Anyone who buys Argentina’s newly issued 100-year bonds as an investment probably deserves what they are going to get: massive losses when interest rate, and almost certainly at least one Argentinian default before the bonds mature. From Doug Casey at caseyresearch.com:
Justin’s note: Argentina just issued a 100-year bond.
That’s not a typo. South America’s second-biggest country issued a bond that matures 100 years from now.
This is completely nuts. After all, a lot can happen over the course of a century. Not to mention, Argentina doesn’t exactly have the best credit history.
It’s defaulted on its debt seven times since it was founded in 1816. Three of those defaults happened in the last 23 years.
And yet, people lined up to buy these bonds. To make sense of all this, I called up Doug Casey. Below is a transcript of our conversation. We hope you enjoy.
Justin: Doug, what do you make of Argentina selling 100-year bonds?
Doug: These bonds are the 7.125’s of 2117. They’re selling US$2.75 billion of them, at around 90, priced to yield about 8%. The issue is apparently oversubscribed 3-1.
It’s all quite amazing, from a number of points of view.
But first, I’ve got to say something about bonds in general, to set a context. As we speak right now, we’re at the peak of probably the biggest bubble in history. Vastly bigger than the Tulipmania of the 17th century, the South Sea and Mississippi Bubbles of the 18th, and the ’20s stock market bubble of the 20th combined. It’s a super bubble. The current bond bubble will go down in history. As a catastrophe.
I used to think it was metaphysically impossible for interest rates to go below zero. But clearly with financial engineering absolutely anything is possible.
The very idea of buying almost any kind of bond in today’s market impresses me as incredibly stupid. But buying a bond that goes out a hundred years is the type of thing that only happens at the top of a mania. And to top it off, it’s with the government of Argentina…
The whole world—not just computers—is changing at the rate of Moore’s Law.
To continue reading: Doug Casey on 100-Year Bonds