Wall Street Realizing That Argentina May Be Just As Irrational As It Seems

It’s not clear when it happened, exactly. It certainly wasn’t during the past few years of dicking around, ever confident in its ability to con one U.S. court or another into buying what it was selling. It wasn’t when Argentina started taking out all of those full-page newspaper ads or blaming the Obama administration for its refusal to pay its bills. It wasn’t even when the country decided that it had a week to wait to start talks with a court-appointed mediator just four weeks before D-day, or when it refused to budge from its “give us our stay or we’ll commit suicide” negotiating position or to have a chat with that awful Paul Singer. Indeed, as recently as last week, banks and investors were clamoring to get themselves a piece of the obviously-imminent settlement. I mean, who would be so stupid as to needlessly and recklessly send their already flatlining economy into a spiraling nosedive to save face?

The answer, it seems, is Argentina and President Cristina Kirchner. And it has begun to dawn on Wall Street, what with the country’s negotiators taking a long weekend with just five days to go, even as Argentina pretends to be trying to find a way out of its self-created mess, that the stupefyingly simple solution to the problem will not come to pass by tomorrow.

Analysts and investors in the past few weeks have been relatively upbeat on the prospects for an agreement, expecting Argentina to agree to pay the holdouts at the last minute.

But those prospects seemed to dim following the news that Monday would come and go without further talks. On Monday, the court-appointed mediator said Argentina had arranged for a meeting on Tuesday, but wouldn’t meet face to face with the holdouts….

Argentina’s dollar bonds due 2033 fell as low as 81.375 cents on the dollar, a five-week low and down from as high as 90 cents on the dollar as recently as Thursday….

57% of investors polled by Jefferies now expect an Argentine default. Should that happen, those investors expect Argentina’s benchmark bonds to fall to an average of 68 cents.

Investors Losing Confidence Argentina Will Reach Deal With Creditors [WSJ]

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3 Responses to “Wall Street Realizing That Argentina May Be Just As Irrational As It Seems”

  1. erasmito says:

    If you believe propaganda, then you lose grasp on reality.

    You believe the ridiculous statement about “nosedive to save face”. You believe stereotypical clichés about crazy Latin American leaders, so you cannot understand what is going on.

    “Save face” means nothing here. Argentina follows a perfectly rational decision tree.

    The point is the RUFO clause. The RUFO clause will trigger debt payments for an amount between 120 billion and 500 billion. It has a low probability to be triggered, but no good manager ignores such a monumental risk just because the probability is low.

    The probability of triggering the RUFO clause is not zero. It can’t even be evaluated, so is not even a problem of risk, but of uncertainty.

    It makes non-sense to risk 500 billion on an unknown probability. That is what the Argentine government repeated again and again, but the tame lobbied press refused to acknowledge. The press pretends without justification that the RUFO is not a risk, so it tries to put up the crazy history of a leader, which goes to default just to “save face”.

    That is ridiculous.

    Argentina has 2 choices:

    1- Pay now 1.5 billion, trigger the payment of 15 additional billion, and triggering the RUFO, meaning another 120 to 500 billion.
    2- Default today, and wait until 2015, when the RUFO expires, saving 120 to 500 billion with total certainty.

    Is not a choice between default and not default. Is a choice between a small default, and a giant, hyperdefault.

    Obviously, the rational choice is the small default.