Argentina – Another Default Looming?

Argentina has been frequently in the headlines of late, as it attempts to fend off the court challenges by the so-called 'hold-outs', i.e., investors who have not participated in the rather undignified 'debt restructuring' following the 2001 default. Most of the investors currently holding these bonds are activist 'vulture' funds, who are doing the world a great service by trying to prove that governments are not necessarily above the law when it comes to servicing and repaying their debt. At one point Elliott Capital Management even had an Argentine navy ship confiscated in Ghanaian waters, much to the chagrin of the Kirchner government. Normally, governments will quietly buy these 'pests' off, so as not to damage their standing with current lenders. However, Argentina with its crypto-fascist government and forever ruined reputation seems not to mind the risk.

 

According to the WSJ:

 

“Worries that Argentina is inching closer to default sent the cost of insuring the country's government bonds to their highest level since November and pushed shares in its benchmark index lower.

The move followed remarks made by Argentina's lawyer in a U.S. appeals court hearing in New York on Wednesday, suggesting the government would choose to default if ordered to pay creditors who hadn't agreed to new terms for their debt resulting from the country's 2001 default. The cost to insure $10 million of Argentina's sovereign debt for one year rose to $6.6 million, the highest since the record $8.58 million set in November.

Argentina's Merval stock index fell 3.5% on Thursday, while the price of Argentina bonds due in 2017 fell to 71 cents to the dollar from 79 cents on Wednesday. Investors are no longer "complacent about the possibility of a sovereign default," said Gavan Nolan, credit analyst at Markit in London.

On Wednesday, Argentina asked the Second U.S. Circuit Court of Appeals to set aside a decision by U.S. District Judge Thomas Griesa last year that barred the country from making payments on its restructured debt unless it set aside additional funds for creditors who didn't participate in the restructuring. Judge Griesa awarded about $1.3 billion to a group that includes Elliott Management Corp.'s NML Capital Ltd. and Aurelius Capital Management LP.

U.S. Circuit Judge Reena Raggi questioned Argentina's lawyer, Jonathan Blackman, over the consequences should the court rule against the country. In response, Mr. Blackman said, "we would not voluntarily obey such an order." Analysts said his remarks imply Argentina would opt for default instead. After the hearing, Argentina Vice President Amado Boudou said: "It's not that Argentina won't pay. Argentina will always pay those who entered into the exchange. What Argentina won't do is break its own laws."

An adverse ruling could put Argentina in the position of either refusing to pay holdouts and defaulting on its bonds or paying holdouts and risk that investors who participated in debt restructurings in 2005 and 2010 would then sue the government for similar treatment. Argentina's next payment is due March 31. J.P. Morgan analysts said a ruling from the court is likely within about a month.”

 

(emphasis added)

There is of course a good reason why Argentina's government is prepared to risk a default: very few foreign lenders are lending it money anyway. This is due to the unpredictable and repressive economic policies the government pursues. Argentina's economy can probably be called a full-blown Zwangswirtschaft by now (literally: a 'coerced economy').

 

Stanley Druckenmiller Sees a Storm Coming

Legendary hedge fund investor – now retired – Stanley Druckenmiller has lately begun to speak out about the threats posed by the giant debt that has been amassed everywhere. He is especially concerned about US entitlement spending and how it is going to be funded; in fact, such as it now stands, it cannot be funded, so he is quite right to be concerned (this is not only true for the US, but for the entire industrialized world):


“Druckenmiller, 59, said the mushrooming costs of Social Security, Medicare and Medicaid, with unfunded liabilities as high as $211 trillion, will bankrupt the nation’s youth and pose a much greater danger than the country’s $16 trillion of debt currently being debated in Congress.

“While everybody is focusing on the here and now, there’s a much, much bigger storm that’s about to hit,” Druckenmiller said in an hour-long interview with Stephanie Ruhle on Bloomberg Television’s Market Makers. “I am not against seniors. What I am against is current seniors stealing from future seniors.”

Druckenmiller said unsustainable spending will eventually result in a crisis worse than the financial meltdown of 2008, when $29 trillion was erased from global equity markets. What’s particularly troubling, he said, is that government expenditures related to programs for the elderly rocketed in the past two decades, even before the first baby boomers, those born in 1946, started turning 65.

Druckenmiller stopped managing money for outside clients in 2010 after three decades in the business, including more than a decade as chief strategist for billionaire George Soros. From 1986 through 2010 he produced average annual returns of 30 percent, one of the best long-term track records in the industry.”

 

(emphasis added)

We certainly agree with Druckenmiller that the next crisis will be bigger than the last. The amplitudes of the crises of the current fiat money system are steadily increasing as it hurtles toward the final stretch of its existence. Consider that the crisis of 2008 could only be stopped by one last bastion in which investors had ans still have faith: the central banks. Even a number of governments were unable to escape the shock waves. It follows that next time, it is going to be that last bastion that is going to crumble.

 

Japan Gets Ready to Party With Easy Money from the BoJ

A recent Bloomberg article on the Kuroda nomination is full of allusions to the 'party time' an ultra-easy Bank of Japan is presumed to soon provide. It is entitled “BOJ Seen Spiking Punchbowl in April Under New Chief Kuroda”.


“The Bank of Japan may add monetary stimulus as early as April as prospective governor Haruhiko Kuroda looks to demonstrate a more aggressive approach to tackling 15 years of falling prices.

Kuroda, the current Asian Development Bank president, would take office after Governor Masaaki Shirakawa retires March 19, if confirmed by Parliament following his official nomination yesterday. Analysts at banks from Nomura Holdings Inc. to Mizuho Securities Co. see more easing as soon as an April 3-4 meeting.

Given a jump in Japanese stocks and slide in the yen in recent months in anticipation of greater stimulus under the new leadership, any failure to move in April risks disappointing investors, ex-Bank of England central banker Adam Posen said this week. With a third-straight fall in consumer prices in January showing the scale of his challenge, Kuroda may seek to adjust the timing, size and type of assets the BOJ buys.

“The party has just started,” said Masaaki Kanno, chief Japan economist at JPMorgan Chase & Co. in Tokyo, who in January predicted that Kuroda would get the job. “Give us more alcohol and get us excited — he will do that,” Kanno said of Kuroda, predicting that the bank’s open-ended bond purchases –currently scheduled to begin in January — will be brought forward to May or June.

Kanno’s analogy refers to a comment credited to former Federal Reserve Chairman William McChesney Martin equating tighter monetary policy with removing the punch bowl at a party.”

 

(emphasis added)

We prefer to call it monetary heroin, as the inevitable hangover always seems so much worse than what a mere 'punchbowl' is apt to produce. The whole world is seemingly hell-bent on proving that in this century, money printing can somehow be made to 'work'. Hastening the arrival of a cataclysm seems the more likely outcome.

 

Cyprus: Black Suits Expect Full Bailout

Looking at the new president of Cyprus standing next to his predecessor, one can't help thinking of two mafia dons:

 


 

CYPRUS

Cyprus's new President Nicos Anastasiades (R) stands next to his predecessor Demetris Christofias at the presidential palace in the capital Nicosia.

(Photo credit: Reuters / Andreas Manolis)

 


 

The gentlemen are confident that 'haircuts' and similar unpleasant proceedings will be avoided, and they have probably good reason to expect so now that euro area risk has been heightened again by Italy's election.


“Cyprus's new President Nicos Anastasiades vowed on Thursday to work for a swift conclusion of a bailout for the cash-starved island, ruling out debt or deposit "haircuts" for the Mediterranean nation threatened with a financial meltdown.

Economic turmoil engulfing Cyprus, one of the euro zone's smallest economies, could test theEuropean Union's mettle in a crisis threatening to spill beyond the tiny island's shores and unravel nascent recovery in the bloc. Cyprus has been waiting for an economic bailout from the EU and the International Monetary Fund for the past eight months, hobbled by its banks' exposure to debt-crippled Greece and fiscal slippage.

The disbursement of aid has been held up by concerns the island could barely afford a bailout bill which might equal its domestic output, and worries in some countries, particularly Germany, that Cyprus lags in financial transparency.

"We are seeking the solidarity of our (EU) partners, and within that framework we will negotiate for the conclusion of a loan agreement the soonest possible," Anastasiades said in his investiture speech to Cyprus's parliament. Aid to Cyprus is expected to take center stage when eurozone finance ministers meet in Brussels on March 4. A deal is anticipated at the end of March, a senior euro zone official said.

In one of his first appointments, Cyprus will be represented by new finance minister Michael Sarris, an economist with good contacts in Europe, as well as in the U.S., where he was a senior manager for the World Bank for three decades. Conservative Anastasiades, 66, swept to victory in a presidential runoff on February 24, armed with a strong mandate to conclude desperately needed aid from the EU and the IMF.

Cyprus sought aid last June, after an EU-sanctioned decision to write down Greek sovereign debt blew a 4.5 billion euro – or 25 percent of GDP – hole in balance sheets of the island's two largest lenders which then turned to the state for support. The island has itself been shut out of international financial markets for almost two years because of the implied high interest on its traded debt – even though that has tumbled in recent weeks to an 18 month low of 9.20 percent on a 10 year benchmark bond on Thursday.

Amid the worst recession in 40 years, the bank aid figure has since snowballed, and the island could need up to 17 billion euros in aid for both its banks and for fiscal needs, almost equalling the size of its economy.”

 

(emphasis added)

While there is lots of talk about Russian 'oligarchs' who are allegedly stashing their presumed ill-gotten gains at the island's banks, one must not forget what has actually sunk those banks: the 'exceptional' and 'once off' double-haircut on Greek government debt (first an actual haircut, followed by a virtual one as the Greek government bought back its deeply discounted debt in the markets). In that sense, the Cypriot leadership is not far wrong when it insists that a full-scale bailout would only be 'fair'. Since it will probably get one, euro area tax payers will bleed all over again.

 

Ireland's Unions Unhappy with Troika

Ireland is widely regarded as a 'success story' of the bailout regime, and in terms of how its debt has traded over the past 18 months or so, it cannot be denied that its standing with the markets has improved greatly. However, it seems some in Ireland are not really satisfied with the state of affairs. Ambrose Evans Pritchard reports in the Telegraph that the Confederation of Irish Trade Unions is less than enamored by what the policies of the so-called 'troika' (EU/ECB/IMF) have wrought:


“The Troika has done more damage to Ireland than Britain ever did in 800 years," said David Begg, head of the Irish Confederation of Trade Unions.

Mr Begg said the image of Ireland as the poster-child of EU recovery was a myth culitivated by EU creditors whose only interest is to recoup their money.

"At least the IMF officials are willing to admit they have been wrong but the EU officials are total ideologues. It is like being in an awful World War One conflict where the generals have expended a million lives to gain one yard of ground, yet nothing will change their mind in face of all the evidence."

The trade unions say internal consumption has collapsed by 26pc, and investment has fallen to the lowest level in recorded Irish history. Under-employment has reached 23pc despite emigration to Canada, Australia, the US and Britain. "The austerity has to stop. People feel they are drowning," he said.

The outburst comes a day after Irish unions reached a provisional deal with the government for a further round of public sector pay cuts averaging 5.5pc, rising to 10pc for higher earners such as doctors. This follows 14pc pay cuts already in force.

The grim picture is starkly at odds with a optimistic review by finance minister Michael Noonan, who told foreign journalists that exports are booming and the country is on track to return to full market access by the end of the year, becoming the first state to exit its EU-IMF Troika rescue progamme.

"We are very nearly at the end of our journey. We have re-engineered the country to be a modern competitive economy, we have succeeded," he said.”

 

(emphasis added)


The union actually has a good point in this case. Ireland was always thought to be 'taking one for the team' as the saying went when it agreed to bail out its banks. This was done for one reason only: to keep the bondholders of these banks in clover, in spite of the fact that they had taken on risk quite voluntarily. They were simply too intellectually lazy and greedy to realize that they had bought into one of the most egregious housing and mortgage credit bubbles ever. Ireland's population ever since bears the brunt of the resulting mess.


Interestingly, we also learn that the black hole that is Ireland's banks may still demand that yet more good money be thrown after bad:



“Mr Noonan said Ireland does not expect the ESM to take over the "legacy assets" of dead banks such as Anglo-Irish, which accounted for the lion's share of losses that pushed the country into the arms of the Troika.

However, he insisted that the door was open for action on "retrospective assets" of banks that are still operating and are part-owned by the state. "Nobody has resiled from this and we expect the agreement to be fulfilled. We have put €28bn into the trading banks, though we wouldn't expect to get it all back," he said.

Any deal would cut the headline figure on Ireland's sovereign debt, already 120pc of GDP and close to levels where debt dynamics can escape control if there are further shocks. Mr Noonan said the banks are "the best capitalised in Europe" with large buffers to cope with future loses, reducing the risk of any losses for the ESM.

Irish officials admitted privately that losses from mortgage arrears are likely to exceed provisions and that more capital made by needed once the central bank carries out a stress test in the Autumn.

"The AAA creditors in Europe are understandably concerned after all we have seen over the last five years, with banks turning into a black hole and losses popping up everytwhere. Of course they don't want to pour their money into this," said one official. Irish home prices have crashed by roughly 50pc. Lenders have been disguising the damage, stretching out mortgage repayments rather the foreclosing on bad loans and crystallising losses.”

 

(emphasis added)

Just like Cyprus, Ireland only wants its 'fair share' of Germany's money. Someone has to pay for those 'retrospective assets' after all.

 

Oldest Women Alive Named by Guinness

If Misao Okawa is any indication, Japan will go completely broke in very short order unless it raises the retirement age to 90 or thereabouts. The good woman was just named oldest living person in the world at the ripe age of 114 years. Not surprisingly, she 'has never been ill' and 'only recently began using a wheelchair to keep from falling over'. Mrs. Okawa will turn 115 on March 5.

A video of the Guinness sponsored ceremony can be seen here.

 


 

misao okawa

Certified to be of very advanced age: Misao Okawa, who's been around since the late 19th century. May she keep racking up records.

(Photo via AP)

 


 

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