How Milei’s Surprise Win in Argentina Defied the Market

Ed Elson speaks with Oliver Stuenkel, Associate Professor at FGV’s School of International Relations in Brazil, to break down the results of the election in Argentina. Then Robert Armstrong, US financial commentator for the Financial Times and author of the Unhedged newsletter, returns to the show to unpack what the latest CPI report says about the state of the economy. Check out our latest Prof G Markets newsletter Order "The Algebra of Wealth" out now Subscribe to No Mercy / No Malice Follow Prof G Markets on Instagram Follow Ed on Instagram and X Follow Scott on Instagram Learn more about your ad choices. Visit podcastchoices.com/adchoices

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• 2:36Ed Elson?

  Welcome to Profty Markets. I'm Ed Elson. It is October 28th. Let's check in on yesterday's market vitals. The major indices closed at record highs on hopes of a US-China trade deal. The S and P ended the day above 6,800 for the first time ever. Meanwhile, gold dipped below 4,000 and finally, Qualcomm shares popped 11% after the company announced new AI chips that will compete with Nvidia. Okay, what else is happening? Argentina President Javier Millay led his party to victory in Sunday's midterm elections. His party doubled their representation in Congress and won nearly 41% of the national vote.

• 3:19Ed Elson?

  President Trump congratulated Millay on social media, saying, quote, "He's making us all look good." The peso surged 9% against the US dollar, its biggest one-day gain in over 20 years. Argentinian stocks and bonds also rallied. This win should help Millay push through his economic agenda. Over his first two years in office, Millay has slashed spending, unified exchange rates, cut energy subsidies, and laid off tens of thousands of public sector workers. And that will all likely continue because the recent $40 billion bailout from the US is tied to the condition that he makes further progress on those reforms. Still,

• 3:58Ed Elson?

  Millay has his work cut out for him. Inflation, though down, remains above 130%. Unemployment is rising and real wages have fallen over 20% since 2023. The election turnout was 68%, the lowest in a national election in decades. And even after the win, his party does lack a full majority. Here to explain what this all means for Argentina, we are speaking with Oliver Stuenkel, Associate Professor at FGV's School of International Relations in Brazil. Oliver, thank you very much for joining us on the show.

• 4:33Speaker 06

  Thanks for having me.

• 4:34Ed Elson?

  So we want to hear about this election. Just at a very basic level, walk us through the election results. What does this mean for Javier Millay? And what does this mean for Argentina going forward?

• 4:46Speaker 06

  So those were the midterms. Half of the House of Representatives and a third of the Senate were up for voting and renewal. And it has been a surprisingly good result for Javier Millay, the self-declared anarcho-capitalist, who's been in power for two years. And the elections were sort of a referendum on his policies. He's a libertarian, so his key argument has been that it's necessary to radically reduce public spending, to reduce inflation, to finally stabilize Argentina after decades of instability.

• 5:30Speaker 06

  And he did bring down inflation. However, the economy is still reeling from his policies of dramatically reducing public spending, so the economy is not growing. But he is saying that he still needs some time for the economy to finally recover, that this is the medicine which initially has a negative impact, but which will eventually put Argentina's economy on a stable footing. And the voters have, despite the negative short-term impacts, given him a vote of confidence and said that, basically signaled that they would like him to continue the liberalizing reforms.

• 6:11Speaker 06

  Over the next two years, he now has enough votes to override vetoes in Congress, which were employed during the past years against his decrees when he tried to liberalize the economy. So I think we can expect him to continue like that for now. Now, he still needs to deliver, so basically voters have given him a lifeline, and we'll now see how this experiment will unfold.

• 6:40Ed Elson?

  Yeah, help us with the context there. From my understanding, Argentina has been in the news a lot recently. We had this other election, this local election in Buenos Aires, which, again, us, we Americans weren't very aware of what was happening, but what we know is that it wasn't good for Milei. You saw this implosion in the bond markets, massive collapse in the peso, which was what led the US to come in and intervene and give them that $20 billion. So this is quite a reversal. As just an observer, it seemed as though Milei was in trouble. Now, apparently, he isn't. Help us with the context there.

• 7:22Speaker 06

  Absolutely. So he had a pretty bad result in the municipal elections in the province of Buenos Aires, which was traditionally more paranoid, so which has been supportive of the traditional populist, economically populist policies. And it was seen as a bellwether election for yesterday's election. So expectations were low. And the Trump administration made a big bet. I mean, they basically, you know, the US government promised a rescue package, a lot of financial support, seemed to somehow condition that on a good result for Milei.

• 7:59Ed Elson?

  Yes.

• 8:00Speaker 06

  And that good result now came to pass. I think that the US certainly did have a role in that because a lot of voters are aware of the fact that the Milei's policies haven't yet stabilized the Argentinean economy. A lot of investors are still very concerned about the capacity to pay its debt. Argentina is one of the countries that has most frequently defaulted on its debt.

• 8:27Ed Elson?

  Yeah.

• 8:27Speaker 06

  So that lifeline, obviously, from the overall largest economy, does play a role. So it's a vote of confidence. And in that sense, it's also a win, a political, a geopolitical win for Trump because a lot of countries in Latin America are moving closer to China or are sort of multi aligning, preserving ties to the United States, but also Seeking strong ties to China and Malay kind of stands out. He actually has actively sought to move closer to the United States. And in that sense, uh, the US government has now kind of, uh, offered a reward, so to say, uh, for that strategy. And I think in, in many ways, a successful government in Argentina will certainly inspire similar figures

• 9:12Speaker 06

  in other electoral cycles in the coming months. So basically Malay has now gained another two years to, uh, reform Argentina's economy. But I think, I mean, were markets overly pessimistic? Perhaps a bit. I mean, uh, last week I, um, you know, did speak to several investors and everybody, uh, expected Malay to, to not gain sufficient votes. So there was a sense of, you know, maybe investors will abandon Argentina. And I think that may have influenced voter behavior because they said, you know, that they're actually concerned about a Malay loss.

• 9:48Ed Elson?

  Right.

• 9:48Speaker 06

  And said, you know, uh, let's give him that vote of confidence in order to, to help stabilize the, the economy.

• 9:55Ed Elson?

  I'd also like to get your reactions to the $20 billion, which may become $40 billion bailout. Uh, I call it a bailout because I think it, it is a bailout. They were in trouble. And the US came in and they intervened to try to help Argentina. There are debates over whether it was to help Argentina or whether it was to help, uh, Treasury Secretary Scott Beston's buddies who are invested in Argentina. We don't need to have that debate. But what does it say about the Malay agenda and the libertarian agenda, which was supposed to be about reducing spending? Shock therapy. Let's get rid of our addiction to spending in the short term to, uh, fix our problems.

• 10:38Ed Elson?

  Let's figure out long-term solutions. Uh, let's get this inflation thing under control. And then suddenly they actually need an emergency wire transfer of $40 billion.

• 10:51Ed Elson?

  To prevent financial ruin, essentially.

• 10:55Speaker 06

  Right, yeah, so, um, I mean, the first part of the question is, some progress has been made in reducing public spending. I mean, you had a massive reduction of, let's say, ministries, for example.

• 11:05Ed Elson?

  Yeah.

• 11:05Speaker 06

  Uh, you did have, uh, you know, tens of thousands of public workers, uh, which have been let go. Uh, but at the same time, these kinds of adjustments are inherently painful. And, you know, Argentina's economy has been, uh, has had low, uh, indices of, uh, of productivity for a long time. You need initially, at least, investor confidence. Uh, and of course, uh, Argentina's history, uh, you know, generates a lot of caution among investors. A lot of people got their fingers burned, you know, they got burnt over the past decades betting on Argentina. And then Argentina, uh, defaulted. It's still, uh, there's no other country in the world that owes more money to the International Monetary Fund than Argentina.

• 11:48Speaker 06

  So in that sense, it continues to be sort of a high-risk, uh, investment. And it may still very well fail. Uh, so the, the, the current, this recent result is, so good news from Alay. Uh, he can continue to implement his reforms. He'd actually, I think, even accelerate reforms because he didn't have a governing coalition in, in Congress. He still needs, uh, a party which is sort of center-right, tied to former President Macri. So I, I expect him to advance, uh, faster now than during the past, uh, two years. But there's no guarantee. I mean, uh, the country, um, has, has had for a long time a very bloated, uh, public sector, uh, which attracted a lot of talent.

• 12:33Speaker 06

  This is a problem in, uh, several Latin American countries where the smartest people, uh, seek to enter government where not necessarily, you know, they, they, they, they make the greatest contribution to economic growth. Uh, so these are, you know, structural issues, of course. Um, there is, um, you know, a problem of, uh, still excessive bureaucracy, um, and excessive dependence on exporting commodities, uh, you can.

• 13:01Speaker 06

  With education, with infrastructure. So, you know, these things take time. And it's a it's a big question mark, particularly now that, you know, we sort of see increasing state intervention in the economy around the world, you know, the United States, actually, you know, you have the US government. You know, purchasing stakes of strategic companies. You see protectionist trends, you see sort of a geopoliticization of the world economy. So it's it's going to be really interesting to see whether this kind of libertarian approach is still viable in this age of great power competition, where everything seems to be politicized, right?

• 13:44Speaker 06

  I mean, it's not like Trump promotes free trade or or China or any any other major power. We're kind of in this completely different age where very few political leaders embrace the kind of ideology we're seeing in Argentina.

• 14:01Ed Elson?

  All right, Oliver Stunckel, Associate Professor at FGV's School of International Relations in Brazil. Oliver, we really appreciate your time. It will be very interesting to see how this all unfolds in Argentina. Thank you.

• 14:13Speaker 06

  Thank you very much.

• 14:15Ed Elson?

  After the break, a look at the latest inflation report. If you're enjoying the show, give Prof G Markets a follow.

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• 15:56Ed Elson?

  We're back with Prof G Markets. After a 10 day shutdown delay, the Consumer Price Index is in. Prices rose 3% from a year earlier, the highest since January. Still, the result was under the 3.1% estimate and was up 0.1% from August. Major stock indices rose to record highs on the news. And the report all but seals the deal for a rate cut at the Fed's meeting, which takes place tomorrow. Here to explain this report and what it means for the economy. We are speaking with Robert Armstrong, U.S. Financial commentator for the Financial Times and author of the Unhedged newsletter. Rob, great to have you back on Prof G Markets.

• 16:36Robert Armstrong?

  Great to be back.

• 16:38Ed Elson?

  So we want to get your reactions to this inflation print, this CPI. We're up to 3%. We were at 2.3 earlier in the year. Now we're at 3. All that's on my mind is the tariffs and the fact that this is a reflection of tariff impact. But I want to get your angle, your initial reaction.

• 16:56Robert Armstrong?

  Well, better is what I would say, but better with an asterisk next to it. So both on the good side, the series I like to look at are durable goods, which tends to be a series, as you mentioned, that's very much affected by import tariffs. So, you know, cars, refrigerators, everything but kind of clothes and food. And then at core services, services without energy. And both of those dipped down a little bit. And that's welcome news. We're still about a percentage point above the Fed's target. But at least we're trending in the last month or two, slowly in the right direction.

• 17:41Robert Armstrong?

  But I haven't gotten you to the asterisk yet.

• 17:43Ed Elson?

  Yeah, let's hit the asterisk.

• 17:45Robert Armstrong?

  The asterisk is there were two very big items that went down a lot sharply down in this in September and that was on the services side that was housing rent and owners equivalent rent and on the good side it was new and used cars and these are big series that have a lot of weighting in the index but they're lumpy and they move around a lot month to month. Also on the housing side, it's a very lagging number. It tells you a little bit more about the world six months ago than it tells you about the world today. But both of those were low and so it could be that we sort of rolled the dice and got

• 18:30Robert Armstrong?

  a lumpy month to the low side on those two things. And if you take those two out, we're still pretty warm or we're still well above 3% if you take out those two. Now, it's not fair to just take out whatever you want. You can't, you know, go month by month and say, well, this this month, we're not going to count housing. This month, we're not going to count autos. What what this is just telling you is that the numbers are lumpy and we have to be a little bit careful about reading too much into September.

• 18:59Ed Elson?

  There are some items that are tariff sensitive that we are seeing rising in price. I think the probably the best example would be coffee, which is up almost 20% year over year. I look at what's happening with inflation, the fact that we went from 2.3 the month of Liberation Day, it went up to 2.4, it kept going up, it went up to 2.7, then it went up to 2.9, now we're up to 3%. Is it in doubt at all that tariffs are passing through?

• 19:34Robert Armstrong?

  I don't think so. I mean, we know that tariffs are being charged at the border to the tune of many tens of billions every month and we know who's paying those tariffs as of right now. It's mostly the importers and the wholesalers.

• 19:53Robert Armstrong?

  Who are doing the importing, but we know they're passing a little bit, maybe a third or a quarter of the tariffs onto the consumer. So that's what shows up in this report, not the full impact of tariffs, but just the bit that the companies aren't eating. So one of the big questions for the next six months or so is, are companies gonna stop eating as much of the tariffs as they're gonna eat? In which case, you could see goods inflation, you know, which is not even half of the picture, but it's a significant amount of the picture, total inflation, you could see goods inflation heat up in the next month, six months, year. And that's something I'm gonna be watching really closely.

• 20:35Ed Elson?

  We have no September jobs report, we'll have no October jobs report. This is obviously all very important in terms of the Fed's interest rate decision, which is happening, gonna be happening tomorrow.

• 20:48Robert Armstrong?

  I mean, the whole pic, I'll tell you, Ed, I think the whole picture is one where I think market commentary and the market itself has gotten a bit ahead of itself in terms of how many rate cuts we're gonna get. We're, you know, we're a solid percentage point above the Fed's target on inflation. If you look at things like the Goldman Sachs index of financial conditions, financial conditions are very loose, markets are extremely hot, and indeed, the economy, with the very important exception of the jobs reports, and we talked a little bit about those on the show in the past, looks pretty hot, too.

• 21:29Robert Armstrong?

  So, you know, I don't think any rational person would look carefully at the numbers we're seeing right now and say, inflation is beaten, the economy is slowing down, we have a percentage point or more of cuts coming. I just don't see the case.

• 21:46Ed Elson?

  And yet, we're looking at a, I think, near 100% certainty of a rate cut, and the market appears to be unanimous. And in a lot of the reporting, I was seeing, which surprised me, I agree, I think the commentary's a little, got itself in a bit of a spin, because the commentary says, this seals the deal. Now that we're at 3% inflation, hooray, now we're gonna get a, now we're gonna get a rate cut. It's like, hold on, we were at 2.3, I thought we were trying to get to 2, we're at 3 now.

• 22:19Robert Armstrong?

  And there, that is something that is Sort of in the background on everyone's mind, I think, which is, does 2% now mean the number starts with a two?

• 22:30Ed Elson?

  Right.

• 22:31Robert Armstrong?

  You know what I mean?

• 22:32Ed Elson?

  Right.

• 22:32Robert Armstrong?

  It's not 2%, like 2.7% counts as two now.

• 22:35Ed Elson?

  Round up and then the, yeah.

• 22:37Robert Armstrong?

  And I, I don't really know. I don't really know what, what the, the Fed's position on that is. And look, I'm sympathize with the people on the Monetary Policy Committee or the open, the Federal Open Market Committee, who are more dovish because the job situation is a little weird.

• 22:58Ed Elson?

  Yes.

• 22:59Robert Armstrong?

  You know, you're looking at a very low level of job creation every month. You're reading a lot of announcements about layoffs. And the fact that the rest of the indicators we have of the econ, of the economy look pretty strong other than that jobs number, that's only so reassuring. I mean, the Fed's mandate is employment.

• 23:21Ed Elson?

  Right.

• 23:22Robert Armstrong?

  Right. The, the Fed's mandate is not economic growth, it's employment. So they've got to take the, the jobs numbers, which are a little spooky. They have to take them seriously. But everything else that I can see is saying the economy's warm, financial conditions are loose and inflation is too hot for comfort.

• 23:41Ed Elson?

  What would be your predictions for the next several months or so when it comes to inflation? I mean, I, I can just tell you where I stand on this. Prices are going up, tariffs pass it, beginning to pass through. We're starting to see it in the data and we're cutting rates. I think it's only going to get worse from here. I just want to sit here if you agree.

• 23:59Robert Armstrong?

  I agree with you on the good side.

• 24:01Ed Elson?

  Yeah.

• 24:02Robert Armstrong?

  I think there's good, there's good reasons to think that there will be more tariff pass through to consumer inflation. We're already seeing it in, uh, you know, producer inflation. It's going to move towards consumer inflation. The services side is the, is the real question. Wage growth is still pretty good. But again, if you take housing out, services inflation, you know, haircuts, legal services, health insurance, all that kind of stuff, that stuff's pretty hot, too.

• 24:34Ed Elson?

  Right.

• 24:34Robert Armstrong?

  So I think, but I just don't know, I feel less confident about what that's gonna do. If the jobs number are telling us something about underlying weakness in the economy and we continue to see very low job creation, it makes sense that non-service, that service inflation would come in a little bit.

• 24:55Ed Elson?

  Uh huh.

• 24:56Robert Armstrong?

  Cause that's where that stuff is really driven by wages and wages is driven by how tight the job market is.

• 25:01Ed Elson?

  Yeah, we're also seeing a lot of sentiment reports coming out, U. Michigan sentiment down 22% from a year earlier. Trump is just increasingly polling badly when it comes to his handling of tariffs on the economy. I mean, I know that I struggle with these sentiment reports because I find them so political, just

• 25:22Robert Armstrong?

  Yes.

• 25:23Ed Elson?

  by nature, but are you, are you looking at these sentiment reports? Are they, are they playing into your view of the economy?

• 25:30Robert Armstrong?

  I look at them, the problem is, and I've written about this a little bit in recent weeks, is there's, they're less and less predictive.

• 25:40Ed Elson?

  Right.

• 25:40Robert Armstrong?

  That the sentiment has been bad for a long time, and in the last couple of years, it just hasn't been a great guide to what markets are gonna do, what employers are gonna do. I think there is no question that the liberation day fiasco put employers in a mood to wait and see. I don't think there's any question that people like to hire when the future looks predictable. And we don't, we haven't had a lot of that in policymaking, but I think we might be getting over that a little bit. The, the, the shock and horror of that absolutely bizarre news conference is receding a little

• 26:25Robert Armstrong?

  bit into the past.

• 26:27Ed Elson?

  Yeah.

• 26:27Robert Armstrong?

  And hopefully there's been some lessons learned there and where sentiment will slowly recover.

• 26:35Ed Elson?

  Okay, just while we have you, we only get to speak every so often. What else is on your mind? Anything, anything happening in the markets right now that you're paying particular attention to that you're finding quite significant?

• 26:48Robert Armstrong?

  It's fun watching gold wobble here.

• 26:52Robert Armstrong?

  Because gold was an interesting case where it started out as a fundamentally back story. So a year or two ago, it was like central banks were buying more gold as as a kind of way to diversify their portfolios. Gold was cheap. The dollar weakened a little bit. You know, all this stuff was getting behind gold, but then the trade kind of took on the life of its own and became a kind of FOMO momentum retail trade. And in the last couple of days, it's kind of been like, whoa, let's slow down here a little bit and I'll be fascinated to see what that does.

• 27:35Robert Armstrong?

  And you know, it's been a great case of when you have a price that's going up, the narratives will fall in place. Like, you know, gold went past 3,000 up to 4,000. It was like, let's just make up stories about what's driving the gold price.

• 27:49Ed Elson?

  Yeah.

• 27:50Robert Armstrong?

  But what was driving the gold price was the gold price.

• 27:52Ed Elson?

  Exactly.

• 27:54Robert Armstrong?

  There's nothing else to it.

• 27:56Ed Elson?

  Yeah. It's the classic case of FOMO and it's so interesting how the the price increases in gold. We did see in the reporting, oh, it's because the central banks are buying gold, but that only explained a fraction of the price increase.

• 28:10Robert Armstrong?

  And and explained it like two years ago. You know, the banks have actually backed off now, right?

• 28:16Ed Elson?

  Yes.

• 28:16Robert Armstrong?

  Because if you're a central bank, you have an allocation to gold and it's it's a percentage allocation of your portfolio. Price of gold goes up 50%. Suddenly you're over your allocation. You have too much gold.

• 28:28Ed Elson?

  Yes.

• 28:28Robert Armstrong?

  Right?

• 28:28Ed Elson?

  Exactly.

• 28:30Robert Armstrong?

  So it's a very funny story. And of course, we have to the other thing I would mention is just we, you know, we have big tech earnings rolling in this week.

• 28:38Ed Elson?

  Absolutely.

• 28:39Robert Armstrong?

  Oh, we always kind of hold our breath because, you know, this is a third of the market by value or whatever it is now. And we have five of the big ones reporting this week and we're going to be waiting, of course, with bated breath for all of that.

• 28:52Ed Elson?

  Any thoughts on what what you think we can expect next week or so?

• 28:56Robert Armstrong?

  I mean. Anytime I've been skeptical of these businesses' ability to just keep growing despite their incredible size, I've been wrong. So I'm just not going to step in front of that steamroller again. I mean, these businesses are just their ability to grow. And of course, everyone's worried about their spending right now, but the fact is they've got the money.

• 29:21Ed Elson?

  Yep.

• 29:23Robert Armstrong?

  Sales are growing. So I mean, these, these things are an incredible story. And I think chances are good. They'll just report another good quarter. It's the tail risk you worry about, the small percentage chance that one of these guys says, ah, we've, we've been doing some thinking and maybe we have to change our strategy with regard to these data centers a little bit. And then it's going to be game on. But I think the probability of that is low, but it's just going to be a high consequence event if it does, if the dice come up that way.

• 29:52Ed Elson?

  All right. Robert Armstrong, US Financial commentator for the Financial Times, author of the Unhedged newsletter, which, as everyone knows, is my favorite newsletter. Rob, great to have you on the show. Thank you.

• 30:04Robert Armstrong?

  Pleasure to be back. You can invite me anytime.

• 30:08Ed Elson?

  So the data is in. Inflation is up again. Last week, we predicted that this would happen. We said that inflation would rise again and that it would continue to rise. Indeed, prices in America are now up 3% from a year ago. That's up from 2.3% inflation just a few months ago. Now, why did we predict this? Well, quite simple. Our thesis is, one, that tariffs raise prices, and two, that it takes some time for tariffs to raise prices. That's why we weren't surprised when inflation was only 2.4% in May, because the tariff impact hadn't taken effect. And it's also why we were so angry

• 30:51Ed Elson?

  when we saw Treasury Secretary Scott Besant going around parading that number to the media as his evidence that tariffs don't raise prices. No, tariffs do raise prices, but it takes time. And that's exactly what we're seeing now. We had 2.3%. Three percent in April, the month of Liberation Day, then it went up to 2.4%, then it went up to 2.7%, then to 2.9%, and now we are up to 3% inflation. There is absolutely no question tariffs are raising prices. That's also why the tariff sensitive items are exploding in price.

• 31:29Ed Elson?

  Audio equipment prices up 14%, beef prices up 15%, coffee prices up 19%. This is the tariff impact. This is what we're seeing. Now, for those of you who say, hey, you're wrong. Economists had expected 3.1% and we got 3%. So this is actually good. All I can say to you is that you are missing the point. Just because a group of economists were 0.1% off on how large the tariff impact would be in this specific month, that doesn't mean there is no tariff impact. And it certainly doesn't mean the experts were wrong. The debate that we were having back in April was whether or not tariffs would reignite inflation.

• 32:13Ed Elson?

  Many people said they wouldn't, including people in the administration. Well, we were at 2.3, now we're at three. So there is no debate. Tariffs have reignited inflation. Tariffs have made America more expensive. And so long as the tariffs remain in place, prices will continue to rise. Our prediction next month, when we get the next CPI report, inflation will be even higher.

• 32:43Ed Elson?

  Okay, that's it for today. This episode was produced by Claire Miller, edited by Joel Patterson, engineered by Benjamin Spencer. Our associate producer is Alison Weiss. Our research team is Dan Shalane, Isabella Kinsel, Kristin O'Donoghue and Mia Silverio. And our technical director is Drew Burrows. Thank you for listening to Prof G Markets from Prof G Media. If you liked what you heard, give us a follow. I'm Ed Elson. I will see you tomorrow.

• 33:11Speaker 11

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