What is happening in Argentina?
In 24 hours, Argentina's stock market COLLAPSED -10%, with the Argentine Peso now down -99% in 10 years.
Today, the Trump Administration offered a "lifeline" to Argentina, sending stocks surging +8%.
Can Argentina be saved?
(a thread)
Just 2 hours ago, US Treasury Secretary Bessent made this post:
He said "all options for stabilization are on the table" for Argentina.
This may include swap lines, direct currency purchases, and purchases of USD denominated government debt.
But, how did they end up here?
Immediately after Javier Milei became Argentina's President, inflation hit 300%+.
In late-2023, inflation in Argentina was above 25% PER MONTH.
At one point, a cup of coffee cost more by the time you finished drinking it.
It's now down to ~2% per month or ~34% YoY.
While this is an improvement, it's far from sustainable to have 30%+ annual inflation.
By comparison, the US Fed targets 2% inflation as its long-term run rate.
As a result, the Argentine Peso has collapsed over -99% in 10 years.
And, the crisis recently accelerated.
Milei lost the confidence of investors as the decline accelerated last week.
In a final attempt to save the Peso, Milei's central bank injected $1 BILLION in 3 days.
Intervention hit $1.1 billion, a massive amount in a country that has $20 billion in liquid foreign reserves.
Amid the chaos, as of September 18th, Argentina's debt is back in distressed territory.
Argentina's stock market has become the worst performer among more than 90 global benchmarks this month.
The effects have been socioeconomically catastrophic for the Argentinian people.
Currently, over 38% of Argentines are currently living in poverty.
In 2024, the country saw a poverty rate that was as high as 52.9%.
In other words, the MAJORITY of Argentina was living in poverty last year.
So, can the US revive the ongoing landslide in their economy?
On April 11th, Argentina attempted a similar "lifeline" with the IMF.
The deal included: A $20 billion agreement with the IMF, which included a $12 billion upfront payment.
And, Argentina's central bank let the Peso trade freely in a range of 1,000 to 1,400 pesos per dollar.
However, this clearly has not fixed the issue.
At its core, the Argentine Peso is overvalued and artificially propped up by the government.
Short-term relief by the IMF or the US will not fix the long-term issue.
The Peso needs to trade freely WITHOUT government manipulation.
Tomorrow, President Trump and US Treasury Secretary Bessent will meet with Milei in New York.
We suspect this will be followed by more intervention.
This could include a US purchase of USD denominated government debt in Argentina.
But, the US must emphasize STRUCTURAL change.
If the US offers Argentina a $5-$10 billion swap line, we believe it would calm panic.
Then, Argentina must establish central bank independence and let the Peso float freely.
Tax reform and streamlining government spending come next.
The key is to restore investor CONFIDENCE.
Global monetary policy is pivoting and economies are diverging.
The economy is shifting and its implications on stocks, commodities, bonds, and crypto are investable.
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In our view, this is Argentina's last and best chance to end the downward spiral.
The US is pledging to support Argentina's economy with the US Treasury.
Without structural change, history will repeat itself.
Follow us @KobeissiLetter for real time analysis as this develops.
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