Chile if I am not mistaken. It is as grand of a grocery store as you’d see pretty much anywhere in the States. All of this is to the good, because if companies can operate successfully in an environment as changeable as this, they can operate pretty much anywhere.

Lesson: Just because something is hard to do doesn’t mean you shouldn’t do it… it just means you have to be smarter and tougher than the competition.

Keep It Lean

Because of the socialist regulations that permeate everything, Argentine businesses are loath to add employees. My cafe owner friend tells me his cook, in
addition to cooking, also cleans the bathroom, washes dishes, sweeps the sidewalk, washes windows… in short, does whatever job is required at the moment.

It’s this lean operation that allows the businesses to maintain a decent margin and survive in a tough economy by avoiding all of the employee-related taxes and attendant costs.

Somewhat along the same lines, businesses look for every opportunity to avoid large inventories and fixed costs. One of my favorite examples is the wine menu from the cafe next door, which is line by line the list of the wines on sale at the wine store across the street – with the appropriate mark-up, of course.

Thus, when you order your wine, the waiter simply slips across the street, picks up the bottle and delivers it to your table. No inventory, just a quick profit on the transaction. (On one memorable occasion, when the cafe was particularly busy, I helped out by walking across the street to buy the wine to sell to myself.)

Lesson: Streamline. If you have a business, embrace labor-saving technologies and consider combining job functions to reduce employee costs. You might even want to consider planning now for a 20% setback in your business revenues and manage to that number while you still have the luxury of time.

Not Politically Correct

While the path to socialism is paved with many bricks, personally I think the adoption of political correctness as a societal norm is a big contributor.

That’s because once you stop accepting that people are different, the only remaining position is that everyone is the same. Which is to say, everyone is equal in all ways.

Yet, even the most casual of observations reveals this not to be the case. Some people are smarter and some people stupider than the norm. Some people are friendly and cooperative, and some people are nasty trolls who spend all day sending out flaming emails to anyone unfortunate enough to get on their email list.

Here in Argentina, it’s quite revealing and funny that people are given nicknames based on physical or mental characteristics. In my immediate acquaintance, there’s Pelado (Baldy), Gordo (Fatty), Cuca (short for cucaracha – Cockroach), Flaca (Skinny), Capo (the Boss), Turko (the Turk), and my favorite, Grande Cabeza (Big Head).

It has nothing to do with being unkind or cruel to people, but rather just because they think it’s a good description. And no one gets offended by being called a nickname that would be considered insensitive in the West.

The sort of political correctness on display in the West would completely befuddle the average Argentine, most likely causing them to laugh out loud.

Lesson: No real lesson here, more of an observation, though you can do your part to turn back the political correctness movement by being politically incorrect at every opportunity.

(On that front, my dear friend and business partner Doug Casey is a master of the art, as witnessed by his new book, Totally Incorrect, now available for electronic book readers. More here.)

Rethink Money

When someone with Western sensitivities arrives in a place such as Argentina, it’s not uncommon for them to feel guilty about having domestic help – something that 99% of Americans only know about from tales of a time long gone.

Yet, after spending time with people in even the most menial of occupations here, you are reminded that money has very little to do with happiness. That’s because for the people below a certain economic strata working in a frontier economy, life has always involved hard work for modest pay.

When I examine the work done by the stone masons on our new house, I am amazed. Not just by the effort it took, but by the obvious care and pride that went into the work. Initially, having aforementioned Western sensitivities, I felt almost guilty about owning such a wonderful house in such a wonderful place when the workers have so little.

But then I thought to myself, “So little what?”

Do they have fun at work? Actually, yes… there’s a great deal of obvious good humor and camaraderie amongst the workers. Do they eat well? Absolutely; food is cheap, and no one I have seen looks hungry. Do they enjoy time off with their families? Yes, with many more holidays and days off than the average American. Do they live in a beautiful place, Cafayate? No doubt.

So, what don’t they have? Well, they probably don’t have a lot of money – though virtually all of them drive a decent motorcycle or an operational car. Others may only have a bicycle, but in such a small town, do you really need more? Need to go to the big city? There’s inexpensive bus service or shared taxis that cost far less than operating your own car would.

Now, obviously, having more money would be nice. But is it essential to live a good life? I don’t think so. In fact, as my Argentine friend Leo once sagely said, “David, I know people with no money who are always happy, and I know people with more money than they could ever spend and they are always miserable, so it seems to me that money has very little to do with being happy.”

When I was young and still doing menial summer jobs, I only felt gratitude that my employer gave me a job. And likewise down here, the workers on our house seem cheerful in their work, their minds unpolluted by ideas that they should resent people wealthier than themselves. And the benefits flow both ways to the workers and employers, with the workers enjoying life in a wonderful place, and the employers enjoying the much higher quality of life that comes from having full-time domestic help.

Lesson: Too many people in the United States focus way too much on money, and not nearly enough on enjoying their lives. The media and the politicians foster this money-focus, much of it in a shameful attempt to create divisions between economic classes for political gain. Not everyone can be a business owner or a big success, but that shouldn’t stand in anyone’s way of living a full and interesting life. If times get tough, recalibrate your life to fit your money and get on with living the best life you can.

As for quality of life, thanks to the ready availability of inexpensive domestic help here in the Argentine, anyone with even a modest amount of money lives like minor royalty, never having to wash a dish, clean house, do laundry or pull weeds out of the garden – unless they want to, that is. Want a cup of coffee? A cup appears. That opens up a tremendous amount of time to pursue other, far more interesting and entertaining activities.
Reputations Count

Here in Argentina, there is almost a complete lack of the standardized credit reporting and data tracking that is endemic in the West – because personal credit is almost non-existent.

As a result, companies are more careful in how they do business with people. If you want WiFi installed in your home, chances are you’ll be asked for half upfront.

In addition, people are very careful with their reputation. That’s because everyone may not know everyone else in this province, though sometimes it seems that way, but I can assure you that you can quickly find someone who knows the person you are trying to check out.

And when you do, they will be unhesitant in sharing the person’s reputation, although they may do so using a variety of euphemisms. For example, a person might be “uneducated,” which is one of the worst insults for a culture that prides itself on good education. Or the person might be referred to as a malviviendo, a “bad liver” – someone with bad habits from the wrong side of the tracks.

Ideally, when people inquire about you, they will receive as an endorsement something like “el es un buen gente” – a good guy.

Lesson: People hereabouts don’t act the way they do solely because the rules say they should – but rather because they know that in order to be accepted warmly into society and to be able to work in cooperation with others should the need arise, they need to be mindful of their actions. In other words, actions have consequences. When times get tough, your reputation may be the most important thing you have.

Roll with the Punches

As mentioned at the onset, every living Argentine has lived through periodic crises. This has made the community very resilient. And it has given the Argentines I have come into contact with a great sense of humor that persists through good times and bad. Of course I generalize, but I have found in the Argentines a fatalistic optimism that is infectious.

And by fatalistic optimism, I mean they expect bad things to happen to Argentina – with the historical record, how could they not? – but they simultaneously know in their heart of hearts that things will then get better, because they always do.

Meanwhile, they rely on themselves and their strong family and community ties to get them through. No matter what, they know that come Saturday, they’ll be standing around at an asado, a plate of assorted meats in hand, yakking it up with friends and relatives.

This same attitude applies when, as is inevitable, you come up against some bureaucratic hurdle. Rather than get all heated up over it, they listen patiently, argue the point, then set off to chip away at whatever it is that is standing in their way.

Lesson: Learn to accept that the world isn’t perfect and never will be. Revel in all the good things that come your way, and don’t sweat the bad – if you can retain the right attitude, you’ll make it through to the other side in fine shape.

Diversify Internationally

It is my firm impression that any Argentine with more than a few nickels to rub together has long ago internationalized a decent chunk of their assets.

Traditionally, they start with a bank account and maybe property just across the river in Uruguay, but Argentines with real money will have assets parked around the world. They do so simply because of the historical experience that their government is not to be trusted, and also because they know the government lacks the clout or surveillance tools to track down their “black” accounts.

While the lesson is critical, it may be moot for those of you dear readers who are US citizens. That’s because a steady stream of regulations have made it extremely difficult to open or maintain a financial account outside of the United States… to wit, outside of the immediate grasp of the United States government.

Just within the past week, I was told that my international trust needed to close its primary overseas bank account, and a US friend who has lived in Uruguay for years told me that his bank just notified him that he has to close his account there immediately.

Now, I could spend time expressing resentment that my own government has any say in where I keep my hard-earned money, but now that I increasingly view myself as an Argentine, I won’t waste the energy.

Instead, per above, I’ll just roll with the punch and do what I have to in order to keep my assets at least one border removed from the government’s ability to grab it on the thinnest of pretenses.

Lesson: Diversify internationally. Whether it’s buying real estate, or Perth Mint certificates stored in Australia, or an international trust, or whatever… do what you can while you still can.

To be extra clear, I’m not suggesting that you try to hide assets overseas – given the long reach of the Western governments, especially the US, that’s a fool’s game. The primary goal should be to get your assets across a border so that the US government has to institute international legal action in order to freeze your money – rather than just grabbing it without notice, the case with any account within the US. That raises the bar considerably against arbitrary action being taken by some petty bureaucrat.

Closing Thoughts

For those living in the degrading big democracies, the easy times are likely over for the foreseeable future. If we are correct in our analysis, the sorts of financial crises that the Argentines have grown so adept at managing through, will soon prevail in the US and other developed countries.

David Galland is managing director of Casey Research, which provides independent investment analysis on a subscription basis to a global network of over 180,000 self-directed investors and money managers.