Shane's Feed
Jun 17, 2014
via Counterparties

Argentina’s bills come due

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Argentina lost not one but two Supreme Court cases on Monday regarding paying back bonds that it issued before its 2001 default. First, in what Noah Feldman calls a “legally surprising, financially worrisome, and internationally questionable” move, the court declined to hear Argentina’s appeal regarding the Second Circuit decision last fall. In that case, the court found in favor of Paul Singer’s hedge fund Elliott Management, a “holdout” bondholder that did not agree to Argentina’s debt restructurings in 2005 and 2010 after its 2001 default. Second, and somewhat tangentially, the court found in a 7-1 decision that NML Capital, a subsidiary of Elliott, can seek information about Argentina’s finances to get its money back from the country.

By declining to hear the big case, the court “made final and binding” lower court decisions that Argentina is required to treat its bondholders equally says SCOTUSblog. (Felix Salmon has a good explanation of that ruling, and a video explainer of the whole case here.) This is big not only for Argentina, but for future sovereign debt cases litigated in the United States. “Pari passu will now be enshrined as a powerful enforcement device in New York-law sovereign debt”, says Joseph Cotterill. Peter Eavis thinks this could be a good thing, writing, “Once countries realize that it is harder to get an advantageous deal when defaulting, they may be less likely to take on too much debt”. (Salmon disagrees.) Practically, this “raises the cost to banks which are still dealing with Argentina or other defaulting nations”, says Tyler Cowen.

Jun 16, 2014
via Counterparties

Oil shock

The violence in Iraq continues as radical Islamist militants from the Islamic State of Iraq and the Levant (ISIL) try to seize more territory in the northern part of the country. Iraq is the second largest oil producer in OPEC (after Saudi Arabia) and the conflict is likely to affect production in the region. The price of brent crude oil climbed from just over $108 per barrel last Monday to more than $113 today, closing at $112.94. Mark Shenk reports for Bloomberg that analysts expect the price to average $116 by later this year, although prices won’t necessarily go too much higher if the fighting stays in the north of the country, where comparatively little oil is produced.

While ISIL was fighting in Mosul, the independence-minded Kurds seized the opportunity to take control of Kirkuk, an oil-rich city in northeast Iraq (great background on that in Al Jazeera). “This crisis is a lifeline for the Kurds”, political risk analyst Kirk Sowell says in Vox. Earlier this year, Baghdad cut off money to the semi-autonomous Kurdish region because of a political dispute over exporting oil to Turkey. By May, the region was nearly insolvent. However, now that they’ve taken control of Kikurk, the Kurds can pump oil directly to Turkey without intervention from Baghdad. In the short term, though, the Kurds still have problems. A major pipeline to Turkey was destroyed in the fighting last week, and “the violence will doom attempts to repair the pipeline anytime soon, delaying major Kurdish oil exports”, says Nick Cunningham.

Jun 16, 2014
via Data Dive

FIFA sponsors get involved in Qatar bribery allegations

Earlier this month, the Sunday Times published allegations that a Qatari official bribed FIFA to choose Doha for the 2022 World Cup. Since, there’s been lots of back and forth on what happens now. Qatar has denied the allegations, but there are rumors that FIFA told the United States to be ready if the organization decides to move the event (which, for the record, FIFA has denied).

Last week, Reuters reported that one group that can’t easily be ignored has gotten involved. Some of FIFA’s biggest corporate sponsors began publicly calling on the organization to take a thorough look into the allegations. Such public concern from sponsors is rare, and indicates that FIFA has a lot of money to lose if it handles this the wrong way. Here’s what the financial picture looks like:

Jun 13, 2014
via Counterparties

Bratinomics

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Three days after the Primary That Shook the Universe, we know what next year’s Congress won’t include: House majority leader Eric Cantor. In his place there will be lots (more) partisan rancor, a decent chance of another debt-ceiling battle, and an economics professor named David Brat. Brat ran at Cantor from the right, and his academic pedigree means that he’s left a long paper trail over the years.

When Brat gave credit to God in his victory speech, it wasn’t just posturing. “In his writings, Brat seems eager to fuse Christianity and the generally secular field of academic economics”, says Kevin Roose. Brat’s work often focuses on what makes countries rich or poor, and he closely links Protestant beliefs with free markets. In a 2004 paper he wrote, “give me a country in 1600 that had a Protestant-led contest for religious and political power and I will show you a country that is rich today”. Protestantism, he says, “provides an efficient set of property rights and encourages a modern set of economic incentives”. That’s not an entirely new idea. “Sociologist Max Weber said essentially the same thing (only much, much better)” back in 1905, saysCandida Moss.

Jun 13, 2014
via Data Dive

Instability in Iraq

The crisis in Iraq continues to worsen. The militant group Islamic State of Iraq and the Levant (also referred to as the Islamic State of Iraq and Syria) has taken the city of Mosul, in the Sunni-dominated northern area of the country, and are headed south. But the Iraqi Kurds, based in their own semi-autonomous region in the northeast of the country, have taken the oil-rich city of Kirkuk, Reuters reports.

There is increasing fear of civil war in the country as the conflict escalates. Worse, there are fears the conflict could move beyond Iraq’s borders, with the extremist ISIL launching attacks against both Syria and Turkey.

Jun 12, 2014
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Macro problems

The U.S. economy may have contracted more than originally estimated in the first quarter. New healthcare spending data suggests the economy may have shrunk as much as 2% (the original estimate was just slightly over 1%). However, a lot of that GDP drop was due to low inventory accumulation, says Peter Coy, and that’s actually good news for next quarter, when firms will likely produce more to make up that inventory.

Goldman Sachs’ top economist, Jan Hatzius, thinks that “the US economy is now growing at an above-trend pace”, despite the drop in Q1 GDP. This is partially because Hatzius sees good things going on in the housing market, and sees a growing trend of millennials (finally!) moving out of their parents’ houses and forming households. Joe Weisenthal agrees with Hatzius’s conclusion, mostly, he says, because the credit markets are expanding. David Wessel tweets Macro Advisors’ GDP tracking: -2.1% for the first quarter of 2014, but anticipating 3.7% for the second quarter.

Jun 12, 2014
via Data Dive

Beef, consolidated

Do you know where the meat in your hamburger came from? It’s sort of trick question, because even if you don’t know, it’s pretty easy to guess. Roberto Ferdman reported yesterday that the top four meat packers in the United States — Tyson Foods, JBS USA, Cargill, and National Beef — control 75% of the nation’s beef supply. Most of that consolidation happened in the 1980s, but the big four have been slowly adding to their market share in the last decade:

Ferdman explains why this matters:

Consumers are becoming increasingly more concerned with how their meat is produced. Part of that is born from a demand for more humane practices—the meat industry’s malpractices are well documented—and part of that stems from a heightened awareness about what people are putting into their bodies—the meat industry has come under fire for both its questionable practices and potential for large-scale contamination. An ever-shrinking pool of options will only make it more difficult for consumers the fair opportunity to appropriately decide whom they do business with.

Jun 11, 2014
via Counterparties

New caps for graduates

On Monday, President Obama signed an executive order capping student loan payments at 10 percent of the borrower’s income and allowing debts to be forgiven after 20 years of payments. Income-based repayment — what the administration calls the “Pay-As-You-Earn Program” — is already an option for most borrowers. This order expands it for another 5 million people, mostly those who took out loans before October 2007.

Libby Nelson writes that it’s unclear how much this plan will really help those who need it. “Enrollment rates in income-based repayment plans [that already exist] have increased after an Education Department outreach blitz, but far more people are eligible than are enrolled”. For those who do sign up, borrowers who have the highest overall payments —  mostly law and business graduates — will benefit most, says Karen Weise. Kelly Field writes that that means this program isn’t necessarily helping those who need it most: graduates with moderate debt burdens compared to MBAs and lawyers, but much lower incomes.

Jun 11, 2014
via Data Dive

Charting the billions banks have paid out over crisis-era mortgages

Another day, another potential Bank of America mortgage settlement. This time it could be up to $17 billion — the largest settlement by any bank. BofA, however, is finally putting its foot down. According to the New York Times, it doesn’t want to pay more than $12 billion.

The bank has paid out much more than any other bank over crisis-era mortgages. Here’s a Reuters chart showing how much it, JPMorgan, and Citi have paid so far:

Jun 10, 2014
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Uber valuation

Fancy taxi app Uber just closed a new round of funding that valued the company at $18.2 billion, less than a year after being valued at $3.5 billion. Despite the company “operating in 128 cities in 37 countries around the world with hundreds of thousands of transportation providers and millions of consumers connecting to our platform,” there are a lot of people who don’t think it’s worth that much.

Dan McCrum does some back-of-the-envelope math and figures out that, using some optimistic assumptions, Uber needs 60 million users to justify an $18 billion valuation. That’s not a lot compared to other major smartphone apps, but it is a huge chunk of the global taxi-taking population. “It’s equivalent to the entire populations of San Francisco, Los Angeles, New York, Chicago, London, Washington DC, Paris, Toronto, Tokyo and Hong Kong combined”, he says.