Brain-Dead Investors Get Crapped on Again by Argentina

They had it coming.

The chase for yield in a central-bank manipulated low-interest-rate environment is very costly, as brain-dead buyers of Argentina’s dollar-denominated and euro-denominated bonds found out. These junk bonds were issued with great Wall-Street hype in 2016 and 2017, including inexplicably a 100-year bond, backed by a country that has defaulted on its foreign-currency bonds five times in my lifetime, and that defaults on its peso bonds on a daily basis via inflation running between 30% and 50% recently. “And yet, yield-desperate investors don’t seem to care,” I wrote in astonishment in 2017 when brain-dead investors bought that 100-year bond. So here we go again.

On Sunday, voters in Argentina expressed their frustration with market-oriented but ineffective reforms by President Mauricio Macri and with the IMF bailout of the brain-dead investors holding Argentina’s dollar and euro bonds. The IMF has lent Argentina  $39 billion so far under its June 2018 “Stand-By Arrangement,” so Argentina wouldn’t already default on its newly issued dollar and euro bonds. That bailout package came with some conditions, which were unpopular. And so Argentines voted against Macri and his reforms, and the results are in:

In the primary election on Sunday, the opposition ticket of Alberto Fernandez and running mate Cristina Fernandez de Kirchner, Argentina’s ex-leader, obtained 47.7% of the vote. Macri and his running mate, Miguel Angel Pichetto, obtained 32.1% of the vote. Unless Macri can perform a miracle, these results indicate that Argentines are ready to replace Macri and his policies with the Fernandez-Fernandez policies during the presidential election on October 27.

Less than 20 years ago, the peso was still at parity with the USD, via a peg. At the moment, the peso is worth less than 2 cents. The willful destruction of the peso is standard operating procedure, spanning various governments. The plunges are as deep as they are regular.

The chart of weekly moves going back to January 2018 shows how common plunges of the peso against the dollar are. And there is essentially no recovery after those plunges, only some dead-cat bounces and periods of relative calm before, invariably, the next plunge:

In Argentina, many things, from goods to long-term contracts and rents, are priced in US dollars, and converted to pesos at the time of payment at the current rate because Argentines don’t trust their own currency. This makes it hard to use the peso for pricing and transactions, which is one of the primary functions of a currency. The lack of a relatively trust-worthy currency handicaps the functioning of the economy.

In this melee, Argentina’s newly issued dollar-bonds and euro-bonds have plunged, as another outright default is now showing up on the horizon as a real possibility. This default could be triggered by a future government refusing to comply with IMF conditions, which could induce the IMF to pull out of its bailout deal. And without the IMF’s bailout money, these bondholders would be subject to big haircuts.

Investors are beginning to anticipate those haircuts. The price of a 10-year note maturing in 2028, dropped from 77 cents on the dollar on Friday, when investors were already smelling a rat, to 59 cents on the dollar Monday morning. And the 100-year bond, that inexplicably found brain-dead buyers in 2017 when it was issued, performed a similar feat. Chart of the 100-year bond via Bloomberg’s Lisa Abramowicz:

Why anyone is still lending Argentina any money at all whatsoever, after its history of just crapping on its creditors with clockwork regularity, has been a mystery for a long time.

Argentina, as a sovereign country, can do with its currency however it pleases. There is no bankruptcy procedure for countries. And Argentina cannot print itself out of trouble with its foreign-currency debt. But it can default again, refusing to pay interest on those bonds, and refusing to redeem them over the next few years when the first batch comes due. And it should default.

Brain-dead investors have brought that on themselves. They ignored the one fundamental rule with regards to Argentina: Don’t ever lend that government any money, no matter who is in charge. Argentines don’t trust their government and their peso, and they keep their money in dollars and in real estate in Miami, or whatever, rather than in the government’s peso debt. Argentines know! And yield-chasing brain-dead foreign investors who don’t get that, well, Argentina’s government should just offer them another high-and-tight haircut with a charming smile.

Suddenly – I mean the signs had been everywhere for a long time and “suddenly” doesn’t really apply – the whole house of cards came tumbling down. Read…  Is the Everything Bubble Ripe Yet?

Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:

Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.

 

  109 comments for “Brain-Dead Investors Get Crapped on Again by Argentina

  1. Bobber
    Aug 12, 2019 at 2:44 pm

    This is a classic. The 100-year bond has gone belly up within two years.

    • Lemko
      Aug 12, 2019 at 8:23 pm

      Forget the bonds… The Argentina Mervel Index lost 48 % of it’s value today

      A Whole lot of money went poof today in Argentina… Sad honestly, it’s not a rich country, it is what it is tho

      • Rob
        Aug 13, 2019 at 6:11 am

        I prefer to say it went to money heaven. :-)
        Defaulting is not macho and Kirchner is macho. If she avoids default Arg would go back to being a regular range trade in the external debt like in the goo dold days before Elliot forced repayment of the holdout debt

        • robt
          Aug 14, 2019 at 10:11 am

          Just the threat of Kirchner getting anywhere near government is the catastrophe, thus the market reaction.
          Before the world went upside down, repaying debt used to be the honorable course except among certain sorts. Pre Macri, Argentina fought tooth and nail not to honor the debt. The fact that speculators bought it cheap is irrelevant – they’re speculators. This happened in the States too, when Hamilton was Treasury Secretary, and there was resentment because specs made a profit on scrip.

      • Anon1970
        Aug 13, 2019 at 12:43 pm

        Prior to the Great Depression, Argentina was one of the wealthiest countries in the world.

        • Rob
          Aug 14, 2019 at 5:10 am

          Its the only country that has managed to go from developed to emerging market. Although South Africa is trying to go from middle income to sub-saharan african.

        • Aug 14, 2019 at 9:49 am

          Rob,

          Greece was also downgraded to “Emerging Market economy” during its crisis.

        • pinto
          Aug 14, 2019 at 10:40 am

          That’s right in South America there was a saying “As rich as an Argentinian”

          These IYI fund managers still believe in countries where average person is socialist!

      • Lou Mannheim
        Aug 14, 2019 at 6:58 am

        That’s the thing, it IS a rich country with incredible resources, I started off at Citibank in the early 90s as we were preparing for the Brady Plan, which was the major restructuring designed to sort all the non-performing loans from the 70s and 80s. That was supposed to resolve all debts and get them on solid footing – except the plan didn’t account for the USD risk, so 2001 default. Many South American countries are similar – they can’t weed out the corruption.

  2. Aug 12, 2019 at 2:54 pm

    How many other “Argentinas” are out there in this chase for yield? I’m not talking sovereign debt but hundreds, probably thousands, of junk rated companies hanging on by their nails.. How many highflyers are completely dependent on new investor money just to keep their Ponzi scheme from crashing?

    • Lugano Bank
      Aug 13, 2019 at 10:20 am

      Musk is #1 at fleecing investors for a loser of a company. Lyft and Uber lol. Gee 3rd world finance in the USA. Who’da thought LOL

  3. Paulo Zoio
    Aug 12, 2019 at 2:54 pm

    If there are cash burning companies, like Uber, Tesla and alike, why not countries? It’s all good. Central banksters print some more for you to play

  4. interesting
    Aug 12, 2019 at 2:55 pm

    How does this world wide insanity end? War? A really really big one?

    • TruckMan
      Aug 12, 2019 at 4:10 pm

      Nobody will have the money for that. If history is a guide, it ends with lots of border wars, and internal breakups and civil wars.

      • NBay
        Aug 13, 2019 at 11:05 pm

        Agree, Truckman, but the reason for that IMHO, is quite simple and it is not for lack of “money”. Ever since Doc Oppenheimer and his pals invented their gadget, big wars are quite impossible, (even though the last of the fossil fuel might yet allow for one more big one).

        I figure, if the A-birds fly, even the wealthy rulers world wide (under any political system) and their families and friends will lose, and losing is simply unacceptable to them, as they are by definition winners. I’m afraid WW2 was the last peasant ONLY population reducing large war we will ever have.
        So, the various afterlifes are the only way out, and almost again by definition in most any of them, the rulers will not fair well regarding the afterlife options.
        Possibly Musk types will have escape machines ready for them, but I personally doubt it.

    • Cashboy
      Aug 12, 2019 at 9:47 pm

      War costs.
      No arms company is going to supply arms in a governments local currency incase they lose the war and their currency becomes worthless.
      Hence you generally need gold to fund a war.

      • Anon1970
        Aug 13, 2019 at 12:46 pm

        The US government does not have a problem buying weapons in local currency, at least for the time being.

    • KPL
      Aug 12, 2019 at 10:02 pm

      The one sure thing is it is not going to end well and the longer it goes on the worse the end result. Given this I am foxed that the central bankers can keep doing the same thing again and again and expect different results.

      • medial axis
        Aug 13, 2019 at 4:33 am

        If they can keep it all going long enough, without adding to the QE, then inflation will reduce the trillions of debt to something acceptable. Trillions will be the normal, quadrillion will be the new trillion, IYSWIM.

    • medial axis
      Aug 13, 2019 at 4:53 am

      Probably not. Used be states funded wars by issuing bonds, which was effectively printing money they’d claw back from their citizens (now called consumers) later. Nowadays wars aren’t fought with tanks and bullets (except for a few drones as they’re new and sort of fun) but with the money/banking system itself. It’s so much more efficient and less messy (fewer dead bodies). AFAICS, it’s still the same few elite who benefit from this, so nothing’s really change in that respect, the lowly consumers pay for it all in the end.

      Having said that, it’s inevitable things will change and we’ll see a move away from the USD being the reserve currency plus a move towards new payment systems (as a start China’s CB is getting ready to roll out a digital currency – they’ll likely call it a crypto-currency, but it’s not).

  5. Dale
    Aug 12, 2019 at 2:59 pm

    To be fair:
    1. The 100 year bond had a nearly 8% yield!
    2. The brain-dead investors (notably Fidelity, BlackRock, Lazard and PowerShares) probably unloaded the bonds on brain-deader investors (following the time-honored principles of “let no muppet be unskinned” and “it’s only other people’s money”).

    • GP
      Aug 12, 2019 at 3:17 pm

      If only there is an easy way for retail traders to short these sovereign bonds.

      Long time ago I had purchased PDVSA (another beauty) dollar-denominated bonds; at least that one paid 12%.

    • Unamused
      Aug 12, 2019 at 7:14 pm

      The brain-dead investors (notably Fidelity, BlackRock, Lazard and PowerShares) probably unloaded the bonds on brain-deader investors

      It might come out that the power players got in on IMF guarantees, and when it became likely Macri would undermine those guarantees they weaseled greater fools into catching the hot potato, on the basis of those same IMF guarantees. It wouldn’t be the first time.

      It’s also possible the whole thing was an engineered scam from the beginning involving Macri, IMF, and the power players. There are precedents for that as well.

      Until the tells present themselves, if ever, it’s easy enough to blame the victims.

      Hanlon’s Razor, BTW, is known to be a fallacy in high finance.

      • Dale
        Aug 13, 2019 at 5:53 am

        Unamused,

        I had to look up Hanlon’s Razor, which I had previously remembered as being from a sci-fi writer. Thanks for the reference.

        Regardless of the mechanism, those bonds probably eventually found themselves in the hands of those who probably didn’t think they would lose money on them, maybe as part of a larger fund. I think the question you raise is whether this was part of an IMF (or other) ploy to reintegrate Argentina into the global debt system following its frequent (and now continuing) repudiation of its debt. Either way, it’s malfeasance on the part of somebody who should (and probably does) know better, and who enabled what seems to amount to fraud.

        • michael Earussi
          Aug 13, 2019 at 12:54 pm

          Hadn’t heard of that before, but it’s similar to Heinlein’s “never underestimate the power of human stupidity.”

        • d
          Aug 18, 2019 at 10:34 am

          “Either way, it’s malfeasance on the part of somebody who should (and probably does) know better, and who enabled what seems to amount to fraud.”

          Think about the skirt that has just moved/is moving, from the IMF to the ECB and her criminal history, for a while.

      • nearlynapping
        Aug 13, 2019 at 8:26 am

        @Unamused. Thanks for the “Hanlon’s Razor” reference. My new favorite razor.

    • Nat
      Aug 13, 2019 at 11:36 am

      Yah I think this is the usual strategy: greater fool theory. By That 100 year at auction and hold for that 8% yield for 1 to 4 years, then sell it to “greater fools” and run like hell.

      It was only a bad investment if you didn’t manage to sell them to greater fools in time.

  6. Aug 12, 2019 at 3:00 pm

    This is a referendum on the election. Not sure what sort of austerity measures were at the center. Not sure what the economic outlook is either. Also the dollar is moving higher while China devalues. So it’s all exogenous factors. US Treasuries have a long and proud past, but are heading off a cliff, and maybe the worst of Argentina’s problems are over. In the grand scheme I would not chase yield in Argentina, or put my sweat money in UST.

  7. CtKahanamoku
    Aug 12, 2019 at 3:03 pm

    Banks do have a problem: lending. Why go through all the trouble to set up a LOC for a small business for 500K at a lousy 4.5% finance rate when you can lend 500MM to a country for 8%?

    • ooe
      Aug 13, 2019 at 4:52 am

      that is not true. Small business who borrow from the SBA guaranteed loan program borrow prime plus a spread. You can look the information on the SBA’s Standard Operating Procedure.

  8. Petunia
    Aug 12, 2019 at 3:21 pm

    BTFD, it’s cheaper than a lotto ticket and it’s only speculation anyway.

  9. Max Power
    Aug 12, 2019 at 3:30 pm

    Well, everyone knows that you should never get involved in a land war in Asia…

    …and never lend hard currency to Argentina.

    Argentina really is a fascinating economic case study. Until the Great Depression it was one of the wealthiest countries in the world and even up through the early 60s it enjoyed a higher income per capita than much of Western Europe. Slowly though, the Juntas followed by Peronism (which is really a form of populism) wore its economy down.

    • Old Engineer
      Aug 12, 2019 at 5:36 pm

      Does the Argentine case history look that much different than the path the U.S. seems to be following? Do we think the outcome here will be different?

      • MCH
        Aug 12, 2019 at 6:07 pm

        I think the key difference is the very frequent repeatability of defaults. As Wolf said, it has defaulted five times in its life time. So, while Argentina might be similar to the US in terms of path, the velocity of defaults is likely what is so amazingly mesmerizing here. Like watching the same car wreck with the same driver on the same stretch of road, over and over again.

        Basically Groundhogs Day without end.

        • Michael J Bernard
          Aug 12, 2019 at 8:28 pm

          Yeah, buddy, that Groundhog Day apology is the most apt. Some countries get in a scare and sometimes go over a cliff.

          Argentina makes it a national sport equal to futbol.

          I cry nothing for those being haircut. As Hunter S. Thompson once said, “Buy the ticket, take the ride”.

          A sad shame as someone else pointed out above– Argentina used to be a wealthy country. And as someone else pointed out, their national coffers got so out of control them wealth of the nation was bled out by distrustfulness.

          The case study for that will only become to apt too late.

          Kind Regards all,
          mB

      • GP
        Aug 12, 2019 at 6:55 pm

        US still is relatively free. Property rights, free markets largely still intact.

        Argentina has been at the very edge of being full-blown socialist country. If we are looking for similarities, Venezuela it is (“wealth belongs to the people of the country, let’s nationalize all oil companies”).

        Opposite would be Chile.

      • Aug 12, 2019 at 7:08 pm

        Old Engineer,

        The US dollar does in 90 years or so what the peso does in 2 years. Huge difference.

        As a result, the US government can borrow in its own currency, and very cheaply so, which Argentina’s government cannot because no one trusts the currency. That is why it borrows in foreign currency, if it can…

        • KPL
          Aug 12, 2019 at 10:05 pm

          “As a result, the US government can borrow in its own currency, and very cheaply so, ”

          Not necessarily so. Italy, Greece seem to be doing well too

        • Realist
          Aug 13, 2019 at 12:33 am

          Wolf, I would love to read your take on todays Denmark and its housing market & debt slaves. Nordea offering mortgages at 0%, Jyske Bank offering at -0.5 % ! And keep in mind that the average Danes are indebted to their ears.

          This is about as sick/scary as Argentina …

        • c1ue
          Aug 13, 2019 at 10:37 am

          The question I would ask is: Argentina’s problems may be precisely because it is borrowing in foreign currency.
          Debts by governments in foreign currencies are a huge risk: a change in exchange rate can make repayment much more difficult, really quickly.
          In fact, Argentina’s peso was pegged to the dollar in the not too distant past. That didn’t work either – the dollar’s movements hurt Argentina’s economy, much as German fiscal policy hurts Greek and Italian economies in the EU.
          And now that Argentina got on the IMF/dollar debt bandwagon in earnest – the only outcome is the sale of national assets followed by bankruptcy, or nationalization.
          The wealthy in Argentina have long since patriated their cash out of the country – a methodology described in detail by Dr. Michael Hudson, and now benefit greatly from the plunging exchange rate and devalued Argentinean labor.

      • ooe
        Aug 13, 2019 at 4:54 am

        that is not true. The U.S. borrows in Dollars and payback dollars. Argentina borrows in Dollars and Euros. However, their currency is in Pesos.

        • d
          Aug 18, 2019 at 10:40 am

          “Argentina borrows in Dollars and Euros. However, their currency is in Pesos.” and they DO NOT pay back.

      • Aug 13, 2019 at 11:20 am

        Consider perhaps that Argentina is at the bottom after a long cycle of defaults and the US is at the top, and about to begin a downtrend. Their last mass shooting was 2004, 4 victims.

  10. Wisdom Seeker
    Aug 12, 2019 at 3:33 pm

    The IMF is there to ensure that the current bag holders are allowed to socialize their losses and not become the final bag holders.

  11. David Hall
    Aug 12, 2019 at 3:43 pm

    There have been reports of some Argentina stocks dropping 30% – 50%. It does not make any sense.

    • Saltcreep
      Aug 12, 2019 at 4:01 pm

      Yeah, Dave, it was really interesting was how hard Argentinian stocks got hammered today. I guess they all got dragged down with the currency, even without regard to how much of their income is derived in local currency.

      I ‘bought the dip’ in Argentinian agricultural shares today. Now I hope time will prove that I’ve been some sharp SOB and not just a stupid sucker…

      • Nicko2
        Aug 12, 2019 at 6:13 pm

        Cue global warming induced drought/flood….

        • Saltcreep
          Aug 12, 2019 at 6:29 pm

          Nicko, actually the effects of climate change appear so far at least to be less extreme in South America than in many other places…

          In any case, I suspect the sneaking killer in climate change is in the small details rather than in the dramatic things like e.g. flooding scenarios.

          We humans can function ok in variying conditions because we are largish, warm blooded creatures and we use clothes in addition to help us regulate temperature, so from our point of view a few degrees here or there doesn’t necessarily cause any immediate sense of alarm.

          The problem is that smaller critters in our environment, like our little insect supporters and microorganisms, can’t necessarily adjust as rapidly to changing temperatures, and I suspect the death of our support systems from the bottom up is more probable than their death from the top down.

          In the meantime we keep playing our games, and I bought some Argie stocks…

        • NBay
          Aug 14, 2019 at 4:23 am

          Have to disagree Saltcreep,
          The little critters will do just fine, the smaller the better, it’s the critters of our size (and especially us) that will be marching in the very front row when the climate change killing starts, I guarantee it.
          But good luck with the stock bet.

    • Aug 12, 2019 at 7:04 pm

      They’re denominated in pesos. So if the peso drops 25%, stocks automatically should drop 25%. And then there are the economic issues that arise from it that could cause problems for the companies.

  12. Norma Lacy
    Aug 12, 2019 at 4:13 pm

    to Dale – yes. Just the right amount of cynicism/realism. In fact, the vulture funds, Singer, etc. got paid out of the IMF money, 100% of face value for what were arguably odious debt bonds put out by the military junta. No doubt, the Blackrocks, Singers, etc will get paid again, unless Christina, et al tries to put her country ahead of the vultures, and the muppets will once again get skinned. Word is that Mighty Macri himself, O’bomer’s golf buddy, is buying Argie debt at a big discount. The beat goes on, and yes, it was really easy to see it coming.

  13. robert scheetz
    Aug 12, 2019 at 4:21 pm

    So now comes the fire sale under CFK with hers a nice fat cut.

  14. MCH
    Aug 12, 2019 at 4:31 pm

    I think it isn’t so much the fact that ordinary people will buy Argentinian bonds, most won’t have the capability or the interest anyway. That said, the institutions that do make these happen has a tendency to conduct financial engineering and package this stuff in a way that makes it opaque. Then they unload it onto people. After all, if Fidelity sells this stuff, it must be good.

    • MC01
      Aug 13, 2019 at 3:02 am

      Ordinary people did buy Argentine bonds, and bought them with a passion: the so called Tango Bond affaire swallowed millions of savers in Germany, Italy, Spain and other European countries back in 2001-2002 when Argentina had to abandon the dollar-peso peg and defaulted on several bond issues.
      It led to lawsuits flying left, right and center, not to mention frankly laughable propaganda, and was only finally settled in 2016 when the final holdout bondholders (a kettle of vulture funds plus a hefty number of Italian and Spanish savers estimated at around 100,000) had to accept a settlement with Buenos Aires.

      If I remember correctly about 75% of those holding bonds from the defaulted issues accepted a settlement in 2005: they got new bonds at about 30% of the original face value and with much longer maturities to boot. Lesson learned.
      The remaining 25%, an extremely vocal minority which received press coverage completely out of whack, got a settlement which on paper sounded like a dream come true: 150% of the original face value.
      Unfortunately this settlement didn’t cover legal expenses, which are hefty on every planet this side of Zeta Reticuli, and wasn’t inflation adjusted. It was take this or leave it.

      For Buenos Aires it was a great coup: for about €900 million they could tap once again worldwide security markets just at a time when the last vestiges of yield were evaporating and their financial toxic waste looked attractive to a whole new generation of brain-dead “investors”.
      Lesson learned once again?

  15. KFritz
    Aug 12, 2019 at 7:09 pm

    Looking at plain vanilla numbers, Argentina’s situation is very strange. Its citizens have a very low debt to GDP ratio.

    https://stats.bis.org/statx/srs/table/f3.1

    Its government debt to GDP is well down the ranking table.

    http://worldpopulationreview.com/countries/countries-by-national-debt/

    And yet, its periodic, dramatic crises are as reliable as the proverbial Swiss watch. Just sayin’.

    • Aug 12, 2019 at 7:18 pm

      Deadbeats CANNOT borrow. That’s why they have little debt. You cannot borrow long-term in pesos without paying a gigantic interest rate. You have to borrow in dollars or euros. And that is a huge risk if you make your revenues in pesos.

  16. ooe
    Aug 12, 2019 at 7:31 pm

    Economic policy has been a failure not ineffective. Per the numbers:

    1) 50 % inflation rate
    2.) + 50 % interest rates.
    3) Severe recession.

    Thus, the Argentines know something you do not. Here’s a lesson for the Trumpits. when the economy goes in to recession in the fall, no amount of spinning and insults is going to work.

  17. Neilo
    Aug 12, 2019 at 9:12 pm

    I keep hearing about USA going down the Argie path .. but what would the USD devalue against (apart from PM’s etc) .. the EUR, GBP, CNY .. say wha’ ?

    • sc7
      Aug 13, 2019 at 2:35 am

      There is a lot wrong with the path the US is on, and Powell is a clown. But, the US is not going the way of Argentina.

      • Anon1970
        Aug 13, 2019 at 1:01 pm

        Back in 1913, when industrial countries including Germany were on the gold standard, no one expected the German mark to collapse in the coming decade. But it did. I have a 20 milliard (billion) mark stamp that was issued in 1923. I probably paid around 25 cents for it and other stamps being offered in an advertisement at the back of many comic books over 60 years ago.

        I find it amazing that the people who promote Holocaust remembrance and museum construction don’t seem to be bothered by the irresponsible economic path that the US is taking.

  18. sierra7
    Aug 12, 2019 at 9:58 pm

    Would be interesting to see/read/hear how the ordinary Argentinian is faring in this mess………

    • Paulo
      Aug 13, 2019 at 8:37 am

      Sierra,

      Is there really an average anyone? I would imaging those who own ag land with no debt are doing fine as far as getting by. City poor folks?, maybe a powder keg of reaction just waiting to mobilise.

      Without a doubt the connected have safe deposit boxes and places to go/people to see.

    • Anon1970
      Aug 13, 2019 at 1:10 pm

      Here is an interesting article on Argentine emigration related to past peso devaluations: http://www.migrationpolicy.org/article/argentinas-economic-woes-spur-emigration/

  19. Martin
    Aug 12, 2019 at 10:12 pm

    It would devalue against assets (inflation)

    • Neilo
      Aug 13, 2019 at 5:25 am

      Yes I get the inflation scenario, I’m just trying to conceptualise how it, as reserve currency, would move against its global trading partners. It’s just a hypothetical so far, and may forever remain so, but man, the whole world is awash with dollars at present. Should Russia/China and other Pompeo “revisionists” get their way then there will be more national currencies used and less transactional demand for USD so less need for those nations to hold USD reserves. Maybe aggressive QT would solve the problem if it ever arose… no idea.

  20. ZeroBrain
    Aug 12, 2019 at 10:18 pm

    Do these bonds trade on US exchanges at all? I am assuming not. Where would one find securities info?

    • MC01
      Aug 13, 2019 at 2:08 am

      A very quick search found that a lot of bond issues (I lost count at 18) trade on the EuroTLX, which is a security trade platform owned by the London Stock Exchange and aimed at the Mainland Europe retail investor market.

      Problem is most issues don’t show a whole lot of activity over the past few weeks and there isn’t a whole lot available for purchase right now… just when I was musing about starting my very own one-man vulture fund!

  21. Herbivore
    Aug 12, 2019 at 10:22 pm

    Perhaps one could find a nice deal on some Bodega Colome Altura Maxima Malbec 2014. (Drink now through 2024. 500 cases made.) “Bodega Colome is nestled in the Calchaqui Valley, 2300 meters (7500 feet) above sea level, in the Argentine northwest. Founded in 1831, it is one of the oldest existing wineries in Argentina”. Maybe these types of wine will just sit in cool storage, aging, waiting for better times? I hope there are better times for all of us, but the future looks bleak at times like this.

    Cheers!

    • Herbivore
      Aug 12, 2019 at 10:35 pm

      August 3, 2019:

      High-Altitude Argentine Winemaker Is Profiting From Peso’s Fall

      “At the same time, Argentina’s wine exporters could soon benefit further from a threat by U.S. President Donald Trump to hit France’s wine industry with tariffs. Trump threatened retaliatory tariffs against France in response to that country’s tax on digital services.”

      https://www.bloomberg.com/news/articles/2019-08-03/high-altitude-argentine-winemaker-is-profiting-from-peso-s-fall

    • Xabier
      Aug 13, 2019 at 3:53 pm

      ‘Someone else will ikely drink the precious old Falernia you have cellared…..’ Horace, 1st century AD.

  22. Barry
    Aug 13, 2019 at 12:22 am

    Sovereign nations that have there own currency can print as much as they want and spend it domestically for providing full employment and will not have inflation. There is no need to borrow in foreign currency because they have there own currency. Credit issued for unproductive uses like already owned assets ( houses and stocks) you get bubbles and asset inflation. https://www.aph.gov.au/DocumentStore.ashx?id=2175cccc-9832-4fb6-8724-f8e428345a9b&subId=562716

    • Aug 13, 2019 at 12:57 am

      MMT nonsense. You can’t borrow significantly in a broken currency like the peso. The peso is NOT the euro. Interest rates are 40% to 50%. No one wants this crap. People don’t even want the pesos — much less the peso debt. When MMT gets through ruining a currency, that’s what it looks like.

      • normansdog
        Aug 13, 2019 at 6:04 am

        Hi Wolf,
        No, the IMF & world bank (US foreign policy tools) destroyed the argentinian economy, and the venzuelan economy and the Brazilian economy etc etc . The US (and EU) don’t give a crap about these people or these economies, they just want easy low cost access to the real ressources of these countries.

        MMT (which is sound and quite clearly correct) has nothing whatsoever to do with it.

        “The World Bank, like the IMF, has been the subject of much criticism over the years. In his 2006 book, The White Man’s Burden, former World Bank economist William Easterly delivers a broad indictment of Western efforts at poverty reduction. “The plan to end world poverty shows all the pretensions of utopian social engineering,” he writes. The bank’s attempts to rapidly impose free markets on developing countries in the 1980s and 1990s, known as economic “shock therapy,” produced a “record of failure” in Latin America, Africa, and former Soviet countries, Easterly writes, saying client nations would be better served by homegrown, piecemeal reforms.”

        I am guessing you won’t post this comment.

        https://www.thebubble.com/history-argentina-imf

        https://www.brettonwoodsproject.org/2018/07/bad-news-argentina-cruel-imf-back/

        https://www.cfr.org/backgrounder/world-bank-groups-role-global-development

        • a citizen
          Aug 13, 2019 at 1:00 pm

          Explain how “sound” and “correct” MMT isn’t a utopian poverty eradication wet-dream on opioid laced steroids, Seltzer Man.

        • Jeff
          Aug 13, 2019 at 6:42 pm

          Why wouldn’t Wolf post your comment? Is he part of some big master conspiracy?

      • Rcohn
        Aug 13, 2019 at 9:21 am

        Obviously pricing many items in another currency(dollars) and borrowing in dollars is a main contributor to Argentina’s CURRENT problems. But It is long run irresponsible fiscal policies which are at the heart of any IMF bailout and Argentina’s continual problems
        .And I ask anyone “what is the difference between the current and projected spending policies of the US and Argentina?

      • d
        Aug 18, 2019 at 10:47 am

    • Nicko2
      Aug 13, 2019 at 4:55 am

      MMT doesn’t work in our post-globalized world, you’d end up like Venezuela.

  23. Gandalf
    Aug 13, 2019 at 12:39 am

    On the bright side of things, if you drink wine, especially the dark rich reds, Malbecs from Argentina are as a group fantastic wines and available here in the US at fantastic prices. I first discovered them at a restaurant in Maui.
    I can honestly say that I have never had a bad Malbec from Argentina. Nor have I ever paid more than $20 a bottle at the store, with the majority in the $10-15 range. There are some great wines in that price range.
    Contrast that with Cabernets or Zinfandels from California, esp those with Napa or Sonoma Valley- the great ones are all at least $20-40, and usually higher

    • MD
      Aug 13, 2019 at 2:22 am

      Ah well as long as you’re OK Gandalf, that’s the main thing.

      As long as you can pick up a cheeky Argentinian red at a bargain price, who cares if the Argentinians can’t afford to feed their children, eh?

      Everything is after all, as the TV tells you, all about you.

      • Nicko2
        Aug 13, 2019 at 4:57 am

        We all live on the same, hot, connected planet, it’s 7.7 billion humans for themselves.

      • HowNow
        Aug 13, 2019 at 6:59 am

        Why slam Gandolf? Here’s the solution to poverty and starving women and children: Incentivize vasectomies! Offer it free and a $5000 kicker to get the guys to show up. Rather than battle over abortion (what God says about it), just cut the problem off at the source. Guys will look forward to worry-free shagging. Unwanted kids will be a thing of the past. No “one-child” program for people to rail against.
        There needs to be some rules for this: you don’t want 80 year old guys showing up and getting $5K when they’re effectively impotent anyway… things like that.

        • GirlInOC
          Aug 13, 2019 at 9:58 am

          Well, except for all the *wanted* poor children.
          I’m about as pro-birth control as you can get, but incentivizing sterilization would lead to some pretty gross outcomes. Poor couples, or even just temporarily struggling women, that WANT kids but need money to pay rent would follow the adage “desperate times call or desperate measures”. I think providing free birth control would help a lot. As would offering free basic health care that is easily accessible.

        • NBay
          Aug 14, 2019 at 5:06 am

          You exotic wine fans/travelers, etc, don’t seem to get it at all. Extremely poor people with zero hope for their future will always “invest” in the ONLY thing that they can, FAMILY. And send them out to beg from or sell post cards to tourists, or send them out to pick through the garbage dumps for food, or housing materials, or find anything that can be used or sold, even a kidney…..or just plain steal.

          My family farm raised (and secure) mom was amazed at how many of her city raised friends admitted to stealing during the Great Depression over her lifetime.

      • Erle
        Aug 13, 2019 at 7:25 am

        Mr. Gandalf pitches a product of Argentina and you chew at his heels. What would you have him do?

        • Leser
          Aug 13, 2019 at 11:45 am

          My millennial friends, including the ones barely able to afford a decent place to live, would immediately determine that buying Malbec cheaply is not “fair”. Somebody would suggest it should be regulated, most would agree.

      • The Colorado Kid
        Aug 13, 2019 at 10:39 am

        Don’t cry for me Argentina. It’s a long sad story & the Argies need to take a long hard look in the mirror as we do here in the increasingly dysfunctional good old USA.

        And WTF, what’s wrong with Gandalf optimizing his wine purchases, Dude!?

      • Herbivore
        Aug 13, 2019 at 11:18 am

        If your main commodities are poor people, stupid politics and corruption — your doing something wrong. That model doesn’t work there, or anywhere — including the concept that America can be made great again by turning a blind eye away from poverty in America, embracing stupidity & corruption.

    • Gandalf
      Aug 13, 2019 at 7:28 pm

      Argentina from the late 1800s up until the Great Depression ranked as the SEVENTH wealthiest nation in Earth. Largely responsible for this was a huge influx of immigrants from Spain and Italy during the 1800s, who did as the European settlers did in the US, expand west and south and exterminate the native Indian tribes located there and steal their land.

      The Great Depression seems to have permanently thrown a wrench into Argentinian socioeconomics. Like much of the rest of what used to be the Spanish Empire, Argentina has been unstable ever since its glory days, shifting between military dictatorships, socialist governments, and capitalist oligarchies. I have my theories as to why this is so prevalent in former Spanish colonies, and much less so in former English colonies, but it would be way too long to explain. Basically they were all unable to break the power of their oligarchies and evolve into well managed capitalist social democracies.

      As for the Malbecs, hey, it’s a great wine, everybody here who likes deep rich red wines (Malbecs are usually violet or purple) should try them! Costco, Sam’s Club, and most liquor stores carry them. I know a few good brands by name, but usually I just pick whichever one has the highest alcohol content, usually over 14.5% -15%. Not for a cheap drunk. The vast majority of less expensive reds with the standard 13-13.5% alcohol content lack any sort of rich full body and most are mediocre.

      I’m far from a wine connoisseur. That bit about red wine and alcohol content came one day from this guy working at Costco who seemed to be managing the wine selection. I had picked out a Cabernet that cost nearly $40 with really high wine rating scores for a dinner date with a lady friend. So I showed it to him and the only thing he looked at was the alcohol content. 15.1%, yeah that should be a really rich full body wine, he said

  24. Iamafan
    Aug 13, 2019 at 5:26 am

    Why hasn’t anyone commented on Franklin Templeton’s Argentina exposure?
    In 2018 there was a lot of news about Michael Hasentab. What happens to funds like this now?

  25. normansdog
    Aug 13, 2019 at 6:07 am

    all rich well connected Argentinians and all US financial institutions get made whole by the IMF money or get pre-warning of the default and offload their holdings. The Residents of Argentina who can’t get out then get to live in even more extreme poverty for as long as it takes to pay off the debt. Once the debt is paid off the game starts again.

  26. Unamused
    Aug 13, 2019 at 6:20 am

    On Sunday, voters in Argentina expressed their frustration with market-oriented but ineffective reforms by President Mauricio Macri and with the IMF bailout of the brain-dead investors holding Argentina’s dollar and euro bonds.

    Of course Argentines voted Macri out. He was screwing them for the benefit of global financiers. Argentines didn’t want a repeat of the Great Depression brought on by the IMF’s previous tool, Carlos Menem, also for the benefit of global financiers.

    Argentina’s investors weren’t at all brain-dead, then or now. They were betting the IMF would have its way and they’d all get richer by making Argentines poorer, and they lost their bets. Does the FIC back down? Of course not.

    The Empire strikes back.

    The IMF has a long history of strong-arming the direction of Argentina’s policies and economy, beginning with the military junta in 1976 that tortured, killed, and disappeared 30,000 people in the span of six years. The junta largely targeted the left and the country’s poor and working class as they implemented a series of policies favorable to global capital, a tactic that journalist Naomi Klein discusses in depth in her book The Shock Doctrine. Despite the human toll of Argentina’s genocide, the IMF was willing to look the other way as long as the junta followed their policy prescriptions.

    The IMF continued to ‘guide’ the country’s policies after the dictatorship under Carlos Menem (1989-1999). It was Menem’s corporatist policies that led the country into the straits of the Great Depression of 1998 to 2002 when the country set a record for the largest debt default in history up to that point. In 2001, unemployment neared 20 percent and, by 2002, 53 percent of the country was living below the poverty line. It wasn’t until the Kirchner administrations from 2003 to 2015 that Argentina began to pull back from the grip of the IMF (Nestor Kirchner, 2003-2007, and Cristina Fernández de Kirchner, 2007-2015). In these 13 years, as Mark Weisbrot of CEPR explained in a recent interview, the poverty rate was reduced by 70 percent, extreme poverty by 80 percent, and unemployment fell from 17 percent to 6.5 percent. In contrast, in the three years since the beginning of Macri’s term, unemployment has increased to 8.5 percent.

    When countries faithfully go along with the policies of the FIC, debt is allowed to disappear from the records, and credit is extended (such as when US $10 billion disappeared from the records out of a total of US $40 billion during negotiations between the IMF and military junta, or when the IMF loans to Argentina were extended from $50 billion to $57.1 billion in September 2018 under Macri). Should the policy direction change to show any inclination of a people-driven agenda, however, access to credit quickly disappears and a variety of tactics are used to destabilize “uncooperative” administrations—whether through the “unconventional wars” that we have seen recently in Venezuela and Brazil, or in Salvador Allende’s Chile, or through military intervention.

    The present meltdown, therefore, is properly seen as retaliation against Argentina by the global banking cartel, in response to Argentina’s rejection of Macri, the cartel’s candidate.

    • Iamafan
      Aug 13, 2019 at 7:50 am

      So essentially the new IMF sponsored debt just repays the OLD debt and leave the people of the country owing the IMF more. In other words they ROLL OVER (literally).

    • NBay
      Aug 14, 2019 at 5:30 am

      According to a Stieglitz (SP?) book I read, that was the IMF’s standard MO, and the reason he quit it years ago. (Not sure where he’s at now, as far as his thinking goes). But I remember the Anaconda Copper show and it’s aftermath.

  27. Erle
    Aug 13, 2019 at 7:14 am

    I have a few Argentine gold five peso coins. .2334 Troy oz x USD POG 1523 =355.47 /5= 71.09 USD/ Peso.
    I have no numbers on the successive devaluations since the coin was minted.
    There was a 1930s movie on the TV recently that had some golddigger commenting on her prey, “He’s as rich as an Argentinian”.

    • MC01
      Aug 13, 2019 at 10:59 am

      Those coins were minted in 1880-1890, right? A very quick back of the envelope math tells me the present purchasing power of one of those coins is about 500 trillion time the original five peso denomination, with most of the devaluation happening after 1946.
      Disclaimer: since the peso loses so much value so quickly the numbers may have changed by the time somebody reads this!

      Argentina used to be the place where out emigrants went. Brazil and Mexico had previously been big favorites but neither held a candle to how rich Argentina was. After Juan Péron started dismantling the country our emigration switched to Venezuela… needless to say don’t trust people from around here when choosing a place to move!

      • Erle
        Aug 14, 2019 at 7:10 am

        MC01, thanks for the reply. I do a search for your comments as a rule.
        After reading so many of your well argued comments I wonder what your background is for having such a wide knowledge.

  28. GrassRanger
    Aug 13, 2019 at 1:31 pm

    Just because the US is the top dog right now is no guarantee that we will remain as such. All it would take is a Peron copy cat to be elected. We are well on our way with 3 or 4 candidates in the Dimocrat race right now that could fill the bill. Even under Publicans, we are started down that path, living on the fat of the past with federal budget deficits and debt increasing faster than the growth of the economy. It won’t take many years of that to become an irreversible decline.

  29. joe
    Aug 13, 2019 at 2:02 pm

    Wolf – you don’t plan a very deep game.

    “Why anyone is still lending Argentina any money at all whatsoever, after its history of just crapping on its creditors with clockwork regularity, has been a mystery for a long time.”

    I’ll bet most of these investors don’t even know they own the bonds. Bought by an Investment Adviser who has no fiduciary responsibility whatsoever to the investor whose portfolio he is managing, buys the bonds for the portfolio, collects his sales commission, brags about the return is getting for the investor [forgets to describe the risk] and forgets about it.

    Then there are to ones who are betting on greater fools. From the de-evolution I see all around us, not a bad call.

    Remember Corzine has a new hedge fund.

    • Aug 13, 2019 at 5:48 pm

      I’ve been telling people for years to stay away from bond funds. I hate open-end bond funds due to liquidity risks — a run-on-the-fund that can blow it up when you get these kinds of scares — though I’m a fan of holding bonds outright when conditions are right (not now).

  30. Anon1970
    Aug 13, 2019 at 3:00 pm

    The “brain dead” investors include Franklin-Templeton’s Michael Hasenstab. http://www.zerohedge.com/news/2019-08-13/720bn-fund-suffers-biggest-crash-2008-argentina-implosion

    I’ll repeat my recent warning: Do you know what is in your bond fund?

  31. Norma Lacy
    Aug 13, 2019 at 6:24 pm

    to normansdog and unamuzed: Thank you for telling the truth about what really happened in Argentina. And the poor have gotten rolled once again, but they seem to have woken up sooner this time around.

    Meanwhile, Venezuela has a very tough fight ahead, and Ecuador is getting IMF’ed once again. Poor sods.

  32. Mike
    Aug 14, 2019 at 2:33 am

    The SMART guys, appear to be the Argentinien foot ball spektators, that were so many at their matches, and most of them just borrowed ” peso” at 40% interest…
    It sure did sound crazy at the time, but now the have most likely just paid of their debts with just a few dollaros….
    Imagine when people start borrowing fake fiat paper, at negativ interest rates and just buying real MONEY…gold and silver/Argentum.
    You would never have to work again.
    what did Argentina do whith the 100 year bond money…??
    Did they just buy gold, and skrewed the IMF..??

  33. Argie
    Aug 14, 2019 at 9:27 pm

    An Argie here. I own a small company in Buenos Aires.
    Bank interest rates in pesos for a business loan are around 100%. Yes, 100%.
    How do you we do? Argentina works like this, we are used to. You keep working. We adjust. There are plenty of opportunities in crisis like this.
    🦖

    • Capt Steve
      Aug 18, 2019 at 6:26 pm

      I’ve been to BA and many other regions in Argentina, warm and wonderful people everywhere I’ve been. If I was a 20’ty something I’d move there and enjoy the wonderful place you call home!

  34. Paul Bakas
    Aug 15, 2019 at 4:21 pm

    Did the original bond purchases also buy derivatives to protect against default?

  35. Capt Steve
    Aug 18, 2019 at 6:22 pm

    I’ve read the comments about the bonds, the economy and how time after time Argentina has defaulted and the peso is really just colored paper.

    It would be interesting to know how many of the comments are from people that experienced Argentina; the people, the culture and the beauty. My time spent there makes feel sorrow for the people of Argentina.

    The current crises is one that has been re-cycled again and again. It is the fact that Juan Peron lives on, his brand of socialism has kept the people down in some ways.

    Juan Peron may be long gone, but Nester DeKircher and the his wife Christina Fernández-DeKircher that succeeded him in office have carried on the legacy of Peron. The people are used to government subsidies that range from subway fares, to electricity and more. President Macri is trying to provide a market based economy with reduced subsidies… the people are not willing to suffer the pains of that growth.

    That is why the leftist candidates, Fernández & Fernández (not related) received so much of the vote. The people want the government to pay their bills and if F&F win the election a default is almost guaranteed in 2020!

  36. Martin
    Aug 21, 2019 at 7:49 am

    I think you’re a valuable asset ‘Wolf’, but 0% rates have zero to do with Central Banks, and everything to do with ‘reality’. When the German Government can borrow at negative interest rates, that is an expression not of any ECB party line, but rather market sentiment that the future isn’t gloomy, it’s pretty fucking close to apocalyptic, at least in terms of multi-decade growth. Oil prices stuck in the doldrums, negative interest rates, massive flight to unproductive ‘luxury’ assets, they all speak to me of a massive pessimism amongst the investment class – i.e. the top 1%, in the future. Thailand, where I live, is entering a half decade of 1-2% growth per annum, in what is supposed to be a ‘Tiger economy’, and with real inflation running at 10%. For those of you with even worse maths than I, that’s an annual contraction of at least 5-8%, and it shows. The economy here has only been kept afloat by massive infrastructure spending and frankly ruinous private credit expansion. Most of my upper middle class neighbours are asset rich – land, but max’d out on credit cards, loans, loan sharks, etc. The shit is going to hit the fan, and that point is going to be when China goes into full hunkering-down mode. Like of of SE Asia, the Thai economy, and especially the property sector, is just one great laundromat for ‘hot’ Chinese money.

Comments are closed.