Ignorance or bliss?

[Bajo_cero2]

Well, you could buy a 72 pack of huggies on mercadolibre for 51 pesos.

Which either means inflation is a myth, and the economy is actually experiencing severe deflation. Or it means that the price of huggies in an overpriced "aspirational" supermaket isn't a great economic indicator.

Well, if you buy at the Central Market, you can save until 75% buying at the real market (monopolies are the big issue regarding overpricing).

The prices in some areas of the city are overpriced because they are targetting those argentinians who nowadays are so welthy (regarding to soy) that they don´t care how much they pay.

There are free buses for poor people, so there is where argentinians buy to deal with inflacion. But middle class don`t go to Mercado Central because it is ugly...

Unofficial website:
http://www.alcentral.com.ar/

Official website:
http://www.mercadocentral.com.ar/site2006/index.php?id=tw_redireccion

Fruit, vegetables, meat and cheese prices, estimatives:
http://www.alcentral.com.ar/precios-minoristas.html

Asado is 10 pesos regarding an agreement with the government.

However, the prices are estimatives. These are the prices if you go early, but they go down hour by hour because the food they don´t sell, they drop it. So, 20 minutes before closing, prices are extremely low and it is all about haggling.

Regards

 

[darmanad]

See follow up questions in blue. Can you answer succintly?

The way argentinian economist found to avoid these credit rating instituts was to offer bonos atados a la inflación. Smart, wasn´t it?
http://www.cronista.com/notas/201664-comenzo-hoy-el-canje-bonos-atados-la-inflacion[quote/]
I have some problem reading the Spanish text. Can you explain how tying the payout on government bonds to artificial INDEC rates makes borrowing cheaper for the govt? Do you mean to say that the people buying either peso or U$S denominated bonds will accept a rate of return less than what reality would require because they will accept the phoney INDEC "inflation adjustments" as correct?
Can you help us who are not fluent in Spanish comprehend EXACTLY what the article says about interest rates and can you answer my questions?
What is the rate of interest the AR govt pays on bonds it offers? Or state simply the formula it uses incorporating the INDEC adjustments.

This is too basic info and It has no relationship with argentina since 2001. Before that this info was at the news every day. After that, Argentina doesn´t recognize as valid this info, only INDEC info is valid.[quote/]
You mean the government of Argentina doesn't recognize the validity of its credit status? What about the people who lend it money?

 

[darmanad]

You are right only if you are talking about any other country.

As I explained you before, Argentina (not the credit reporting agencies) rules over the borrowing cost.

As you see, the situation is quite unique. Former President K developed this politics.

Regard

The market will "rule over the borrowing rate" and the market will not accept phonied adjustments that don't reflect reality. I would really appreciate it if you would distill the info you have attached in Spanish into a concise statement of what the bond interest is , or a simple statement of the formula the bonds use to calculate interest payment . Is that possible?

 

[Bajo_cero2]

I have some problem reading the Spanish text. Can you explain how tying the payout on government bonds to artificial INDEC rates makes borrowing cheaper for the govt? Do you mean to say that the people buying either peso or U$S denominated bonds will accept a rate of return less than what reality would require because they will accept the phoney INDEC "inflation adjustments" as correct?
Can you help us who are not fluent in Spanish comprehend EXACTLY what the article says about interest rates and can you answer my questions?

Well, the point was that Argentina has no access to credit because the country was in default. So they offered theses papers tied to inflation and they were very succesfull instead of asking for money to the FMI at exorbitant interest rates but, worst, having them over your shoulders interferecing the economy.

INDEC is the government office that stablishes how much inflation do we have.

What is the rate of interest the AR govt pays on bonds it offers? Or state simply the formula it uses incorporating the INDEC adjustments.

The big deal is that INDEC creates the CER (it is a formula).

Here you have a CER calculator:

http://www.puntoprofesional.com/CER-B/CERCC.HTM

This article is entitle: "who killed the bonos atados a la inflacion"
http://www.inversorglobal.com.ar/noticias/inversiones_financieras/caida_bonos_indice_indec

According to this article Argentina was paying 1%. But this is old, I have no recent info, you can google it.
So, my assert about the economist were saving money is right.

You mean the government of Argentina doesn't recognize the validity of its credit status? What about the people who lend it money?

Exactly.
The fact is that the credit status is also untrustable and people was buying argentinians papers and making good profits with them. So, the real market finds argentinians papers a good investment. Of course, not the ones atados a la inflacion, they are dead. There are new ones tied to growth, they are very proffitables. In fact, mainly argentinians invest in those papers instead os stocks.

 

[Bajo_cero2]

The market will "rule over the borrowing rate" and the market will not accept phonied adjustments that don't reflect reality. I would really appreciate it if you would distill the info you have attached in Spanish into a concise statement of what the bond interest is , or a simple statement of the formula the bonds use to calculate interest payment . Is that possible?

Reallity shows 2 things:

Those credit agencies lost credibility, remember that that according to them the US was 0 risk. Many of those agencies...disapeared.

The market realized that those papers were dead, so there was a huge acceptance on the exchange of those papers for new ones tied to growth or other conditions.

Now you are interested, you can google info about it. Probably there is info at the Buenos Aires Herald. I have to go to dance, it is saturday night

Regards

 

[darmanad]

I am not sure that AR govt didn't outsmart itself when it renegotiated the debt from its 2001 default. About 10 days ago the 2nd Circuit Fed Ct of Appeals (NY) upheld the bond provisions that result in 101% annual interest rate. See www.srz.com/.../093010_2nd_Circuit_Upholds_101%25_Annual_Interest_ Rate.pdf
When a debtor is in default and without funds, creditors will accept a reworking of the debt and in the process may forgive part of it or accept new and different interest rates and other loan terms. That is what happened in 2001 when AR sought to dig itself out. This lawsuit involves some of those 2001 bonds (written in 2001 to rework the defaulted debt) that were also subsequently defaulted on...now a big problem for AR. I can see it now. Aerolineas Argentinas Airlines, owned by the state and without credit, will again have to pay cash to buy fuel when its planes land in the US and other countries.

When did AR begin issuing these bonos about which you now brag? 2005 per this from your post above? You say (pasting from a wikipedia note) that K offered 3 kind of bonos on 2005.

1. El bono Par, que no implica quita del capital original adeudado, pagará un interés inicial del 1,33% que subirá progresivamente hasta alcanzar el 5,25% a los 25 años de su emisión, y tendrá un plazo de 33 años

2. El bono Cuasi Par —que incluye una reducción del 30,1% del capital— pagará un interés del 3,31% más un coeficiente ligado al índice de precios al consumidor y tendrá un plazo de 30 años.

3. El bono Descuento —que implicará una quita del 66,3%— pagará el mayor interés, 8,28%, y tendrá un plazo de 28 años.

Curiously when I switch to the English version of the linked Spanish wikipedia text, the text changes. This part of the text appears to be absent so I could not read the English version. Can you summarize these words as they seem to be critical. Where is the INDEC adjustment indicated? Who bought these bonds? Local investors only?

In any case as far as I can tell your explanations are again confused and confusing. Markets are not going to be fooled into buying a bond that phonies an interest rate. Here is an article that simply and clearly states that new AR international bonds will carry an interest rate of about 12%, considerably higher than the rate paid by virtually all other countries. http://en.mercopress.com/2010/03/31...-sell-global-bonds-at-one-digit-interest-rate
It provides lots of info that contradicts all that you seem to be saying.

Mrs. Kirchner is seeking funds to help cover a budget deficit that RBS Securities Inc. said will more than double to 1.4% of GDP this year from 2009. Inflation will top 20% this year, the highest in the region after Venezuela, because of “extremely lax fiscal and monetary policies,” said Alberto Ramos, an economist at Goldman Sachs Group Inc.
The government plans to tap global credit markets for the first time since its 2001 debt default after reaching a restructuring accord with holders of about 20 billion USD of bonds. Economy Minister Amado Boudou, who vowed last week to give defaulted debt holders a final offer by mid-April, said that the government will sell bonds at a “single digit” interest rate after an agreement is reached.
“To make the bonds attractive, Argentina will have to pay more than 10%,” Marengo said. “The 2001 debt default, quickening inflation and not very reasonable economic policies all have a price.”
The last country to sell bonds yielding over 10% was Indonesia, which in February 2009 sold 2 billion USD of 10-year bonds to yield 11.75% and $1 billion of five-year bonds to yield 10.5%, according to data compiled by Bloomberg. Indonesia has a BB rating on its long-term foreign currency debt from Standard & Poor’s, four levels above Argentina’s B- rating.
Marengo and former deputy Economy Minister Jorge Todesca said the Argetnine government will likely have to pay about 12% on any new bonds. Argentina’s dollar bonds due in 2015 and 2033 both trade at yields above 11%.
“Argentina is a risky market and that will make investors demand a higher yield” said Todesca.

How do you reconcile this with your "aren't we so smart" reportage?

 

[Bajo_cero2]

I am not sure that AR govt didn't outsmart itself when it renegotiated the debt from its 2001 default. About 10 days ago the 2nd Circuit Fed Ct of Appeals (NY) upheld the bond provisions that result in 101% annual interest rate. See www.srz.com/.../093010_2nd_Circuit_Upholds_101%25_Annual_Interest_ Rate.pdf

Well, this applyes only to does who are in default. About 80% of the debts was exchanged for the new bonos.
However, how do you enforze it? Invading? just joking, I know the answer.

When a debtor is in default and without funds, creditors will accept a reworking of the debt and in the process may forgive part of it or accept new and different interest rates and other loan terms. That is what happened in 2001 when AR sought to dig itself out.

This is standard for companies but it was the first time it was done with a contry as far as I know.

This lawsuit involves some of those 2001 bonds (written in 2001 to rework the defaulted debt) that were also subsequently defaulted on...now a big problem for AR. I can see it now. Aerolineas Argentinas Airlines, owned by the state and without credit, will again have to pay cash to buy fuel when its planes land in the US and other countries.

This is not big deal, it was going to be worst the plan b: civil war? riots?

When did AR begin issuing these bonos about which you now brag? 2005 per this from your post above? You say (pasting from a wikipedia note) that K offered 3 kind of bonos on 2005.

1. El bono Par, que no implica quita del capital original adeudado, pagará un interés inicial del 1,33% que subirá progresivamente hasta alcanzar el 5,25% a los 25 años de su emisión, y tendrá un plazo de 33 años

It pays 100% of the debt. No discount but the interest is low, 1,33%. Gradually it will rise until 5.25 at the 25th year. From the 25th the 33th the interest will be 5.25.

2. El bono Cuasi Par —que incluye una reducción del 30,1% del capital— pagará un interés del 3,31% más un coeficiente ligado al índice de precios al consumidor y tendrá un plazo de 30 años.

This is intermediate. 30% of the debt is removed but the interest paid is higher 3.31% plus CER (the formula about inflation).

3. El bono Descuento —que implicará una quita del 66,3%— pagará el mayor interés, 8,28%, y tendrá un plazo de 28 años.

This is called bono discount. 66.3% of the debt is remored. There will be a flat interest of 8.28%

Who bought these bonds? Local investors only?

This bonds weren´t sold. They were exchanged for the old ones that were in default. The old one had a very highe interest rate (according to the credit agencies you mentioned)

In any case as far as I can tell your explanations are again confused and confusing.

It is clear as water. There are 2 options, your are dumm or you just don´t like what I explained with evidence, it means reallity. Obviously you don`t like it.

Markets are not going to be fooled into buying a bond that phonies an interest rate.

I am not speculating, it is a fact they already did it. But they didn´t lose money, they just didn´t get a ridiculous amount of money.

But I used the word lie for been very clear. The fact is that there is a debate about the formula they use to calculate CER. The government and very prestigious economist say it is adecuate. The neos don´t agree. So, it is open to debate? Perhaps, but INDEC rules.

Here is an article that simply and clearly states that new AR international bonds will carry an interest rate of about 12%, considerably higher than the rate paid by virtually all other countries. http://en.mercopress.com/2010/03/31...-sell-global-bonds-at-one-digit-interest-rate
It provides lots of info that contradicts all that you seem to be saying.

There is not contradiction at all.
1) I described what happened in past. There is not contradiction. If the next bonds will pay whatever %, this is regarding future.
2) Those people who make those asserts are employeds of some credit rating agencies. They talk about cutting expenditures, so what? they are neos, what`s new about it? In fact, those advices created 2001 crisis.
3) The newspaper can interview whoever they want. It means nothing.
4) About how much % will the country has to pay, wait and see, I don´t like diviners. This is a negotiation.

How do you reconcile this with your "aren't we so smart" reportage?

The way they managed the default was innovative and very smart. They got a better deal and saved a lot of money as I assert earlier.

What is the relationship between price is fish oil and apples? None. You cannot explain Keynes from the neos school.

Keynes design an economy theory regarding how to solve a crisis.
Neoliberals ideas might work well in an stable country but if you use them during a crisis this is going to get worst.
However there is not such a thing in the world right now, I mean, an stable country.
So, the smartest thing to do is to abandon this tool and to use the proper one.

So, who are the bunch of idiots? Nobody want to admit they are, for sure. But...some body destroyed the most powerful economy in the world...somebody rise a dead economy with very low resources....you tell me.

But something is clear. You don´t play baseball with futbol rules.

So, my advice is, don´t be so mind closed, abandon dogmas and replace them with ideas. If you want to do an analisys, use the neo and the keynes hat to think about it.

After this simple exercise, you take your own conclutions. This is not religion (or it shouldn´t be), so be more flexible if you want to live in this country, it will help you to understand better what is going on and to make less mistakes.

Regards

http://es.wikipedia.org/wiki/Keynesianismo

 

[darmanad]

It is now clear that the bonds you talk about that were issued in 2005 were issued in exchange for existing bonds, bonds that were never going to be paid according to their original terms. Holders of the older bonds were willing to accept 35 cents on the dollar together with different, but generally longer term rates of interest. It is hard to collect from a deadbeat soverign state. The Economist from 2005 has a good article on the Ar debt debacle and the 2005 bond issuance. http://www.economist.com/node/3715779?story_id=3715779

Creditors were over a barrel and were willing to accept a peso denominated bond whose interest rate was PARTIALLY determined with reference to an INDEC rate. My Spanish doesn't allow me to comprehend the numbers. I won't ask you to shed any insight into how exactly the portion of the interest payable on the 2005 bonds tied to INDEC is calculated. I'm sure any answer would be convoluted especially as the CER calculations seem to be in dispute, but do tell us if it can be expressed in simple, clear terms.

If the replacement bond holders are doing well, I assume it is because the return is above market. Again, I am not sure how INDEC supplements the rates. High returns would normally be considered a bad thing for the issurer, except given the AR fiscal history and origin of these bonds, the holders are entitled to high returns after accepting a 2/3 reduction in principle.

In any case, we do agree that new lenders will not be willing to accept a bond whose interest rate can be determined by the whim of the issuer. Such a contract is an illusory one inasmuch as one of the parties can unilaterally dictate the terms after the deal is struck by phonying inflation calculations.

However, one of the downsides of playing around with real inflation data to save a few bucks on your outstanding bond payments is the reputation you get in the international community as dishonest and a deadbeat. Then you have to pay high interest to borrow new money - that is what has happened and continues to happen to AR. The country's credibility is low and if it does go into the international market it will pay a price for that just as described in these articles. http://en.mercopress.com/2010/11/06...ewsletter&utm_medium=email&utm_campaign=daily and
http://en.mercopress.com/2010/03/31...-sell-global-bonds-at-one-digit-interest-rate

 

[gouchobob]

It is now clear that the bonds you talk about that were issued in 2005 were issued in exchange for existing bonds, bonds that were never going to be paid according to their original terms. Holders of the older bonds were willing to accept 35 cents on the dollar together with different, but generally longer term rates of interest. It is hard to collect from a deadbeat soverign state. The Economist from 2005 has a good article on the Ar debt debacle and the 2005 bond issuance. http://www.economist.com/node/3715779?story_id=3715779

Creditors were over a barrel and were willing to accept a peso denominated bond whose interest rate was PARTIALLY determined with reference to an INDEC rate. My Spanish doesn't allow me to comprehend the numbers. I won't ask you to shed any insight into how exactly the portion of the interest payable on the 2005 bonds tied to INDEC is calculated. I'm sure any answer would be convoluted especially as the CER calculations seem to be in dispute, but do tell us if it can be expressed in simple, clear terms.

If the replacement bond holders are doing well, I assume it is because the return is above market. Again, I am not sure how INDEC supplements the rates. High returns would normally be considered a bad thing for the issurer, except given the AR fiscal history and origin of these bonds, the holders are entitled to high returns after accepting a 2/3 reduction in principle.

In any case, we do agree that new lenders will not be willing to accept a bond whose interest rate can be determined by the whim of the issuer. Such a contract is an illusory one inasmuch as one of the parties can unilaterally dictate the terms after the deal is struck by phonying inflation calculations.

However, one of the downsides of playing around with real inflation data to save a few bucks on your outstanding bond payments is the reputation you get in the international community as dishonest and a deadbeat. Then you have to pay high interest to borrow new money - that is what has happened and continues to happen to AR. The country's credibility is low and if it does go into the international market it will pay a price for that just as described in these articles. http://en.mercopress.com/2010/11/06...ewsletter&utm_medium=email&utm_campaign=daily and
http://en.mercopress.com/2010/03/31...-sell-global-bonds-at-one-digit-interest-rate

Good points, not sure if this has been pointed out but many people believe this amounts to another debt default(i.e. cooking the inflation numbers to reduce the payout). I think they are right.

 

[Bajo_cero2]

http://www.economist.com/node/3715779?story_id=3715779

I like to read the economisT, even sometimes I disagree with them.
By the way, Cavallo was a neo who studied at Harvard who followed FMI "suggestions" and that´s why the crisis was so deep. Wallstreet and FMI used to love him. In our experience, any time a politician is loved this is because they are ruling the country for them and they are destroying the economy. The K are critized a lot abroad because they are ruling for us, not for them. Fair enough for me.

Creditors were over a barrel and were willing to accept a peso denominated bond whose interest rate was PARTIALLY determined with reference to an INDEC rate. My Spanish doesn't allow me to comprehend the numbers. I won't ask you to shed any insight into how exactly the portion of the interest payable on the 2005 bonds tied to INDEC is calculated. I'm sure any answer would be convoluted especially as the CER calculations seem to be in dispute, but do tell us if it can be expressed in simple, clear terms.

I´ll do it later.

In any case, we do agree that new lenders will not be willing to accept a bond whose interest rate can be determined by the whim of the issuer. Such a contract is an illusory one inasmuch as one of the parties can unilaterally dictate the terms after the deal is struck by phonying inflation calculations.

Market has shown to be many thing but not rational.

However, one of the downsides of playing around with real inflation data to save a few bucks on your outstanding bond payments is the reputation you get in the international community as dishonest and a deadbeat. Then you have to pay high interest to borrow new money - that is what has happened and continues to happen to AR. The country's credibility is low and if it does go into the international market it will pay a price for that just as described in these articles.

Well, it is all about it. We have learnt that it will never be enough for those credit risk agencies because the way they measure the risk is a neo way. If we get a better score we commit suicide on the other hand.
And we think they are not reliable, so, I wonder, how is the US doing according to them. Is the US still the zero?
So, if we do what they expect we go into crisis.
And, anyway, credit will be expensive, but less expensive If we dont deal with them and FMI, as I asserted before, this is argentina.

I couldn´t read these articles, I have to rush for a family lunch

http://en.mercopress.com/2010/11/06...ewsletter&utm_medium=email&utm_campaign=daily and
http://en.mercopress.com/2010/03/31...-sell-global-bonds-at-one-digit-interest-rate