Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: TobagoJack who wrote (2815)	12/23/2005 9:17:14 AM
From: TheSlowLane	Respond to of 217865

tj - taking in the whole December issue is worth the time, imo: "The Twin Mispricings" harrisnesbitt.com He does have a wicked way with words, for sure. Now that the coconut has seized control of the intercom, it is time that she learn how to say: "Buy gold." Or perhaps you've already attended to that. LOL!

To: TobagoJack who wrote (2815)	12/23/2005 10:28:28 AM
From: elmatador	Respond to of 217865

Anyone thinking of shorting the real against the dollar should think again. Brazil’s central bank asserts its authority Published: December 21 2005 20:41 \| Last updated: December 21 2005 20:41 Foreign exchange markets have been thrown into confusion over the past fortnight by a burst of sudden and determined activity by Brazil’s central bank, writes Jonathan Wheatley. The bank has been furiously buying dollars and acting in derivatives markets to reduce its dollar liabilities, sending Brazil’s currency, the real, tumbling from R$2.18 to the US dollar on December 7 to R$2.37 twelve days later – a devaluation of more than 8 per cent. What is going on? Several brokers concluded the central bank was on a drive to undo the real’s steady appreciation over the past three years – the exchange rate was R$3.50 to the dollar at the start of 2003 – and began advising clients it was heading for R$2.50, R$2.60 or more. Many reversed short positions they had taken against the dollar assuming a further real appreciation. The strength of the real has become increasingly traumatic for many Brazilian businesses. The clothing and footwear industries have been shedding jobs by the thousand as their exports have lost competitiveness. In other sectors, multinationals have been shifting production away from Brazil to cheaper factories in Asia or eastern Europe. The political pressure on the finance ministry and the central bank to do something about this has become enormous. The loudest complaints have come from within government, from ministers and senior officials across a wide political spectrum. Many market players have concluded that Brazil is taking the Argentine option, seeking growth through currency depreciation. But Brazil’s monetary policy makers have shown repeatedly in recent months they are immune to political pressure. While Brazil’s very high interest rates are on their way down, they are coming down only slowly, in defiance of loud and persistent calls for faster action. Some economists argue it would make no sense to stand firm on one plank of policy and yield on another. Alexandre Lintz, chief economist at BNP Paribas in São Paulo, points out: “The [central bank’s] directorate has always argued firmly for a genuinely free floating currency.” That leaves various other possible explanations. One is that the central bank has decided to retire all its dollar-linked domestic debt by the end of the year. With a bit more than $4bn’s worth to go, it could just about make it at the recent rate of about $600m a day. This would enable the central bank to enter election year 2006 free of dollar liabilities – another feather in the government’s cap after its decision last week to pay off this month the remaining $15.5bn of an International Monetary Fund loan due by 2007. Another explanation is that the central bank is teaching currency traders a lesson: that the real does not go one way only. Indeed, when the real reached R$2.37 on Monday the central bank reduced the volume of its trades and the currency promptly reversed direction, reaching R$2.32 during the day yesterday. But this account also fails to chime with the central bank’s insistence on a genuinely floating exchange rate. The most likely explanation is the most prosaic, that the central bank is taking advantage of prevailing favourable conditions to retire its dollar-linked liabilities as part of a long-term strategy to improve the profile of public debt. Rather than aiming to do this by year-end for electoral reasons, it is simply continuing current policy in a consistent yet opportunistic manner. Prevailing conditions, as are well known, consist of the improvement in Brazil’s current account thanks to an export boom riding on global demand led by China, and the glut of liquidity on global markets. “It is perfectly rational to seize the moment to retire liabilities early and improve Brazil’s risk perception,” says Marcelo Salomon, chief economist at Unibanco in São Paulo. Nevertheless, some economists argue that there probably is an element of politics behind the central bank’s behaviour. Next year is election year, and if 2002 is any guide, elections can cause market volatility. Clearing itself of the sort of liabilities most prone to volatility, such as dollar-linked debt, may, says Nuno Câmara, senior Latin American economist at Dresdner Kleinwort Wasserstein in New York, could turn out to be cheap insurance. Whatever its motivation, some economists argue that the central bank is unlikely to precipitate a continuing devaluation of the real. Despite the damage done to many manufacturers by the currency’s strength, and a fall in the volume of exports, the value of exports is rising resolutely, thanks largely to high commodity prices. A government index of export prices that was at 93.3 in January reached 103.1 in October. If this continues, further appreciation of the real is inevitable. Says Mr Camara at DKW: “What we tell hedge funds and what they tell us is that the currency is moving one way only, and that’s stronger.” Anyone thinking of shorting the real against the dollar should think again.