Last week Kyle Bass explained why he’s long the Argentine economy at the
Alpha Hedge West Conference, this week independent economists are forecasting the country’s
consumer inflation ratewill hit a record highs before the end of the year.
So where’s the disconnect? Bass thinks that Argentina’s economic problems can be solved in two years with a new regime in place. Marketfolly has some quotes from Bass’ interview (we’ve edited them for clarity):
People don’t understand what is happening there. Lots of things there are fixable. The leadership in control has “issues”. Energy has been an issue, but recently there have been major energy findings that will change that. Two years from now, he (Bass) thinks there will be a new President in October 2015 and pro business people will be running things to take advantage of vast prairies of nature resources. Argentina’s problems can be fixed in 2 years. Now is the time to start investing. Sees 50% upside in the sovereign debt.
Basically what Bass is saying is that once Cristina Fernandez de Kirchner, Argentina’s fiery populist-ish President with a cult-like following, is gone, a more favourable government can go in and overhaul the economy.
And indeed the winds of political change have blown in Argentina, even if softly. Fernandez de Kirchner’s party had a nasty time of last month’s mid-term elections, garnering 30% of the country’s vote down from 52% two years before.
But lets be real, Fernandez de Kirchner’s ‘Victory Party’ is still in power. The opposition still has yet to coalesce around a strong leader. The closest thing is Mauricio Macri, the technocratic mayor of Buenos Aires. He’s called out the country’s official inflation numbers, launching his own index for his city.
Macri’s also said that, as President, he would pay Spain back for Argentina’s controversial expropriation of Spanish energy company YPF, and made it clear that he thinks Argentina’s upcoming legislative elections in October will “define in what kind of democracy the Argentineans would like to live.”
This is the kind of guy Kyle Bass is talking about. Someone that wants to pay back debts and repair Argentina’s reputation as an dishonest broker in international markets. A grown-up, as the Financial Times might put it.
And maybe Macri has a shot. Those latest independant inflation numbers show prices rising not among the rich, but among the poor and middle class — they’re looking at a rate of about 36.2%, which is up 4.5% from August.
Lower income Argentines are Fernandez de Kirchner’s base, so maybe if they start to feel a pinch, they’ll let go of the populism, the Peronism, and the Kirchnerism and embrace something new.
But then again, one should never discount the power of a political machine and a cult of personality. Cristina Fernandez de Kirchner has both.