Tuesday, July 28, 2009

La Plata



I´m going to describe my investment strategy that I think could work for other expats, and try keep it simple. Basically, I´m betting on the price of silver going up while also expecting the price real estate to go down. I want to sell silver after some paradigmn changing events come to pass and buy some land from Argentines who are willing to haggle down because they need the money. I think land is the best thing to own provided you´re willing to live on it and do some work with your hands, I think that if you don´t have the freedom to grow your own food, you aren´t really free.

In the spirit of keeping this simple, first the practical stuff, you can get exposure to the price of silver in three ways:

- first you could go to one of the jewelers near Tribunales and ask to buy some plata "para inversion" and they´ll sell you a physical piece of metal, I think everyone hold some physical metal in case all the electronic systems break under the weight of their own fiction. Just think of it as saving money for the long term, the idea is you´d take this down to a bank when banks are in dire need of solid assets and they´d pay you a lot more than you bought it for.

- second, you could buy SLV through a stock account, SLV is an exchange-traded fund that supposedly holds silver, when people buy more shares of the fund the fund buys more silver to keep things level. If you already have a stock trading account, this is an easy thing to do, you don´t have to pay much over the spot price of silver like you would in a jewelry store and you can sell really easily.

- third, you could get really aggressive and play Silver Futures, with leverage! I have an account with OANDA where I can bet with as little as one virtual ounce, if you have a couple hundred bucks or so and you want to work with that, OANDA is your best option. Lets say you have $137 bucks in there with a 10:1 margin, that means you could buy $1370 worth of "silver" and let it ride, if silver goes up 10% from there you´d double your money. If silver increases 5 times over you´d have fifty times your money. If you want your account balance insured and you want an exchange-traded instrument, you should get a Futures account with Tradestation or Interactive Brokers, you´ll need at least 5k, preferably closer to 10k for that. When trading with leverage, you shouldn´t fire off all your ammo at once, buy conservatively on the dips and set orders above prior peaks to automaticallly buy bigger chuncks. I like to use a pyramid pattern, buy 1 chunk, then set an order to buy 4 chunks above a prior peak, then 3 chuncks above the next peak, then 2 above the next, then 1, then let her ride.

Now that I´ve established the how, I´ll address the why.

Basically all the paper money we use is based on fantasy. Money as we know it is a pyramid scheme. Governments go into debt with Central Banks for say, 10 bucks, that 10 bucks is lent out to commercial banks ten times over, so now you´ve got 100 bucks out there, those banks can make a bunch of loans to each other and multiply the money another 10 times, so that 10 bucks is now 1000 bucks. Most money exists electronically, the cash you take out of an ATM is only a small fraction of the money supply, if more than 10% of bank deposits were withdrawn the rest of the money would evaporate. Argentines get this more than Yanquis because it actually happened here, tipo multiple times boludo. So you´ve got this risk of everything imploding all the time, and on the other hand you´ve got this constant pull to keep increasing the money supply with more debt, because the previous debt has interest attached, and that interest has to come from new money to get paid. The pyramid keeps expanding, money gets tied up in paying interest, prices rise.



The peso went into hyperinflation three times in the 80s, 10,000 pesos got stamped as 10 australes, then like a year later 10,000 australes got replaced for 10 pesos, then they did the 1:1 peg with the dollar, which lead to more inflation by 2001, and then the banking system collapsed. People who held gold and silver during this time were able to take it down to the bank and get cash to buy food or pay rent. Paper you can print, metal you can only dig up.

The dollar is the biggest pyramid scheme ever, it has funded uncounted invasions and coups, along with bood jobs, private jets and the purchase of Argentina´s best assets. That scheme, like all others of its kind, will collapse, it is just a matter of when. For decades time was bought for the system by wrangling oil deals with the Saudis, and also by supressing the price of gold and silver so people would buy stocks and Treasury bonds instead. The way that you supress prices is buy selling what you don´t have, called "short selling", big banks that are in arms with the government can short sell without even borrowing the stuff, this is called "naked short selling" even though its mostly hidden.

Usually when you short sell you want to buy at a lower price to even the score and pocket the difference, but if your game is to support a global financial empire, you might just keep these positions open, because buying up enough gold and silver to return what you borrowed would raise the price. If the price of gold gets bought up by hedge funds, Indian wedding planners, scared doctors and redneck survivalists, the US government can just bail out the banks that are short. But the US govt. doesn´t own any silver. Also, silver has a lot of medical and industrial uses, there is less of it than gold, its cheaper so you can buy some even if you only got like 20 bucks, and its historically cheap. In the Roman times 12 ounces of silver got you an ounce of gold, during the British empire the ratio was closer to 20. Right now its like 75 or 80 and the highest the ratio has ever been as 100, when these metals were at their historic lows. Just holding this stuff you´re allowing yourself a 5x return on investment, while gold maybe has 2x in it. Leveraging you could do extremely well, provided you don´t fumble the ball, which is the big "if" with leverage.

Lastly, land right now is fucking ridiculous in Argentina, people are asking fourty dollars per square meter for a small plot in Cordoba last I checked online, something like fifty grand for a whole hectare, if you´re willing to spend close to a million dollars you could get down to like 3k a hectare, but sheesh man, you´d have to be stupidly hopeful to think that all those people are going to sell for those prices. Argentina´s economy goes through these hysterical cycles of shock and awe, crash and boom, wild and wet, not unlike dating an Argentina. Because real estate is the only thing Argentines see as a reliable investment, it tends to react in a delay to this cycle, so while Argentina is already in a recession the quoted real estate is still living in 2005. Once people start really hurting for cash and the flow of foreign currency gets tight, they will lower prices.

Let me put it this way, I´m not trying to predict the future, I´m just trying to ride it. I like people and thats why I´m trying to tell you how to avoid getting thrown off. If things recover and we get iPod living with the growing jobs and all that, cool, adelante, your silver investment won´t go to 0. If we´re in the eye of the global economic hurricane, then you´ll be able to turn your silver investment into enough cash to buy some land at lower prices. Or at least you´ll have some shiny stuff to look at.

1 comment:

  1. Hi, I am also an expat in Buenos Aires and I find this blog interesting and well written. Just wanted to ask you a question. I tried out daytrading with currency for some weeks ago, it did not took me long to realize why there is economical collapses and how the rich getting richer on speculations. What is your thought on that, it's hard to work it ethical if you wanna make money.. L

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