Lots of tango, but no cash.
Argentina. Home to the Patagonian Mountains, Iguazu Falls, and regular sovereign defaults. Familiar, but still fascinating – which could describe a glass of Malbec, or just as easily the Argentinean economy at large. Like the wine, investors in June of last year expected the economy to improve with time, having piled $2.75bn into its selfdescriptive ‘century bond’ and setting a new high watermark for bull market insanity.
Century bond investors were not actually intending to wait until 2117 to get their money back though – the bonds were sold with a 7 per cent coupon and at 90 cents on the dollar which meant their initial bond duration was less than thirteen years. And if you think thirteen years is a long time in Argentina, you’re right. In-fact thirteen weeks may as well be an eternity in financial terms: the MERVAL was at all-time highs in mid-January, now down a quarter in dollar terms; and the peso received a walloping amidst the central bank jerking interest rates up by nearly 13 points to 40 per cent over a matter of days.
Argentine President Mauricio Macri would probably admit he’s had better weeks – politically speaking the former sports executive is caught in a mortal vice, squeezed between the IMF – to which he went hat in hand last week – and popular opinion, where the economic wounds from IMF intervention in the ‘90s are still felt.
No doubt the IMF will establish a beachhead, but in the interim some investors are strapping on their parachutes. Bloomberg reports that Harvard Management has approached investors to buy minority or majority stakes in as much as $700 million of property in Brazil, Uruguay and Argentina, and become strategic partners at the same time in an effort to reduce the endowment’s risk.
Macri, who was often seen playing golf with president Obama while in office and an avid player, might be reminded of the old golf adage: when you’re caught in a storm, with the thunder a lightning approaching, take hold of your 1-iron – because not even God can hit a 1-iron.
Time to find your 1-iron Macri.
