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Argentina Defaults On Sovereign Debt

  1. this is too good for words and ironic for most of the us investors.

    they basically massaged cpi from 25 percent to under 9 percent for the index linked govenment bonds.

    the us have been doing this for years


    Argentine alert as inflation spectre stalks half the world

    Argentina is defaulting on its sovereign debt yet again, this time by stealth. Wealthier Portensos with a nose for trouble are pulling their savings out of Buenos Aires banks. Most are buying dollars, or slipping across the Rio de la Plata to deposit their stash in Uruguay.

    European and US pension funds that snapped up Argentina's peso bonds at the height of the credit bubble are discovering that it pays to probe the politics of Latin America - and indeed, Eastern Europe, and emerging Asia - before taking the plunge.

    It seems like only yesterday that Argentina halted payments on $95bn of external debt. The "Great Haircut" of 2001 was the biggest default in history. Investors are so forgiving.

    Argentina's trick this time, under the presidential double act of Nestor and Cristina Kirchner, has been to purge the National Statistics Office and appoint a friend to manage inflation data.

    The official Consumer Price Index (CPI) is 8.9pc. This is the benchmark used to set payments on inflation-linked bonds, now 40pc of the country's debt.

    The true inflation rate is more than 25pc, according to union staff of the statistics office. They allege manipulation. St Luis province is issuing its own data, three times higher.

    "Argentina is engineering a partial default on its domestic debt," said Professor Carmen Reinhart, from Maryland University.

    Some $300bn of inflation-linked bonds from Turkey, Hungary, Poland, Mexico, Brazil, South Africa, and other emerging markets (EM) have been sold, mostly to pension funds.

    Bankers in London and New York have hawked the debt with the same insouciance that they hawked US sub-prime mortgages. These "Linkers" were also deemed to be as safe as houses. Well, not quite.

    Vladimir Werning, from JP Morgan Chase, said the yield spread on inflation-linked peso debt has ballooned to 1230 basis points. They are priced for the dustbin.

    On paper, Argentina looks safe. The world's biggest exporter of soybeans - and number two in corn - is riding the food boom, even if at war with its own farmers. The trade surplus is $12bn. Foreign reserves are more than $50bn. Yet the default premium is soaring anyway.

    Argentina is a warning of what can go wrong once inflation gets out of hand, as it has in roughly half the world.

  3. Maybe someday people will realize the
    US and Europe are doing the exact same thing

    Where will they put their money, then?
  4. Probably back in Gold or Silver. All governments lie about inflation. It's just the U.S. does it more blatantly than other IMO. Omitting food and energy cmon!
  5. Breaker, are you talking about Argentina or the US here. Seems you could have said virtually the same about the US as we do our level best to screw central banks and others who hold fixed interest US paper.
  6. Bonds are a sucker's bet anyway.. Why risk $100 to earn $5 to $10 per year?
  7. 100 for 5? that is some silly thing to say..

    i believe in 2002 we bought brazil bonds at something like 27.5 yield only to clip 2 coupons, and sell then at 13% yield with 100% cap gains... bonds can provide great opportunity at times... i would not touch argentina though ANY TIME.. no respect or discipline there re that...
  8. People that bought bonds back when prime went to 21% in the early 1980's made a killing when rates went down again.

    Next time rates get that high I'll probably buy some.
  9. Actually, US Government does not lie about any statistics. Every change & methodology is documented. There are tons of footnotes for you to read and understand how they derive their numbers.
  10. Yes sure. Those that rely on US CPI numbers must not drive or live in houses. Namely the Fed governors, Bernanke, et al.
  12. Sure but let's be clear we are talking semantics now. When prices go up on fuel and food that's call inflation and we both know it.
  13. A consumer economy where consumption costs - prices on consumer goods - are rising? Sure sounds like inflation.

    On a larger scale it just seems like balancing consumption and prices around the world. Go globalization - all the way ;)
  14. It's not semantics, it's called statistics.
  15. "Deception by convolution" is still a lie... regardless of what the Gummint calls it. :mad:
  16. They made the changes to the methods in order to get "better" numbers as a result. Note how low the once important Misery Index would be if added up now using government supplied numbers, vs what it would be if the calculation methods hadn't been changed (see shadowstats.com). In all honesty, I think the word "lie" is accurate and appropriate. They don't want the truth to be broadcast.
  17. I'm hoping this is sarcasm...
    If not then can you please get me some recent M3 data?
  18. Inflation-protected bonds rely on the trustworthiness of whichever body calculates the inflation rate.

    If the government both issues the bonds, and decides the inflation rate, then that's what you might call a conflict of interest. Any CEO doing that would be sent to jail. But in the public sector, it's just business as usual.
  19. if a bond is too risky, wait for prices to drop for a higher yield