The market appears to be pricing in the chance that Argentina could default on its sovereign debt (hat tip Mish).Defaults are not everyday occurrences but they do come along every now and then. Venezuela seems to threaten to default every so often and Argentina did default in earlier in the decade.
I took a look at a few funds to see which ones would be impacted. PowerShares Emerging Market Bond ETF (PCY) has no exposure. iShares JP Morgan Emerging Market Bond ETF (EMB) has a 1.66% in an Argentine issue that goes out to 2033 (an unrelated note EMB has a small weight in a Gabonese Republic bond, wow, Gabon). The SPDR International TIP Fund (WIP) has no exposure--I own that one personally and for quite a few clients.
For closed end funds; the Templeton Emerging Markets Income Fund (TEI) had a 9.68% weight in some Argentine paper due in 2012 as of 11/30/2007. Morgan Stanley Emerging Market (MSD) has a little under 2% in Argentina as of March 31, 2008. Morgan Stanley Emerging Market (EDD) has closer to 5% in Argentine as of March 31, 2008.
As an FYI I could not get the info for MSD and EDD until I got to the tenth page of stuff. I nominate Morgan Stanley for the worst web site of the week.
I would suggest anyone owning any fund that might have exposure to call and find out where the fund is right now. The info I was able to find on the Internet is obviously old.
I have written about quite a few of these funds for TSCM and I always note the extent to which they tend to swing for the fence in terms of yield with exposure to not only Argentina but also Turkey and Hungary. From where I sit I would want to know what is under the hood of a fund like this if I owned it, especially with the actively managed funds in order to minimize the chance of getting blindsided.
Notice I'm saying minimize as opposed to avoid. Every so often you are going to get blindsided by something but the extent to which knowing some details about what you own and paying attention to the news might spare you a little.
12 comments:
I like Mish's take on things. I personally believe he has one of the best insights into the current financial problems and the inflation vs deflation aspects of it.
of course you need to read a lot of his posts to get a handle on his perspective. Not exactly a very bullish perspective, but that is just the way things are currently.
I obviously read his stuff. He seems to be most focused on a nasty deflationary scenario and I have trouble with it to an extent.
Asset (housing) prices have deflated quite a bit and I don't doubt that there will be more.
At the same time prices for certain things are clearly higher.
In the short run I think the deflation of home prices will matter more than the inflation of food, energy and healthcare but I'm not sure that can persist for as long as I think Mish is saying.
If I were to debate him on this I would lose in about 18 seconds but I just don;t think deflation of asset prices will be the bigger story come the end of the year.
There was a lot of commentary on this site two years ago when WisdomTree launched its first ETFs. WT weighted its offerings by dividends or earnings, rather than value of shares. I took a look at the results through 3/31/08 and found, not surprisingly, a mixed picture. Most of the returns were fairly close to their bogies. WT seemed to do best in their international ETFs. Those that tracked the EAFE beat their indexes (including the small cap and mid cap versions) quite substantially since inception.
I hope that this is useful to some of your readers.
Norm
I own three different international equity etfs and have not drilled down yet to see if there is any exposure to Argentina. If so, are those positions at risk or will any fallout (hopefully) be limited to bond funds?
Thanks very much.
a bond default does not mean any equity will go to zero.
it is possible that a default would hurt equity prices in Argentina and perhaps domino for a while to neighboring countries. The last time Argetnina defaulted (2001) Brazil as measured by EWZ cut in half but of course the world was in the middle of melting down and Argentina may have had no effect at all.
to understand Mish's point you must understand his comments on money supply and definitions of money. Looking at short term varriations in commodities do not explain things very well.
look at Mish's comments on money and deflation and compare them to Hussmans comments on money supply.
Hussman does not express the big picture opinions as much as Mish, but the basic premises on the fed and money are the same imo.
Very interesting stuff - which says a lot about me I guess. None the less these guys are rather insightful on these issues. These are the most important issues going forward that will affect both depth and length of this down turn.
seg
Uh, no. Dr. Hussman is not Mish-like.
For example, he isn't gping to be the reason a cult exists with followers proselytizing for the end of the world.
Have you noticed how that cult thing works? It has a predictable trajectory: Doomsday is upon us rhetoric, dedicated acolytes hanging on every word, dedicated acolytes spreading the word, first doomsday missed, second doomsday missed, never mind, rinse, repeat.
Another bunch like that came out of their cave in Russia just a few weeks ago.
Maybe this time it's different.
I do not think Mish is cult like. i think you do not understand him well
I forget where but Dr. Hussman made an analogy about putting out a Forrest fire. He indicated if a bird could help by carrying water in its beak you really should not count on the bird to help put out the fire.
Dr. Hussman recognizes the huge financial problem we currently face and points out the fed only has around 750 billion in bonds. I am approximating 750 billion Hussman as usual was dead nuts accurate.
If you read both Mish and Hussman as well as understand the point they are making they are not that far apart. Except Hussman does not express predictions like Mish does.
Trust me the sky will not fall, but this will not be a walk in the park. I personally find a lot of insight on both Mish and Hussmans sight.
Roger,
I've gathered you're not a huge fan of "traditional" CEFs, but I also know you're a proponent of foreign exposure. Have you ever looked at GIM? (Tempelton Global Income). It only invests in sovereign debt, so there's a currency hedge at work. I've held it for a few years and have been pleased, overall. The only "problem", is that it rarely trades at a discount to NAV, and when it does...only by a bit.
jan
I don't thin discounts carry any creditibility for making a good investment, for that matter, I think CE funds generally stink.
Mish's followers, as seen in his comments, are cult like. Let's get that straight.
Err.. stupid question: Wasn't Argentina blessed with wild cattle herds and low population? They must be sitting on a gold mine of cattle [read commodity] now??
Yes, they have defaulted before and will definitely default again. Makes me wonder if their currency is named Lira. :P
Post a Comment