Tuesday, April 17, 2012


Well, today it was confirmed.  The Argies nationalized YPF delivering another stoke of genius to the Argentine people and to Spain whose Repsol (misspelled yesterday) is the majority shareholder.  Argentina will grab 51% of the company for compensation to be determined at a later date.

Some time back, I think I related a tale of two of my dearest fiends, Dick Dilworth and his son Joe who was my colleague for many years.  They are both gone now (I think of Joe every day) but I still remember sitting in my friend's study with his dad after dinner, sipping on a glass of wonderful Single Malt and listening to Dick tell tales of Latin America which he knew well having been the financial advisor to one of the nation's greatest family fortunes whose holding in the region were vast.  He would get to Argentina, pause, shake his head and say, "25 feet of top soil," chuckle and move on.  A promise never fulfilled.

By a wide marrgin, Argentina is the dumbest country in Latin America surpassed in that respect only (perhaps) by Venezuela.  Georgeous beyond compaire, rich beyond imagination once the 6th largest economy in the world as late as 1945, it has squandered all in the space of 75 years and continues to do so.  Soccer is the only thing at which it now excells and following the dismal performance in the last World Cup, that remains a question mark.

The Argies defaulted on all of the foreign debt in 2002 causing losses on the part of foreign creditors of up to 85% and are still denied access to international capital markets.  Lucky as they seem often to be, the explosion of international commodity prices in the past five years has preserved their solvency but with the recent decline in prices a revenue squeeze resulted in the action against Repsol.  Among other things, the Argies have never read about The Goose that Laid the Golden Egg.  The action was widely applauded across the country except for the few who have a brain in their heads.  Believed to be the beneficiary of substantial amounts of shale oil and gas, Argentina has entered into joint ventures with various foreign producers which are now probably in jeopardy.   Widely traded internationally and listed on the NYSE, YPF's future is now up in the air with substantial losses having already occured.  Next up according to observers is the telephone company which has as its joint venture partner...you guessed it...Telefonica of Spain.

Which brings us back to Spain who, to be honest, can ill-afford such an assault upon two of its largest corporate entities and suppliers of revenue to the economy.  Spain faces a critical test on Thursday when it's 2 and 10 year auction occurs.  I don't have the Spanish equivalent of a Massimo but friends tell me there is a tremendous amount of back and forth going on between the very politically powerful Spanish States and Regions and the Federal government in anticipation of Thursday's events.  This will be key as to its success but the events in Argentina also highlight those things about which we have been speaking namely the risk elements attached to Spanish entities by virtue of their investment exposure globally (especially Latin America) which are difficult to evaluate.  Like Banks.  We will follow up tomorrow along with a bit of handicapping on the auction and a look (perhaps) into the crystal ball.  Can't wait?

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