LOL !!
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biz.yahoo.com
Friday April 20, 5:38 pm Eastern Time
Default fears spark panic on Argentine markets
(UPDATE: recasts, adds Menem, Calvo statements, market updates )
By Brian Winter
BUENOS AIRES, Argentina, April 20 (Reuters) - The ugly specter of an debt default by Argentina returned with a vengeance on Friday, as rumors of an imminent economic meltdown led panicked stock and bond traders to exit local markets en masse.
Argentina's Economy Minister Domingo Cavallo attacked the swirling rumors of default as ``irresponsible,'' but traders still appeared to be betting that the troubled economy would soon collapse under the government's heavy debt load.
Argentina's country risk, measured by the spread between government bonds and safe-haven U.S. Treasuries, widened 106 basis points to 1,051 points by Friday afternoon. The benchmark MerVal (^MERV - news) stock index closed 6.27 percent lower in heavy turnover, nearly double its normal level.
``The psychology of fear has forced a lot of traders to get out on the concerns that there may be a default. Not very many people really believe it, but there is some panic,'' said Juan Plett, an equities trader for Mackintosh brokerage in Buenos Aires.
Former President Carlos Menem, the opposition Peronist leader who ran Argentina from 1989-99, added fuel to the fire on Friday by advising people to buy dollars, and saying Cavallo's plans to add the euro to the 10-year-old dollar peg would mean a devaluation.
``I think this maneuver would devalue our currency and that is why I would advise Argentines who have a peso in their pocket to convert it to dollars as soon as possible,'' said Menem, a strong proponent of junking the peso and adopting the dollar as official tender.
``The long knives are out,'' a hedge fund manager said. ``We have an extremely vulnerable technical position and hedge funds are aggressively betting against Argentina.''
Traders were hard-pressed to come up with a concrete reason for the panicked activity, although many admitted the market was simply rattled by several months of uncertainty as the government lurched from crisis to crisis. When consulted, most analysts professed confidence in the economy.
But Friday's turmoil was a blow for Cavallo, appointed last month to boost the economy after a 33-month slump but who so far has sailed into storms over expanding the peso-dollar currency peg to include the euro as well as his demands that the autonomous Central Bank relax monetary policy.
LEVEL HEADS LOSE OUT
The swirling rumors mimicked those heard in March, when Argentine bonds and stocks cratered on fears that the stagnant economy would not produce enough revenue for the government to meet its hefty debt requirements.
Markets became jumpy again earlier this week after Cavallo proposed abandoning the currency's 10-year-old peg to the U.S. dollar, hitching the peso instead to a 50-50 average of the greenback and the euro to make it more flexible.
Even though the rejigging of the currency would not happen until the dollar and euro reach parity -- not expected to happen for months or even years -- some economists fear it could shatter already harried consumer confidence.
Menem, whose then-economy minister Cavallo introduced the currency peg in 1991, added to those fears by telling Argentines to buy dollars to protect their savings.
Meeting with investors in London on Friday, Cavallo said there was no risk of a debt default, and once again attacked bankers and traders whom he has already called ``short-sighted.''
``We will never consider that alternative (debt default). To talk of default is an intellectual exercise made by irresponsible people with no experience of how to run a country,'' the minister told a news conference.
Some economists said that default was a long way off.
``Default is not just around the corner. Argentina has the local resources and those from its (IMF-led, $40 billion) financial package to take care of its commitments,'' Martin Redrado, chief economist for Fundacion Capital consultancy, told Reuters.
The government said it could not explain the turmoil.
``We're really surprised ... about (market) sensitivity. As minister Cavallo says, nobody knows who is really behind the market,'' said President Fernando De la Rua's spokesman Ricardo Ostuni, echoing the economy minister's view that financial market troubles were mainly due to badly informed speculators.
Guillermo Calvo, chief economist of the Inter-American Development Bank, said that Argentina must send strong signals of stability in economic policy in order to calm markets.
``These things improve if there is news and get worse if there is none. The market wants news of more stability,'' Calvo said.
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What then puzzles me is...
* Japan's economy is in trouble and interest rates are near zero. (so even if the Yen appreciates against the Dollar, I can not possible see this lasting a long time).
* Euroland is not exactly paradise, plus I do not believe the Euro itself will succeed in the long run. (Next week they meet to consider lowering interest rates). Ditto... in fact, no one is expecting for the USD and the Euro reach parity any time soon.
* Argentina, (LOL) as seen above, and after 33 months of recession, [and for some near depression], is nearing a climax in their crisis, which could carry with it other Lat Am countries, namely, Brazil, Mexico, Colombia, Venezuela... et all... Adding to the list of troubles for American companies with local operations for one. Besides, if we need to export... who will buy our products... or with what ? Vouchers for vacations on sunshine-filled beaches ? Since by then their economies are in total collapse and their businesses have all shut down. Ah yes, and labor would become even cheaper too. Even the skilled one. And that would make these places a heaven for manufacturing companies... no ?
So... if the US Dollar, (from the technical Analysis perspective), is nearing a possible slide...
I wonder, in the long term, which currency will benefit ?
None ? That leaves gold. (which personally, I doubt it), plus all central bankers have been selling it anyway.
People outside the US, see the US Dollar as the "safe heaven" (see above) that their own currencies are not.
Bottom line...
While I do not deny the existence of the valuation joke of the dot bomb party, most of those are all gone... then...
Could it be that the concerns, such as the third world countries on the verge of collapse, are the reasons why AG has been lowering interest rates, and the US market is a mere side beneficiary of the moves ?
I part form the base that I believe Alan Greenspan is the "de-facto" Central Banker to the world.
Bizarro world maybe ? Lower standards (in the US), seem to succeed, since in other countries... the standards are even lower...
In the land of blind men, the one eyed is King.[still] (just my opinion). |
