Including: how the vulture funds are holding the Argentinian government to ransom in US courts, what Argentina has to say about it, crazy Apple shareholders at the Apple AGM, South Africa’s new budget, and why I dislike trade unions.

Good morning

The headlines:

  1. Argentina.

    Link: won’t be bound by US courts.

    I find myself in a curiously amused-by-humanity mood this morning. I’m not sure where it came from – but if definitely started when I read this article…

    Some background: Argentina has an awkward history of defaulting on restructuring its sovereign debt, which it did most recently in 2005 and 2010.

    To summarise: this meant that Argentina attempted to replace the old debt (now-defaulted bonds) with new debt (restructured bonds). But there were a number of bondholders of the original debt that decided not to take part in the restructuring – holding out for settlement of their original debt (hence their designated title “the hold outs”). The hold outs then sued in the US courts for settlement of this debt.

    Which sounds a bit bizarre – but it does makes sense. Their argument is that the holders of the restructured debt can’t be paid by the Argentine government until the hold outs also paid pari passu (ie. paid at the same time, in accordance with what each holder is owed). And given that a large portion of the restructured bondholders are based in the States, with their payments going through the US banking system, this claim actually has teeth. Which is eventually what happened – the US bank in question (BNY Mellon) has been barred from helping Argentina pay the restructured debt-holders.

    So the hold outs seem to be winning. The case is now on appeal in front of a panel of 3 judges. Where the Argentinian lawyers have declared:

    “We’re representing a government and governments will not be told to do things that fundamentally violate their principles.”

    And their laws – given that Argentina has passed a law barring payment of defaulted bonds.

    Before you start to feel sorry for the holding-out bondholders, I’d like to make an observation. Most of these investors will have bought the debt from the original holders when the bonds defaulted (ie. they picked up the rights for almost nothing), in the hope of forcing Argentina’s hand through the US courts, and earning massive returns. The real sufferers here are the holders of the restructured bonds – who are the innocent bystanders unable to get their interest payments because of these so-called “vulture funds” that are holding the defaulted debt.

    Also, if we’re looking at this empirically, the likely outcome is that Argentina will just default again.

    At which point: no one wins.

    Here’s another opinion piece worth reading: the Economist take.

  2. Apple’s AGM.

    Link: where do they find these shareholders?

    The AGM sounds like it was a festival of standard Apple lines: “we are very firmly talking about finding ways to return cash to shareholders” and “we have great stuff in the pipeline” and so on.

    I’m not sure why investors were disappointed (the share price fell afterward) – when has Apple ever revealed anything awesome in an AGM?

    The amusing part, for me, was the footnote of the article, where all the random shareholder suggestions were listed. These included:

    – a shareholder that asked for more bathrooms to be built in the Apple stores;

    – a shareholder that requested the invention of an iBike computer; and

    – an investor that wants Al Gore removed from the Apple board, because he sold his Current TV network to Al Jazeera.

    It’s just that these people had to BUY SHARES and TRAVEL to attend this Apple meeting. But kudos to the bathroom lady. I mean: Amen to that.

    PS: not sure what one would do with an iBike computer. But I imagine that this story would end with a Darwin award.

  3. South Africa’s budget.

    Link: “a brave face”.

    Not much has changed. Other than larger deficits, missed revenue targets and lower GDP growth.

    I’ve linked to the economist article because I think that there is an interesting point here to be made about trade unions. Part of the stated growth goal here is to get more of the country’s youth hired. And one way of doing that is providing subsidies and/or tax incentives to encourage the process.

    But the labour unions are opposed to that, because that means that their union members would have to make way for the no-longer-unemployed. For those who think that Trade Unions are important – I’d highlight the fact that they’re not good for the unemployed.

    They’re only really (debatably) good for the already employed.

    For the highlights, here is an Old Mutual infographic.

    For the new tax stuff, here is a pocket guide.

That’s all for now.

Have a good day.