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Strategies & Market Trends : Telebras (TBH) & Brazil -- Ignore unavailable to you. Want to Upgrade?

To: EPS who wrote (6665)	8/14/1998 9:33:00 AM
From: CuttotheCore	Read Replies (1) \| Respond to of 22640

This is mainly on Russia, but references tbr. Nobody wants money in emerging markets, no matter how much the Mobiuses of the world reassure us with their passports and luggage that everything is just hunky-dory out there. Wrong! Rear Echelon Revelations: Why Russia's Problems Pack a Punch By James J. Cramer 8/14/98 8:45 AM ET People keep writing me and asking me what the impact of all of this Russian stuff is on the marketplace, if Russia represents such a small part of the world's economy. Rationally, the worries about Russia shouldn't be translated into a seller of Telephonas du Whatever, but believe me it is. That's because of the nature, not of countries, or treasuries, or politics, but the margin run. When you run money professionally, you live or die by the run that is hand-delivered to your office or can be called up by your computer. On that run are your positions. Bad positions come flashing in red, or maybe that's just my and every other portfolio manager's imagination. Some firms have redemptions and contributions as a matter of course. Contributions are a lay-up. But redemptions? They have to be taken out of something in that margin run. Okay, now imagine you are running a fund and you own a lot of Russian paper. Heck, a ton has been issued, it went somewhere, someone has it. Some of the paper will be debt, other paper will be stock. If you were a believer in Russia -- and Lord knows how we had to hear about these people making millions over there for a long time -- you own this stuff. Even if you were a believer in emerging markets, you probably owned some weighting of Russian paper. Now emerging markets are the kiss of death. (Never more than today with this tag team of doomers, Insana and Rogers.) Nobody wants money in them, no matter how much the Mobiuses of the world reassure us with their passports and luggage that everything is just hunky-dory out there. They want their money back. They want to take it out while there is still something left. They read the papers. They know they have stepped in it. So, what do they do? They see the prices on the Russian bonds that they own on their margin run and they pick up the phone to their emerging markets desks, those same desks that so gingerly plied these goods when the getting was good, and they say, "Bid Wanted for 10 million of the Bank of Stoly 16s of 2004." The run prices these Stoly bonds at 84. But the bond salesman comes back and says "64 bid." And then you say "what the $&^$&$$((&%)(*%$%# kind of bid is that?" The emerging debt guy on the other line says "the best bid you are ever going to get." He might have even snickered to himself at first. But then the next day you get your run and it still has 84 as a price for the Stoly bonds because few of the margin runs even bother to update prices on this arcane garbage. You pick up the phone and now you are begging for him to say "64 bid" so you can whomp him with these Stolys, and instead he says "42 bid." Now if you hit him you have the double whammy. You get your bonds "marked" at half the price they were two days ago, which will then cause more redemptions when people see how much you lost on them, which will then cause more bid-hitting. But if you don't hit him, maybe they will be at 30 the next day. Or maybe at nothing. Or, you can say, forget the Stolys, I'll go sell some Telebras (TBR:NYSE ADR). Least there is an orderly market and I can get 90 something and change. That will meet the redemptions, and then some. When you are in these situations, you do not think, "hold on, that Telebras broken up is worth 150." You thank your lucky stars that there is a bid at all. This cycle plays out for the longest time until a. you get fired; b. they take all the money away anyway; or c. the situation stabilizes. The problem with c., however, is that it rarely occurs before a. and b. How far along are we in this process with Russia? Considering I haven't even read about a. happening, or b., for that matter, you can bet that c. ain't even close. Yeah, Russia may not be important, but it can pack a real wallop in Brazil. Or any other liquid place on Earth. Including, in the end, the mighty United States. James J. Cramer is manager of a hedge fund and co-chairman of TheStreet.com. At time of publication his fund has a position in Telebras, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to TheStreet.com at letters@thestreet.com. See Also WRONG! REAR ECHELON REVELATIONS ARCHIVE Cramer's FAQ c 1998 TheStreet.com, All Rights Reserved. TOP \| ABOUT US \| CONTENTS \| SUBSCRIBE \| ADVERTISE \| TRADE ONLINE \| FEEDBACK \| SEARCH \| HELP