Five Things You Need to Know: Everything We Never Wanted to Know About Ecuador and Never Really Thought to Ask; Plus Other Stuff, Including "Like 'Entourage' But for Wall Street
What you need to know (and what it means!)
Minyanville's daily Five Things You Need to Know to stay ahead of the pack on Wall Street:
1. Everything We Never Wanted to Know About Ecuador and Never Really Thought to Ask
Ah, Ecuador. Do you know Ecuador? Do you really know Ecuador? Yes, Ecuador, the former Inca Empire. The birthplace of Atahualpa, last of the Incan Emperors, worshiper of Mama Pacha, the fertility goddess known as "Mother Earth." Its capital, Quito - actually, and officially, San Francisco de Quito - sprawls northward among the Guayllabamba River basin on the eastern slopes of the Pichincha, barely south of the equator; literally, la mitad del mundo - the middle of the world.
- Yes, well, despite all that they're still probably going to default on their global bond payments.
- President Rafael Correa's administration on Monday postponed a key ruling on a referendum on constitutional reform, the Financial Times reported.
- As a result - and as was widely expected - Ecuador will fail to pay a $135 million coupon on its 2030 global bonds, due this Thursday.
- Although Quito has indicated it will make the interest payment within a 30-day grace period, worries are growing that the country may default on some or all of the country's $10.2 billion in foreign debt.
- Although Deputy Finance Minister Fausto Ortiz said the government will make the full payment by mid-March, the country may simply be stalling for time ahead of President Correa's presentation of a debt restructuring plan.
- The FT noted this morning that there have been few sovereign debt defaults in recent years following Argentina's record-breaking default on about $100 billion in debt in 2001.
- A default by Ecuador could reawaken investor risk premiums associated with emerging markets.
2. Emerging Markets Risk Premium?
Did you say emerging markets risk premium? What risk premium? There isn't any risk premium.
- OK, well, there's a small risk premium. But a very, very small risk premium.
- JP Morgan's EMBI+ index currently shows emerging market debt just 168 basis points more than comparable US Treasury bonds, not far from an all-time low.
EMBI+ Index one-year chart (Courtesy of the excellent website: www.Cbonds.info)
- JP Morgan's Emerging Markets Bond Index Plus (EMBI+) index tracks total returns for traded external debt in emerging markets.
- The index covers U.S. dollar-denominated Brady bonds, loans and Eurobonds.
3. Daily Subprime Lender Bankruptcy Filing Datapoint
All is well. Remain calm. All is well. Even though another subprime mortgage loan outfit files for bankruptcy seemingly every day, them's just... nothing, you know? Nothing. It's nothing. Don't worry about it.
- ResMae Mortgage, a subprime mortgage lender, has filed for bankruptcy protection and agreed to sell some of its assets to Switzerland's Credit Suisse Group, according to Bloomberg.
- Credit Suisse will provide a credit line and operating funds enabling ResMae to stay in business, the article said.
- ResMae is owned in part by a joint venture of Thomas H. Lee Partners LP, a Boston-based buyout firm, and Putnam Investments, Bloomberg said.
- Meanwhile, foreclosures nationwide were up 19% in January compared to December, and 25% year-on-year, according to RealtyTrac.
- Hmm, is it even possible to put a positive spin on a 25% increase in foreclosures?
- Silly, of course it is!
- "The year-over-year increase of 25% is well below the 45% annual increase we saw in January last year," RealtyTrac CEO James Saccacio said.
- Good. Meanwhile, the lenders to the people who were foreclosed on last year are the ones being foreclosed on this year.
4. Budget Crisis Solved!
A little over a week ago President George W. Bush sent his $2.9 trillion dollar budget proposal to Congress.
- Bush's plan would make his first-term tax cuts permanent, at a cost of $1.6 trillion over 10 years, according to the Associated Press analysis.
- Meanwhile, President Bush is seeking $78 billion in savings in Medicare and Medicaid over the next five years, with the ambitious goal of eliminating the budget deficit in five years.
- Although the budget has been parsed pretty well, we were surprised to find that, at least on our calculators, the numbers just didn't quite add up.
- That's when we noticed something buried deep in the budget proposal near the end that others may have missed.
- Check it out, right there, buried in the Gross Domestic Product miscellaneous one-time receipts category on Table S-9, Economic Assumptions.
- So that's how we're going to balance the budget!
5. It's Like "Entourage" But for Wall Street
Man, just when we were ready to throw out our flat screen TVs due to a lack of Wall Street-targeted programming, along comes Doug Ellin, writer of HBO's series "Entourage," with a "mature 'Entourage' set on Wall Street."
- What made Ellin want to do a show about the world of finance, asked Fortune?
- "There are average Joes walking down the Street making more money than Alex Rodriguez, and that's an interesting thing."
- Most hedge fund managers aren't particularly sympathetic types, noted Fortune.
- But that isn't going to deter Ellin. "[On the new show] we're not going to spend a lot of time going into the dealmaking. It's more about the lifestyle outside the office and opportunities afforded them from making that kind of money," he said.
- Hmmm, a television show about Wall Street... that sounds vaguely familiar.
- Combine this show with the BusinessWeek cover story this week on how money is going to be cheap forever, we're getting a real sense of Deja Vu here.
- What is it? Why does this seem so familiar?
- Oh right.
- Flashback: November 2000, The $treet - "Darren Star, creator of Sex and the City , Melrose Place and Beverly Hills, 90210 , steps out of the bedroom and onto Wall Street. A new generation of upstarts rules the roost at Balmont Stevens, Inc. However, this boys' club shares space with some corporate types and together they must survive the world of high finance...and high-stakes living."
- Will the debut of the "'Entourage' for Wall Street," like the ill-fated 'The $treet' usher in a similar market top?
- We have no idea, but check this out. Minyanville has obtained a preliminary character summary for the new show.
VIEW THE SLIDESHOW HERE!
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