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To: pater tenebrarum who wrote (96962)	4/20/2001 4:25:21 PM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 436258

<<this is imo the beginning of a trend that will become increasingly manifest over the coming year...namely a reweighting of CB reserve composition worldwide.>> It makes good sense. If only one currency is used as the reserve, there exists the potential (purely theoretically, mind you) that it's CB would abuse that power to run massive current account deficits and create excessive currency, greatly destabilizing the world economy. If two or a basket (say, the G-3) are used, then if one CB becomes lax, the other currency(s) would immediately gain, thus providing the necessary feedback to enforce discipline and permit efficient (currency) markets. It makes too much sense. Disregard.

To: pater tenebrarum who wrote (96962)	4/20/2001 5:02:30 PM
From: John Pitera	Read Replies (1) \| Respond to of 436258

I thought you would have a keen eye on it. the real hit new lows today, and both the Merval and Bovespa were down 5.6% the argentinian bonds have really sold off.

To: pater tenebrarum who wrote (96962)	4/20/2001 5:02:34 PM
From: John Pitera	Respond to of 436258

I thought you would have a keen eye on it. the real hit new lows today, and both the Merval and Bovespa were down 5 .6%. the argentinian bonds have really sold off.

To: pater tenebrarum who wrote (96962)	4/20/2001 6:57:30 PM
From: Box-By-The-Riviera™	Read Replies (2) \| Respond to of 436258

follow up on the real deal oh'neal..... major slam by the europeonas dailynews.yahoo.com

To: pater tenebrarum who wrote (96962)	4/20/2001 8:35:10 PM
From: TobagoJack	Read Replies (2) \| Respond to of 436258

Hi heinz, <<HK monetary authority>> Message 15697602 Responses triggered by this ... grantsinvestor.com GET IT WHILE IT LASTS by Ray Dalio, Bob Prince, David Wilanksy, Vivin Oberoi Bridgewater Associates 07:00 AM 04\|18\|2001 A cheap hedge on the Hong Kong dollar looks increasingly attractive as risks intensify. The U.S. dollar squeeze arising from there being a lot of dollar-denominated debt and a shortage of dollar-denominated liquidity conveys the growing stress arising in a number of places. During times of increased stress, Bridgewater likes to look for asset/liability mismatches that could cause stress and market moves. We especially like limited-risk ways of hedging these moves. Right now, we are seeing increased risk in Hong Kong at the same time that we are finding the Hong Kong dollar still cheap to hedge. The "cost" of hedging the Hong Kong dollar over the next year is about 0.5%. If it were to devalue, the devaluation would probably be about 20%. That means that the expected value of hedging is positive if there is more than a one in 40 chance of devaluation. In today's highly uncertain global environment, one-year options like this seem cheap, but they seem especially cheap in light of: -- Japan's monetization/devaluation policy, the decline in the yen and the weakness in other Asian currencies which is making the Hong Kong dollar expensive. -- Deflation in Hong Kong. -- Weakness in the Honk Kong stock market. -- Argentina's riskiness. -- China's desire to devalue, ideally before the World Trade Organization opening. -- Where Hong Kong-dollar hedging costs have been in the past. A rubber band can only be stretched so far before it snaps. No one knows for sure how the above factors will change to stretch this one, but Bridgewater thinks they could stretch a lot. For example, we believe that: -- Japan needs to monetize and weaken the exchange rate. The stress that this is causing in Asia will only influence the pace, not the direction of the policy. Japanese officials will speak in favor of yen strength while acting in favor of its weakness. Other Asian countries will continue to devalue with Japan (in varying degrees). This will make a pegged H.K. dollar more expensive and deflation in Hong Kong more acute. -- The Hong Kong stock market is more vulnerable to a bear market than are other major markets, because its interest rates can only rise relative to U.S. rates. This could cause a self-reinforcing bearish cycle. Weakness in stocks, accompanied by rising interest rates (due to devaluation risk), raises the odds of a devaluation that raises interest rates, which weakens stocks, etc. -- A worsening of the problems in Argentina, which we think is likely, will inevitably lead to comparisons with Hong Kong, which will contribute to rising interest rates. -- China could view this as an opportune time to devalue. In other words, a lot could go wrong, making a 0.5% one-year protection against it all [look] cheap. The following charts help to better convey the picture. The first one shows that the Hong Kong dollar's one-year interest-rate premiums (hedging costs) are still quite low and less than one-tenth of what they were in the last devaluation scare. If they went out this far before, couldn't they do it again? What interest rate premium to defend the currency is too much to bear? The next chart shows that the same one-year forward premium for the Argentine peso has run up to 10% (near its old high). If it happened in Argentina, could it happen in Hong Kong? Countries want to avoid deflations. Lowering interest rates and/or lowering the exchange rate are the ways they go about avoiding them, but fixed exchange rates prevent either from happening. Hong Kong has had even more severe deflation than Argentina. The next charts shows that, over the last year, the yen and won have both depreciated roughly 20% relative to the Hong Kong dollar, and the Singapore dollar has dropped almost 6%. The Hong Kong dollar would have traded similarly if it traded freely. Finally, the last chart shows Bridgewater's proprietary risk gauge. Based on it and what we said above, we judge the hedge to be cheap. Chugs, Jay