Henry thank you for your take on Mr. Smithers. I am sure given the "controversy" that this article is likely to generate that the text editors at Barron's checked and rechecked Mr. Smithers and his credentials out. On the other hand perhaps they are like tailors cutting the cloth to suit the client
In these remarkable times another snippet from Barron's, "...the turnaround (last week) has caused an unusual situation in the Brazilian markets. An investor who wants to buy Brazilian bonds can do so by borrowing money at no cost. And in the most extreme situations, the investor can actually get paid up to 2% for borrowing money.
Large bond investors frequently buy bonds and finance them in the "repo" market, lending out the bonds in exchange for loans. The interest rate on the loan is determined by the market's demand for the bonds. The greater the demand, the lower the interest rate.
Normally the going interest rate is about 5%. But because demand for the Brazilian C-bonds and the bonds due in 2027 is so great, the interest rate is anywhere from 0% to negative 2%. So if you're willing to buy Brazil's debt, you can finance the purchase essentially with free money.
"I don't know that I've ever seen it this extreme," says Daniel Peirce, head of emerging-markets research at BancBoston Robertson Stephens".
I suppose one puts this down to the discontinutities of the market.
There is a very long piece from Morgan Stanley about the possibilities of Brazil devaluing it's currency. Wonder if you saw it?
The devaluations oft he 1980's in Latin America, as you might recall, were the catalyst for the US major bank's crisis in the 1980's when many of the US major banks plunged into the territory of "negative equity."
A study completed last year conclueded,"... the value of the dollar increased by 11 % in 1981 and 17% in 1982...becasue the bulk of LDC debt was placed in dollars, the burden of servicing dollar debt became incrasingly more difficult over time." (PP. 199, The LDC Debt Crisis, History of the 80's: Lessons for the Future", The FDIC, 1997
A very good tome on the banking crisis of the 1980's.
For those of you out there that don't know exposure currently to LDC debt is:
SOURCE MORGAN STANLEY
"Table 1: International Bank Exposure to Latin America, end-December
1997(in billions of dollars)
Creditor Countries
Euroland
Total U.S.A. U.K. Japan Total Germany Spain France
Total Latam 283.0 63.4 21.5 14.7 133.6 36.6 36.5 25.0
Brazil 76.3 15.8 4.6 5.0 33.8 10.7 4.2 8.6
Mexico 61.8 16.6 5.5 4.7 23.3 5.8 5.8 5.8
Argentina 60.4 10.5 6.1 1.6 34.4 8.6 12.4 5.5
Chile 21.2 4.7 0.7 1.2 11.1 3.1 3.7 1.3
Colombia 18.5 3.7 1.3 1.5 9.7 2.2 4.5 1.4
Venezuela 12.2 3.6 1.1 0.3 4.9 1.6 1.0 0.7
Peru 9.9 2.0 0.5 0.1 6.1 0.8 3.3 0.4
Other 22.7 6.4 1.7 0.3 10.0 3.9 1.6 1.3
This table shows that U.S. banks collectively are the largest creditors to Latin America, with $63 billion of the $283 billion outstanding. We should note that there is no information on the degree to which these exposures are collateralized or guaranteed by third parties, such as national export credit agencies. Nor is there information on the degree to which banks hold reserves for potential losses on these exposures"
On the current worriesome subject of maturities of this debt, ie. short term concerns see:
Table 2: Maturity and Sector Distribution of Bank Claims on Latin
America, end-December 1997(in billions of dollars)
Maturities Sectors
Up to and Over one Non-bank
including year up to Over two Public private
Total one year two years years Banks Sector sector
Total Latam 283.0 155.0 12.5 96.7 73.6 59.9 149.0
Brazil 76.3 48.9 2.7 19.8 27.1 14.7 34.4
Mexico 61.8 27.6 2.5 25.6 13.6 18.6 29.6
Argentina 60.4 34.5 3.2 18.4 12.2 11.2 37.0
Chile 21.2 10.6 1.2 8.8 3.6 1.9 15.7
Colombia 18.5 7.4 1.2 9.6 4.9 3.7 9.9
Venezuela 12.2 4.7 0.5 6.0 1.7 5.3 5.3
Peru 9.9 6.9 0.3 2.4 3.3 0.6 6.0
Other 22.7 14.5 0.8 6.2 7.3 4.0 11.1 |
