Argentina’s new President-elect Javier Milei recently emerged onto the scene — chainsaw in hand — with a plan to rapidly transform the government.
The self-declared anarcho-capitalist campaigned on an aggressive libertarian platform, promising to shut down his country’s central bank, dollarize the economy and take his chainsaw to government spending.
So far, the media seems fixated with Milei’s quirky personality. Which is a little weird, to say the least…
The 53-year-old has a mop of dark hair that he never combs. On the weekends, he enjoys dressing up like superheroes. And he’s never hesitant to fire off a scorching remark, referring to Pope Francis as a “filthy leftist” in a recent interview.
Milei never married, and his closest companions are five English mastiffs, all cloned from an older dog’s DNA by a company called PerPETuate.
(From The New York Times: Argentinian President Javier Milei with his cloned English mastiffs.)
But despite being a bit of an oddball, Milei’s platform makes a lot of sense for Argentinian voters.
Investors like him, too. The Global X MSCI Argentina ETF (NYSE: ARGT) saw record inflows and jumped 13% higher following Milei’s election — posting its biggest intraday gains ever.
And that might just be the tip of the iceberg…
Risk vs. Reward in Fixing Argentina’s Economy
A century ago, Argentina had one of the strongest economies in the world.
Per capita, its gross domestic product was 80% that of the United States, and domestic industries were rapidly expanding.
But after decades of mismanagement at the hands of various populist and military governments, the economy is now in shambles.
Milei will be taking office amid a 40% poverty rate, soaring debt and a domestic currency (the Argentinian peso) that’s nearly worthless, creating the dreaded hyperinflation scenario that’s so hard to escape.
But Milei has a plan. And it’s clear he’s ready for drastic measures to right the ship.
Critics of his platform argue that Milei’s proposed “shock therapy” could have disastrous effects on Argentina’s ailing economy. That he’s a radical whose actions will jeopardize what little prosperity remains in the country.
Milei’s response? That inaction on his part would be even more dangerous.
“There’s no money,” he told Argentinian news outlet Neural Media. “If we don’t make a fiscal adjustment, we’re headed for hyperinflation. We’ll have hyperinflation and we are going to have 95% poverty and 70% or 80% homeless.”
(From Politico: Milei promises to take a chainsaw to government spending.)
His words echo those of former U.S. President Andrew Jackson, who waged war against our country’s second central bank. Jackson called the central bank a “den of vipers,” and pledged to stop them before they could “ruin fifty thousand families.”
Likewise, Milei’s plan to dollarize the economy is not without precedent.
As the name implies, “dollarization” simply means adopting the U.S. dollar as the primary Argentinian currency. Ecuador saw inflation rates reach as high as 40% before it dollarized its economy in 2000. Inflation cooled off soon after.
El Salvador followed suit the next year, and the Asian island of Timor-Leste adopted the dollar in 2002.
Dollarization is by no means a perfect solution, but it’s a proven strategy that’s worked in other countries around the world.
Over the long term, Milei has been crystal clear about his plans to privatize vast swathes of the country’s public companies: “Everything that can be in the hands of the private sector will be in the hands of the private sector.”
Milei admits his plans for the country are “drastic.”
But desperate times call for desperate measures.
And if Milei is successful in rebuilding Argentina’s economy, he’ll open up a whole new frontier of phenomenal opportunities for investors like us…
Argentina’s Hidden Stock Treasures
To get a clearer idea of Argentina’s top investing opportunities, I performed an “X-ray” of the Global X MSCI Argentina ETF (NYSE: ARGT) — breaking down the Green Zone Power Ratings for each of the fund’s top 10 holdings.
The results may surprise you. See for yourself below (scores range from 0 to 100, best to worst):
Eight of ARGT’s top holdings are rated “Strong Bullish.”
And 6 of the top 10 score higher than 90.
Obviously, the recent surge of interest has boosted momentum scores across the board. But these are some impressive numbers. You don’t often see such high scores for Quality and Size in the same stocks — let alone in a foreign-market exchange-traded fund’s top holdings.
Of course, investing in Argentinian stocks carries some additional “geopolitical” risk.
But that’s the whole point.
After all, you’re not likely to achieve gains of 1,000% or more in a well-known component of the S&P 500, such as Exxon Mobil (NYSE: XOM), or in any company that seems to have no identifiable risks ahead of it.
And you can more than offset much of that risk when you know how to invest at a truly attractive price.
To quote investing legend Howard Marks:
“It’s not what you buy, it’s what you pay. And success in investing doesn’t come from buying good things, but from buying things well.”
I love the second sentence of that quote.
Because many times, the best investments look like very bad things … though, if you can pay a fantastic price for them … your risk is minimal, and your potential return is massive.
Buying at a great price gives you a built-in “margin of safety” just in case.
I put this principle to work for my 10X Stocks subscribers last September, when I recommended one of the Argentinian stocks in the X-ray above.
I was open and upfront about the perception of risk related to investing in an Argentina-based business that had such close ties with the local government. But the opportunity was simply too good to refuse. The price-to-book ratio was a mouthwatering 0.24.
We were essentially buying a dollar of assets for less than a quarter.
Sure enough, the stock soon broke out to new highs as more and more investors caught on to this uniquely attractive situation. And now, following Milei’s election win, our position is up 152%, and I fully expect that Milei’s policies could send it soaring even higher.
(For more on my top-scoring stocks and the complete Green Zone Fortunes portfolio, go here.)
To good profits,
Adam O’Dell
Chief Investment Strategist, Money & Markets
