Ever wonder what happens when greed meets stupidity in the stock market? For a profound example, take a look at the recent free fall in Argentina’s largest oil and gas company, YPF (NYSE: YPF).
The country’s President Cristina Kirchner recently took a watershed step in expanding the state’s grip on the economy, saying she will send a bill to Congress to nationalize the firm.
Predictably, shares of YPF – and other Argentine stocks – gapped down on the news.
[ad#Google Adsense 336×280-IA]Kirchner declared that this historic move must be made because the petroleum industry is of “national public interest.”
Of course, what industry isn’t? Banking? Telecommunications? Manufacturing? Agriculture?
Kirchner insists that YPF’s low production is forcing the country to spend heavily on imported energy at a time when it is experiencing a scarcity of dollars due to capital flight.
And why is Argentina hemorrhaging capital?
Because of boneheaded moves like this one.
YPF’s majority shareholder, Spanish energy group Repsol, is not taking this theft lying down. The Madrid government has threatened swift retaliation.
And Spain’s Prime Minister Mariano Rajoy stated the obvious when he said the Spanish company’s controlling stake in YPF – which Repsol was planning to sell to China’s Sinopec – was being expropriated “without any justification.”
Given that most successful developing nations are privatizing industries rather than nationalizing them – and given that investment capital always flows where it is treated best (and conversely flees those countries where it is treated badly) – why would Kirchner do this?
One answer is stupidity. The other is hubris.
There is absolutely no reason to think that a bunch of politicians and bureaucrats – or their appointees – could run YPF better than Repsol, one of the world’s leading energy groups. (Just as there is no reason to think the U.S. government can do a better job than private equity groups of backing speculative solar companies like Solyndra.)
And if Argentina is willing to nationalize its leading oil company, which company (or companies) is next? Here’s a potential hit list, 17 Argentine companies that trade on the NYSE or Nasdaq. If you’re holding any of them, sell them immediately.
The tragic part of this power grab – which has undeniable populist appeal in some quarters – is that it will only undermine investor confidence and do lasting damage to the Argentine currency, the Argentine economy and, ultimately, middle-class Argentinians.
This move is not just greedy. It’s profoundly dim. But then, Ronald Reagan said it best:
“The best minds cannot be found in government. If they could, the private sector would hire them away.”
Good Investing,
Alexander Green
[ad#jack p.s.]
Source: Investment U