Zwangswirtschaft Becomes Full-Blown Socialism

First make the company unprofitable by price controls, then blackmail it by revoking its concessions, then steal it – that seems to have been the playbook of  Argentina's government regarding YPF Repsol.

President Christina Fernandez-Kirchner noted in her press conference on the seizure that

 

Argentina will manage YPF “professionally,” Fernandez said, adding that the country is one of the few that doesn’t control its own oil.

Deputy Economy Minister Axel Kicillof will help De Vido to run the company, according to Fernandez.

[..]

Argentina is expropriating YPF for the “public good,” a government official said in yesterday’s speech.

 

By this she means: Argentina is one of the few countries where the oil industry was not yet fully nationalized, as if that were a bad thing. The reality of the situation is that the high share of government control all over the world over the oil industry has created a major supply problem, as governments can not possibly 'manage oil companies professionally'. As all state-owned enterprises, nationalized oil firms are inefficient and wasteful – they are not businesses, they are bureaucracies. To wit, a bureaucrat – the deputy economy minister – will now 'help to run the company'.

The stock market's assessment of the seizure speaks for itself:

 

 

 

 


 

YPF's stock market capitalization has collapsed. Note that the bounce late in the day was occasioned by speculation that the seizure will be subjected to international arbitration to obtain full value of YPF's Argentine assets. Whether Argentina will feel bound by such arbitration is a different matter – click chart for better resolution.

 


 

As several commentators have observed, this seizure makes Argentina into an even bigger pariah than it  already was following the default in the early 2000ds.

To argue, as Fernandez-Kirchner does, that it is happening 'for the good of the country' is beyond ludicrous. In all likelihood YPF will now become a demesne and feeding trough for her political cronies. Oil production will probably collapse even further (it is already in deep trouble due to the government's price controls).

A few snips from the Bloomberg article linked above highlight the problems created by the seizure:

 

“They are going to be closing the country as an investment destination,” Anish Kapadia, an analyst at Tudor Pickering Holt & Co. in London, said yesterday in a telephone interview from the city. “What’s surprising is that they are expropriating assets rather than going through a fair market means to get hold of a stake in the company. That sets a terrible precedent.”

Argentina, which defaulted on a record $95 billion of debt in 2001, needs to regain control of Buenos Aires-based YPF to avoid becoming “an unviable country,” after oil production slumped, Fernandez said to the accompaniment of cheers from supporters at the presidential palace. Compensation for the seizure will be determined by the National Appraisal Tribunal, Fernandez said, without giving more details.”

 

In other words, the government wants to determine itself how much it will pay for the assets. This is how it plans to transform the seizure into an outright theft. As the analyst quoted above notes, Argentina is 'setting a terrible precedent'. The disdain for property rights won't be without consequences: as an investment destination, Argentina has just died again.

Not surprisingly, Spain is incensed over the seizure, as Spain's Repsol owns almost 60% of YPF. Meanwhile, the majority owners of the shares of the combined entity are – Spain's banks! It's not as though they can use yet another hit to their balance sheets. In fact, that's about as useful as a hole in the head to them.

 


 

The four biggest holders of YPF Repsol shares are Spanish banks – click chart for better resolution.

 


 

“The majority stake in YPF is owned by Spanish oil firm Repsol, whose shares fell by 8% in early trading in Madrid. Promising a "clear and overwhelming" response, Spain summoned the Argentine ambassador to express its concern.

The nationalisation has alarmed foreign investors but is said to be popular among ordinary Argentines. [just wait until they find out what it means for them, ed.]

Repsol has vowed to demand compensation, saying it could seek international arbitration over its 57% stake in YPF. "These acts will not remain unpunished," Repsol executive chairman Antonio Brufau told reporters.

The head of the European Commission, Jose Manuel Barroso, said he was "seriously disappointed" by Argentina's decision. The EU expected "the Argentinian authorities to uphold international commitments and obligations", he said.

Argentina's ambassador to Madrid, Carlo Antonio Bettini, was due to visit the foreign ministry at midday (10:00 GMT), the ministry told the BBC News website.

Earlier, Spanish Foreign Minister Jose Manuel Garcia-Margallo said the "climate of friendship" between the two countries had been broken.

[…]

The nationalisation was announced to applause on Monday at a meeting between Argentine President Cristina Fernandez de Kirchner, her cabinet and provincial governors. Reading out a statement at the meeting, an official said YPF had been "declared a public utility and subject to expropriation of 51% of its assets".

The government took over the management of YPF with immediate effect while the bill on expropriation was sent to the Argentine Congress. Supporters of the nationalisation celebrated in Buenos Aires, waving placards that read "YPF – we're going for everything". Graffiti appeared on a city centre wall that read "Repsol, get out of YPF".

Mrs Fernandez de Kirchner stunned investors in 2008 when she nationalised private pension funds and she has also renationalised the country's flagship airline, Aerolineas Argentinas.”

 

(emphasis added)

Apparently things are going so swimmingly in Argentina following the pension fund seizure and the re-nationalization of the airline that more and more assets need to be seized to keep the placard-wavers in the streets of Buenos Aires pacified. Readers would do well to remember that the seizures of the Nazis and the Bolshevik revolutionaries were also accompanied by enthusiastic placard-waving mobs. Alleged 'popular support' for a bad policy doesn't magically make the policy any better.

As you can see, we  highlighted the term 'expropriation' a few times above. This is to make sure everybody fully understands what the government is trying to do. 'Expropriation' is definitely not the same as 'buying a stake' from Repsol. It is plain and simple theft.

Repsol has vowed to fight the seizure. As this article in the WSJ reveals, one reason for the action is that there is capital flight from Argentina. The government hopes it can cut down on oil imports by seizing YPF and forcing it to make investments that are clearly unprofitable due to its price controls (yes we know, it doesn't make a whole lot of sense).  Why is there capital flight from Argentina? Is capital fleeing because Argentina's economic policies are so good? Just asking. Maybe one of the placard wavers can explain.

From the WSJ article:

 

YPF accounted for about 35% of Repsol's 2011 consolidated earnings before interest, taxes, depreciation and amortization, and 21% of the group's after-tax income. Argentine price caps on YPF oil and gas sales have prevented Repsol from reaping the full benefits of high prices in global oil markets.

[…]

Compensation, to be determined by an Argentine tribunal, could take months or years to reach Repsol coffers, and in any case is likely to be far less than the company's preferred value.

Repsol YPF SA (REP.MC) Tuesday said the value of its Argentinian unit is worth $18.3 billion, leaving the value of its stake in the company at $10.5 billion. The company said the YPF valuation equates to $46.55 per share.

 

(emphasis added)

We can be sure that Argentina's government doesn't plan to pay anywhere near to that amount. The UK Telegraph reports:

 

Despite the threat of nationalisation, reports in the Chinese media suggested that China's second-largest oil company, Sinopec, was in talks with Repsol to buy YPF for more than $15bn. Mr Brufau declined to comment on the rumours, although he said that Repsol had received interest from foreign compaines over YPF.

Spain, which has several sizeable operations in Argentina, warned that it would take "clear and forceful measures" in response. "It's a hostile decision against Repsol, thus against a Spanish business, and thus against Spain," Jose Manuel Soria, Spain's industry minister, said on Monday.

In Madrid, Jose Manuel Garcia-Margallo, Spain’s foreign minister, said measures against Argentina would be announced in the next few days.

“This has broken the climate of friendship that existed between Spain and Argentina,” Mr Garcia-Margallo added. “Spain had worked with Argentina during its hardest hours.”

The Argentine government has been tightening the noose on Repsol over recent months, withdrawing operating licences and accusing the company of failure to invest adequately in its Argentine operations. Repsol has denied these claims.

Spain is one of the biggest foreign investors in Latin America. Banking groups Santander and BBVA, and telecoms giant Telefónica have operations in Argentina.”

 

(emphasis added)

It seems plain stupid to aggravate your biggest foreign investor, but there it is.  Argentina is firmly embarked on the economic road to hell and it seems it is not even paved with good intentions.

 


 

Argentina's president Fernandez-Kirchner: enjoying the applause of her political cronies following the seizure of YPF.  It may not be 'good for the country', but it is definitely going to be good for them. 

(Photo via Stringer/Argentina)

 


 

 

 

Charts by: StockCharts.com, Bloomberg


 
 

Emigrate While You Can... Learn More

 
 

 

Dear Readers! We are happy to report that we have reached our turn-of-the-year funding goal and want to extend a special thank you to all of you who have chipped in. We are very grateful for your support! As a general remark, according to usually well informed circles, exercising the donation button in between funding drives is definitely legal and highly appreciated as well.

   

Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke

   
 

3 Responses to “Argentina Update: YPF Repsol Seized”

  • thomas:

    who is john galt?

    • rodney:

      John Galt left this country long ago, my friend. He couldn’t stand watching the people in a standing applause of one socialistic leader after another, decade after decade, never aware of the corruption and looting of the public purse.

  • You can bet the people she is taking this operation for aren’t the people that think they are the people. The people will get their gasoline in a gallon can, not the tanks of their cars. Fernandez-Kirchner will travel in the world socialist circles and grace the cover of pinko glammor magazines. She and her pals will get their fuel in airliner tanks. Socialist trickle down rarely includes enjoyment of the good seized.

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • French labour union workers and students attend a demonstration against the French labour law proposal in Marseille, France, as part of a nationwide labor reform protests and strikes, March 31, 2016. REUTERS/Jean-Paul Pelissier/File PhotoHow the Welfare State Dies
      Hollande Threatens to Ban Protests Brexit has diverted attention from another little drama playing out in Europe. As of the time of writing, if you Google “Hollande threatens to ban protests” or variations thereof, you will find Russian, South African and even Iranian press reports on the topic. Otherwise, it's basically crickets (sole exception: Politico).  Gee, we wonder why?   They don't like him anymore: 120.000 protesters recently turned Paris into a war zone. All...
  • The-answer-is-yesToward Freedom: Will The UK Write History?
      Mutating Promises We are less than one week away from the EU referendum, the moment when the British people will be called upon to make a historic decision – will they vote to “Brexit” or to “Bremain”? Both camps have been going at each other with fierce campaigns to tilt the vote in their direction, but according to the latest polls, with the “Leave” camp’s latest surge still within the margin of error, the outcome is too close to call.   The battle lines are...
  • nails-in-a-bed-of-nails-new-yorker-cartoonGoing... Going... Gone! The EU Begins to Splinter
      Dark Social Mood Tsunami Washes Ashore Early this morning one might have been forgiven for thinking that Japan had probably just been hit by another tsunami. The Nikkei was down 1,300 points, the yen briefly soared above par. Gold had intermittently gained 100 smackers – if memory serves, the biggest nominal intra-day gain ever recorded (with the possible exception of one or two days in early 1980). Here is a picture of Haruhiko Kuroda in front of his Bloomberg monitor this...
  • water houseA Market Ready to Blow and the Flag of the Conquerors
      Bold Prediction MICHAELS, Maryland – The flag in front of our hotel flies at half-mast. The little town of St. Michaels is a tourist and conference destination on the Chesapeake Bay. It is far from Orlando, and even farther from Daesh (a.k.a. ISIL) and the Mideast.   St. Michaels, Maryland – the town that fooled the British (they say, today). Photo credit: Fletcher6   Out on the river, a sleek sailboat, with lacquered wood trim, glides by, making hardly a...
  • queen_gold-840x501Rule Britannia
      A Glorious Day What a glorious day for Britain and anyone among you who continues to believe in the ideas of liberty, freedom, and sovereign democratic rule. The British people have cast their vote and I have never ever felt so relieved about having been wrong. Against all expectations, the leave camp somehow managed to push the referendum across the center line, with 51.9% of voters counted electing to leave the European Union.   Waving good-bye to...
  • junkThe Problem with Corporate Debt
      Taking Off Like a Rocket There are actually two problems with corporate debt. One is that there is too much of it... the other is that a lot of it appears to be going sour.   Harvey had a good time in recent years...well, not so much between mid 2014 and early 2016, but happy days are here again! Cartoon by Frank Modell   As a brief report at Marketwatch last week (widely ignored as far as we are aware) informs us:   “Businesses racked up debt in the...
  • deflated-souffleThe Fed’s  Doomsday Device
      Bezzle BALTIMORE –  Barron’s, in a lather, says the market is facing the “Two Horsemen of the Apocalypse.” Huh?   Only two? There were four last time!   Supposedly, the so-called Brexit – the vote in Britain this Thursday on whether to leave or remain in the European Union (EU) – and uncertainty over where the Fed will take U.S. interest rates are cutting down stocks faster than a Z-turn mower. But Brexit is a side show. As our contacts in London...
  • rate_hike_cartoon_10.15.2015_largeJanet Yellen’s $200-Trillion Debt Problem
      Blame “Brexit” BALTIMORE – The U.S. stock market broke its losing streak on Thursday [and even more so on Monday, ed.]. After five straight losing sessions, the Dow eked out a 92-point gain. The financial media didn’t know what to say about it. So, we ended up with the typical inanities, myths, and claptrap.   “Investors” are pushing the DJIA back up again..apparently any excuse will do at the moment. The idea may backfire though, as exactly the same thing happened...
  • Brexit supporterGold and Brexit
      Going Up for the Wrong Reason Gold is soaring. It should—and a lot—but in my view not for the reason it is. Indeed gold is insurance for uncertain times, a time that Brexit seems to represent. But insurance is an administrative cost — one must minimize its use.   August gold contract, daily – gold has been strong of late, but this seems to be driven by “Brexit” fears - click to enlarge.   Moreover, insuring against Brexit might ironically be equivalent...
  • Incrementum signalIn Gold We Trust, 2016
      The 10th Anniversary Edition of the “In Gold We Trust” Report As every year at the end of June, our good friends Ronald Stoeferle and Mark Valek, the managers of the Incrementum funds, have released the In Gold We Trust report, one of the most comprehensive and most widely read gold reports in the world. The report can be downloaded further below.   Gold, daily, over the past year - click to enlarge.   The report celebrates its 10th anniversary this year. As...
  • cameron at the EUBrexit Paranoia Creeps Into the Markets
      European Stocks Look Really Bad... Late last week stock markets around the world weakened and it seemed as though recent “Brexit” polls showing that the “leave” campaign has obtained a slight lead provided the trigger. The idea was supported by a notable surge in the British pound's volatility.   Battening down the hatches...   On the other hand, if one looks at European stocks, one could just as well argue that their bearish trend is simply continuing – and...
  • 7-bongo-bongo1Claudio Grass Talks to Godfrey Bloom
      Introductory Remarks – About Godfrey Bloom [ed note by PT: Readers may recall our previous presentation of “Godfrey Bloom the Anti-Politician”, which inter alia contains a selection of videos of speeches he gave in the European parliament. Both erudite and entertaining, Mr. Bloom constantly kept the etatistes of the EU on their toes.]   Godfrey Bloom, back in his days as UKIP whip Photo credit: Reuters   Before becoming a politician, Godfrey Bloom worked for 35 years...

Austrian Theory and Investment

Support Acting Man

Own physical gold and silver outside a bank

Archive

j9TJzzN

350x200

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com