On Monday morning, we reported that in a stunning development, chronic defaulter Argentina - which just one year ago emerged from its latest bankruptcy - has found enough willing greater fools to sell 100-year bonds to. One person who especially stunned, was Mint's Bill Blain, who issued an entire note describing his disgust with what the market has devolved to.
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Argentina 100 Year Bonds: Really? Nobody Believes, But They Will Buy.
“Everyone should learn to Tango before they die.. ”
Markets can be a triumph of hope over reality. The news Argentina is going to launch a 100 year century bond caught my eye today.
Not much surprises me any more about markets, but really? Really!?
This appears to be a classic example of Blain’s Market Mantra No 3 – “The Markets have no memory, and neither do buyers.”
However, I expect to hear the bond will be massively oversubscribed as investors pile in for the high 8.25% coupon. I doubt anyone on the investor call was particularly convinced by the Argentine pitch, but they will love the coupon… In this financial environment, despite the fact too much cheap QE money has created massive financial asset inflation, you simply can’t pass the opportunity to earn 8% plus by playing pass the parcel with these bonds, hoping to profit for them…
And not being the holder when they stop ticking…. Because the ticking will stop. Momentarily. Before the boom.
Founded in 1816, by 1912 Argentina was officially the 10th wealthiest nation on Earth. Yet it has defaulted or restructured its debt 7 or 8 times (it depends how you count them)! From wealthy nation blessed with natural abundance, it circles economic reality in a chronically chaotic orbit of mismanagement, political crisis, inflation and repeated financial crisis.
What makes you believe anything has changed?
But for the grace of the ECB keeping Greece afloat, Argentinas’s $100 billion default in 2001 remains the largest sovereign default ever, and attempts to restructure that default triggered default again in 2014.
When it comes to default, Argentine is in a league of its own. It first managed to default in 1827 being unable to pay back loans on the back of rising UK rates, and again in 1890 after bankrupting the country trying to make Buenos Aires the “Paris of South America”. Interestingly the 1890 default was triggered by contagion following the near collapse of Barings – which was bailed out by other UK banks. (Barings will be a familiar name as the feckless UK institution which is rumoured to have got rich on insider news on the away win at Waterloo in 1815 and subsequently self-immolated in 1995 when rogue trader Nick Leeson bet the whole shop on a series of dodgy derivatives trades in Asia.)
Further Argentina defaults followed in 1956 and again in 1989. You might be spotting a trend…
30-yrs ago Tax avoidance was so deeply rooted in Argentina that less than 1% of the population paid any income tax. Inflation rates since the 1950s have typically been measured in 4-5 digit numbers, and in terms of wheelbarrows, rather than the money in them, being stolen.
Despite every possible natural and immoral advantage possible – including plentiful minerals, rich farmland, perfect beef growing conditions (there was a time when Fray Bentos was Beef!), and quietly replacing the troublesome indigenous native population with Europeans, Argentina has proved as politically stable as a 6 ft high Jenga tower with all the utility of a chocolate tea pot.
Yet the market now wants to lend them 100 year money at 8.25%.
Hmm… stop me… but is that wise? As long as you can keep flipping the bonds ahead of the next crisis.
What has changed that means Argentina has somehow reformed its economy from chronic instability to stability? What makes you think they’ve gone from irregular defaults or debt events ever 25 years or so, to overnight stability?
The FT says the country has been out meeting investors and telling them just how stable the country is under Presidente Mauricio Macri “who has appointed market friendly officials and cut a deal with holdout creditors..”.
Really. well that makes it all tickety-boo then… (US Readers: Massive Sarcasm Alert.)
Just asking…. but I’ve no problem with mass delusional investment moments.
We’ll happily trade them. If anyone wants some Argentina Century bonds, our EM bond team will be making markets in them. Caveat Emptor.