Regime Change…One Year Later
And daily tennis on red clay
What a difference a year makes…
Almost exactly one year ago to the day, an alleged madman drained the Argentine version of the federal swamp. It was unexpected, dangerous, and a mistake, according to the papers. That’s what they told us up north at least, in the highly evolved United States.
They first poked fun of his wild appearance, told stories of a chainsaw stunt, and other radical tactics. They warned of inadequacies, his lack of experience, and a general inability to supervise the nation’s cookie jar. But they were wrong…on every level.
The establishment always feels it deserves power. It knows what’s best for us… When threatened, it uses anything and everything to malign challengers.
The truth is, power makes people lazy, and often arrogant. The elite tend to forget who the customer is. That’s why they don’t like it when the fed-up electorate chooses a chainsaw wielding madman to shoo them away.
The one they chose in Argentina last year didn’t care about being banished from a higher social order. To the elites, he seemed impossible to control. And that’s the real problem.
Break All the Rules
There’s a way things work in the halls of government. There are unspoken rules. In Washington DC, Brussels, and in Buenos Aires.
Governments have the power to tax. To take money from producers, and give it to non-producers. It’s a power that can go to your head. People do just about anything to hold on to it. But the simple fact is, they forget whose money they’re spending.
When challenged, they use the same old tricks, press attacks, name calling, and general discrediting of any outside challenge to what they feel is theirs.
But all those efforts eventually fade away. As time passes, you get evidence. You see what works, and what doesn’t. In the case of Argentina, the outsider got things done.
One look at the country’s leading stock index shows what worked. It’s better than a headline or media attack.
This is the tracking ETF Global X MSCI Argentina (ARGT), a good proxy for the country’s market value. It’s up 60% this year so far and ~110% since last November, when the “unexpected” election outcome took place.
So much for the, “ill-equipped to lead” argument. Stock buyers did very well.
And while second world ETFs are not really our thing at TTL, it’s a notable performance. It makes us wonder about our own alleged madman. Forget about the news stories, we’re more concerned what the markets look like next year this time.
The media here in the U.S. seemed to want things status quo in DC. I saw it for myself last summer. Nobody at the Hay-Adams Hotel across Lafayette Square form the White House wanted anything to change…ever.
But it’s about to, in a big way.
“Like Sobering Up”
That’s how Mark described the last year in Argentina.
He’s my local tennis coach, several years running. Although he hangs out across the river in Uruguay.
And within minutes of arriving at Reserva Montoya in La Barra, Uruguay, Mark wanted to know what I thought about the few day I spent in Buenos Aires this year compared to the same time last year, on the heels of the election.
Last year, the country felt on the verge. There were at least 16 exchange rates. TTL readers recall I had to run around town swapping cash at dodgy “cambio” houses. That’s was to avoid the official and punitive exchange rate offered by credit cards.
It’s hard for people from the American heartland to understand this. But imagine checking into a hotel with your Visa or MasterCard. The cost is $500. If you pay cash, it’s $300. However, you can only withdraw $100 per day from the ATM.
It means you need to arrive with several thousand $USD. Then run around changing it. Fast…
Fast because inflation ran at 50 basis points per day back then. That’s ½ a percent…per day. It means the $300 hotel room on Monday cost about $315 by Friday.
It’s enough to wear people out. And it did. The country felt tired, worn, and ready for change. That’s what it got.
This year I checked in, ready to go on a cash roundup. Then Tomas, the desk clerk, informed me he’d prefer my American Express. There’s no more 16 exchange rates. He told me there’s even a reduced VAT arrangement for using the card.
It was a lot easier… And when things get easier, people stop hoarding, and start spending…
Back at the Pena
Lunch at the Pena is a Thanksgiving tradition…for me at least.
And in Buenos Aires, Thanksgiving is called Thursday, or Jueves.
They don’t have the holiday, for obvious reasons. And I enjoy a regular Thursday lunch at the Pena. It’s Parrilla Pena, the best parrilla in town.
Parrilla means grill… and nobody does the grill like the Argentines.
Exactly one year ago, pictured above, the mood was dire. Sure, there were people in the Pena, but it was quiet, reserved, and tense at the cash register.
This year, noticeably better. You can freely swipe the Amex, meaning the owner isn’t hovering over the register with a panicked look saying surely you have cash instead of the card… those days are over.
And even the man running the grill is happier. It’s the same guy, but issuing a thumbs up this year.
I’m also happier this year. But for unrelated reasons.
And I’m due for a haircut. The current coiffure almost matches the Argentine chainsaw man…
The headline says he’ll cut gas subsidies, related to power bills. He’s found more billing errors. Likely the polite way of saying widespread graft.
And while he works on that, we’ll focus on what matters to us… the upcoming regime change in the U.S., and what it means for our wallet.
A Thanksgiving Tradition
The Argentina trip turned into a tradition at some point, about a decade ago.
There’s more to it than just avoiding an American holiday I don’t resonate with. There’s the annual tennis arrangement with Mark, the local pro.
Mark is a red clay expert. If you haven’t seen red clay courts at Roland Garros, home to the French Open, or all around southern Italy, or the entire Mediterranean coast for that matter, you might not know it’s a preferred surface for play.
The clay comes from the same material used to make bricks. It’s ground into a fine sand, but not to the point of dust. Clubs use a pulsating sprinkler head to settle the surface before play. They brush off the white lines of the court which take cover as players slide around positioning for shots.
Clay slows the ball down. As opposed to the concrete material used for hard court play. The clay bounce is softer, and less predictable.
It requires different shoes too. Small diagonal tread ideally. You’ll need to explode from a ready position towards the oncoming ball.
Exploding means quickly moving cross-footed, left over right or right over left, in a diagonal line. Always diagonal, or almost always. And for sure always facing the opponent. Never turning your back on the enemy. And never back-peddling. These are cardinal sins punishable by certain loss when playing someone like Mark.
The fun of clay too is sliding towards the approaching ball. The material seems to provide a soft stop almost like table shuffleboard where the puck slides effortlessly on a sand-covered surface to its proper resting place. Clay is also easier on the knees, and the body generally.
While I like to start out in Buenos Aires, mostly for the personal allure of a city I find magical, I migrate to Uruguay. La Barra and Jose Ignacio are hamlets north of better-known Punta del Este.
Clay courts abound. And Mark welcomes me back year after year. We play for at least a full hour every day.
Anything worth doing is worth doing well. And you won’t believe what you can accomplish in a full week playing tennis with a professional every morning.
Staying Sharp
A mental and physical test on the court helps produce clear thinking the rest of the day. The issue at hand is, one year into regime change we’ll want to own some things, and forget about others.
The way it looks now, the yet to form government efficiency department might fire untold numbers of workers who evidently don’t show up to jobs. And there could be unusual side effects.
I always wanted a “no-show” job. I had friends whose families owned multi-generation businesses. They’d be VP of some non-existent division. The family member running things told them to stay out of trouble, and out of the office.
It seemed ideal at the time, on the surface at least. As I hacked my way through the lower levels of sales organizations as a young worker, these “no-shows” played leisure sports. Now I play leisure sports with great intensity. They seem lost, after years without a heading.
And the same goes for the unknown number of U.S. government workers set to be former workers.
It could be a bigger problem than people realize. If you’ve been through a TSA line recently, you might wonder what these people would do without the job. There are 50,000 TSA screeners out of 212,000 Department of Homeland Security employees.
That said, the efficiency department wants to make headlines. Like pointing out the ~4 workers in the Veterans Affairs office for every ~12 in the field…which seems high. Some of these workers might get the axe.
And 24,000 workers in the Federal Reserve System also seems like a lot. Compared to only 15,000 at the EPA. It means the Fed’s managed economic system is 50% more difficult to control than the environment.
And there’s the 605,600 Postal workers. TTL HQ is one of only two areas in the U.S. with bicycle mail delivery. Our carrier explained the training process… it takes months. The Tucker kids learned to ride bikes in about ten minutes. No safety briefing.
The real issue is, if Elon and the headline-grabbing efficiency department fire gobs of no-show federal workers, they’ll be unemployed. Likely for a while. I wouldn’t expect them to hustle at menial jobs, or anywhere for that matter. Government life is hard to give up.
And while they surely need to go… we should consider the knock-on effect of them canceling their Netflix subscriptions, selling their Ford Raptor, and cutting back whatever else it is they do with their no-show salaries.
The 2025 Playbook
And while the odds are most of you reading this spend the day gainfully employed in the real economy, we need to consider how the whole battleship moves, not just one part of it.
Similar to Argentina in the wake of its upset election one year ago, our market reacted to the election, settled down, and soon will move differently as new politicians take over. The trick is, some sectors will do better than others…
Last week we added two new stocks set to be key drivers of the way we power the next era of human innovation. Today we’ll add one more. It’s smaller, and services the booming industry. It’s a great pairing to what looks like the biggest power innovation since the steam engine.
But first, we need to consider the overall market post-election. There was a big rally, with everything except gold-related firms moving higher.
It tells us the overall financial market expected a different outcome. When the opposite happened, $100 came off gold almost overnight. Now it sits pegged at $2,650, still in a strong uptrend, but a more balanced ascent.
Gold looks so strong. It’s hard to argue with that chart… up ~28% so far this year and ~113% over the past five years, there’s a strong case for buying a basement safe.
People miss this. The gold trade is so easy. We showed a sample model portfolio in the last issue. A little bit of physical gold goes a long way, and requires minimal effort. And people just will not buy it…
We receive emails about mining stocks, of which we own none. They generally did not rise with gold in the chart above, and fell dramatically when gold settled. The industry ETF GDXJ is off ~13% since its October high just before the election. We won’t even dignify it with a chart.
The point is, things in an uptrend often stay in the uptrend. You see something behaving in a certain way, it’s a good bet you get more of it.
People have a hard time with this. It’s almost as if they don’t want to make money.
Prices Go Up
Of course, they’ll say, that’s crazy. Obviously, they want to make money. But they tend to choose boondoggles over simply buying the thing that’s moving up.
And I think there’s something about the boondoggle that makes sense to them. It’s their idea, they figured out the boondoggle, like solving an unnecessary puzzle. They think the puzzle solving effort means everyone else will need to do the same eventually. They believe they’re early, and right. But they don’t square up the cost of that process. It’s often heavy. Mostly because they solved something that didn’t need solving.
We’re not going to do that… as you know. We think the Fed wants us to make money. And while that might sound crazy, consider another perspective. The federal budget grows faster than the U.S. economy…every year. As long as tax receipts also grow, even if at a slower pace, the ruse continues.
Let’s indulge them… buying things that we plan to later sell for more money.
And to do that, we need to understand our market for what it is…a momentum market.
The students reading Benjamin Graham’s The Intelligent Investor don’t understand that he wrote the book during a capitalist era. When stock buyers backed a company, with the intent to earn profits, which they wanted to see in the way of dividends, etc.
That was 100 years ago. And the value investors of today who bang on their desks in frustration that this or that stock just won’t quit going up…and they’ll just never, ever own it, because it’s wrong, in spite of its near-vertical ascent, still wrong.
The hardware store, the local energy company or the obscure pipe value maker in Tucson, that’s what makes sense to the value hound. And while it rarely goes up, it makes sense to them, which means their real purpose is not to generate capital gains…it’s to validate some unsatisfied intellectual deficit.
In a momentum market, the object is to buy things, and sell them later at a profit. It’s capital gains from price appreciation the Fed wants us to capture. They call it, “the wealth effect.”
An Emerging Sector
The trick is, to see industries on the verge of vastly more customers in the coming quarters, years, and decades. More users, more adopters, and more investors. The market quickly pulls those good times forward, meaning tomorrow’s profits move the stock today…far in advance of reality.
And that’s why we’ll add a third stock in the emerging sector we call “Tomorrow’s Energy.”