Argentina’s Bond Sale Shows New Level of Market Insanity

From Birch Gold Group

Despite a troubled economic past and a highly uncertain future, Argentina just sold $2.75 billion in 100-year bonds, with global investors clamoring to buy them up. This is a massive sign that markets are no longer operating on sane, rational thinking, and it could have serious implications.

The risk behind these bonds is massive. And if things go south, it may not only be bond buyers who get burned; the fallout could hurt average Americans too.

Here’s why Argentina’s bond selling is a big red flag for the world economy, the damage that they may inflict on savers, and where you may want to park your money for safety…

Why Are Investors Buying These Bonds?

Argentina is hardly a paragon of economic stability. Since the country’s inception, it has defaulted seven times (possibly even more, depending on your definition of a “default”).

So why on earth would anyone be interested in signing up for an investment like this? The viability of these 100-year bonds relies on Argentina breaking its bad habit of going bankrupt every couple decades. Yet investors are gobbling them up. It just doesn’t make sense.

Well, here’s the answer:

1. Interest rates are still heavily suppressed throughout the developed world, making it difficult to get predictable returns without assuming risk in the equities market.
2. Argentina is offering a 7.9% coupon rate (yearly yield) on its 100-year bond offering, supposedly guaranteed.

Investors are so desperate for predictable, long-term returns that they’re willing to bet on a losing horse like Argentina. And they’re happy to take advantage of the almost 8% return, until the time comes to unload these bonds onto a “greater fool” before Argentina inevitably goes belly up again.

Who’s Buying Them?

These bonds are being bought by a wide range of financial entities, small and large. If this investment turns against them — and it has 100 years to do so — the ripple effect in the wider economy could be huge.

Here’s the really troubling part: Argentina’s promise of returns on these bonds is especially attractive to pension funds and private retirement funds. Would you feel comfortable if you knew a piece of your retirement was sitting in these bonds?

While the World Chases Argentina’s Bonds, You May Want to Buy This Instead

Fundamentally, there’s no justifiable reason for these bonds to be so popular. The only reason investors are buying them is for predictable returns in the short-term, but not long-term stability.

The question isn’t if Argentina will default again and leave bond owners in a lurch, it’s when.

CNBC reports:

“It’s awfully premature for Argentina to issue 100-year bonds,” said Jorge Piedrahita, chief executive officer of Puma Investments. “When you look back in history, I’m not sure we can find a 20-year period where Argentina has not defaulted.”

So while the world is gambling on Argentina, what can Americans turn to for real safety and predictability?

Gold is one of the best answers. It has no default risk. It can never go to zero. And its price is positioned to move much higher. None of that is true for Argentina’s emerging market bonds that investors are flocking to.

When the house of cards finally falls, gold owners will be smiling while others get hosed. Before that day comes, be sure you’ve secured an appropriate portion of your savings in something reliable.