Hedge Funds Squeezing Argentina Ruin Our Weekend

Aug. 1 (Bloomberg) -- Josh Rosner, managing director at Graham Fisher and Company, and Michael Spence, professor at NYU Stern School of Business, discuss what a default by Argentina’s government means to the global economy, especially in the context of recent geopolitical risks. He speaks on “Bloomberg Surveillance.”

Stocks are lower in Europe and fell in Asia overnight after yesterday’s rout in the U.S., and, this being Friday, we know what that means: That’s it. The party’s over.

Still not sure why. The situation at Banco Espirito Santo started July 10 when its parent company failed to make a payment on commercial paper. Now it has a weak Tier 1 ratio and the Bank of Portugal is investigating BES personnel in charge of audit, compliance and risk. The question is whether it can raise capital without state aid.

So, that’s not good.

But it’s status quo on the ground in Argentina for the moment. JPMorgan Chase and some other major banks are offering to buy the defaulted bonds from the holdouts -- NML, Aurelius. We haven’t seen much about what Dimon would expect from Argentina.

And there are some things that don’t add up in all this talk, primarily from Axel Kicillof, about the perils of the RUFO clause. There has been little talk from the holders of the exchanged bonds that they plan to demand accelerated repayment since the default, nor would that be in their best interest because it would just invite more years of litigation, as Matt Levine points out.

“If there is a hint of a potential deal, bondholders will not be incentivized to accelerate,” Patrick Esteruelas, senior analyst at Emso Partners Ltd., a money-management firm specializing in emerging markets, told our reporters.

Photographer: Andrew Harrer/Bloomberg

Former Federal Reserve Chairman Alan Greenspan. Close

Former Federal Reserve Chairman Alan Greenspan.

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Open
Photographer: Andrew Harrer/Bloomberg

Former Federal Reserve Chairman Alan Greenspan.

Presumably the same theory holds true for exercising the RUFO clause, and presumably the RUFO crowd and the acceleration crowd are the same. If we can assume the holdouts would accept discounted recompense to avoid default and years more litigation, couldn’t we think the same of the exchange holders and the RUFO/acceleration camp? A waiver of the RUFO clause is the easiest scenario to envision.

Can’t we all just get along?

Today at 11 a.m. in New York, the judge in the court case will hold a hearing, although it’s unclear what’s on the agenda, while at the same time somewhere across town the International Swaps & Derivatives Association will meet to decide whether what happened yesterday triggers the credit-default swaps.

Mike Regan did us a service yesterday by trying to round up the likeliest suspects and to find silver linings. He noted how The Goldman Sachs and Alan Greenspan were getting twitchy about how a market decline was overdue, then noted the robust growth in second-quarter GDP, gains in Treasuries and euro-area government bonds, and that dips tend to be short-lived these days.

U.S. futures are falling.

Well, we did say he was “trying.”

***

U.S. economic indicators today include the jobs report and personal income at 8:30 a.m. EDT, University of Michigan’s consumer confidence index at 9:55 a.m., ISM manufacturing at 10 a.m. and U.S. vehicle sales throughout the day.

U.S. earnings include Procter & Gamble, Weyerhaeuser, Hilton, Calpine and Chevron, and perhaps Berkshire Hathaway.

Overnight, Markit Economics and HSBC said China’s manufacturing expanded in July at the fastest pace in more than two years. A short time ago, Markit said U.K. manufacturing grew in July at the slowest pace in a year.

***

- The Republican caucus meets at 9 a.m. as the House mounts a final attempt at finding some way to pass the border-security bill they couldn’t yesterday before summer recess. - The CIA spied on the Senate Intelligence Committee, which was investigating its use of post-Sept. 11 “enhanced interrogation” techniques, just like Dianne Feinstein said it was. - The 72-hour cease-fire agreed to by Hamas and Israel fell short by about 67 hours. - An Ebola victim is headed to Atlanta’s Emory University Hospital. - G7 nations will oppose World Bank projects in Russia, where the specter of capital controls is rising. - The ITC is scheduled to announce its findings in a patent-infringement case Tela Innovations Inc. filed against HTC, Nokia and LG Electronics over the newest chips in smartphones and tablets. - Eighty bodies remain at the site of Malaysia Air Flight 17 in Ukraine two weeks after the crash. - Hail Caesar. - The imam of China’s largest mosque was stabbed to death following an outbreak of violence in the country’s Muslim Uighur region. - Fraud charges have been filed against the owner of a company that provided much of the steel that rebuilt New York’s World Trade Center. - A union lockout at New York’s Metropolitan Opera was postponed late last night for a chance at federal mediation. - Good news and bad news: The southbound lanes of the I-95 bypass in the corridor through Wilmington, Delaware, are open again. The northbound lanes remain shut, probably for another month. - ’Sharknado 2’ drew a record audience of 3.9 million viewers to the Syfy Channel. Get ready for more. - Giraffe dies from head injuries after some idiot towed its trailer under a low bridge. - ARE YOU HIGH? - Did not need a $5,000 fishfinder.

***

The latest Facebook (FB) change is unsettling again.

Usually we all foam for a while, then submit like the Game-of-Thrones-addled lambs Mark Zuckerberg knows we are, and the clouds part.

Now Facebook is in the process of pushing a separate instant-messaging app, which is being detached from the regular mobile app. The messaging app has been around for a while now, but Facebook is finally starting to nudge people to make the switch.

Here are some of the things the messaging app will be able to do, according to a Huffington Post item written in December 2013. We talked with Facebook spokeswoman Jillian Stefanki, and she helped weed out ones that were being misconstrued. These permissions apply to iOS and Android operating systems

One thing to bear in mind is that the wording of the permissions as written can make them sound worse than they are. For example, “Allows the app to record audio with microphone...at any time without your confirmation” just means that, on some phones, you’re not going to be asked to confirm your selection each and every time you want to record an audio message. Here goes:

- Call phone numbers or send SMS messages “without your intervention.” This means a malicious app could start doing these things without you.

- Take pictures and videos without your confirmation. Again, you’re not being pestered every time you want to do this. But you’re also unaware if something else has control of your phone and wants to do it.

- Read and save your phone’s call log, including data on incoming and outgoing calls; read data about stored contacts, including the frequency with which you’ve called, e-mailed, or communicated with them; and read stored personal profile information.

Who would want to know that?

***

Guess the question is whether Deutsche Telekom wants to get out of T-Mobile badly enough to take Iliad’s money now or whether it’s willing to gamble with the potential for a yearlong regulatory review that would be likely in accepting Sprint’s offer for more money.

Is that like “a bird in hand is worth two in the bush"? Or perhaps it’s like the Aesop fable: A dog with a bone in its mouth crossing a bridge over a brook sees his distorted reflection in the water and mistakes it for another dog with a bigger bone. It lunges out for the larger bone, dropping its own in the water, and winds up with neither.

That’s unlikely to happen here. Someone will get the bone.

***

Tesla (TSLA), founded by our favorite Penn grad after Ed Rendell, is playing U.S. states off one another masterfully in its search for the just the right place to build its lithium-ion-battery factory.

It has broken ground in Nevada and still has California, Texas, Arizona and New Mexico on the hook to outbid the other with tax incentives to land the plant, which the company projects will bring 6,500 jobs. That’s not a bad boost to the tax base. The company might start work on as many as three potential sites and decide which to build to completion based on the speed of regulatory approval.

Nice.

So they’re all going to climb over each other to offer the best package, but, hold on -- aren’t a couple of these states among those that ban direct sales of Tesla’s cars?

Why look at that. Seems that Texas, which is so solicitous of companies and their jobs that Rick Perry would probably let the Honduran kids in if they came with a factory, and Arizona, which...is Arizona, don’t allow direct sales.

***

We enjoy skewering sacred cows. Not sure if you’ve noticed. We’ve sent friends toward the bottle by trashing authors considered among the best in literature, authors we won’t name here for the sake of keeping this thing on track. Let’s put it this way: One Fourth of July, with a couple of Yuengling lagers in us, we re-edited the Declaration of Independence for length, clarity and for sport.

("We hold these truths to be self-evident…” OK, well, if they’re self-evident there’s no need to say it, so that’s right out.)

Anyway, this is why Manuela Hoelterhoff’s takedown of “Mein Kampf” is pretty funny. The occasion for the story is that the copyright on the book is about to expire and the question before German justice ministers was whether it can resume publication in German aside from uses related to academia.

Answer: no. Still banned.

Along the way she takes some pretty good shots, recalling how the “inconceivably tedious” book was dictated to the “soft-headed Rudolph Hess” while both he and Hitler were imprisoned together.

You can read the stupid book if you want to, but moreover, you should be able to read the stupid book if you want to, and the fact that Germany continues to ban this book implies unsettling thoughts about the how much healing they’ve achieved over there since 1945.

Americans can still pick up chronicles of our greatest shame (or one of them, anyway), like Huckleberry Finn or Disney’s “Song of the South.” No one’s worried they’re going to rekindle the nostalgia for those halcyon days of slavery.

Are they?

***

In the first couple seconds of the trailer for “Guardians of the Galaxy,” the next Marvel comics superhero movie, we were already rolling our eyes and about to write that we weren’t going to write about it. Then we started to listen to the dialogue, and before long it appeared that this was not going to be your regular superhero trope.

Might have been the talking raccoon.

He’s voiced by Bradley Cooper, who joins a cast of A-listers like John C. Reilly, Glenn Close and Benicio Del Toro and Vin Diesel (OK, A-ish).

This movie looks stupid and sounds funny, which is good enough for us.

But for the record, only the New York Times’ Manohla Dargis would use the word “Weltanschauung” while reviewing a movie that has a talking raccoon.

Also opening this weekend is “Get On Up,” the biopic of James Brown, and we won’t waste your time. Here’s the link the movie on IMBD.com, click on “Watch Trailer,” read the review, make date plans.

***

Break up the Phillies!

No, seriously, damn it. Yes, we sniffled a little yesterday at the thought of it, but deep inside we knew it was for the best for that team to get what it could while it could. Instead, General Manager Ruben Amaro Jr., whom one newsroom wag calls “Ruin Tomorrow Jr.,” did absolutely nothing. Not a thing. Well, one thing.

Not so for the rest of the league. Perhaps the biggest moves were pitcher David Price moving from Tampa to Detroit and pitcher Jon Lester headed from Boston to Oakland in exchange for the outfielder/masher Yoenis Cespedes, he of Home Run Derby dominance.

As Erik Matuszewski reports, adding Price gives the Tigers the past three American League winners of the Cy Young award.

We also saw the first trade between the Yankees and Red Sox since 1997, with the Pinstripes picking up shortstop Stephen Drew for light-hitting infielder Kelly Johnson.

Boston also parted with pitcher John Lackey, sending him to St. Louis for pitcher Joe Kelly and infielder Allen Craig.

First NFL exhibition games are next weekend.

To contact the reporter on this story: C. Thompson in Wilmington at cthompson1@bloomberg.net

To contact the editor responsible for this story: Marty Schenker at mschenker@bloomberg.net

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