I – Arbolitos

Traveling from Bucharest via Barcelona to Buenos Aires gives a feeling of faded Latin glory, and nowhere more so than in Argentina – swinging with the world's ten wealthiest nations a century ago before its drift into progressively crazier economic policies.^1–3

The lunacy hits before you even step foot in the country. This is the only immigration form where I have to state the model of mobile phone I possess and its accessories. I faithfully declare my iPhone 5 and accompanying charger, though no one asks for the form at customs.

When it comes to buying pesos, I have a choice: swap $100 legally for 550 pesos or get a thousand on the street. It's hard to avoid falling into crime.

In Calle Florida, the main shopping street in Buenos Aires, an official currency kiosk is void of customers. Within 5 meters a woman waves a calculator, calling “cambio, cambio.” Locals nickname them arbolitos or “little trees” – they're as much a part of the city's landscape as the tangueros dancing on street corners.

A teenage arbolito spots me at one of the bright yellow tourist information booths helpfully dotted around the city. He shows me his maxi calculator and punches in 950. I shake my head, “mil.” He presses AC, keys in 980 and beckons me to a dress shop. He's the broker; the woman with the dresses is the dealer with a stash of greenbacks under the counter.

Walking out, the arbolito tells me how he loves British culture – he's seeing the English 80s pop band Depeche Mode tonight and he's a big fan of Monty Python. Around us, the Union Jack is a la mode on T-shirts and handbags – surprising for a nation whose populist president has been whipping up the idea of kicking the Brits out of the Falkland or Malvinas Islands.

It's Saturday morning and the shops are packed with people spending money like it's going out of style – which, in Argentina, of course, it is.

The peso is crashing. Everyone's been through this enough times to recognize the signs. The gulf between the official exchange rate and the arbolitos' is the credibility gap driving Argentines to spend their pesos any way they can.

Over the decades, currencies have been repeatedly created, inflated and disbanded. A hundred pesos moneda nacional were replaced by a single peso ley in the 70s, then 10,000 peso leys by one peso Argentino, 1,000 peso Argentinos by an austral and 10,000 australes by a peso convertible.⁴ By the early 90s as inflation hit 20,000%, a single peso convertible – or ARS as the “Argie spot” is suitably known in the language of currency traders – equated to 10 trillion of the pesos used two decades earlier to buy a cup of coffee.⁵

President Carlos Menem's economy minister, Domingo Cavallo, broke the pattern for a few years, restoring confidence by making the peso convertible one for one to the US dollar and limiting the notes it printed to the amount of dollars held in reserve. The peso's exchange rate peg survived intact through the Mexican “tequila” crisis, Asia's economic flu and the Russian debt default of the 90s. But the currency's strait jacket could only buy so much time without accompanying steps to cut spending and borrowing. By the end of the decade, Argentine farmers were struggling to compete against Brazilian exporters benefiting from a plunge in the real.

When President Fernando de la Rua came to power in 1999, Argentina's recession had depleted the government's coffers to the point where it risked running out of funds to support the dollar peg. Having shoveled in billions of dollars in support, the IMF finally threw in the towel at the end of 2001, causing Argentina to renege on $95 billion of debt. A rare decade of currency stability ended with the peso sliding from 1 to 3.8 per dollar as the economy shrank 11%.^6,7

While Néstor Kirchner – becoming Argentina's fourth president in two years in 2003 – managed to keep a lid on the peso as the economy recovered, rising government spending during his wife Cristina Fernandez de Kirchner's presidency eroded the reserve of dollars. In 2011, as the currency weakened further, a newly re-elected Fernandez attempted to smother the foreign-exchange market by restricting it to those needing dollars to travel abroad or pay for imports.

To the wealthier, it was an invitation to scam the system. Trips overseas jumped 13% the next year as Argentines flew to New York or took the hour-long boat trip across the Rio de la Plata to Uruguay to withdraw cash on their credit cards. To a dollar-hungry Argentine, getting the official exchange rate using their plastic abroad beat receiving half that amount from arbolitos, even with a 20% transaction tax. The most popular purchases were those goods hardest to find back home because of import restrictions – like Apple laptops and iPhones, fetching triple the price in Buenos Aires compared to New York.⁸

Other Argentines were getting rid of depreciating pesos by buying Chinese goods on the internet or German cars. One economist in our run of meetings said he'd treated himself to a new motor with a loan in pesos at 20% interest. Seeing inflation at 30% and a likely 50% devaluation in the peso, he was laughing all the way to the bank. A commodities trader was finding inner peace at a Buddhist retreat when “the ARS fell out of bed” in early 2014. He'd bought a stack of soybeans with borrowed pesos. The soybeans were gaining on Chinese demand as the peso tumbled.

By the time the government got around to closing some of the foreign-purchase loopholes by slapping a 35% tax on international credit-card transactions and 50% on purchases abroad,⁹ backed by controls like my immigration card, the roads were chock-a-block with German cars. Next, Argentines turned to local produce. Prices for yogurt to flat-screen TVs – already in hot demand ahead of the World Cup – were jumping 20% in a week and fast food chains were running out of imported ketchup. As supermarkets responded by jacking up prices, La Campora, the ruling Peronist party's youth organization linked to Fernandez's son Maximo,¹⁰ patrolled the aisles to check for breaches in cost-controlled items like medicine and put up placards calling the owners “robbers” in the battle against hyperinflation.^11,12

Walking a couple of blocks east from Florida through the narrow City of London-style streets of the financial district, construction workers are on overtime. Bold, angled towers are popping up behind the facade of historic walls left as an architectural nod to the rich heritage. The banks here have been reaping big profits from all the high-interest loans to the countless car buyers and soybean speculators. Their cash, however, has also been trapped inside the country as foreign-exchange rules have restricted the payment of dividends to overseas owners and shareholders. Property has become the last outpost in the defense against wealth erosion by inflation and devaluation.

Out toward the Atlantic is the smart waterfront barrio of Puerto Madero. The area has withstood successive crises. Just as Argentina was on the brink of the world's biggest debt default in December 2001, developers unveiled the Puente de la Mujer, or Women's Bridge. The white modernist outstretched leg of a tango dancer pivots to let ships pass. On the canal bank the streets, all with women's names, group pricey restaurants with fine Argentine steaks, the uber cool Hotel Faena and skyscraper offices such as YPF, the oil producer that was unceremoniously seized from Spain's Repsol in 2012.

Across the water is La Casa Rosada, the pink palace where Juan Domingo and Evita Peron addressed the masses from the famous balcony and set the country on the “third position” between communism and capitalism – encapsulating high social spending and protectionist economic policies.¹³

In front, where the crowds gathered on the Plaza de Mayo, a group of grandmothers has met every Thursday afternoon since the overthrow of the last of the Peron governments in an army coup in 1976. In the so-called Dirty War that followed, the military junta killed at least 10,000 Peronistas and abducted hundreds of their babies for adoption by couples in the army. Their grandmothers – las abuelas – urge people now in their late 30s and 40s to get their DNA tested to check their parents aren't their abductors.

Since the military regime crumbled with the Falklands defeat, most of the subsequent governments have been elected on a Peronist platform. But Fernandez lurched politics far to the left of her predecessors – Carlos Menem and her late husband. Her own brand of Kirchnerismo has made social inclusion the central tenet of policy, with generous utility subsidies to cut the cost of living for households.

Yet many here don't hold a house. On the Avenida de Mayo running from la Casa Rosada to the Congress, smartly dressed families enjoy a Sunday lunch as a band plays. Next door, children aged 2 and 5 with muddied bare feet and dirty clothes play a clapping game while their mother sleeps in the doorway of a shuttered shop. A few yards along, three toddlers sit near the roadside, their washing hanging from iron railings, possessions in a pram, waiting for their parents to return with bread pilfered from the restaurants for lunch.

There were more homeless families two or three years ago, says Pablo, a bar owner in the colorful, artisan barrio of Palermo Viejo. Pablo's Peronista parents were booted out of the country in the 70s when he was three, fleeing to England. He moved back, from Brighton to Buenos Aires, in the year of Fernandez's landslide re-election in 2011.

Her policies aren't so crazy to Pablo. “You don't want to sell dollars to locals because it means their money will just go abroad,” he says, mixing English and Spanish as he talks to me and his wife while pouring from a brown liter bottle of Quilmes at a table outside. Seizing YPF from Repsol reversed the legacy of foreigners taking over Argentine assets through the 90s, he says. And her Malvinas rhetoric? Well, that's just “flag waving.”

Most Argentines are more critical. “Of all the stupid policies in Argentina over the decades, invading the Falkland Islands was the stupidest of all,” says Lucha, a drama student who part-times as a city tour guide. “We don't need this being resurrected.”

To illustrate the second craziest she leads a route past mothers begging on the steps of the Catedral Metropolitana to the beautiful mosaic floored interior. A couple of years earlier, all of these hundreds of thousands of tiny tiles were individually broken off and cleaned. “They had nothing better to do,” she says, shaking her head.

Source: CIA World Factbook, December 2014

1. Population data from July 2014 estimates.

2. GDP at purchasing power parity (PPP) exchange rates is the sum value of all goods and services produced in the country valued at prices prevailing in the USA, based on 2013 estimates.

3. GDP per capita (PPP) divided by population, based on 2013 estimates.

4. Inflation rate shows the annual percentage change in consumer prices in 2013.

5. Unemployment shows the percentage of the labor force without jobs in 2013, except for Kenya (2008).

II – Del Fin Del Mundo

In this world in the future we're not talking about 6 to 7 billion people;

we should imagine at least 15 to 20 billion.

But not only with an income of around $1000 per capita in poor countries; we must imagine an income of $10,000 to $20,000.

Eduardo Eurnekian

Argentina's richest self-made billionaire

Down the road from Pablo's bar in Palermo, across a run-down railway track, is the discrete two-story headquarters of Eduardo Eurnekian.

The son of Armenian immigrants, Eurnekian followed his parents into the textile business, supplying the sports brand Puma, until international trade agreements in the 80s left the company unable to compete with cheaper foreign competition.

So he switched tack entirely, placing a bet on the growth of mass media and advertising. He bought a bunch of cable TV startups to bring the likes of CNN and the BBC to Argentina. And from there, he built a media empire with the country's first news channel – CVN – along with the America TV network, the financial daily El Cronista, four radio stations and Argentina's biggest cable broadcaster by subscribers.

The investments paid off in the mid-90s as President Menem's free-market policies and the stability from Economy Minister Cavallo's currency peg lured US cable operators looking to expand. He made $600 million selling Cablevision to Denver-based Tele-Communications International.

Eurnekian used the money to jump into his third industry. He clubbed together with the operator of Milan airport and a ground-services group in New York for a three-decade concession to run 33 mostly unprofitable Argentine airports. From there he built up to become the world's biggest private airports operator, with over 50 licenses and around $2 billion in annual sales from Brazil to Italy and Armenia.^1–3

From running the main airport in his ancestral land, Eurnekian developed Armenian businesses from banking to the postal service to orchards and vineyards. In Argentina, he used the financial meltdown in 2001 to amass 250,000 acres of farmland, producing cotton, oilseeds, grains and wine.⁴ Interests in computer chips, oil, gas, wind and biofuels have made Corporacion America the most diversified holding company in Argentina and Eurnekian the country's richest self-made billionaire.

In his executive dining room with leather couches and big modern art, the 81-year-old reflects on business over a bottle of reserve red from his bodega.

“This is a good wine,” he says quietly, almost a mumble. “But there are many good wines.”

He inspects the label. It's uncluttered, understated. An upside-down elongated triangle is the only image. It's words that are designed to stimulate the imagination: Del Fin Del Mundo, Patagonia – The End of the World.

In the lobby of the Sheraton, a bottle retails at $80. It's not the top of the hotel's range but close.

“It's the wrapping,” says Eurnekian. “That's the marketing part.”

It's a parable for where Argentina needs to be.

“The Chinese go for the French wine because the French give that added value,” he says. “The same goes for technology from America. We sell beef but the Italians sell the Parma ham. It costs three to four times more than the simple ham in Argentina. That's the difference of marketing. Nobody buys a product from a country that doesn't capture the imagination of the buyer. We must know how to market our products, that is the future.”

He draws a second lesson from a half-century spent building up and exiting industries.

“Many times friends ask me, what can I invest my money in? Here's the problem: I won't be at hand when it's time to leave.”

Timing in Argentina requires reading the politics. “Good policies” improve economic efficiency but often at the cost of unpopular sacrifices, while bad policies ultimately self-destruct.

It's the reason for the ten-year cycle of government as populism ultimately becomes unsustainable, demanding a switch to spur greater efficiency. It's that process that shaped the Menem–Cavallo free-market reforms of the 90s which then gave way to the populist Kirchner administrations from 2003.

Now the pendulum is swinging back to liberal policies. The turning point was when Fernandez ousted Guillermo Moreno in November 2013. Moreno was appointed interior commerce minister by Nestor Kirchner to help bring inflation down. As the government stuck to insisting inflation was half the rate perceived by independent economists, Moreno started slapping fines on analysts who published higher numbers. Famed for his intimidating style, he once showed up for a meeting at a unit of Grupo Clarin, Argentina's largest media group, wearing boxing gloves to show he would fight the company. After his ousting, Clarin shares surged 16% in a week.

Appointing Axel Kicillof the new economy minister and Jorge Capitanich cabinet chief in the same week showed a rare acknowledgment that the economy needed fixing.⁵

Fernandez made the changes after a five-week absence for surgery to remove a blood clot close to her brain and a weakened position politically from mid-term parliamentary elections.

“Until then, the government did nothing,” says Eurnekian. “Then came a government presenting a plan.”

Sitting to his right, Eurnekian's nephew Hugo takes up the theme. Hugo runs the oil, gas, biofuels and wind farms businesses. He sees less of a pendulum, more of a continuum.

“In his life,” says Hugo, looking to his uncle, “he's seen many different things. In my life, you've had the 90s, which was a very clear period of free commerce and openness, and ultimately society demonized this concept, and then another period began, which is this period, and that was the opposite – a closed market, very regulated.”

“What I feel is that our society is learning and evolving – that everything isn't black or white – the free or the regulated market. What we're seeing now is the start of absorbing all these lessons and changing again.”

“I say this perhaps due to my youth whereas he's seen this ten times before and doesn't see an evolving curve.”

The old man – never married, with no children, who's parceled his empire into units run by his four nephews – is looking for action, not words. The starting point is freeing up access to dollars to fix the distortions created in the economy. Next is to prune the branches of government by replacing blanket energy price caps that don't help those most in need with subsidies properly directed at the poor.⁶

“We must close the gap between the more humble and those who win more,” says the elder Eurnekian. “In countries more advanced – in England or the US – the difference between an operator and a technician is not as large as it is here. We have to shrink this.”

The final step is to nurture efficiency through smarter industrial competition. With this, Argentina will create a “dynamic society,” he says. “Today you have 40 million people awaiting a solution from above.”

Eduardo's emphasis on efficiency and smarter industrial competition speaks to his most ambitious endeavor yet.

Much of the processed soya, beef and wine that Argentina ships from the Atlantic port of Buenos Aires to China takes a 5000-kilometer week-long trip south to the cone of Patagonia and across the Strait of Magellan to the Pacific Ocean. From Rio de Janeiro or Uruguay the journey is farther still. The alternative is a 12,000-kilometer voyage north to the Panama Canal. By road, it's a grueling drive across the Cristo Redentor Pass, traversing the mountains at a 3200-meter altitude. Trucks get stranded as snow shuts the road for a month or two every year.

Eurnekian's solution? Blast a hole through the Andes.

More specifically, he wants to cut a 52-kilometer tunnel and 33 secondary tunnels totaling 20 kilometers and then build 205 kilometers of rail track to link Mendoza in Argentina with Santiago in Chile. The route would be 700 meters lower than the Cristo Redentor Pass, ensuring it can open in all seasons.

The challenge isn't the technology, says Eurnekian, after all it's shorter than the 57-kilometer Gotthard Base Tunnel going through the Swiss Alps. But that's in Switzerland, the world's 15th wealthiest nation with an average income near $50,000. Argentina is a middle-income country at $19,000.

So Eurnekian proposes making the project entirely privately funded. Corporacion America would commit upwards of $3 billion. It's leading a consortium grouping Empresas Navieras and Contrera Hermanos of Chile with Japan's Mitsubishi and Geodata of Italy. Feasibility studies alone have so far run to $25 million.^7,8

Both Chile and Argentina have declared the project of national interest and will invite bids for a public tender, says Eurnekian.

The route would cut the time to transport goods from the South Atlantic to the Pacific to just 24 hours, he says. “It's all about competitive efficiency.”

It's becoming his mantra. The reason, he stresses, is this will be an increasingly vital concept, and not just for Argentina.

“In this world in the future we're not talking about 6 to 7 billion people; we should imagine at least 15 to 20 billion. But not only with an income of around $1000 per capita in poor countries; we must imagine an income of $10,000 to $20,000.”

Among the largest nations, China's average income is just approaching this level at $10,000 while Indonesians earn around $5000 and Indians $4000. Most Africans are below $2000.

“Do you know what a China with $20,000 per capita income by the end of the century will look like? Or even India and Indonesia – half of humankind? Enormous amounts of goods will have to be moved around the world. That's why transportation – air travel, freight – will increase.”

Survival in the new order will require efficiency or resources. Eurnekian splits the world into three categories. The first contains countries like the USA, Germany and the Nordics that can borrow cheaply in their own currency and are mostly efficient. The second consists of the four or five major oil producers – Saudi Arabia, Kuwait, Qatar, the Emirates – nations that until recently at least have had no compulsion to become efficient because of their wealth. Then there are the rest of the countries that “don't know how they'll reach the end of the month.” These are the ones that really are in competition. “They can't afford not to be efficient,” says Eurnekian. “They have no choice.”

III – Vaca Muerta

The End of the World is getting more crowded.

In the Patagonian province of Neuquen, where Eurnekian opened the region's first winery,¹ multi-billion dollar companies are moving in.

They're not here for Malbec or the Pinot Noir. They're sampling shale.

Argentine oil company YPF first hit on deposits in 2011 in the area stretching from Neuquen called Vaca Muerta – the Dead Cow. Its reserves place Argentina second only to China for technically recoverable shale gas and fourth in the world for shale oil.^2,3The discovery offers a chance for Argentina to escape its cycle of widening deficits.

As recently as 2010, Argentina was a net exporter of oil and gas. By 2013, it was importing over $6 billion.⁴

One reason was artificially cheap energy prices boosting consumption. Householders paying less than a quarter of the amount it cost to supply them with electricity in 2013 increased their usage by a third.⁵State spending on subsidies rose by the same proportion, pushing the government's primary budget to its widest shortfall in 21 years.⁶

Just as energy demand was peaking, domestic supply was on the wane, sending the current account to its biggest deficit since 2000 as fuel imports soared.

The President blamed Repsol. The Spanish oil producer had bought a controlling stake in YPF in the 90s during Menem's privatization wave. To have the country's biggest company in foreign hands was anathema to Fernandez, who complained it was draining Argentina's oil profits and failing to invest in exploration and production. Repsol had pushed YPF to pay 90% of its net income to itself and other shareholders as dividends. While the government repeatedly voted against this, it carried little weight with just 0.2% of the shares.⁷

Repsol had reason to be leery of adding to its investment in Argentina. Since 2007, the government had capped the maximum price for exports at $42 a barrel, keeping the difference between that amount and the actual price paid by foreign buyers as a tax. YPF's output dropped by a third in 2011 while fuel imports doubled.

The next year, as oil and gas production slumped to 32 million cubic meters from 46.5 million a decade earlier, Fernandez seized Repsol's stake to run YPF “professionally.”

But rather than boost energy production and the economy, the sudden expropriation scared off foreign investors. Spain denounced Argentina's “hostile” move and the IMF warned it would complicate negotiations for relief on the $9 billion the country owed governments grouped under the Paris Club. Repsol sued for $10 billion and kept international energy companies out of Vaca Muerta by threatening legal action against anyone partnering with YPF.

By the end of 2012, the nationalized YPF was looking at scaling back its $37 billion investment program after returning empty handed from investor meetings in the USA and Britain.⁸

Fernandez began the next year by deepening the country's isolation, sending an open letter to British Prime Minister David Cameron calling for the UK to hand over the Falkland Islands, another potentially lucrative area for oil.⁹ Meanwhile the peso's depreciation gathered pace as central bank reserves to support the currency dwindled.

And then the government began to change tack. First, in a bid to lure companies to Vaca Muerta, Fernandez overhauled export duties so oil companies could receive an increased price of $70 a barrel. Six months later, in July, the government permitted those investing over $1 billion to export 20% of their output tax-free. A day after the announcement, Chevron, the world's second-biggest oil company, agreed to invest $1.24 billion in Vaca Muerta through a joint venture with YPF.¹⁰ Argentina's benchmark Merval share index doubled in the next seven months (Figure 4.2).

Taking the reins of government as cabinet chief, Jorge Capitanich and economy minister Axel Kicillof immediately drove toward a deal for Repsol to receive $5 billion compensation in the form of bonds in return for dropping any further legal claims over YPF.¹¹

“At this point you started to feel Kirchnerismo was signing off and it was time to think seriously about investing while it was still cheap,” says Gustavo Canonero, Deutsche Bank's head of emerging-markets economic research.

The change was just as dramatic for electricity companies. Blackouts were becoming more and more frequent as the power distribution networks struggled to keep pace with demand boosted by cheap prices. Fernandez had responded by threatening to withdraw the companies' concessions and forcing them to compensate customers, nine out of ten of whom were already receiving subsidized energy.

The bonds of Edenor, the biggest of Argentina's electricity distributors, and the main power transporter, Cia Transporte Energia, were trading at less than half their face value through 2012 and much of 2013. The yield, reflecting their cost to borrow, jumped above 20% (Figure 4.3).

Then Capitanich and Kicillof suddenly started cutting household subsidies on natural gas and water in a bid to halve the burden on the budget from up to 5% of GDP. Shares in Edenor, or Empresa Distribuidora y Comercializadora Norte, soared fivefold in ten months by April 2014 and bond yields dropped by 5 percentage points on renewed prospects for the industry to become profitable.

With the legal threat from Repsol removed and oil prices more aligned to global market rates, Chevron committed to cover a 395-square-kilometer area of Vaca Muerta with YPF. The project involves drilling 1500 wells with an expected yield of 50,000 barrels of oil a day and 3 million cubic meters of gas. This field, the largest in Argentina, is just the beginning. The entire span of Vaca Muerta stretches 13,000 square kilometers.

Among the investors, Eurnekian signed a preliminary deal with YPF to invest $500 million in non-shale conventional drilling in Vaca Muerta and agreed a $200 million acquisition of oil producer Cia. General de Combustibles SA, which has a stake in the region's gas pipelines.¹²

A third of the area falls within the province of Neuquen. It's negotiated separate deals to develop eight areas under Gas & Petroleo del Neuquen SA with the likes of Shell and Exxon.¹³Drilling has continued, undeterred by the downturn in oil prices.

As the Texan oil giant Exxon began excavating land untouched for millennia, it dug up more than dead cows. Beneath the earth were the remains of Sauropods, among the biggest dinosaurs.¹⁴

IV – Adelante

A five-minute walk from the neon bustle of London's Piccadilly is a cobblestone alley housing Burberry, a French Bistro and Julian Adams' office.

An elevator the size of a phone box runs to a fourth floor suite where a PA sorts out the coffee, wi-fi and appointments between analysis of the bond markets. This is investing at its most boutique.

Julian, 52, started out in emerging markets when they were still known as less developed countries in the 80s, trading LDC debt for firms in London and then Paris. In the 90s he worked with Mark Coombs at ANZ before the management buyout that created Ashmore and made Coombs a billionaire. Then he set up Aberdeen Asset Management's first emerging market debt fund, a business that has grown into today's $13 billion behemoth.

In 2003 it was Julian's turn to lead a management buyout. When Aberdeen was scaling back after losses on interlinked funds known as split-capital investment trusts, Julian took on its Guernsey-based emerging market debt fund with former colleague Paul Luke. In four years, they built the fund from $50 million to $500 million. It was bought by Threadneedle Asset Management in 2007 – just before the global financial crisis. The fund lost 90% of its assets by early 2009.

Julian re-purchased the depleted fund that year to form Adelante. After outperforming peers through 2012, Julian handed investors their money back. A big driver behind the portfolio's gains was about to reverse. The US Federal Reserve reducing American borrowing costs to almost zero had the effect of bringing down interest rates around the world, lowering the yields on emerging market bonds and boosting their price. On top of that, the Fed's easy credit policy known as quantitative easing was creating abundant cash waiting to be invested.

As America's economy recovered, the Fed prepared to wind down the policy. “It seemed like a good time to take a break and sit out of the market for a couple of years,” says Julian. The benchmark index for emerging market bonds, which almost doubled between 2008 and 2012, had its first losing year in 2013 since the financial crisis began.

Julian describes Adelante now as an exotic investment club, investing money of his own and for a few friends and clients. Its Spanish name – meaning going forward – reflects a bias to Latin America.

Being boutique allows Julian to look at the less explored, higher yielding reaches of the market. While larger fund managers tend to buy the most widely held bonds with billions of dollars outstanding because they're quicker and cheaper to sell when the time comes to exit, the relative popularity can come at a cost of lower yields. Julian bought bonds of Buenos Aires province for example. Along with the extra yield, he took a view they'd be better insulated than federal government debt as the risks started mounting of another sovereign default in 2014.¹

Rather than any shortage of funds to pay bondholders, Argentina's default this time around was triggered by a lawsuit from a group of creditors who'd refused to accept Argentina's settlement offer after the debt restructuring in 2001. While most investors had agreed to take 70% losses on the $95 billion they were owed, a few hedge funds led by Paul Singer's Elliott Management Corp. held out for full repayment instead. The billionaire pursued the government through courts in the USA, the jurisdiction in which their bonds were issued.

After a decade-long battle the turning point came when a New York judge blocked Argentina from paying its bondholders until Singer and the rest of the so-called holdouts received $1.5 billion.² Fernandez argued she couldn't pay these “vultures” as that could trigger legal demands by more bondholders for up to $120 billion.

While the president insisted Argentina hadn't defaulted – that its efforts to pay creditors had been blocked by the US court – the net result was the same on the streets of Buenos Aires. As central bank reserves dwindled amid a loss of confidence, the peso sank to new lows. Against an official exchange rate of 8 pesos per dollar, the credibility gap widened to 14 pesos from the arbolitos on Calle Florida.