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

To: Steve Fancy who wrote (11580)	1/13/1999 1:42:00 PM
From: md1derful	Read Replies (1) \| Respond to of 22640

SF: Grabbed some telefonica and some tar leaps today...never thought I'd see those prices again..good job Brazil (to join the party, also sold some ubb puts, I can't let you boys make anymore money without me!!! Regards..is the snow melting??

To: Steve Fancy who wrote (11580)	1/13/1999 1:54:00 PM
From: Steve Fancy	Respond to of 22640

Brazil forex mkts seen losing min net $1.5 bln Wed Reuters, Wednesday, January 13, 1999 at 13:36 SAO PAULO, Jan 13 (Reuters) - Brazil's currency markets are seen losing more than a net $1.5 billion on Wednesday, with some traders predicting outflows to reach $3 billion, after the country effectively devalued its currency, traders said. The Central Bank on Wednesday widened the foreign exchange trading band, weakening the real nine percent against the dollar. "There are a lot of dollars flowing out. People are speaking about a possible outflow between $1.5 billion to $3 billion today, although they are only estimates," said one trader at an international bank. Traders said the huge outflows were seen as international investors' reaction to the Central Bank's changes in the country's foreign exchange policies announced today. The Central Bank scrapped the traditional forex mini-band and widened the maxi-band at between 1.2 and 1.32 reais to the dollar. The real dropped to 1.32 reais immediately afterward. Central Bank president Gustavo Franco, a strong opposer of a big devaluation, also resigned on Wednesday. The string of news from the Central Bank provoked investors to pull money out of the country, traders said. Brazil's currency markets have already lost a net $1.2 billion on Tuesday as investors became increasingly worried about the prospects of Latin America's largest economy. Currency markets have accumulated a net outflow of $2.27 billion so far this month after losing a net $5.16 billion in December. Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11580)	1/13/1999 2:15:00 PM
From: Steve Fancy	Respond to of 22640

ANALYSIS-Brazil could spark new "tequila" crisis Reuters, Wednesday, January 13, 1999 at 13:19 By Andrew Priest LONDON, Jan 13 (Reuters) - Brazil's effective devaluation of the real could spark off a fresh round of damaging currency devaluations across emerging markets, major investors said on Wednesday. They called Brazil's situation eerily reminiscent of Mexico's so-called "tequila" crisis in 1995, when attempts at a limited devaluation of the peso failed and the currency went into a tailspin. London-based fund managers said countries with weak current account balances such as South Africa and Turkey were likely to be among early casualties, as Brazil's deepening crisis would prompt all investors to cut back on emerging market risk. Brazil's devaluation also increased the chances of China devaluing its currency, a move which could pull the rug from under Asia's fragile economic recovery, they said. "The first real impact of the Brazilian crisis will be felt by countries with weak current account situations such as Turkey and South Africa," said Ashok Shah, joint head of emerging markets at Old Mutual Asset Management. "In Asia the biggest impact will be on those countries which haven't already devalued which is China and indirectly Hong Kong," he said. The dollar rose almost nine percent against the Brazilian real -- an effective real devaluation of around eight percent -- immediately after Brazil's central bank said it had removed a tight mini-band in which the currency had previously traded. The move sent tremors through global stock markets, wiping out substantial gains seen so far this year. Investors said those Latin American countries with close economic links to Brazil -- the region's largest economy -- would be hardest hit, but that no emerging markets would escape unscathed. "We're just hoping we've got enough cash," said the head of emerging markets at a major British fund management firm. The manager said his firm had been increasing its exposure in Latin America and Asia in recent weeks. Old Mutual's Shah said emerging market investors were now focusing on the possibility of currency devaluations in China and Hong Kong. "The competitive pressures of other devaluations last year is already evident in China with some companies going bankrupt already," said Shah. But fund managers said the knock on effects of the Brazilian crisis on Asian asset markets would be tempered as the region was still extremely competitive following earlier sharp devaluations. "Asia is at its most competitive for 20 years so there's plenty of fat left to ride the storm as long as it's doesn't go completely out of control," said Shah noting interest rates there were at historically low levels. Caspar Romer, senior fund manager for Latin America at Foreign and Colonial Emerging Markets in London, said Brazil's devaluation could cause a wave of contagion in the region similar to the Mexican peso crisis of 1994/95. "The whole region will take a tumble, there's no doubt about it," he said. In early New York trade in emerging market dollar bonds the benchmark Brazilian "C" bonds were trading at around 49-1/8 cents on the dollar, four points lower. Mexican "par" bonds slipped 4-1/4 points at 70-7/8 and Argentina "FRBS" bonds fell 7-3/4 points to 72-3/4. Romer said the sharp drop in Argentina's debt reflected its close links with Brazil and concern its currency regime could be the next target for speculators. "Not only do they have vet close trading links but there is something like an eighty-three percent correlation between the bond markets in Brazil and Argentina," he said. But some would markets be worse hit than others as investors would sought out the few bright spots amid a generally grim picture, said Romer. "There is room on a very select basis for some Latin American countries like Chile and Peru to do rather better than others because they have sound economies and fiscal positions," he said. 583 7239)) Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11580)	1/13/1999 2:20:00 PM
From: Steve Fancy	Respond to of 22640

G7 response to Brazil to hinge on global fallout Reuters, Wednesday, January 13, 1999 at 12:20 By Henry Engler LONDON, Jan 13 (Reuters) - Any policy response by leading industrialised powers to Brazil's financial troubles will depend on how much damage is inflicted on global markets and investor confidence worldwide, analysts said on Wednesday. With an effective devaluation in the country's currency, the resignation of its central bank president and billions fleeing the economy in the past few days, there is every reason to worry that markets might see a replay of the crises of 1998. "If Brazil's problems turn into a global event it's not because the currency drops 25 percent but because there is a wave of risk aversion that gets unleashed," said Bruce Kasman, head of research at J.P. Morgan. Market reaction to a more than seven percent decline in the Brazilian real on Wednesday was swift and furious. European share markets tumbled with banks leading the decline because of worries over exposure to Brazilian debt. Meanwhile U.S. Treasuries surged as investors sought a safe place to put their money. The currency's slide came after Central Bank President Gustavo Franco said he would resign. Brazil, the world's eighth largest economy, relies on foreign dollars to protect itself against speculative attack on its currency and fund-hefty hard currency debts. "We think there is a strong likelihood of a 25 percent devaluation," said an analyst at a large U.S. investment bank. "The key in terms of its influence on anything else would be whether they accompany such a move with further fiscal steps." Few believe the Group of Seven industrialised nations or the International Monetary Fund would fork out fresh cash to Brazil. Having already put in place a $41 billion rescue package that is contingent on wholesale fiscal reform, analysts said there would be no incentive to pour more money into the country's coffers given the lack of credible policy changes. "The idea of a package of international support that was announced in December was to provide external financing to an economic programme that would involve expenditure cuts and increases in taxes," said Augusto Lopez Carlos, an emerging market economist at Lehman Brothers in London. "If this part of the package is missing it will question the wisdom of continuing to provide fairly massive international support." The latest crisis for President Fernando Henrique Cardoso began last week when the country's third biggest state, Minas Gerais, announced a 90-day moratorium on payments of its $13.4 billion debt with the federal government. While the sums involved were relatively small, the decision shook foreign confidence in Brazil's ability for meaningful reform, leading to renewed instability in emerging markets. "What the panic is about is a judgment in international markets that Brazil can't deliver," said Richard Gray of Bank of America. Cardoso has called on his political allies and members of his cabinet to lean on their representatives in Congress for quick passage of a fiscal austerity plan that is the linchpin of the IMF rescue deal. On Tuesday, 18 Brazilian state governors who back Cardoso urged their political allies to pass the reforms quickly. "We don't know yet how this is going to feed through to industrial countries' markets," said J.P. Morgan's Kasman, adding Brazil's devaluation had been anticipated for months. The fact that investors had expected Brazil to eventually run into financial difficulty might tend to mitigate the contagion impact of the crisis. Still, several said one could not rule out a prolonged wave of selling across emerging markets, similar to what was seen last August when Russia devalued the rouble. "This shows you just how fragile markets are, especially when you look at the high level of share prices," a London trader said. At a mimimum, there was the expectation that G7 policymakers would be in close contact, monitoring the fallout. G7 deputy finance ministers will meet this Saturday in Frankfurt on the fringes of a conference of European and Asian finance ministers. Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11580)	1/13/1999 2:24:00 PM
From: Steve Fancy	Respond to of 22640

Brazil may face more devaluation -- Jeffrey Sachs Reuters, Wednesday, January 13, 1999 at 13:55 SAO PAULO, Jan 13 (Reuters) - Harvard University economist Jeffrey Sachs said on Wednesday that Brazil is wise to make its currency regime more flexible, but believes the markets may force Brazil to devalue more. "We are absolutely moving in the right direction...it's a sigh of relief," Sachs, a longtime foe of Brazil's rigid exchange policy, said in an interview on Reuters Financial TV. "If Brazil tries to hang on to a new pegged rate, I think they are going to have problems again," he added. "They might as well let it float." Early Wednesday, Brazil devalued its currency by scrapping the narrow crawling peg band in which the real trades against the dollar, and broadening the band to 1.20 to 1.32 reais per dollar as of Wednesday. The real weakened 9 percent against the dollar on the announcement to the top of its broad band. President Fernando Henrique Cardoso called it a "technical modification" to permit more freedom while insisting that Brazil's foreign exchange policy is not changing. Sachs said the changes had produced "very different and quite dangerous conditions" for Brazil. "It is the kind of situation that can snowball out of control," he said. Panic could be stemmed by a solid show of support from the International Monetary Fund (IMF) and the Group of Seven (G7) and their assurances that Brazil still has a $41 billion international credit package at its disposition. The credit line assembled for Brazil in November stipulated no change in the exchange regime. For Sachs, the lenders need to say that the "$41 billion remains in place to borrow against illiquidity, forced default, a major banking crisis and a major default on foreign exchange and so forth. Now the money can really be useful to prevent panic." Brazil's major bank creditors will also have to act responsibly, he said. "This is a time for a collective composition of creditors, not to accept debt relief or reduction which I don't think is necessary, but to accept the fact that they all can't cut and run and all hope to get out alive in the process," Sachs said. He said slapping on short-term capital controls to keep money within the country would be a huge mistake. "If Brazil tries to lock in money that is already there, first, the money would find its way out, and second, the credibility of Brazil and the international system, already weakened by this, would be absolutely destroyed," Sachs said. com)) Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11580)	1/13/1999 2:28:00 PM
From: Steve Fancy	Respond to of 22640

Brazil stable, Argentina/Mexico may be cut-Moody's Reuters, Wednesday, January 13, 1999 at 13:58 By Hugh Bronstein NEW YORK, Jan 13 (Reuters) - Moody's Investors Service said on Wednesday that Brazil's credit outlook remains stable in the face of the country's currency devaluation, but downgrades of Mexico and Argentina may be on the way. "Our ratings fully reflect developments in Brazil, so the ratings outlook for that country is stable," Vincent Truglia, managing director of Moody's sovereign risk unit, said following news of the devaluation. Moody's cut Brazil and put Mexico and Argentina on watch for possible downgrade in September, following Russia's debt default, an event that frightened investors out of emerging markets globally. "Our concern at that time was that the restricted access to credit in emerging markets might last somewhat longer than many people anticipated," Truglia said. "We're continuing to follow the situation and Mexico and Argentina remain on review for possible downgrade," Truglia said. Spreads on emerging market bonds widened globally by more than 180 basis points following the devaluation Wednesday, according to J.P. Morgan's Emerging Markets Bond Index. The widening indicated investors were shifting away from emerging markets debt. Mexico's foreign currency bond ceiling is Ba2 and Argentina's foreign currency bond ceiling is Ba3, according to Moody's. In September, Moody's downgraded Brazil's foreign currency bond ceiling from B1 to B2, the country's local currency government bonds were downgraded from B2 to Caa1 and the foreign currency ceiling for bank deposits was cut from B2 to Caa1. Brazil, seeking a way out of a deep financial crisis, devalued its real currency by nearly 8 percent on Wednesday after Central Bank President Gustavo Franco said he would resign. A representative from Standard & Poor's could not be reached for comment. S&P rates Brazil's long-term foreign currency debt at BB-minus with a negative outlook. Fitch IBCA on Wednesday said it may cut Brazil's B-plus long-term foreign currency rating and its BB-minus long-term local currency rating. "The immediate concern is whether the new exchange rate band can be made to stick," a Fitch IBCA release said. Copyright 1999, Reuters News Service

To: Steve Fancy who wrote (11580)	1/13/1999 2:33:00 PM
From: Steve Fancy	Read Replies (1) \| Respond to of 22640

Wall Street sees Brazil real devaluing further Reuters, Wednesday, January 13, 1999 at 14:09 By Apu Sikri NEW YORK, Jan 13 (Reuters) - Brazil's currency will remain under speculative attack over the next few days as markets test the resolve of the Cardoso government to defend the real following a nine-percent effective devaluation on Wednesday, Wall Street traders and analysts said. "What they did was not enough. That is the perception of most people I've spoken to," said Paul Masco, head of emerging markets debt trading at Salomon Smith Barney, a unit of Citigroup. "The move they made today is not sufficient to regain market confidence," he said. Currency markets immediately pushed the real to the new upper limit of 1.32 real to the dollar set by the central bank, essentially a nine percent devaluation. Traders said Brazil would likely be forced to devalue further, sliding into a currency crisis similar to the one faced by Mexico in 1995 and Asian countries more recently. "Holding the currency at these levels will be very, very difficult. In an unclear policy environment, devaluation begets devaluation," said Robert Smalley, emerging markets strategist at HSBC Securities. Brazil's central bank widened the currency band after nearly $2 billion in dollars flowed out of the country earlier this week. On Wednesday, Brazil reportedly bled another $1.5 billion dollars after the devaluation announcement despite central bank selling of dollars. The central bank was also seen buying stocks to prop up the stock market, traders said. The blue chip Bovespa index, down more than 10 percent early in the day, was down nearly six percent mid-afternoon on Wednesday. Brazil benchmark "C" bonds were down five points to 50-1/8. Brazil Finance Minister Pedro Malan said the new exchange rate regime would allow for lower interest rates, currently around 30 percent. But many market participants doubt interest rates will decline so long as expectations of another devaluation remain. "Rates are high because people expect a devaluation. Interest rates will come down only when there is credible evidence that you won't have another (devaluation)," said Paul Dickson, analyst at Lehman Brothers Inc. Interest rates will likely remain high so long as Brazil follows a policy of managing the currency, investors said. "This move does little to address the risk premium in domestic interest rates associated with a managed crawl," said Michael Cembalest, portfolio manager at J.P. Morgan Investments. "When you have a managed crawl system, you buy yourself an option, and the premium you pay for that option is irrevocably high interest rates," said Cembalest. High rates could in turn force the government of President Fernando Henrique Cardoso to negotiate a rescheduling of payments on domestic debt, currently more than $300 billion, investors said. "We would be more optimistic the day we see a restructuring of domestic debt that would assure the liquidity and capital adequacy of the banking system," said Cembalest. Brazil abandoned a long-standing policy of a strong real when it effectively devalued the currency Wednesday. Copyright 1999, Reuters News Service