Tuesday, June 19, 2018

PSA: Argentina will NEVER repay their century bond

Source: Wolfstreet

Wolf Ritcher wrote a nice piece on this. Will just copy my favourite bits here. (For reference, the bonds were sold at 90 cents on the dollar)

So don’t cry for Argentina’s investors that inexplicably bought $2.75 billion of 100-year bonds with a 7.125% coupon in June last year, at the peak of the cheap dollar-debt benightedness. 
Everyone knew that Argentina would default on these bonds before they’d mature, as it has defaulted repeatedly on its foreign-currency debts, and that it was only a question of when it would default and how many times. 
But the lure was just too juicy to not bite, in an environment where central-bank shenanigans (NIRP) were producing negative bond yields in Europe and Japan. And even in the US, ZIRP was still not fully banished. In the ensuing pandemic chase for yield, which had lasted years, investor brains were systematically starved of oxygen.
.... 
The thing is, Argentina hasn’t even defaulted on it yet, though 11 months after selling the bonds, it has already gone begging to the IMF for a bailout. And the IMF, in another bout of debt-benightedness, has agreed to lend it $50 billion. But those $50 billion won’t be used to pay off the century bond. They’ll be plowed into government spending and will disappear, leaving Argentina with an additional $50 billion in dollar-debt.
It’s not crazy for Argentina to have undertaken this piece of 100-year gaucho showmanship – in fact, you have to admire it for being able to pull it off. But it’s crazy for investors to have fallen for it. 
But now investors, including the hot money, are once again getting burned in the emerging markets, and the emerging markets are once again getting burned by their exodus. You’d think someone might have remembered that from the last few times it happened. But no. These old sins are repeated endlessly.

You couldn't see this happening? It's a freaking trainwreck in action slowed down frame by frame so you can watch it implode beautifully over this 100 years.

Don't say I didn't say. I said it twice, in May 18 and Jun 17. Before the IMF bailout, but after they raised interest rates to 40%, lol.

I ain't even worried about sticking my neck out for this one.

Clear as day for me about what WILL happen. It's not a question of "if", it's just a question of "when". This is inevitable.

I just need to be right once over the next 99 years. I've got history on my side as well, since Argentina has already defaulted 8 times since 1827 and never got past 63 years without a default. Lol, easy bet.


Remember, your masters would like to remind you that sovereign bonds are the safest things ever.

Government.
Bonds.
Are.
The.
Safest.
Bonds.
Ever.
(lol)

Oh, since I'm on a related topic.

Government.
Fiat.
Currency.
Are.
The.
Safest.
Money.
Ever.
(lol)


What could possibly go wrong?

Be safe out there. If you won't look after your own money, no one else will.

3 comments:

  1. Can make a punt on AGT Argentina ETF in the coming months. Death cross ripening. Still, it's currently 4.6X from when it started in 2007 (not including dividends) --- which is a heck of a lot better than our own STI.

    Amazing that in 1900 Argentina's GDP was about the same as the US, already a world power then. And the quality of life in Buenos Aires was on par with London & Paris & Berlin.

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