Month: July 2014

From 1800 to 1950, Argentina had been a relatively low frequency ‘defaulter’, but as the following chart from The Economist shows, since then (as we noted here) they have made up for it.

 

Argentina has defaulted on its external debt seven times and on its domestic debt five times since independence almost 200 years ago, putting it somewhere in the middle of the historical ranks of the world’s serial defaulters.

However, as WSJ notes, a long history of economic booms and busts have scarred the national psyche and left external creditors wary as the country hovers on the edge of  its second default of the 21st century.

Argentina first defaulted on its sovereign debt in 1827, just 11 years after declaring independence from Spain.

 

 

As The Economist adds,

Ecuador and Venezuela have both reneged on their debts ten times; four other countries have defaulted nine times in total, according to data from Carmen Reinhart and Kenneth Rogoff, two experts on sovereign debt.

 

Nine of the top ten defaulters are from Latin America, although many have shown no trace of the debt-default disease for decades. That, alas, is plainly not the case for Argentina.

h/t @palmerandrew via The Economist

via Zero Hedge http://ift.tt/1oQNVdQ Tyler Durden

Bloomberg reports on Argentina today: 

The nation missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.

Argentina has about $29 billion of bonds sold in international markets and denominated in foreign currencies with so-called cross-default provisions. Under their terms, Argentina would have to pay back the entire balance — plus unpaid interest — if at least 25 percent of holders demand that their money be returned. The potential liabilities are equal to the country’s foreign reserves, which are already hovering close to an eight-year low.

Argentine bonds spiked 12% yesterday in anticipation of a deal. No deal materialized!

The price of Argentina’s $4.3 billion of bonds due in December 2033 soared yesterday by 11.8 percent to 95.57 cents on the dollar, the highest level since 2010. The bonds were quoted at 95.89 cents today, according to prices on Bloomberg at 11:08 a.m. in London. 

The Argentine peso will have to be devalued if the country is forced to make good on the debts. That throws gasoline on the already hot inflaton coals…

… The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, will suffer in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Hernan Yellati, the head of research at Banctrust & Co.

Default Swaps soared, but I can show smaller and larger players alike how to make their own synthetic default swaps for a fraction of the costs the banks levy, and much more exact as well.

The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago. Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world yesterday, according to data compiled by CMA. The five-year contracts were quoted at a cost of $3.1 million plus $500,000 a year to insure $10 million of debt, CMA reported at 11 p.m. in London yesterday.

About $1 billion of Argentine sovereign debt is covered by the contracts, compared with $10 billion of Russian government obligations and $16 billion of Brazilian debt. The International Swaps & Derivatives Association is responsible for determining if a credit event has taken place to trigger payment to the holders. That decision would be taken by the association’s Determinations Committee, a group of 15 dealers and investors, only after a ruling has been requested by a trader.

This is how one will go about creating a very specific risk/reward profile through our UltraCoin client to speculate on/hedge against the Argentine situation… 

via Zero Hedge http://ift.tt/1lg9q2P Reggie Middleton

Bloomberg reports on Argentina today: 

The nation missed a deadline yesterday to pay $539 million in interest after two full days of negotiations in New York failed to produce an accord with creditors from its last default in 2001. A U.S. judge ruled that the payment couldn’t be made unless those investors, a group of hedge funds led by Elliott Management Corp., got the $1.5 billion they claimed.

Argentina has about $29 billion of bonds sold in international markets and denominated in foreign currencies with so-called cross-default provisions. Under their terms, Argentina would have to pay back the entire balance — plus unpaid interest — if at least 25 percent of holders demand that their money be returned. The potential liabilities are equal to the country’s foreign reserves, which are already hovering close to an eight-year low.

Argentine bonds spiked 12% yesterday in anticipation of a deal. No deal materialized!

The price of Argentina’s $4.3 billion of bonds due in December 2033 soared yesterday by 11.8 percent to 95.57 cents on the dollar, the highest level since 2010. The bonds were quoted at 95.89 cents today, according to prices on Bloomberg at 11:08 a.m. in London. 

The Argentine peso will have to be devalued if the country is forced to make good on the debts. That throws gasoline on the already hot inflaton coals…

… The economy, already headed for its first annual contraction since 2002 amid 40 percent inflation, will suffer in a default scenario as Argentines scrambling for dollars cause the peso to weaken and activity to slump, according to Hernan Yellati, the head of research at Banctrust & Co.

Default Swaps soared, but I can show smaller and larger players alike how to make their own synthetic default swaps for a fraction of the costs the banks levy, and much more exact as well.

The country hasn’t been able to access international credit markets since its $95 billion default 13 years ago. Credit-default swaps to protect against losses from an Argentine default over the next three months had become the most expensive in the world yesterday, according to data compiled by CMA. The five-year contracts were quoted at a cost of $3.1 million plus $500,000 a year to insure $10 million of debt, CMA reported at 11 p.m. in London yesterday.

About $1 billion of Argentine sovereign debt is covered by the contracts, compared with $10 billion of Russian government obligations and $16 billion of Brazilian debt. The International Swaps & Derivatives Association is responsible for determining if a credit event has taken place to trigger payment to the holders. That decision would be taken by the association’s Determinations Committee, a group of 15 dealers and investors, only after a ruling has been requested by a trader.

This is how one will go about creating a very specific risk/reward profile through our UltraCoin client to speculate on/hedge against the Argentine situation… 

via Zero Hedge http://ift.tt/1lg9q2P Reggie Middleton

Update: According to Ambito the deal is a no go as Italian bondholders (and likely all others) claim that a private deal with a buyer of holdout bonds would also trigger the RUFO clause, thus making the deal meaningless and forcing Argentina to payout billions more. From Ambito:

Italian bondholders say a private agreement also would trigger the clause RUFO

 

The representative of a group of debt holders Argentina Italy, Tulio Zembo said that any agreement between private RUFO also would trigger the clause.

 

“I do not understand the idea of banks because that would trigger the RUFO” Economy Minister said yesterday. Please do not help us because it makes the situation worse,” said Zembo in dialogue with Radio La Red

 

“All that is settlement discussion will have to olvidárselo until January 2015, because you can not argue,” he said.

 

For the representative of Italian bondholders “the drama of a default is when the debtor is kneeling and can not pay, that would be a problem, here’s a serious problem but should concentrate all legal guns to go,” he said by way of conclusion.

* * *

With Argentine politicians explaining that “Argentina is not in default” and ISDA set to decide if last night’s default is an ‘official’ trigger event for CDS, it appears Kirchner, Kicillof, and their (k)omrades may have found an angel. The initial ‘bailout’ plan, by which Argentine banks bought the holdouts defaulted debt (then promptly acquiesced to Argentina’s old debt-swap agreement), failed last night; but, as WSJ reports, JPMorgan is in discussions to buy the defaulted bonds of Argentina’s holdout creditors. While this would not impact the default decision (that is history), it would speed up the exit from default rapidly. Of course, JPM is not doing this out of love for Argentina, we suspect they are on the hook for a few billion CDS and need some cheapest-to-deliver bonds to help them through the settlement process.

 

It appears most have taken profits or unwound positions in CDS over the last few years but there remains around $20 billion notional outstanding in Argentina CDS

 

CDS has surged…on expectations of a trigger being called by ISDA

As WSJ reports,

Still, the bonds remain at lofty prices because some investors seem hopeful that Argentina can quickly emerge from default. Many were focusing on a potential private-sector solution. Argentine press has reported this week that private-sector banks are trying to hatch a plan to help Argentina pay off the debt.

 

…

 

J.P. Morgan is in discussions to buy the defaulted bonds of Argentina’s holdout creditors, according to a person familiar with the matter.

 

Buying the bonds is one of many options, and the talks between J.P. Morgan and Argentine bondholders were still fluid, the person familiar said.

 

…

 

“The expectation of a bank deal is supporting bond prices,” said Siobhan Morden, head of Latin America strategy at Jefferies LLC. “But it’s difficult to trade these headlines when you’re getting whiplashed” by sharp price moves in thin trading. “Most people have adopted their view, taken their positions, and waited to see what the final outcome will be,” Ms. Morden said.

*  *  *

We note that a handful of Wall Street banks earlier this year pitched bond sales that would have paved the way for a deal between Argentina and its holdout creditors. Argentine officials didn’t approve the proposals then… maybe they will now…

via Zero Hedge http://ift.tt/1oQNMXJ Tyler Durden

Who says geopolitics doesn’t matter in today’s efficient markets?

 

 

and now everything red for July…

via Zero Hedge http://ift.tt/1oQNMHk Tyler Durden

The ECB has just about everything it can at the crisis over there.

 

But inflation continues to fall.

 

Indeed, a mere one month after the European Central Bank or ECB announced NEGATIVE interest rates, or NIRP, (meaning you have to pay to deposit your money in a bank) the EU’s inflation readings fell again to 0.4%.

 

This has Mario Draghi in a panic. As President of the ECB, he wants to force banks to lend so that inflation will rise. The reason for this is because Draghi believes inflation is the same thing as growth.

 

Deflation, to a Keynesian like Draghi, is an unspeakable evil that must be destroyed via currency depreciation and low interest rates. Deflation must never be allowed to happen, no matter what/

 

Why are the ECB and EU so concerned about deflation? After all, doesn’t deflation make everything cheaper for EU citizens?

 

The reason the ECB is so panicked is because Europe as a whole is up to its eyeballs in debt. Debt deflation means that this debt loan is becoming more difficult to service.

 

Consider that, taken as a whole, European banks are leveraged at 26 to 1.

 

In simple terms, this means they have just €1 in capital for every €26 in assets. Bear in mind, that most of those “assets” are in fact loans made to EU corporations, consumers and other EU banks.

 

When you are leveraged at these levels, you only need the assets you invest in to fall 4% before you’ve wiped out all of your underlying capital (€26 * 0.04 = €1.04).

 

At that point you are total insolvent.

 

As one can imagine, with most of Europe’s economy in the toilet, many of the assets owned by EU banks have fallen in value by over 4%. Fortunately the ECB doesn’t require them to accurately mark these assets at realistic values.

 

Today, Europe is not much better off than it was at the depth of the crisis in 2012. Using make believe accounting standards and buying your own bonds to push yields down doesn’t really solve anything.

 

Indeed, if you’re totally insolvent it doesn’t matter where interest rates are. At some point you’ve reached debt saturation: the point at which additional debt, no matter how cheap is of no value.

 

Europe hit that point many years ago.

 

So now Draghi is resorting to absolute insanity (negative interest rates) to try and turn things around. All that’s left is QE. But given the total failure that has been in the US when it comes to creating growth or forcing banks to lend, we don’t expect this to have much of an impact in Europe.

 

This concludes this article. If you’re looking for the means of protecting your portfolio from the coming collapse, you can pick up a FREE investment report titled Protect Your Portfolio at http://ift.tt/170oFLH.

 

This report outlines a number of strategies you can implement to prepare yourself and your loved ones from the coming market carnage.

 

Best Regards

 

Phoenix Capital Research

 

 

via Zero Hedge http://ift.tt/1oQBH4O Phoenix Capital Research

As reported earlier, following some horrifying guidance German sportswear titan Adidas tumbled by the most ever, blaming not the weather, or the World Cup, but Russia (leading some to wonder just who will be shouldering all those “costs” Obama refers to during every teleprompted appearance).

What we didn’t mention is that today’s record massacre of Adidas longs happened minutes before Goldman decided, after the fact to remove the company from its “Conviction Buy” list (but still kept the stock that has lost 18% in the past year at a Buy).

To wit: “We remove adidas from the Conviction List following the company reducing FY14 net income guidance (to €650mn from €830mn), resulting in 33%/40%/46% cuts to our FY14-16 earnings estimates. Our new 12-month price target is €77.5. Since being added to the Conviction List on October 18, 2013, the shares are -16.1% vs. FTSE World Europe index +6.7%. We also remove the stock from the Directors of Research Focus List.“

What can one possibly add here to the following well-known image which says it all.

via Zero Hedge http://ift.tt/1oQBGhr Tyler Durden

As reported earlier, following some horrifying guidance German sportswear titan Adidas tumbled by the most ever, blaming not the weather, or the World Cup, but Russia (leading some to wonder just who will be shouldering all those “costs” Obama refers to during every teleprompted appearance).

What we didn’t mention is that today’s record massacre of Adidas longs happened minutes before Goldman decided, after the fact to remove the company from its “Conviction Buy” list (but still kept the stock that has lost 18% in the past year at a Buy).

To wit: “We remove adidas from the Conviction List following the company reducing FY14 net income guidance (to €650mn from €830mn), resulting in 33%/40%/46% cuts to our FY14-16 earnings estimates. Our new 12-month price target is €77.5. Since being added to the Conviction List on October 18, 2013, the shares are -16.1% vs. FTSE World Europe index +6.7%. We also remove the stock from the Directors of Research Focus List.“

What can one possibly add here to the following well-known image which says it all.

via Zero Hedge http://ift.tt/1oQBGhr Tyler Durden