There's a sucker born every minute.. and two to take him.

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Apr 29, 2013
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"Let us break their bonds asunder, and cast away their cords from us." Psalms 2:3


Investors would be smart to adhere to this biblical advice. Last week Rwanda, a tiny speck of an African

nation, issued $400 million with an interest rate of 6.625% in U.S. dollar denominated paper. The order book was 8.5 times oversubscribed.


The 10-year bond was sold at a yield of 6.875%. The bonds dropped off slightly early on Friday before finishing up the week near par.


Most Americans would have a hard time locating Rwanda on a map. Here is a visual aid.


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Fitch rated the bonds at "B."


What chance does the country have of repaying this principal at maturity? The Wall Street Journal noted that foreign aid accounts for about 38% of the country’s budget. That suggests that 100% of the debt just incurred can be payable only due to gifts from American and European politicians.


Ordinary citizens are thus funding involuntary transfers of their hard-earned money to Rwandan officials. Whatever is left after deductions for graft and corruption will be used, at least temporarily, to pay generous interest to wealthy investors. There is zero probability that Rwanda could pay even the interest, let alone repay the principal a decade hence without this Ponzi-like, foreign aid financing.


It took both unscrupulous salesmen and stupid, yield-hungry buyers to make this bond issue possible. They didn’t learn anything from their Caribbean-based CD experience with now-jailed Allen Stanford or the promised too-good-to-be-true equity returns from Bernie Madoff.


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Con men cannot operate successfully without the confidence of their marks. When you send your money to Stanford, Madoff or Rwanda you have already kissed it goodbye. You just won’t know it right away.


Rating agencies and financial advisers that placed people’s money in these issues all later feign ignorance about the chances of never recouping your money. The Bible knew better thousands of years ago.

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