Argentina's Economic Reforms

Argentina saw inflation rise 13% monthly in November, translating to a 160% reduction in purchasing power for the Argentinian peso. [The Daily Peel... ]( December 18, 2023 | Peel #608 Silver banana goes to... [SRS Acquiom. ]() In this issue of the Peel: - Data from the Investment Company Institute shows that cash in money market funds hit an all-time high of $5.89tn on December 6th. - Docusign and Costco had a ripe day, while Roku and Lennar suffered share price declines for the day. - Argentina saw inflation rise 13% monthly in November, translating to a 160% reduction in purchasing power for the Argentinian peso. Market Snapshot Happy Monday, apes. 7 days until Christmas, and I still don’t see a single swan-a-swingin’. I’m not mad, just a little disappointed as I bump into SpongeBob’s [The Very First Christmas]() in order to get in the holiday spirit. I expect this banger to easily overtake whatever that Mariah Carey Christmas song is… Markets were definitely in the spirit on Friday, however. Two of the U.S. majors were up while the other two were down, giving us a nice combo of red and green to head into the weekend with. The Nasdaq’s 0.35% gain rode the wave of strong mega-cap performance unless your name is Apple (-0.27%), while the Russell 2k led the way lower, falling 0.84%. Never one to forget to disappoint, the WSO Alpha team dragged us 0.07% lower in the meantime… and that was even with a big boost from Costco (more below). Can’t say we’re surprised. Let’s get into it. Get Perks & Exclusive Offers from the Companies You Own [image]() Sure, we all know that investing in stocks is all about getting rich. But did you know that some companies offer ongoing exclusive deals and gifts to their shareholders? 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[Get Perks!]() Banana Bits - The coolest-named economic indicator, the Empire State Manufacturing Index, fell further to [-14.5 last month.](=) - Take a look at just how dominant the [Magnificent 7]() have been over the past year. - U.S. ports are set to get a big [$21bn raise.]( - For the first time in history, a government official actually tried to detail their [plans for policy.](=) Macro Monkey Says Locked & Loaded Famous duels, like when sitting Vice President of the United States Aaron Burr shot and killed sitting Secretary of the Treasury Alexander Hamilton, generally involve only one or two bullets. Yes, that actually happened—just one bullet can make all the difference. But, on Wall Street, there are about 6 trillion bullets just waiting for the call to fire. Investors are locked and loaded. And ever since Fed Chair JPow and his rate hike bombing campaign encouraged investors to stockpile munitions like World War III was coming, the ammo has only been building up. Even now, despite the S&P’s >23% gain so far this year, data from the Investment Company Institute (creative name!) shows that cash parked in money market funds hit an all-time high of $5.89tn on December 6th, the most ammo ever stockpiled on a given date on record. As of December 14th, investors had fired ~$11.55bn rounds into the market since that record was set, leaving a still-near-all-time-high of $5.88tn parked in these reserve funds. "... on Wall Street, there are about 6 trillion bullets just waiting for the call to fire." We’ve known this for quite a long time. 6-month treasury yields nearly reached 5.6% back in October/November, meaning you could park $1,000 into a completely risk-free asset for half a year and come out the other side with $1,056, a risk/reward prospect equities can’t even dream of (unless your name is Jim Simons or something). With returns like that, it’s hard not to park your cash in boring ol’ bonds and bond funds. But after the recent and somewhat unexpected dovish pivot by money printer Powell, the race has already gotten underway to get back in the equities game. Of that $11.55bn heading out of money market funds and into other investments, $14.47bn has been reallocated by institutional investors, a.k.a. the ones that are supposed to know what they’re talking about. "... if the Fed really is done tightening ... the best time to increase exposure to risk assets was yesterday …" Oh, and if that doesn’t make any sense, it might help to also know that $2.92bn worth of assets flew into money market funds from retail investors, a.k.a. what CNBC likes to call the “dumb money.” And in this case, that label by CNBC might actually be right. Seeing institutions begin to unwind their massive piles of cash is instructive of their view of markets in the foreseeable future. If they’re moving assets from risk-free yields of nearly 5.5%, clearly, they think risk-on equity markets have more to promise than that. This kind of data is way more valuable than other indicators commonly used to get a sense of investors' sentiment, like the AAII bull/bears index, because here, they’re actually doing something, not just telling you what they think they might do. Like the writer/philosopher/mathematician/Fintwit-resident-*sshole Nassim Taleb says, “Don’t tell me what you think. Show me what’s in your portfolio.” Basically, the idea is that if the Fed really is done tightening beyond those monthly balance sheet reductions, then the best time to increase exposure to risk assets was yesterday… and the second best time is today. If this trend continues among institutions, it’s pretty clear what they think even if they don’t show us what’s in their portfolios. Now, it is, of course, a very small sample size and a very small portion of the overall investment market. But, like always, we care about the direction of trends more than their actual level, and we love to see things moving in the right direction. What's Ripe Docusign (DOCU) $63.11 (↑ 12.46% ↑) - Like Conor McGregor going from the “champ” to tapping out against Khabib, Docusign was the king of the world a few years ago… now, executives are reportedly looking to tap out. - Hopefully, this one isn’t as embarrassing as it was for Conor, who called Khabib a “glass jaw rat” (among other things) before getting rag-dolled by the Russian for 4 rounds. Despite Friday’s bump, shares in the digital signature company remain ~80% off from the all-time highs of 2021, but thankfully they’re doing a little less sh*t talking. - Instead, Docusign is reportedly reserving its talking for the advisory team they’ve brought in to decide on whether or not a sale is an ideal move, according to [the WSJ.]() - Presumably, no sale would occur without a hefty premium for the now ~$13bn company. So, investors potentially looking to get in on some early arbitrage were hyped to see it. Docusign hadn’t come out and confirmed the news, at least as of the time of writing, so stay tuned on this one. Costco (COST) $658.82 (↑ 4.45% ↑) - Charlie would’ve been so proud. Just 16 days following the death of the company’s most beloved shareholder and spokesperson, Costco came out with another banger of an earnings report. - Berkshire Hathaway’s late #2 guy was a huge fan of Costco, sitting on the company’s board since 1997, before many of you (and me) were even alive. So, he probably would’ve loved to see the beat across the board Costco delivered, reporting $3.48/sh on $57.8bn in sales vs estimates for $3.45/sh on $57.6bn. - A close call, to say the least, but a beat is a beat. Roughly $100mn of that revenue, about half the amount of that revenue beat, came from selling pretty much the opposite of the company’s legendary hot dog combo: 1-ounce gold bars. Plus, the retail giant announced a nice, new $15/sh dividend, both helping Costco reach all-time highs. - Idk about you, but gold bars give me more of an LVMH/Goldman Sachs vibe rather than the company that literally has “Cost” in its name and makes customers shop in a damn warehouse. But hey, whatever gets the job done. What's Rotten Roku (ROKU) $95.93 (↓ 6.76% ↓) - On Friday, Roku became the latest stock to suffer from DJ Khaled disease—and no, I don’t mean being a talentless clout chaser who likes to yell. - Of course, we mean Suffering from Success. Roku has seen shares more than double this year, mostly because of how sh*tty 2022 was for the firm, but analysts are starting to think it’s been too much too fast. - Research firm Moffett Nathanson basically called Roku the stock version of Taylor Swift, saying that it became way too overrated this year. They both have talent, that’s for sure, but this year’s rise may have gone overboard, according to the firm. - Naturally, shares pulled back on the report, selling off for what seemed like the first time since 2022. Lennar (LEN) $149.28 (↓ 3.64% ↓) - I don’t know if anyone’s heard or not, but the housing market hasn’t exactly been great this year. With that, neither was the latest earnings print for one of the country’s largest homebuilders. - But… Lennar managed to make it work in the third quarter. The company reported earnings of $4.82/sh vs estimates of $4.55/sh on sales of $11bn vs expectations for just $10.2bn. - Obviously, this wasn’t nearly good enough for markets. There wasn’t too much negativity in the report, but being the sensitive guy that he is, Mr. Market must not have liked Lennar’s decision to pull full-year margin guidance on the report. No company would ever pull something that was good news, so… Thought Banana Dollar Holler This weekend, I gave a jacked guy outside a bar $10 cash just for the privilege to spend more dollars in order to buy drinks, stand in the corner, and try not to get thrown by him or any of his jacked bouncer buddies. If I were in Argentina, to do the same thing, I would’ve had to pay 7,923.83 pesos for the privilege of getting in—and that’s a whole lot of paper to carry around. Inflation has been rough in the U.S., but to Argentinians, our rate of inflation looks like raindrops compared to an ocean. The South American nation of 46 million people saw inflation rise 13% monthly in November, translating to a 160% reduction in purchasing power for the Argentinian peso over the last year. So, prices have more than doubled and more than 2.5x-ed over the last year in the country, which also owes more money than any other nation to the International Monetary Fund and boasts one of the widest fiscal deficits anywhere on the globe. Basically, their economy’s f*cked. Earlier this month, on December 10th, a new President by the name of Javier Milei was sworn into office with some radical ideas on how to un-f*ck the economy. Milei is a bit of a wild man himself. He’s known for [wielding chainsaws]() at rallies to represent his desire to eliminate the country’s Central Bank (Ron Paul is green with envy), his admiration for characters like Donald Trump and Brazil’s Bolsonaro, and most of all, his desire to dollarize Argentina. "Milei is a bit of a wild man himself. He’s known for wielding chainsaws ..." I mean, the guy’s nickname, which began during his childhood, is “El Loco,” meaning “The Crazy” for those of us who failed middle school Spanish (like me). But a lot of Argentinians love him, and often precisely for those reasons. To “dollarize” Argentina would mean eliminating the Argentinian peso as a currency and adopting the U.S. dollar as the country’s official currency. Panama did it in 1904 and Ecuador in 2000, but neither one of those economies comes close to the nearly $500bn economy that is Argentina, the 24th largest in the world, between Belgium and Sweden. The goal with dollarization is to get inflation to chill the hell out because once rates get as high as they have, it’s hard to stop a Weimar Republic or Zimbabwe-style spiral that ends the economy and leads to… uhhh… horrific atrocities in one way or another. To do so, Milei needs to, first and foremost, acquire a lot of dollars. That’s tough to do when your country’s purchasing power is rapidly decelerating, so Milei has already made some changes, such as: - Devaluing the peso in order to make Argentinian goods more competitive on a global scale, reducing the country’s trade deficit. - Stopping Argentina from joining BRICS. - Announcing plans to modernize the Mercosur trade agreement in order to enable nations to negotiate bilateral trade deals. - Applying for OECD membership means Argentina would get in with the world’s most developed nations and be held to a higher economic standard. Getting to dollarization is, needless to say, a huge change for the country, and even this weekend, the government announced that it’s far from its “near-term goal.” "Getting to dollarization is ... a huge change for the country ..." As we said above, to do so, Argentina needs to amass a whole helluva lot of dollars to buy out the peso effectively and burn it to the ground. Stopping themselves from losing money anymore is a good first step, hence the changes to trade agreements and plans to incentivize foreign business investment. But it’s a risky play, too. It’s not as if the Federal Reserve will be making monetary policy decisions and then stop and think, “But wait, how will this impact Argentina?” It’s simply not their job. Fortunately, there’s a lot of wiggle room here, and when you’re the government—a.k.a. the guy literally setting the rules—it’s not as hard to make changes as it otherwise might be. Basically, Milei is looking to make a lot of changes in a little time. Whether it works or not, we’ll see, but another big takeaway that the U.S. is certainly happy to see is the simple fact that countries like Argentina, which have in the past received massive investments from China, still like the U.S. more and want to center their role on the global stage around their relationship with their fellow Western hemisphere neighbor. The Big Question: What does the future of Argentina look like? Will Milei actually manage to dollarize Argentina? Will this have any implications for geopolitical tensions, and if so, how will China react? Banana Brain Teaser Friday — A man was going on a one-way bus trip. He intended to ride for a certain distance, get off the bus, and walk back to town. If the bus travels at a rate of nine miles per hour and he was to jog back to town at a rate of three miles per hour, how far would he ride so that he'd be back in eight hours, considering that he plans to travel the same distance while riding a bus and walking? Answer Eighteen miles. Since he is riding three times as fast as he can jog, three-quarters of his time must be spent jogging. Today — A 3-inch cube is painted red on all sides. The cube is then cut into small cubes with a dimension of 1 inch. All the so-cut cubes are collected and thrown on a flat surface. What is the probability that all the top-facing surfaces have red paint on them? Shoot us your guesses at vyomesh@wallstreetoasis.com. Wise Investor Says “Because by the time we read about it in the Wall Street Journal, it's already too late” — Jordan Belfort (The Wolf of Wall Street) How would you rate today’s Peel? [All the bananas]( [Decent]() [Rotten AF](=) Happy Investing, Patrick & The Daily Peel Team Was this email forwarded to you? [Be smart like your friend](). [ADVERTISE](=) // [WSO ALPHA]( // [COURSES](=) // [LEGAL](=) Don't want The Daily Peel? [Unsubscribe here](=). Click to [Unsubscribe]( from ALL WSO content IB Oasis Corp. (aka "Wall Street Oasis") 20705 Saint Charles St Saratoga, California 95070 United States