tv Boom Bust RT July 29, 2014 11:29pm-12:01am EDT
with another default now argentina has until wednesday to pay its bond holders and we're looking into the likelihood of this actually happening then patrick byrne is on the program today the c.e.o. of overstock dot com sat down with me earlier to discuss what's more important in terms of big points except in the retailer or the consumer and in today's big deal edward harris and i are discussing super air b.n. b. corporate expansion and the fundamental value of these companies i'll start right now. with. our lead story today argentina now the land of polo ponies well done carnegie and tango is dancing with another i just love that line now argentina has until
wednesday to make an interest payment to bondholders or will officially default for the second time in thirteen years argentina claims it's willing to pay bondholders who agreed to take less than thirty cents on the dollar in a debt restructuring after its two thousand and one fault but federal judge thomas agree has said that argentina can not pay those bond holders without also paying so-called holdout bondholders who have refused to accept the thirty cents on the dollar offer and have won a series of u.s. court cases against argentina now as of right now when i was there is refusing to pay the holdouts so what's the worst case and the best case scenario in this whole calamity well the worst case scenario and the most likely outcome president cristina kirchner his government will in fact a fault in fact kirshner's government has spent months running public campaigns vilifying the holdouts and calling judge greer and the u.s. judicial system court. opt which takes a lot of nerve especially coming from
a country that has no problem trampling on property rights now i'm not saying that the u.s. courts have any real right to force argentina to pay its holdouts but argentina's argument for failing to negotiate is flimsy at best and i mean very best argentina says that the amount owed is too arduous and that it would have to slash its foreign exchange reserves however the country recently settled some sixteen billion dollars in claims with repsol and the paris club of creditors with little impact on reserves by issuing new bonds or stretching out payments so here's the question what's the best case scenario sadly i don't think that there is a best case scenario here but we'll have to wait and see what happens tomorrow. with.
puerto rico has been facing some serious fiscal problems to to the point that they've been considering legalizing marijuana and prostitution yeah that's on the list of possibilities but to get an update on puerto rico's finances and the state of new knee land i spoke to kate long kate is an expert on the municipal bond market and the founder of the puerto rico clearinghouse i first started our conversation by asking her about the macro outlook of puerto rico now i wanted to know how the government was doing in terms of spending and the tax receipts here's what you had to say. the git or the just clear in the 1930's day were short about four hundred million dollars and the tax hike from what their projections where they juggled the economy a little bit in kind of brought that down but they're still struggling to have a new budget in place for twenty fifteen ridge or i one they're hoping to get that's balanced but that means they need to bring expenses genov out of billion
dollars about a nine and a half billion dollar base. and how is the real economy in puerto rico in terms of employment and economic growth. there's still oil and water struggling there downsizing the government which is the primary employer in the in the island so as they shed jobs there they're hoping to make it up and they have been making up some in the private sector but it's pretty much a net. and. net loss a small net loss for them in terms of jobs and there's not it's not easy for them to attract new business there because you know corporations have to relocate and set up a new business but they're trying very hard to join everything they can now since we last spoke the big deal in terms of municipal finances is the ring fence that puerto rico put around its public corporation debt jim so can you break down what
puerto rico did and what significance it has. absolutely and i think i'm the one that came up with the term ringfence. so i'm june twenty eighth in one day the puerto rico legislature introduced and passed but called the next seventy one or the recovery act in what ted does is it gives certain legal framework to some of the public corporations of them puerto rico government to restructure its debt to go through two processes first is consentual process with bondholders and other creditors that everyone is supposed to sit down and come to some kind of agreement about how they will restructure their debts or the loans that they've made to the poet corp and if that doesn't work we're tricare is basically a very small amount of approval less than forty percent of the creditors to approve it which is very low but it's sad for us this doesn't work it would move to
a litigation of a court based process where the public corporation would lay out what their liabilities are and work with the judge in the court setting to restructure those we believe. puerto rico clearing house and others other attorneys in than some of the litigants here that that x. seventeen when the recovery act is not constitutional and there's the possibility the federal court will strike it down. so this move effectively makes these public corporations stand on their own if it forces them to be self-sufficient if you will so the demise of one public corporation doesn't contaminate the finances of others is how i see it or of puerto rico geo bonds is that correct. that's absolutely right and to important to recognize these public corporations or sensual services in puerto rico the primary when you just question is predator which is the electorate but up early and obviously you can't take out electric monopoly or let creditors take over that an essential function service of the government and the
people another one is the water system process and then a third is the highway in transportation authority which are the roads so these are all essential you know services infrastructure of the government and you know what they have to stay under the control of the government or some quite as a regular regulatory for. now after puerto rico governor allen hundred garcia pedia signed the ring fence into law s. and p. and moody's both immediately put puerto rico's general obligation bonds on credit watch so why would they do this if the g.a.o. bonds are ringfence from the public corporations i mean did you bonds now have less tax revenue to conservative them after this move by puerto rico no actually they have more because before they're saying in the law or more importantly before the decision on the part of the government that they wouldn't subsidize the electric monopoly in the water monopoly they were paying the general fund was paying about
eight hundred million dollars a year to subsidize these public corporations and the decision on the part of the government and large part of how they're balancing the budget this year is to say no more money to subsidize the water system the electric system the general i would guess you bind have rallied pretty much since the law was passed the immediately went down but they rally back to the point they were before the lowest put in place now the marchioness of a bond deal by puerto rico was the largest high yield muni deal ever anneke puerto rico much needed cash but how do these bonds trading in light of recent how are these bonds trading in light of recent developments. you know it's very interesting i've been watching them some of closely is that they're starting to trade on a two tier basis and what we see is and we had talked about this last time we were together which is that the hedge funds who come in you know are playing very actively in this credit now and this. for general of creation binds in so big
blocks plus five hundred million dollar blocks the bonds are trading at a higher price and the smaller blocks of bonds which is very unusual typically it's the other way around which is shows you that there's a premium that you have these big players in the general abrogation that they're very interested you know and i'm so it's there's a lot of moving pieces but i think that the basically the ring fencing is work where we're seeing you'll differentials between those bonds that are protected under this legislation in those bonds that are not. now many believe puerto rico's debt crisis is headed for us style bankruptcy resolution making painful losses inevitable for investors of twenty billion dollars in bonds issued by puerto rico's highway water and electric authority so do you think we're going to see default here. well it just definitely i mean it restructures a default and. basically i mean if you don't just look at the electric utility it's
not sustainable the electric rates are extremely high we talked about this before too how the electric rates around twenty eight cents a kilowatt in puerto rico and here in the mainland they average around twelve cents a kilo so it's just crippling really to the economy and even if you wanted to attract business it's very high with these high letter grades so they underline absent the electric monopoly in the water less so the water monopoly in the highways they just have too much debt in the new investment which you can't do when you have all that debt in this process has to happen one way or another just unclear and under what legal framework it will have. that was municipal bond market expert kate long. time now for a quick break but stick around because when we return over stock c.e.o. patrick byrne is on the program now his company. retailers to accept big point
and he's giving us an update on how the big point platform is working at overstock and in today's big deal edward harris and i are talking about hoover airfield and b. and corporate expansion plus remember you can see all segments featured in today's show on you tube and you tube dot com plus the bus dirty and on hulu at hulu dot com slash. now before we go here are a look at some air closing numbers of the bell time about the. old. technology innovation all the list of elements from
with. the key. to the love of god now it's the classic chicken or egg story of bitcoin has already become a viable currency should the community focus on getting more big questions into the pockets of the people who use it or convincing retailers to accept them to get a sense of the challenges and issues around accepting decline as payment i spoke to overstock c.e.o. patrick byrne about his company's experience with korn overstock was one of the first major internet retailers to accept declines and i began our conversation by asking him about what kind of transactional volume and decline his company has seen since accepting the cryptocurrency take a look what he had to say. i think she's really now instead it's a quarter of one percent of sales just the last calculation all summer to twenty four hundreds of one percent of sales so you know quarter one percent on a billion and a half dollar company bodes well but it is excel or even i mean in general the
secular level opens. now in terms of other retailers who want to take that big client what kind of operational hiccups have you had that you think can be avoided in other companies it's been surprisingly seamless and smooth we integrated with coin because there are other companies i shouldn't like big pay and clone a poll among some of the integration that our team about eight days make probably is corn based probably got it down even tighter than not so the integration is very seamless since it's. i mean it's and hasn't had a hiccup since we started and it's really the we integrated all concert different payment systems but this is the first i can think of where there's just been no hiccups at all once once you integrate this it's just beautiful we've even got our customer service agents are now able to issue refunds in bitcoin that one plot of
a month or so ago and then another all give you some breaking news or all give you the first look at some of those in about a month or six weeks we'll be introducing it to our international forum so our international viewers including those russia will be able to shop on our site and pay in bitcoin. well thank you for that bit of breaking news now like you mentioned you've been working with point but have there been any new innovations implemented by coyne both in the past couple months that you've benefited from prepayment that overstock. not that i'm aware of i think they're a fluke ascent from what i understand it so it's a lot on the wallet so they offer a wallet to consumers and i think that they're focusing on that side and it's well worth focusing on that's on primarily from what i hear but there's really not anything we need from that is no new innovations we're we're looking for someone with some point hope somebody creates a derivatives market because we can hedge our risk that way but we're not really looking for anything else from current basics they we have kind of all we need from
them are you at all surprised by the adoption rate of decline by retailers and what do you think accounts for the uptick and bequeath acceptance by march and. will we like to think that we had that we broke the ice i think the fact the biggest before we announced that we were taking about the biggest merchant was i think about a million dollars that was taken big coing so by us doing this we see them going you know finding a ten million dollar one hundred million dollar billion dollar merchants were billion and a half dollar merchant and i think we still like to think we saved them about four or five years of the revolution and then once we did it it kind of forces other people's hands other laurence merchants like new way like. well dish t.v. . i like to think that we put it on the map but my expectation was assumes we get it you're going to see a lot of other people maybe just not an attempt to get the p.r. we got to be although we didn't do it for p.r.
with that for philosophical to return reasons you know but i think now that we've broken now that it's broken into the billion dollar vendor more and i think it's just a matter of time before the other or the other dominoes fall project as a retailer what's more important in terms of platform acceptance for a new payment platform retailers are users. well it's a chicken and egg thing. in wall street they have a saying liquidity begets liquidity once you have people coming in and buying or selling at a place you have network effects what made you get a take off from work so now you can't really have the merchants don't want to sign up that's where the consumers do it consumers don't have any wouldn't sign up for the merchants to source chicken and egg but once it gets in in the eyes of the system and now it tends to explode very quickly i think that you may even see the peso adoption increase on from here until we get from
a quarter of one percent up to a more significant percentage of share of sales across the world and this isn't just us from amman i think this will slow across the world and we've broken through that tipping point now in the financial blogosphere there has been some talk about using decline as a test case for government created. so first do you see something like that happening and second do you think government has a role in encouraging at all. that's a funny question it's a smart question i say reminds me of dorothy parker said when she heard here's the one she heard she said that what you hear is the two people collaborated to write a book it always made her sound to her like it's hearing of three people collaborating to make a baby just don't i don't i don't know what the third person does pull somebody if you got to eat her and see don't know what that's limited by the rules of mathematics like her by you know critical like crypto currencies are not sure what
the rule of government it is does it you don't it's like needing three people to make a baby what's they don't need the government currency is a mechanism for humans to communicate information to each other price community and prices are little packets of information about scarcity and value and i don't know what you need that other party for when when we actually what you don't need the other institutions when you've got an institutional it lets humans interact directly there like that that's really all to me we want cryptocurrency so subversive towards authoritarian state sloat frankly like russia and while russia has outlawed it outlawed big calling exchanges because it's ultimately very subversive technology towards all authoritarian regimes and it is now patrick you've been quoted as saying the federal reserve is like a tumor in america you cut it out you don't replace it with anything and that you think big question enables one to simply check out of the whole federal reserve
system so here's my question is that really true today though and what it basically mean is are you speaking literally or figuratively when you say that. well. first i should mention i was quoting a great economist thomas sole who described federal reserve as a cancer that should be cut out and somebody said to him well what i mean what he replace it with then he said that's what it sounds like a tumor when you cut itto you don't replace it with him and i don't mean it's literally two months it's it's it is a metaphor. and. i'm sorry what was the second part of the question what happens how it yes do you think it's really true today that one can check out of the whole thing it seems like that's not possible on some level well not yet you have to pay your taxes and dollars big corn isn't legal tender yet not that's one of the ways that governments protect there are monopolies is their seniority is what it really has a right to clutch is they make their currency the legal tender to pay taxes you
can't do that yet but you can pretty much buy everything you need at overstock we're introducing more and more food products. and there's a lot of things you can't buy yet with bitcoin but as you buy more it speak will convert more and more to bitcoin that creates more incentive for people selling other products products such as housing or gasoline to start accepting bitcoin and so again the pitch virtual circles spend up. that was overstocked c.e.o. patrick byrne time now for today's big deal. time with the wonderful that we're here and then today we are discussing air b.n. b. corporate expansion and the fundamental value of these companies now it was
announced tuesday that air b.n. b. and are planning to target business travelers and the business community so edward what's going on here what can you tell me about this and why are they going after business consumers well. to your your second question i think they're going to business consumers because that's where the money is basically you know when it comes to who can pay more business customers always are going to be able to pay more so when you want to build your brand in your market unless you can get volume out of the consumers definitely you want to go with the business stuff and while they're doing it another thing i think that's really interesting and actually good about the way they're going about this is you know the integration into how expenses are made and so forth if you think about like american express in terms of business consumers the reason american express is so integrated it is because they make it so easy to expense you know they have the reports etc and so forth so they they're working with
a third party to make it so that they can have your travel expenses can go directly into your business expense forms and it is this also because you know business travelers they obviously spend more money because on a corporate account and if there's only a small pool of individuals who can fly a business on their personal buy or and it just seems like a larger pool to dive in is that where they're doing that they're doing it because again you know like if you have to go somewhere you must do it then you're going to pay the full price airlines with business customers and so forth or even hotels with business. customers want to have their energy you know they wanted to be at a certain location they need to leave at a certain time there's no it's ands or buts and they're willing to pay the price to do that and therefore you're going to get the highest margin from for that reason and the same thing goes with surge pricing. who's going to be with his surge pricing business customers going to be able to if you got to get to a meeting close a deal you're going to pay whatever it costs to get to that meeting now there is
still plenty of skepticism surrounding air b.n. b. expansion specifically when it comes to safety and security both in and out of the country now edward we've talked about some creepy experiences with you and i'm sure there exist with a long left we're not going to throw her under the bus because i'm a big fan of her but you know with drivers coming after passengers are spin a little too creepy so here's the question i would think with business travel there's a heightened. problematics that you the legal issues that could come out of you know any sort of harassment any sort of traffic jam any sort of traffic accident how are they going to combat that in terms of insurance you know the question almost i mean personally i think if it's a personal issue they have someone picking you up at your house or they see where you're going to your friend's house or whatever that's more sort of intrusive personal like if you're a business traveler you just go from the airport to your hotel or whatever i mean
what could really. happen if you were. going to the office i would look up in the air you see the movie. check it out very funny about business travel now on the other side there's clients and you have this security and control that's going on here but you know why cater to business clients if there are these security control issues you said that you think they're less but could it possibly be that this is going to be much greater because you're dealing with massive corporations that can see you out of business who are well maybe. if you have an eighty billion dollars but like generally can sue you out of business i would think that would be something that you have to add in to the equation when they're your cook they're your customer your client so they're not going to sue you out of business in the sense that they're only going to go to another vendor if necessary but the great thing about it for air b. and b.'s perspective is that it gives them an entree into the regulatory space meaning if you have like these big companies are saying look we using google we're
using air being the regulators we need these companies because you know we're businesses that's going to. push and so i think that that's part of their plan as well it's not just the monetary aspect it's also from a regulatory perspective you know just think new york if new york businesses are telling snyderman and whoever else we need their b. and b. that's going to have something some some push and it's not just going to be while there's money there's good stuff now we've also discussed how to play in defense of hardball against other ride sharing outs like live trying to cut prices in order to defend market share and you've also said that hoover is way over valued simply is this a move by air b.n. b. and over to grow and expand in the midst of competition we have ten seconds but i want to get your i think yes you know you know you want to grow as much as possible so get as much into these different spaces as you can but get that you know a fact and then you can win the war of it i love this topic and i want to talk
washington well it's a missile that is being suggested in the latest numbers among the many candidates for the prophecy of current issues actually back to a new doesn't do too much for ad revenue my own tech agriculture giant teeth on a seventy six year old american farmer based in india fallout do you think this is going to create for the cia do you think this is what's triggering a race america's the largest economy in the world it's also the largest debtor nation in the history of the world breaking the set is mostly of alternatives to the status quo but one might give real alternatives to the points on the books for the american dream the next they were just trying to survive it's time for americans and lawmakers are forced to wake up and start talking about the real causes problems for.
breaking news this morning on international israeli forces reportedly hit the u.n. school in gaza killing some twenty people this according to press more on the story in just a moment. washington launch another round of sanctions against russia over the ukraine conflict. in the financial and energy sector. the civilian casualty count. intensifies its offensive in the east of the country moving ever closer to the russian border moscow meantime struggling to get children out of the combine.