LatAm will roar…

Trump won!! Naturally, we wonder if we’re positioned right for what comes next. What does Round 2 look like?? Is it like Round 1 where he spends most of the day golfing, and occasionally tweeting about how great the market is?? (Remember those 150bps rippers every afternoon??) Or does he actually try and Make America Great Again?? We tend to think it’s some hybrid version of the above. Except US equities are priced for perfection. We have all the capital flows, and as he pisses off the world, those flows may just reverse…

So, as we drill into some of his economic talking points. What does he have?? He has cutting waste (won’t happen). He has tariffs (sure, they’ll do more of that). He has a weak USD. Since Vance has gotten behind the weak USD thing, it actually has a fighting chance of working. They even named it the Mar-a-Lago Accord, which lets you know they’re thinking about it. Whoever figures out the mechanism for how it works, will be quite wealthy. Do they have some government entity fix the price like they did with CHF?? Do they just print globs of USD?? How about lowering the front-end to something stupidly low and reducing some of the carry traders buying our paper?? If we go back to negative real rates, a bunch of USD demand goes away. Or does he target MAG7 and suddenly capital flows reverse?? Wouldn’t be hard for us to imagine some payback against the guys who tried to destroy him (except Elon who guessed correctly…). We don’t know how he’ll succeed, but it’s obvious he wants a lower DXY. Last time he got it down to 90. This time he’s probably targeting 75. That’s how you bring back US manufacturing. Question is: how does he achieve it?? 

…Or you can take a more holistic view, he’s gonna probably do a lot of random stuff. Some will stick, some wont. He’ll get there. Play it forward, maybe he doesn’t get DXY at 75, but he gets back to 90. Who wins?? As US-centric investors, we mostly think in terms of US companies.

What about South America?? Think about it for a second. 15-year bear market after a peak in 2008. Left for dead. No one paying attention. Great demographics. Made an idiotic left-ward lurch, and it’s held a whole continent back. Now, many of the top countries in South America are going to lurch back to the right. Brazil, Chile, Colombia and Peru all have highly unpopular leftists who are likely going to lose in the next 24 months. Who’s the role model in Lat-Am today??

Most politicians peak out on election day. These 2 have actually seen their approval ratings improve since election day. Everyone else in Lat-Am is paying attention, they want their countries to go forward too. What if South America lurches to the right?? What if they elect guys who emulate Milei and Bukele?? Stop a second and think about how shitty things where when these two took over. Milei is fighting just to stay solvent, and Bukele took over a narco-terrorist state. We think others will have an easier time of it.

Now go back to Trump. He loves Milei and Bukele. They’re who he wishes he actually was. Men of action, doing stuff, and winning. As we do tariffs with China, where do you think trade flows shift to?? We’re going to near-shore stuff. Those two will get better deals. Anyone else playing the Trump game (all the right-wing candidates who are running) is also going to also get a better deal.

Let’s go back to DXY 90. That takes the foot off the throat of these countries. Does Brazil really need almost 10% real rates?? Of course not. They only need it if they want to avoid BRL at 8.

…but Kuppy, the election in Brazil is October of 2026. That’s a lifetime away in the equity markets…

Did you learn anything about how it played out in Argentina?? Equities started rallying almost a year before the elections. They really started to torque about 6 months before the elections. Guys start to price this in, markets are forward looking. Doesn’t mean that you need to own Brazil today, or even tomorrow, but you should be getting your wish-list ready. The same goes for Chile when Boric gets kicked in November of 2025 (start-clock basically started on that one). The same goes for Colombia in May of 2026 (does anyone think Petro stays??). Peru has their elections April of 2026 (Boluarte has like a 3% approval rating). This is going to act like dominos as one falls, the next goes. We like to think as US-centric investors, but South America actually has a lot of regional trade as well. If things pick up a bit, they really pick up.

So, you have a macro trade where a continent is likely swinging from hard-left to hard-right. You also have a US President who wants a weaker DXY, allowing South American Central Banks to lower rates. Then, you have stimmies. Two weeks ago, we covered China. Yes, Xi underwhelmed on Friday, but they’re gonna keep trying stuff, until they get the right formula for growth. They’ve drawn a line under things, and this is the Tepper moment. Either it works, or they do more. Trump wants to run the economy EXTRA hot—he doesn’t care about inflation or deficits. Europe is finally turning against all the austerity and green/woke nonsense. They want growth, not climate pledges. It may take some time, but every incremental election in Europe is a pro-growth candidate. They keep forming coalitions to keep the winners out. That can’t last forever…

We’ve just had a bizarre moment (2022-2024) in global history where every major economic block tried to fight inflation, instead of stimulating nominal growth. They did green nonsense to stop economic progress. Our pet theory is that they thought they’d beat Putin if they killed demand for commodities. It didn’t work. Now Trump will restore Putin. South America is a commodity-based continent, that’s yet another tailwind.

Put it all together, and I think things work in South America and they work from supremely depressed valuations. If we’re right, you’re gonna want to bet on South American GDP growth.

So, what’s the play?? Here, we’ve struggled a bit. Most major ETFs are chock-full of large-cap resource companies like BVN, PBF, SQM, VALE, etc. Those may work, but they’re a different play. We think local stock markets may work, but it’s harder as you need foreign inflows and let’s face it, most foreign investors cannot find Brazil on the map. Fortunately, your friends at KEDM have tried to simplify things for you…

Could local market equities work too?? Yeah, once the ADRs go, then people will seek out tier 2 plays. We even own a few of those local market plays, but we think the big US listed ones are where capital goes first. You have your marching orders…