Background: Argentina defaulted on bonds following a debt crisis in 2001-2002. 92% of the investors agreed to haircuts, but a vulture fund picked up an 8% share at rock bottom prices and refused to negotiate.

In June, the US Supreme Court ruled that Argentina Cannot Selectively Default on the small group of hold-outs.

The problem with the ruling is that if Argentina pays the vulture fund full value, it will have to pay all the bondholders full value, and that would wreck the country again.

In the future, bond agreements will force everyone to go along with a majority decision.

Second Default

For now, and as a direct consequence of the court ruling, Argentina “Appears Determined to Default”, for the second time, on everyone.

A lead holdout investor in the Argentine debt dispute said on Friday that Argentina still refused to meet with it and negotiate a settlement before a July 30 deadline, after which the country faces a new default.

“The Argentine government appears determined to default. We hope it chooses to avoid this dead-end path,” a spokesman for NML Ltd, a division of Elliott Management Corp, said in a statement. 

Dead-End Path

The Dead-End Path is failure to negotiate.  NML Ltd. put Argentina in a position where it would lose either way. Argentina now attempts (and I hope it finds a way), to pay the 92% while defaulting totally on the 8% so they never get a cent ever.

Unfortunately, all Argentina’s efforts to circumvent the ruling eventually went through US banks or through other banks that will not accept payments only to the 92%.

At this point Argentina is stuck and will default on everyone.

Personal Note

I am in Glacier National Park, Montana (to be more precise, just outside the park). There is no phone or internet in the park. It can take 1 hour to do an email on the park satellite Wi-Fi. I return to Chicago tomorrow.

On this monitor I cannot tell exposures correctly. Hopefully these look OK. Color and exposure-corrected pictures will look much better.

Avalanche Lake

Avalanche Gorge

Mike “Mish” Shedlock