The Newsletter You Didn't Subscribe To - Snakes with hats
Your daily dose of nonsense - Tuesday, 28 July 2020
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Snakes with hats

Source: Reddit

Source: Reddit

Snake in a strawberry hat amongst strawberries. Source: YouTube.
Argentina
Last week I briefly discussed the interesting (but perhaps extremely fanciful) idea of London’s succession from the rest of the country due to the outcome of the Brexit vote in 2016.
Well now, unfortunately, Argentina has defaulted on its sovereign debt again for the ninth time since its independence in 1816 (the latest event was when it missed its interest payment of $500mil on its dollar bonds on the 22nd of May). As a result, anyone in Argentina (not just the government, but people and businesses in Argentina too) who need to borrow from anyone else in the world would very likely need to pay an eye watering interest rate, if they do get a loan at all.
But obviously, not everyone in Argentina should be categorised as parties who can’t afford to service their loans. Surely, there would be some parties who have worked their back off and would like to see some of the fruits of their labour, but only to see their creditworthiness dragged down by other people. If I were them, I would be furious!
And that’s exactly what some people in the region of Mendoza feel. The region of Mendoza is a wine producing region in Argentina. Here’s a map that shows you where this region is:

Location of the province of Mendoza. Source: Wikipedia
The former governor of Mendoza, Alfredo Cornejo, has joined the “Mendo Exit” movement advocating for the secession (in Spanish) of Mendoza from the rest of the country. The Financial Times writes (paywall) that Mendoza consistently runs a balanced budget and would benefit if it was uncoupled from the credit risk of the rest of the country.
Below is a screenshot of the offering memorandum for the region’s 8.375% notes due 2024 published in 2016, claiming that the region contributes 2.9% to the national GDP, and has a low unemployment rate of 3.1% in 2015.

And in the same document is the breakdown of the region’s economic contributions for 2011 to 2014:

If these proportions are still true, I don’t know if achieving independence now in such times would be a great thing, given that a good 25% of the region’s economy is based on “commerce, hotels and restaurants” and a further 19% in based on “community, social and personal services”. Are people still generally doing these activities today in the context of the virus? Let me know if you are in Argentina. If these parts of the economy are not doing great, I don’t know if succession does indeed get you a better interest rate. But then again...
Cheap financing
It’s never been cheaper to borrow money! Here is a chart by the Financial Times showing the distribution of bonds by yield as a percentage of the total bond market:

Source: Financial Times on 27 July 2020
You can see that roughly 90% of bonds yield less than 4% at the right hand side of the chart. Well, perhaps the Province of Mendoza might have a shot at getting low interest rates in this environment anyway!
If you are wondering why would anyone lend at such low rates, it’s partly because governments across the world have slashed short term interest rates, money printing, a sprinkle of government control of long term interest rates, and some even go as far as buying the bonds of companies. So even if you aren’t willing to lend at that rate, someone else (e.g. the government) would.
Also, probably because some people don’t know where else to park their money (others people choose gold). Or they need/love the regular and relatively frequent income paid by bonds and would buy bonds anyway to live that passive income dream. And when everything else no longer pays the income you need/desire, people spillover into ‘riskier’ assets, hence, the title of the chart above.
Coronavirus parties
CNN reports that people are hosting coronavirus parties. People attend them to get infected. And, the first person to get infected receives a payout.