Dear Diary,
We are traveling today. No time or place to catch up on the financial markets. All we know is that the Dow closed at a new record. Gold lost $13 an ounce.
So we will tell you a bit of what went on at our ranch in Salta Province in northwestern Argentina…
It’s a beautiful spot, in a harsh and majestic sort of way. In early spring it’s windy, cold and very dry. The cattle are getting thin. But the grapes, irrigated from a small stream, are beginning to put out leaves.
“We’ll feed the cows what is left of the hay and the alfalfa in the fields. It should last until the rains begin in December,” Jorge, our capataz (foreman), explained.
“What if it doesn’t rain?” we asked.
“That happened in the late 1990s,” Jorge continued. “It didn’t rain all year.”
“What happened to the cattle?”
“We sold a few. But everybody was trying to get rid of cattle. Most of them died. We had 3,000 when the drought began. We had only a few hundred when it was over.”
In addition to the calamities imposed by nature, there are those imposed by man.
Most countries operate with more or less sensible policies, most of the time… with a “hormegeddon” disaster (caused by misguided public policy on a grand scale) only rarely.
Argentina seems to prefer a rolling hormegeddon, with the economy always either going into a disaster or coming out of one.
But we’ll come back to that tomorrow…
A Medical Emergency
Yesterday at 7 a.m., an ambulance arrived, just as the sun rose over the pass at the foot of Mount Colorado.
What was it doing here?
We went out to inquire.
“A woman in Compuel is giving birth,” Jorge explained. “Apparently, she’s having some trouble.”
“Who is it?”
“One of the Chailes.”
“But how are these guys getting to Compuel?”
“They’ve asked if they can borrow three horses.”
“Sure… of course…”
Yesterday, Marta (our cook and housekeeper) asked to leave to accompany the local Virgin on a procession up into the mountains. Maria, Jorge’s wife, had already taken the pilgrimage from Gualfin to Salta – a 12-hour-a-day walk, over six days, in celebration of the Fiesta de la Virgen del Milagro.
She and Marta prepared empanadas in the morning. We ate with Jorge and Maria in their little kitchen.
Jorge told the story of the previous owner, Señor Asevedra…
Ranch of the Porteños
“He was not from here. He was from Buenos Aires. So the local people called this the ranch of the porteños. [People from Buenos Aires refer to themselves as porteños, which literally means “people from the port.”]
“But he came up here, before there was even a road – this was in the 1940s – and brought his family.
“There was no school. He had two children. So he arranged to bring in a teacher and set up a classroom. Then he invited the local people to send their children, too.
“Of course, none of them had ever set foot in a school. And there was no school building and nowhere for the children to stay. So the children hiked hours in the morning and again in the evening to get back and forth to the school. Classes were held from 11 a.m. to 3 p.m. to allow the children enough time to get there and back.
“There wasn’t any way to feed the children either. So they arranged for each child to get a cup of milk with dulce de leche [a sticky, sweet goo made from heating condensed milk] in it. That was all.
“The children would gather in that little adobe house in front of the main house… the one thepeones use now… for their milk. Then, they would go back to the house where Javier lives now… that was where they had their classes.
“That was where I went to school, too, in the 1950s and 1960s. Maria came in 1970. By then, the government had taken over the school. But it was still in Javier’s house.”
“What happened to Asevedra?” we asked.
“Oh… that was the funny part,” said Jorge with a broad smile. “Francisco Rodo’s grandfather came here to buy a cow. He asked Asevedra if he ever thought of selling the place.
“‘No… Are you kidding?’ said Asevedra. ‘I could never sell this place. This is paradise. I love it. My family loves it. We are at home here forever.’
“Gualfin had many more people then than it does now. There were about 70 families living here back then. So it was more important, politically. And Señor Asevedra took it into his head that he would enter local politics, using Gualfin as his base.
“So he put his name on the ballot to become a local deputy. And he made great fanfare of his intention to rise to the top of local politics.
“When election day came, he gathered all the people of Gualfin. And they all went down – on horses, on mules, on foot – in a big procession to the polling house down the valley at Amaicha.
“And when the polling closed they opened the ballot box and counted the votes. Señor Asevedra got only one vote – his own.
“Well, that was it. He told the local people he wanted nothing more to do with them… or with Gualfin. He said he was going to sell it.
“Well, you can imagine that there wasn’t much of a market for such a distant, isolated ranch. So he called Señor Rodo on the telephone.
“He said, ‘You want it? It’s yours. You can pay me when you have the money. I’m leaving.'”
…And by the way, we learned later that the pregnant woman for whom the ambulance had been called was carried down from the mountains – on horses and shoulders – and transported to a hospital, where she is said to be doing well.
The baby has not yet been born.
Regards, 
Bill
What P/Es Really Tell
You About Stocks
Regular readers will know that Bill doesn’t think much of the US stock market’s current price-to-earnings (P/E) ratio.
According to data from Yale’s Robert Shiller, the S&P 500 is trading on a trailing P/E of 19.9.
Bill’s Simplified Trading System (STS) is to buy the index when it’s trading on a trailing P/E of 10 or lower and sell when it’s on a trailing P/E of 20 or higher. When you’re out of stocks, Bill recommends being in gold.
But what exactly is a stock market’s P/E… and why does it matter?
This from Diary reader John M.:
Hi, I am sorry if this is a silly question, but I am new to this, hence my subscription to your newsletters. My question is: How do you calculate the PE ratios of <10 – >20. This is probably easy stuff for you, but I am a bit baffled.
Thanks for writing in, John. And no, it isn’t a silly question. It’s a heck of a good one, actually.
Truth is, we love to get readers’ feedback. (To write to us, just hit “reply” to this email. We read every email we receive.)
I’ll use the example of a single stock. But the same thing applies for a stock market index, such as the S&P 500 or the Dow.
A stock’s P/E ratio simply measures a company’s share price (the “P” in P/E) against its per-share earnings (the “E” in P/E).
So, if a company’s shares sell for $100 and its earnings over the last 12 months were $10 per share, its P/E ratio would be 10 ($100/$10).
This is often called a trailing P/E to let folks know that it’s looking at “trailing” 12-month per-share earnings.
That’s it… That’s all there is to it.
The P/E ratio expresses stock prices per dollar of earnings. In other words, a stock’s P/E ratio tells you how much investors are willing to pay for a dollar of per-share earnings.
A high P/E ratio suggests a company’s future earnings prospects excite investors. A low P/E ratio suggests investors aren’t very excited about a company’s earnings growth prospects. This is an important point…
Because although the standard “trailing” P/E ratio is based off the last 12 months’ earnings per share… what it really reflects is investors’ earnings growth expectations.
And this spells opportunity, as I’ll explain tomorrow.