Argentina’s Default Dancers Trip as Music Stopped: Opening Line

Elliott Management Corp. Founder Paul Singer
Elliott Management Corp. Founder Paul Singer. Photographer: Jacob Kepler/Bloomberg

July 31 (Bloomberg) -- Great, so everybody loses.

What’s hard to understand is how everyone yesterday seemed so confident that there would be a solution before Argentina defaulted again.

Except for those holding credit-default swaps, we pretty much got the worst-case scenario. The hedge funds that forced this (as was their right), Elliott Management’s NML Capital, Aurelius Capital Management and other holders of the defaulted debt who refused the restructured bonds, get more of nothing. The holders of the restructured bonds don’t get their interest payments.

And Argentinians, well, they’re already in a bad place, struggling with a recession and 40 percent inflation and running out of money fast. Things don’t exactly change for them, but they don’t get better.

There had been optimism after talks that broke off Tuesday night because they were going to resume yesterday, and Sebastian Palla was flying in to save the day. The former Economy Ministry official and current head of investment banking at Banco Macro had a plan to buy the defaulted bonds from their holders. The 2033 bonds were rallying.

So what happened?

After the mediator, Daniel Pollack, emerged to say it was over, that there was no deal and default had occurred, Economy Minister Axel Kicillof “told reporters that the holdouts rebuffed all settlement offers and refused requests for a stay of the court ruling,” according to our crew, Katia Porzecanski, Camila Russo and Daniel Cancel. “He said Argentina couldn’t pay the $1.5 billion owed to the hedge funds because doing so would trigger bond clauses requiring the country to offer similar terms to other bondholders.”

There was supposed to have been willingness on the part of some of the exchange bondholders -- those who agreed to accept 30 cents on the dollar, only to see Paul Singer lead NML to a revolt and to demand it all, now -- to forgo terms mandating they get the same terms the holdouts get, Bloomberg View’s Matt Levine wrote, citing the Financial Times.

For its part, NML said Argentina refused to consider “numerous creative solutions” from Pollack that it found acceptable.

While the damage inflicted seems to be confined to the parties in the case, these kinds of things in finance can spill over in some unexpected ways and places.

And yet there’s still optimism.

“There’s the expectation that a deal with holdouts will be worked out soon,” Mauro Roca, a senior Latin America economist at Goldman Sachs in New York, told Bloomberg.

What we know about all this stuff could fit in a thimble, frankly -- who says what to whom in these meetings, what it’s really all about, so please pardon the wide-eyed wonder at all this. Perhaps, because the holdouts have been living without the money they’re owed for 10 years now, and Argentina’s already excluded from international bond markets, there wasn’t much for either side to lose right away in the nuclear option, but it all still comes across as surprising and uncivil.

Mistakes were surely made.

***

U.S. economic indicators today include initial jobless claims at 8:30 a.m. EDT, and the Chicago purchasing managers’ index and Bloomberg consumer comfort at 9:45 a.m.

Big earnings day, with more than 70 U.S. companies scheduled to report, including Colgate, McKesson, CME Group, MasterCard, Fortress, ConocoPhillips, T-Mobile, Oaktree, Cigna, Time Warner Cable, Legg Mason, Exxon Mobil, Kellogg, LinkedIn, Tesla, Trulia, Valeant, DirecTV and GoPro, its first report since going public.

Not long ago, the EU said euro-area inflation unexpectedly slowed to 0.4 percent in July, the weakest since October 2009.

***

- Banco Espirito Santo’s first-half net loss was $4.8 billion, and it will need to raise money, the Bank of Portugal says. The shares have plummeted as much as 51 percent in Lisbon, and U.S. stock futures were lower. - Today’s deadline for payment involves bank lines of credit extended to the Puerto Rico Electric Power Authority. - The EU added eight people close to Putin to its sanctions blacklist. - The big investment banks are going to cut costs. - Bank of America’s true cost for Countrywide is closing in on $70 billion. - The House voted yesterday to authorize Boehner’s lawsuit against Obama over his use of executive orders. - MetLife may be declared systemically important to the U.S. financial system as soon as today by the Financial Stability Oversight Council. - What advantage the biggest U.S. banks’ reap from being considered too big to fail will be the subject of a GAO report today, followed by a Senate Banking Committee hearing on the report at 2 p.m. EDT. - Eric Cantor steps down as majority leader of the U.S. House of Representatives. - The House votes again on its version of legislation to cope with surge of immigrants at border. - Liberia is closing schools and quarantining communities, and Sierra Leone has declared a state of emergency in the fight against Ebola. - Edward Snowden’s Russian asylum expires. - Christie speaks at a Republican fundraiser in New Hampshire at 6 p.m. - Tor, the Internet privacy system, isn’t so private now. - De Blasio is scheduled to meet Blankfein. - A section of the Eastbourne Pier, a seaside landmark in southeast England since 1870, was consumed in a fire yesterday. - A Greek court acquitted two farmers implicated in the shooting of 28 Bangladeshi strawberry pickers who asked for their back wages. - A rogue band of six Philadelphia narcotics cops were charged yesterday with robbery, extortion, kidnapping and drug-dealing. Or as we call it in Philly, Wednesday.

***

Really all we have to do is skim the fact set laid out in Renee Dudley’s examination of the relationship between a U.S. Representative James Clyburn, the South Carolina Democrat and third-ranking House Democrat, and Randall Broz of Angerholzer Broz Consulting, a most-favored fundraising shop for Democrats, to find the tension in this story.

- Clyburn’s campaign and political action committees have paid Broz’s firms $1.9 million.

- Broz and a predecessor firm have been paid more than $8 million by House Democratic incumbents and challengers in roughly the past 10 years.

- Broz co-owns property with Clyburn’s chief of staff.

- Clyburn’s brother John, treasurer of his political action committee, sometimes works out of the Angerholzer Broz offices.

- Broz says he works with more House Democrats than any other fundraiser.

- Clyburn’s campaign and a PAC have paid Broz’s current and former shops three times as much as any other member of Congress has paid them in a set period.

- Alex Zwerdling, former campaign manager for U.S. Representative Andre Carson, says Broz was “highly recommended” by Clyburn.

- Clyburn denies personally recommending any member of Congress to Broz.

Wait, what?

***

If there’s a defect in a certain model of automobile, chances are it’s going to emerge in a fleet of rental cars first. A former director of Dollar Thrifty Automotive and now auto-industry consultant, Maryann Keller, equated rental-car companies to a canary in a coal mine for today’s investigation by Jeff Plungis and Tim Higgins into missed signals of defects in General Motors’ cars.

Using documents obtained with the Freedom of Information Act, Plungis and Higgins found Enterprise Holdings, Avis and Hertz, among others, contacted GM about air bags failing to deploy in wrecks involving Chevy Cobalts going back as far as 2005.

The information was contained in files exchanged between GM and the National Highway Traffic Safety Administration, which itself is under examination by the U.S. Department of Transportation, and all track back to the faulty ignition switches that are being blamed for shutting off engines and interrupting power to the air bags.

The documents add to evidence that GM either ignored or failed to act on complaints from consumers and dealers about abnormal crashes that have since been linked to the faulty ignition switch, the reporters found.

***

Without getting into the religion of it all, you’d think the debates and initiatives surrounding legislation in the U.S. over lifestyle choices would come to their senses, and by senses we mean money.

Trying to get enough of it in cities and states has never been more difficult in these times of globalization and inversions and emerging-market labor centers. The factories are gone, the tax base has withered, and it would make the most sense to realize that putting people off with your social strictures makes for bad business.

Which is why Houston’s struggle with an ordinance over who gets to use what bathroom sounds so low-bore. Even though the law has been gutted of the part that opponents found most offensive -- allowing people to choose which toilet they use based on what gender they see in themselves -- tens of thousands of Houstonians are pushing for a ballot measure in November to repeal the city’s equal-rights ordinance.

Could it be because the mayor is gay?

Business leaders say the repeal effort threatens Houston’s $15.5 billion travel industry, including $350 million that could come from hosting the 2017 Super Bowl, Darrell Preston and Bradley Olson report.

Even Arizona pulled back from the brink when Governor Jan Brewer channeled the sound of cash registers at the 2015 Super Bowl over the din of those who wanted to let businesses refuse service based on religious beliefs.

***

Houstonians might just look east at the folks in Tokyo (East or west? Which was is it from there?). They’ve got the right idea. They’re not going to let a clock, or a family or life at all come between them and making more money.

OK, not everyone’s thrilled at the idea of a night session on the Tokyo Stock Exchange, but they’ll get over it.

It is a surprisingly short trading day, in fact -- five hours. That’s more like commodities trading. Understandably, the all-electronic shops are all for it and the conventional brokers are not all for it.

Maybe just one continuous, perpetual, virtual trading village that swallows up every country and every time zone would answer everyone’s needs, like “The Sims.” Drop in when you want, do your thing, make your own hours. The trading never ends.

***

Guys love gadgets, and weekend hobbyists with too much money will marry the two passions until they go broke, or die, or until someone stages an intervention. The time for the latter has arrived in recreational fishing.

If you’re a professional bass fisherman, the expense of tens or hundreds of thousands of dollars on speedboats with wine cellars and fishing rods with electric winches instead of reels is perhaps justifiable, although professional fishing isn’t. But, with apologies to Jeff Foxworthy, you might be a redneck if you’re out on a boat that costs as much as your doublewide wearing a shirt you’d also find at a Nascar race.

In 30 years of fishing, the most expensive, technologically advanced piece of equipment we’ve acquired in pursuit of fish is our car.

On the front line of fishing technology, which we can’t believe we just wrote, are the sonar systems that provide a view beneath the water, and, like the litigation smartphone makers have lobbed at one another, the patent wars are coming to fishfinders.

Ace patent reporter Sue Decker takes us through the free-for-all between Flir Systems and Garmin and a handful of other companies. There’s plenty to fight about. In 2011, the most recent figures that are available, sales of these devices totaled almost $470 million. The latest models can run $5,000, offering a 12-inch LCD screen with echo sounder, radar and an engine-performance monitor.

“It’s all about the toys,” said one angler Decker spoke to, who has lost his way.

***

Today’s the baseball trading deadline, and there aren’t many teams who are in sorrier shape, and with more to trade away, than the Philadelphia Phillies.

It was all so good there for a while.

Then came the night of Oct. 7, 2011, when the Big Piece, aka the Phillies’ Ryan Howard, went down swinging, literally. He crumpled to the dirt trying to leg out his ground out to second base, his left Achilles tendon torn, the final out of the game and National League division series, the second year in a row he was the last out in the playoffs.

Been downhill ever since.

He’s available, and just sold his house outside Philly, but at 34 years old and batting .222 with 16 home runs and an on-base percentage of .305, and with a contract that would interest LeBron James -- he’s due $25 million in 2015, what’s more likely is his outright release. Unless the Yankees want him.

Lefthanders Cole Hamels (6-5, ERA of 2.55), and Cliff Lee (4-5, 3.78), and righthander A.J. Burnett (6-10, 4.15) are pretty much there for the taking. In fact, you could have the entire starting rotation if you want, and if you do, please take Kyle Kendrick (5-10, .4.87). Nice guy. Not a major leaguer.

Elsewhere in the field, teams might be able to make use of Marlon Byrd and whoever’s playing third base this week. Shortstop Jimmy Rollins just qualified for his option year in 2015 and, at 35, is likely to finish his career where it began.

But the one player whose departure is probably more likely to cause heartache, if not value as well, for the Phillies and their fans is Chase Utley.

Aside from the dropping the f-bomb on live television during the team’s victory celebration after winning the World Series in 2008, or perhaps because of it, the 35-year-old second baseman is the moral heart and soul of the team, a quiet, dignified gamer who might have had hall of fame credentials had he not lost the better part of two seasons to chronic knee injuries.

Most of these guys came up at the same time -- Utley, Howard, Hamels, Rollins -- and it’s hard to watch your boys recede into the cornfield for the last time.

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