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Moonshot In Argentina

Portfolio Armor's Photo
by Portfolio Armor
Wednesday, Nov 22, 2023 - 8:31
Incoming Argentine President Javier Milei showing what he plans to do to government spending.
Incoming Argentine President Javier Milei showing what he plans to do to government spending.

Libertarian Rebel Or Another Globalist? 

In the wake of Javier Milei's election victory in Argentina last weekend (thankfully for him, there were no 4am ballot dumps there), there has been some debate about what his election means. Our friend David Janello addresses that in a guest post below, and he also suggests a way traders may be able to profit from Milei's election. Before we get to that though, here is a related X thread on Milie by another friend of ours, a PhD political philosopher writing under a pseudonym. 

Here is the full text of BAP's last tweet there [emphasis ours]: 

More favorites from posters who know nothing about other countries and communicate entirely in cretinous telephone game memes traded on Dissident Twitter: “Milei is a LIBERTARIAN (dirty word) so he will do a guest worker program like Dubai”; ignorant of fact that Argentina is already flooded with Third World migrants who are there for benefits in exchange for votes, and not to work; and that this is also why migration into USA and Europe happens—not Dubai model. Or as if Argentina will be able to sustain now or in the future any foreign labor program. Argentina is truly an embarrassing reality for the Dissident right-left talking points on here; all of this has been done by an incumbent govt which sounds like they do and which put into practice almost every policy they advocate; but it led to national decline and poverty and the election of a lunatic …the youth simply wants to destroy this stifling condition. Part of why Dissident Populists are squealing so loud now.

Now on to David Janello's post about Milei's election and how to potentially profit from it. 

Authored by David Janello, PhD, CFA at Nuclear Options Trading 

Moonshot in Argentina

US Dollar Counterstrike vs OPEC and the BRICs

This week investors woke up to a big surprise: a Radical Libertarian and “Conspiracy Theorist” was elected as President of Argentina, driven into office by an extreme version of the monetary inflation plaguing the United States and Europe.

Here is what the mainstream news sources reported:

 

 

 

Interestingly enough, the Alternative News Media was in complete agreement with the New York Times and the Washington Post. Here is the headline from infowars.com which reinforces the “Far Right” messaging from its mainstream cousins:

Needless to say, sophisticated readers of this site automatically distrust messages from all media sources — mainstream and alternative — and doubly so when there is agreement on what is going on.

So what is the catch this time? Upon reading the articles, President-elect Milei proclaimed his goal of ending the Argentinian Central Bank (totally normal for a Libertarian) and replacing the Argentine Peso with the US Dollar, a rapidly eroding fiat currency issued by another bankrupt Central Bank — which totally contradicts the Libertarian position against using unbacked paper currencies instead of hard currencies like Gold or Silver.

 

 

A little bit more digging reveals that the President-elect is also a member of the World Economic Forum, an decidedly non-libertarian enterprise best known for its support of World Government and the slogan “You Will Own Nothing and Be Happy.”

 

wef-argentina.jpg

 

President-elect Milei also deviates from the Libertarian position on isolationist Foreign Policy, in favor of support for Israel and the Ukraine in their recent conflicts. This led to accusations that Milei is a Trojan horse for foreign interests:

 

 

Withdrawal From BRICS

Signs of foreign influence are not just found in Milei’s military policy. Immediately after his election, Milei announced that Argentina was withdrawing from the BRICs economic partnership, comprised of founding nations Brazil, Russia, India and China, which has been expanding to include other countries, significantly oil producing states in the Persion Gulf. With the US Dollar’s weakening status as Reserve Currency used to settle international trade, the BRICs economic bloc poses a potential challenge to US Dollar hegemony, either through use of an existing currency (Chinese yuan) or in the longer term, creation of a gold backed currency to settle trade accounts between the member states.

Potential Impact On The US Dollar 

If the foreign influence hypothesis is correct, this suggests that instead of receiving backing from a single commodity (oil), the US Dollar may soon receive significant additional demand when entire nations adopt it as their home currency. This additional demand has the potential to strengthen the US Dollar and by implication, to reduce domestic inflation in the United States itself. Former Federal Reserve Allan Greenspan was nicknamed “The Maestro” because of his uncanny ability to extract the maximum short term “benefits” of financial inflation and currency debasement, while at the same time postponing its inevitable reckoning into the (hopefully) distant future. Because the United States Government is running huge deficits above and beyond the Greenspan Era, there is the distinct possibility that the Argentine earthquake represents an effort to extend Greenspan’s efforts to absorb the enormous increase in supply and to offset the decrease in demand as BRICs nations choose other currencies to settle their cross-border trade. There is of course the risk that the Austrian Economics model adopted by Milei is too successful, and inspires copycat politicians in the United States. Paradoxically, the reduced domestic inflation in the United States permits greater welfare dependency spending by Federal, State and Local Governments, which should easily extinguish the campaigns of any freedom minded candidates that try to capitalize on the liberty movement in emerging markets.

Implications For Investors

What are the implications for investors? If indeed Argentina is poised to become a Black Hole to absorb US Dollars, this suggests that an improved Argentine economy will absorb more dollars and create greater benefit to its offshore backers. In this scenario, we might see increased foreign investment leading to an economic boom, not unlike what happened in Chile under Pinochet in the 1970s or Germany under Stresseman in the 1920s. This is a departure from the standard IMF debt based asset stripping which has been the standard operating procedure for emerging market economics over the last 60 years.

How To Play A Resulting Economic Boom In Argentina 

Options spreads offer a high leverage, limited risk way to capture profits if this scenario unfolds. The ARGT ETF is a diversified basket of Argentine stocks and offers a relatively liquid underlying to place the spreads on. Right after the election results came in, a SpreadHunter customer filled an order in the ARGT 47.00-51.00 strike Call Vertical for 1.90 expiring on April 19, 2024. This spread produces a maximum profit of 110% if the ARGT index increases by 10% at the expiration date in April 2024. The spread breaks even at 48.90 and like all vertical spreads, loses 100% if the ARGT ETF is below 47.00 on April 19.

About David Janello

David Janello is the co-founder of the options trading platform Spread Hunter, and the author of The Nuclear Option: Trading To Win With Options Momentum Strategies (available in hardcover, paperback, and Kindle formats). He writes at Nuclear Option Trading. 

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