But who are the suckers?
By Wolf Richter for WOLF STREET.
It’s now happening again. And the deal was made today. The playbook goes like this: Argentina and Wall Street investment banks decide to sell Argentine bonds denominated in dollars, euros, or Swiss francs. The banks underwrite those bonds and promote them and sell them to investors, such as bond mutual funds and life insurance companies or even individuals. It works for everyone: The banks get the fees. Argentina gets the proceeds in hard currency. And the suckers get the bonds.
Argentina even makes coupon payments for a while, like a year or two, and then it says it’s out of money and threatens to default. The IMF swoops in and bails out Argentina with tens of billions of dollars in loans – such as $44 billion in loans in 2018 and 2019. A year later, Argentina has burned through these bailout dollars and finally defaults on its dollar-euro-CHF bonds that by then have collapsed to 30 or 40 cents on the dollar.
The original investors – the bond mutual funds and the like, playing with other people’s money, often retail investors – sell these bonds at a big loss to other elements on Wall Street, such as hedge funds or distressed-debt investors, who become the new creditors. Then a restructuring deal is made between Argentina and these new creditors, whereby Argentina will swap those bonds at 55 cents on the dollar for new bonds.
It works for both parties: Argentina gets a massive debt forgiveness (45 cents on the dollar and perhaps some other enhancements). And the new creditors who’d picked up those bonds for 35 cents on the dollar or whatever, get a big-fat profit.
After the settlement and completed restructuring, the default is forgotten, and IMF provides more support, which then allows the government to go back to the Wall Street banks that will then put together the next dollar-bond issue to sell to bond mutual funds with big fanfare and hoopla, while pocketing juicy fees. Rinse and repeat.
The government constantly destroys its own currency through inflation, currently running between 40% and 50% a year. To slow the collapse of the peso, the government has imposed capital controls in September 2019 and has tightened them further since then, and it imposed an official exchange rate, which caused the peso to trade on the black market again, where it has swooned even more.
At the official exchange rate, it takes 71.69 pesos to buy $1. This means, 1 peso is worth $0.014. On the black market (the “Blue Dollar” rate), it takes 123 pesos to buy $1. This means that on the back market, 1 peso is worth $0.008. That’s 42% less than the official rate.
Back in 2000, 1 ARS was pegged at 1 USD. Over those 20 years the ARS has become worthless against the dollar, even as the dollar too has lost plenty of value.
This chart shows the course of the peso over the past seven years, during which it lost 93% against the USD at the official exchange rate, and more if calculated at today’s black-market rate:
Because the government constantly destroys its own currency, it cannot borrow long-term in pesos without paying investors a huge amount in interest to compensate them for getting annihilated by the destruction of the peso.
So, it borrows in foreign currency, where interest is cheap, but then it cannot service that debt due to the destruction of its own currency which makes paying interest in hard currency impossible, which then prevents the government from paying interest or rolling over this debt when it matures, at which point it defaults.
So this is a circular fleecing operation, and it will repeat itself as long as there are the suckers that make it possible. Those suckers to be fleeced are mostly retail investors that end up directly or indirectly, knowingly or unknowingly buying the original bonds – including, incredibly, the 100-year bonds Argentina sold in 2017 – and handing their hard currency over to Argentina’s government to burn.
So where in this cycle is today?
After months of negotiations over restructuring the $65 billion of bonds that Argentina defaulted on – including the bonds issued since 2016 plus already restructured bonds from prior defaults – the government announced today that it has come to an agreement with three creditor groups, representing the largest holders, including BlackRock, Ashmore Group, and Fidelity Investments.
These three creditor groups represent 60% of the bonds from the prior debt restructurings, and 51% of the new bonds issued since 2016. Other major holders include Monarch Alternative Capital, VR Capital Group, Greylock Capital Management, and Pharo Management.
The previously restructured bonds require approval of at least 85% of holders; and the new bonds require approval of either two-thirds or 75% of holders, according to Bloomberg. With today’s agreement, the government – meaning the Wall Street banks and advisory firm it hired – can promote the deal to the remaining holders.
Under the deal, the $65 billion in defaulted bonds will be swapped for new bonds, and that swap will grant Argentina “significant debt relief,” as the government put it today. In other words, a big haircut for bondholders.
But the haircut is not a problem for current bondholders who bought the bonds for cents on the dollar, waiting for just this sort of opportunity.
The government’s announcement didn’t indicate the size of the haircut, but sources close to the deal told Bloomberg that the deal is worth 54.8 cents on the dollar of the original bonds. That’s a sweet deal for distressed-debt investors that might have picked up those bonds somewhere between 30 to 40 cents on the dollar.
Upon the announcement of the deal today, those bonds jumped. For example, the $3 billion of bonds due in 2048 jumped around 7% this morning, to 46 cents on the dollar, according to Bloomberg.
To handle the bond exchange invitation, the government said it has hired BofA Securities and HSBC Securities (USA) to act as dealer managers, and Lazard to act as financial advisor. Fees galore. Wall Street loves Argentina coming and going!
When the deal is done, Argentina’s burden of foreign-currency debt will be cut sharply – via the haircut to bondholders. And the IMF, which had insisted on a haircut, will be less reluctant to lend even more money to Argentina.
Eventually, with this backing from the IMF, Argentina will go back to its buddies on Wall Street, and sell more dollar-bonds and euro-bonds. And it will add a little extra yield in a yield-starved world to entice suckers to buy them wittingly or unwittingly, while in the background, the government continues to destroy the peso, which will make servicing those new bonds impossible in due time. Rinse and repeat.
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“So this is a circular fleecing operation, and it will repeat itself as long as there are the suckers that make it possible.”
So there are financial nincompoops out there besides Robinhood?
Seriously? People can’t figure this out?
Sounds like a hustle.
Easier than you might think, when was the last time anyone read through all the financial gobblygook on a 100 page prospectus when they dice up hundreds of different trenches of bonds and package it altogether and dive in deep. I don’t know that’s what they do. But it sure as hell wouldn’t surprise me. This is why it’s the diversification game. Let’s say a retail investor have 250K in your 401K account, he spread it over 6 or 7 different funds, some index fund, some more aggressive emerging market funds, some aggressive bond funds, unless the investor is willing to spend hours digging into obscure language and things that are hard to understand, he is cluelss.
Most just look at packaged funds that says “aggressive” “moderately aggressive” “moderate” without ever diving into the details. And those details can sometime be hard to find.
The money managers get their fees, the losses from countries like Argentina are covered up (hopefully) by gains in other countries. And everyone goes away happy, most of all the retail investor who is blithely unaware of the fact that he is being fleeced and bent over every time he puts more of his annual 401k into these things.
I think the lexicon on Wall Street is:
Aggressive = getting it in all orifices (including the one that these funds are making)
Moderately aggressive = you get a say which orifice is left untouched
all the way down to
Conservative = which is essentially some crappy CD from B of A they found and threw the money in while happily charging a fee.
” was the last time anyone read through all the financial gobblygook…”
Never.
Thanks, MCH!
I used to be a bond fund manager and I researched every bond I bought for my funds. Of course, retail investors don’t research the bonds in their mutual funds and neither do many “financial advisors”.
why doesn’t anyone sell real reviews of these funds?
Because if there was such a someone, Goldman, Merrill, JP Morgan would have paid to have that someone capped.
Nobody messes with the money train.
You know I really think that’s a good idea and a legit business case. I’d set up the website myself if I knew how to get legit info to do it and had the background … but mine is in options.
MCH is wrong. Goldman et al don’t have them capped, they just buy them off with the promise of hugely proftiable future business from very little work. This, after all, was EXACTLY the story of CDOs and the ratings agencies in 2008.
Well, I am one of them, which put the excess money in moderate or aggressive. But is there any alternative?
I already tried to trade stocks and commodities but it is too time consuming and too stressful. On saving account is zero interest and the excess money is not enough to buy house or flat. So, what else you can do?
The US pretty soon will became another Argentina
It already is.
The essential difference is that the US can borrow in its own currency and therefore print instead of earn any dollars it needs to repay loans.
Is the ECB buying more US corporate debt than Jay Powell’s SPVs??
You have to understand that the funds people have absolutely zero morals when dealing with other people’s money. They don’t sell these worthless bonds to suckers, they sell them to zero morals fund managers for fat commissions. The people putting their retirement money in the fund recommended by their union, employer etc., don’t know this is going on. They think these managers are looking after their money, but they are only looking after their commissions. Read Goldman Sachs’ history. Full of this.
SiT23
That is really cold and brutal!
And highly accurate.
Do you really think union members sitting on government pension fund boards are capable of evaluating investment strategies or individual investments in the funds?
Don’t cry for me “Arhentina”….
Wow, this is a like a cautionary tale for anyone who wants to buy emerging market bonds. Because it feels like these things are sliced and diced and packaged together just like CLOs, CDOs, and the likes.
So, to spread the pain, a Fidelity or a Blackrock would take a slice of Argentinian bonds and bundle it with Brazilian bonds, and Chilean bonds, and so forth, then hawk this product called emerging market bond, and then dump it on the investors?
Wow, no wonder places like Merrill Lynch doesn’t want to show what are in those screwy bond mutual funds on their site, and instead will send you a prospectus 60 pages long with the various risks and trenches in the small print on page 52.
What happens when the US dollar finally reverts to intrinsic value?? Article about hedging dollar risk, not with gold, but with international stocks.
You do know that Merrill Lynch had to be bailed out by BofA (with a lot of pressure from the Fed). Stay away from emerging market bonds. You don’t have the ability to evaluate the credit risks involved. Many of the Wall St. firms that were around prior to the advent of negotiated stock commissions have disappeared, including two firms that I used to work for. The last real bargains in the bond market were available in late 2010 and early 2011, when Meredith Whitney threw panic into the California muni market.
One wonders how many people still have bonds issued 25 or 30 years ago. Some of those might be looking awfully sweet right now, if it wasn’t for the fact that the Fed is rapidly turning the US into Argentina.
Most munis and corporates come due well before 30 years and are generally callable after 10 years. These days, the standard term for long treasury securities is only 10 years. Back in 1982, you could have purchased 30 non-callable Treasury zero coupon strips at around a 15% yield to maturity.
Yeah and it’s just a small slice that goes in and defaults so it’s just a half percent loss or whatever and obscured by the rest but it allows the banks to keep doing it and make their deals.
If the bond fund has the words “high yield” in its name, your likely loss is a lot more than 1/2%.
Wonder what the chart of the Argentina Peso looks like from 1970 to today?
And the price of gold in Argintina Pesos over that time?
Finally, isn’t there one of those ‘get a second passport’ types that was always plugging Argentina as a ‘good’ place?
Argentina is actually a pretty awesome place…
As long as you have or are earning money NOT in the Argentine peso.
Lee,
Argentina is a great place to visit. Gorgeous. Great food, great wine. Lots of reasons to go.
Lot’s of great places to ‘visit’ around the world, but a lot of those ‘nice’ places to visit aren’t ‘nice’ places to live.
And what was once a ‘nice’ place to live often can turn into a ‘not so nice place’ or hellhole depending on what happens.
Japan is a very, very,’nice’ place to visit, but now for many foreigners not such a ‘nice’ place to live because of changes to taxes and reporting requirements. Add in the inability to get back into the country even for people with PR and spouse visas as a result of the virus and well………..cross it off the list.
Mexico is another example. Used to be a fairly ‘nice’ place to visit before 1984 or so and a great place for a lot of not so well off US retirees to be able to live a decent lifestyle. Now the place is basically a hellhole as a result of the drug wars even in formerly decent places such as Guadalajara.
Australia is still a pretty good place to visit (Well now you can’t and not even from one state to another) at least once, but you probably won’t want to come back for another trip!! It is still a pretty decent place to live although that is slowly changing too. The cost of real estate is too high although the fall of the A$ over the past few years will help in that area a little.
(Lot’s of Japanese visit both Australia and Hawai’i and they usually only come to Australia once. They used to go back to Hawai’i many times for vacation……………..can you figure out why?)
A lot of islands in the Caribbean are also ‘nice’ places to visit and some are really nice places to live too – if you have enough money (well the wind kinda of makes them not so nice once in while!!)
And finally speaking of ‘nice’ islands to visit, Hawai’i and its islands. They used to be really nice places to visit and even probably live year round too. When did it all change for the worse? IMO something happened in the late 90’s or early 2000’s……….
globalization i guess. same all over. the serf can move now, but he remains a serf.
Here in Devon, part of a nice island called the UK, life is just delightful :-)
I spent a good portion of my previous career checking out better places to live than the US but came to the conclusion the same shit is going on everywhere so the US won out because of good roads (so far) and pretty good utlility services, compared to much of the world. Politically and possibly finanically tho, it’s going down the tubes so will see how long that lasts.
You didn’t mention Brazil, which I consider the nation most likely to take a Cuba-like turn in the 21st century. China’s presence in post colonial Africa is way way under the radar. Policies in the post colonial world deserve our attention. With the US going backwards, knowing this stuff in imperative. President likes to micromismanage a lot of things, but not the IMF, so far. With former IMF now running the EU, and new managing director Georgieva, one senses continuity here. See recent ECB buying of corporate bonds from companies outside the EU.
I agree, I love the people and the country. Their social system has crashed their economy time and time again.
Oh yes, have been there often enough. And, great people, too.
A colleague of mine lives in Buenos Aires for some years, being the secretary of an international organisation, paid in US$. Living like a king…
Retired people from Spanish and Italy sometimes move to Argentina because there their small pensions are worth a lot more and due to the huge Spanish and Italian communities is not so bad for them.
The Argentinians have an old joke that goes “God made a paradise and called it Argentina. He looked at it and decided this was unfair to other countries, so to make up for it he populated it with Argentinians …”
Lee,
Actually, since the peso was pegged to the USD at 1 to 1 for a while until 2001, you really need to look at a chart from 2000 on. Total destruction of a currency.
Wolf,
Very well done explainer on a relatively obscure (but very relevant!) topic.
This is usually the moment when an oleaginous academic familiar of the Left/MMT proponent/Keynesian Swamp Creature/Peronist political class courtier oozes forth to propound on how a gold standard (or *any* anchored currency) is a “barbarous” relic unfit for any civilized human being.
As they rapidly loot the corpse.
Truly, deeply sobering to reflect upon the 50+ years of *American* trade deficits, ever worsening, ever accelerating.
*America* used to make things (even surgical masks)..now it mostly makes things up.
Pathology serves as policy so long as it profits the political class.
It’s profiting the investor class, not the political class.
Well I found a chart going back to 2002 and at that time the price of gold in Argentinian Pesos was 270 for an ounce of gold.
Today the price of gold closed at and all time high of 149,438 pesos for an ounce of gold.
Or about 550 times as many pesos needed to buy an ounce
Silver was 4.21 per ounce back then and today around 2060. So it didn’t do as quite as well as gold at 490 times as many needed today.
I think this shows a perfect example of gold or silver can be used as a store of wealth for people in countries that have these kinds currency crisis over time.
And you could probably do better on the black market.
And other countries that were ‘developing’ also used to have currency controls such as Korea. When I lived there Koreans were only allowed to take out a certain amount of foreign currency.
One way they got around the restriction was to sew US$100 bills into their clothes. A US$100 bill at that time would bring in about 10% more Korean Won on the balck market than at a bank.
Another item that was popular in Korea and also Japan back then was Johnnie Walker Whisky. I always brought in the full amount of allowance every time I left and came back and gave them to friends who either drank them or…………………
GI’s with Korean families would ALWAYS buy their limit of alcohol, rice, and whatever, at the post facilities and ‘give’ them to their family members……….a lot of those people lived really, really well back then.
I’ve taken a couple trips to Buenos Aires and dated an Argentinian woman. Argentina defies all logic. Buenos Aires is magical and Portenos/Portenas are beautiful. The last time I was there was ‘10 so I have no idea what it’s like now, but at that point the place was awesome.
The typical American exurb is probably 50x safer than Buenos Aires, but BA has 50x the soul. Given the choice between the two, bury my heart in Caballito.
Lee, I do not know what is going on. I have some Argentine gold coins from the 1880s. The five peso comes out to be USD 94.95 per peso at tonight’s gold price of 2034 per ounce.
If you divide the 94.95 by Wolf’s number of .008 that gives the old value to new of 11,866 times the newer peso. Of course that skips all of the intervening reverse splits no credit in this calculation.
What the heck, if I had stage four pancreatic cancer and a bank account, I might buy me some bonds to clip the coupons.
Melt it down to an anonymous bullion Good luck!
Any day above the ground is a good one :>{)
Given the way they print money in Argentina, it appears they are trying to be a reserve currency.
Bobber,
Nice one.
The entire sham begins and ends with the IMF.
Where does the IMF get its money?
The US taxpayers fund 18% of the sham to allow hedge funds to prosper.
And that’s why, dollar for dollar, some of the best red wines to be had at bargain basement prices in the US are Argentinian Malbecs. Pick any Malbec over 14% alcohol (the higher the better), and it’s going to be dark and rich and full of flavor.
Same old story. I remember my macro/monetary teacher (former VP at a European central bank) was quite critical of the Argentina – IMF topic and always used it as a parable of how not to finance a state – and to illustrate that the IMF guys are crooks. That was almost 20 years ago and Argentina had a long history of default and restructuring even back then. The cyclicity of this event is crazy – wouldn’t be surprised if it correlates with solar cycles or something.
“Argentina had a long history of default and restructuring even back then.”
Argentina has had a long history of default for over a hundred years.
And yet fools’ fingers always wobble back to the fire…
It is like watching Central Bank S&M porn, guessing just how much abuse domestic Argentinian savers and foreign lenders will eagerly absorb before crying out their safe words, “capital flight”…assuming they haven’t been ball-gagged with capital controls…
It’s funny how the economists and similar try to pass off that a country or whatever entity can do things because other countries do it.
The only countries that can print money with some impunity are the ones with reserve currency status. They can be really stupid for a long time.
If you don’t have reserve currency status, this is what happens.
This is really the big picture lesson.
If you live in country that starts to issue sovereign bonds payable in anything but that country’s currency:
Get rid of the currency as fast as possible.
Buy anything that can be resold later with it.
Have zero savings in that currency but lots of debt.
“Because the government constantly destroys its own currency, it cannot borrow long-term in pesos without paying investors a huge amount in interest to compensate them for getting annihilated by the destruction of the peso.
So, it borrows in foreign currency, where interest is cheap, but then it cannot service that debt due to the destruction of its own currency which makes paying interest in hard currency impossible, which then prevents the government from paying interest or rolling over this debt when it matures, at which point it defaults.”
Given how fast the Fed and Treasury are shoveling money into the furnace, we may all better off convert our USDs to bitcoin or gold or even silver.
At least you know out of the three, one has a real industrial use.
I am curious at what point the cost of physically making a single dollar bill (paper dollar, not the coin) in terms of the materials, and the processing involved is going to be more than the dollar itself.
I’m sure that’s a closely guarded secret.
One of the most interesting things to happen with this crap going on here in Melbourne is that even if you were smart enough to load up with cheap silver, there is no way to actually sell it face to face to a dealer or another person unless they live within 5 kilometers of where you live now.
You can hope and send it by Australia Post, but bullion or bullion like items are prohibited and if caught they will send it back to you.
Coins are allowed to a certain value, but have to be sent registered, insured and signed for if you want to be protected against loss……………
This is a conundrum for sure. If one buys the physical assets, then one has to store it, get it registered, insured, etc. I am not sure it would make sense to trade the physical commodity. But the other side of the equation is buying something like an ETF.
But the problem with non-physical asset like this is that it is essentially backed by faith. If anything breaks that faith, then the holdings crash. Remember the recent scandal around Kingold Jewlery in China with however many tons of fake gold. It crashed that stock. You can imagine something like that happening with an ETF like GLD. It would be a disaster.
I suppose that’s why cryptos have kind of taken off. But the downside of crypto is that it absolutely needs electricity to make it work, and it is also at the mercy of whatever government action that could take place. Can you imagine what happens tomorrow if the US government says it’s time to ban bitcoin? Holding it would be illegal?
I guess you could say the same thing about physical assets like gold, but then the government has to physically track that stuff down to confiscate it, and not just hit a few buttons to kill off the electrons.
“I guess you could say the same thing about physical assets like gold, but then the government has to physically track that stuff down to confiscate it, and not just hit a few buttons to kill off the electrons.”
No chance that the U.S. (or likely any other) Government will attempt to physically confiscate gold. What they may do, however, is to discourage ownership by placing punitive taxes on capital gains derived from the sale of it.
“This is a conundrum for sure. If one buys the physical assets, then one has to store it, get it registered, insured, etc.”
I suppose one would have to do that is one had a whole bunch of the stuff, but most people don’t bother as the the above costs are not worth it.
And he way things are going I’m not sure many people would want to let others know what they have.
So, we basically end up right back where we’re at. Depending on faith and trust of institutions that are just over 100 years old.
While the cost of storing real value (in the form of precious metals) continues to rise. But the upside is always that precious metal has had a longer history as reflective of value.
Unless of course, we all turn into a bunch of communists, in which case, gold could be truly worthless… heh heh.
I don’t think even commies are that naive.
My grandfather gave me a collection of silver coins in a nice glass display container. I passed the coins on to my grandkids. It’s kind of nice knowing he only paid face value and some are now 130 years old.
MCH,
One of my biggest regrets over the past is not throwing a bunch of money into Australia Kangaroo stamps and Australia gold $200 koala coins when I moved here.
The better half would have killed me then, but would be smiling right now.
“Those suckers to be fleeced are mostly retail investors that end up directly or indirectly, knowingly or unknowingly buying the original bonds.”
What’s in your portfolio? The pension retirees and windows say: “Just show me the bottom line, Mr. Smiley broker man.”
How are their 100 year bonds doing?
They’re in default.
“But who are the suckers?”… Like the old Wall Street proverb goes: “If you don’t know who the sucker is at the table, it’s you.” Unfortunately, in this instance (and more than a few others) the guys sitting at the table not only don’t know who the sucker is, they’re not even aware that they are at the table. Gots to Luv those passive ETFs and “mutual” funds. But then there are all those in an unmentioned constituency who are sick of the game being played by Wall Street and their elite… the people of Argentina who are living with the effects of continuing hyperinflation.
The people of Argentina continue to vote for the morons whose overspending precipitates the borrowing. They are getting exactly what they deserve.
“The people of Argentina continue to vote for the morons whose overspending precipitates the borrowing. ”
Substitute America for Argentina and that sentence is just as true.
I just saw an early talking picture movie where on of the gold digger chicks said to the other, “He’s as rich as an Argentine.”
Yes unfortunately it is.
@Erle,
That is the saddest part of this. Argentina used to be wealthy, but they lost everything to the politics of envy and a massive, corrupt welfare state. It is a warning to the US.
“The government constantly destroys its own currency through inflation, currently running between 40% and 50% a year.”
Excellent analysis, but it suggest the scale of devaluation we’ll see here in the USA over the next couple of years.
Of course we’ll bail ourselves out by printing even more.
In 1985, my economics prof at MBA school told us about this very scam. He also told us that Argentina’s per capita GNP was about the same as Canada’s 1920. We can all draw our own conclusions about this but I’ll say the Malbec (and the odd Cab) is the only thing I would buy from there.
Argentina was a very prosperous country before the Great Depression but never really recovered afterwards.
The economic history of Latin America summarized.
The Argentinian peso is now on par with the Indian rupee.
I can’t remember where I heard it, but the commentary was on Argentina having to collateralize its debt with Argentinian assets, land and/or cattle. Are creditors seizing assets? I can’t believe they wouldn’t have done it already.
Great Analysis, but Wolf has not fingered the real villain who forces grandma to invest in this bum deal every few years. The culprit is the Fed, ECB and the other Central bankers who send grandma on this global yield hunt due to interest suppression on any and all safe securities. Argentina is just the tip of the iceberg. There are 50 other Argentinas waiting to emerge when this everything bubble midwived by the Central Bankers collapses.
my grandma passed on to a better place. i should go find her. This place is awful.
We used our 2,400 Trump bucks to buy 2 cemetery plots and a grave marker to share. Now it’s just a matter of time. Good stress reducer.
LOL I hope getting burnt to ashes also relieves stress?
Waste of 2400 bucks – spend the money on things you want now, be cremated, and have some of the ashes put in an urn.
Have the rest taken care of by the crematorium or flushed down the john……………
Go to Africa. That’ll help your perspective.
Saddest and most hopeless place on earth.
The next step is for the CIA to get in there so the US can capitalize on their hard assets by working out a deal with the new leader being sponsored.
I was in Bueno Aires in 2007 and 2008. on a long term client engagement. Cool town. Cool people. Gorgeous snenioritas. Problem is work, productivity, efficiency is about #27 on their list of things to worry about. I was working at a bank and it was like working with surfer dudes in SoCal. Same attitude towards life. Which is enjoy it. Work? Meh, we’ll worry about that later. Manana. Let’s go have some wine.
And the result is….fiscal insanity.
Fiscal insanity, yes, probably. But it some sense it seems like a healthy psychological adaptation to living with a corrupt government for generations. If you can’t fight it, why not enjoy life with nice dinners, good wine, and beautiful women? Here in the US many commit suicide by alcohol or opioids or vote for yet another simulacrum of a human being, aka a politician.
Judging from the comments here, Argentina might be a wonderful place to visit, especially as a single guy.
If a group of grandma investors from a far away country was, in essence, financing your surfer life, how many of us could resist that?
‘But the haircut is not a problem for current bondholders who bought the bonds for cents on the dollar, waiting for just this sort of opportunity’
This sums it all why, there is mkt and investors for such bond offerings!
I have a theory I can’t prove, that the “suckers” who buy these bonds are investment managers for pension funds. The pension managers are in an impossible position because they are required (by rules that are set for the pension fund by the state legislatures) to earn impossibly high returns (some ‘expect’ 8% a year), while being limited in their investments to various mixes (e.g. like 60/40).
The only way these guys can put together a portfolio that meets the requirements is to select super-high-yielding bonds. They *know* the bonds are going to default, but it’s someone else’s money. If they stand up and say the investment requirements are ridiculous and impossible, they’ll get fired immediately. So they put together a portfolio filled with default risk, and hope to not get fired when the bonds default. In the mean time they can continue to collect their six figure salaries.
Play stupid games, win stupid prizes.
“…the “suckers” who buy these bonds are investment managers for pension funds. The pension managers are in an impossible position…”
^^^^THIS!^^^^
If your theory is true – it explains why these fund managers rationalize their behavior and feel no guilt.
Not one penny of that money made it to the people of Argentina…
It’s all in the bank accounts of the rich in NYC and Miami…
Insane…
I lived there from 2001 to 2010. Loved it but I’ve had enough. My wife is from a small apple town in Rio Negro province, a place where you can go back in time, lovely, but all infected with Covid now. In Argentina on the street you can observe people getting fleeced playing the shell game, the classic guessing game where the pea is hidden under one of three half nut shells and the dealer executes some subtle sleight of hand. It’s flawless. Petty pickpocketing can be almost an art form, as I’ve witnessed, and as I remember once being astounded when a thief reached through the window of a departing subway car to snatch a bag and disappear. The worst tend to rise to the top, and the games are the same.
Some years ago David Stockman touted his ABCD investment philosophy in which he bought “Anything Bernanke Cannot Destroy” based on the recognition that “Argentina’s Bonds Can Default” and “Any Bubble Can Deflate”.
I remember he had this special event where he convinced listeners to act NOW and pay him money so he could show them exactly how to short the overvalued FANG stocks via put options (back then Facebook was trading around $100 a share and Amazon was trading at a mind-boggling $1000 a share, so it was obvious that prices had reached a top and couldn’t possibly go any higher).
Now that ABCD is passé, I propose that the correct (i.e. orthodox) investment philosophy is IJKL. You want to buy “Investments Jerome Kan Levitate”.
This is where Buffet’s advice is better than most. Never short. Never use borrowed money to buy stocks. Price is out of your control.
What a freak show we are living in. It will take a by deluge to clean this up. Just wondering who will survive.
Seek and ye shall find. I think that there is inflation out there, (US), if you look for it,
shock to the world, Wall Street fleeces Investors-pray tell. Tisk Tisk, want to buy a bridge?
Who are the suckers? Stupid question. At look at the past heads of the IMF will help answer your question. In 2015 Christine Lagarde was the head of the IMF and was found quilty of Felony Fraud in a 400€+ kick back scheme. Her 1 year sentence was suspended of course. Since she has a proven track record in Fraud she is now the head of the ECB. Screw a paltry 400€+ scam at the IMF . As head of the ECB she has a brand new freshly printed 800B€+ slush fund to commit felony fraud with now. Let us not forget former IMF head DSK. Dominique Klauss-Straun . He was stuffing his pants with cash while bedding every starry-eyed woke euro-neophile he could impress with lavish IMF spending on them. The Woke apparently get horny when money flies around from such an exotic creature as DSK. Who are the suckers ? It’s the citizens of the 186 “contributing” countries of the IMF who are fleeced by fiat mafia counterfeiters called the Central Banks. Wall Street is the Don whose ring you must kiss to get the cash of course.
Wondering if any of the SPV liquidity that Blackrock and all handle gets intermingled with this support for Argentina?
It could just come under the general heading of: SPV-to help the rich get richer.
After all, just as all energy comes from the sun, all liquidity these days comes from the Fed
The Fed limits the SPVs to US corporate bonds.
Thanks. One less thing to worry about. It’s hard worrying about everything and nothing at the same time.
You cannot believe a word or any stats the fed posts because FRAUD RULES. In Mexico, Argentina, and most central and south american countries, when their pesos go down, the real estate in the wealthy areas immediately goes up to maintain US dollar parity, but especially in the busy international tourist areas. In the last 25 years, the stock market in Argentina has gone up 500 fold in pesos.
Sorry, “In the last 25 years, the stock market in Argentina has gone up 500 fold in pesos.”……..Correction……..should be well over 100 fold in peso terms. The wealthy own the stocks of course.
This is covert dollar policy heh? I mean the players are rewarded for their part. If you want to trash the dollar without destroying it’s reserve status, this is what you do? Argentina and Turkey are both fronts for the global dollar machine. One serves NATO interests in the ME, and the other in South America? For years Bonner of Daily Reckoning has been touting Arg as penultimate destination for semi-wealthy emigrants. Maybe he saw Hong Kong, (oops) or Singapore, in their future? These are isolated secure constabularies, nations along the line of a gated community with security guards. If you are a rich American in Argentina does it matter what the peso does?
MCH Hahahahahahahhaha Thank you !!!!! And once again thanks to Wolf. The check’s in the mail – on the slow boat. Cheers
Rudy Maxa travel show has an episode about Argentina and it’s wines. It is on Amazon Prime. Excellent visual of the wines they make.
I keep getting the message:
USD & US Equities = Cleanest dirty shirt in the laundry.
In a world graded on a curve – we are at the top.
Next article on this subject needs to also throw US mutual fund managers under the bus. The way this manure gets distributed to retail is by spreading it out as a thin layer of “spice” on funds that pretend to be pristine pure plays. Just like Puerto Rico bonds in state-specific US muni funds that don’t tell you they have 5% PR pre-default issues in them…
I’d bet that these Argentine bonds got salted into a bunch of NON-emerging-market bond funds, in that small “10% of assets” flexible-uses accounting bin … where that percentage gets invested contrary to the nominal goal of the fund … that bin gives the fund manager flexibility to goose the “SEC 7-day yield” (apparent yield) by including a bunch of stuff with 10-20% nominal yields.
The fund managers fool investors into thinking the fund earns them a bit more, when in reality it’s all return-free risk they’re loading into their poor 401K. And it’s all legal because they actually tell you what they’re doing in the prospectus, it’s just that most individual investors don’t bother to look… and somehow the 401K plan administrators find ways to overlook the shenanigans.