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

To: Steve Fancy who wrote (11624)	1/14/1999 7:02:00 PM
From: Fernando Saldanha	Read Replies (3) \| Respond to of 22640

Things looking much uglier today. The resignation of Mr. Mauch suggests there are small banks in trouble. There are all kinds of rumors circulating in the Brazilian market, I will not mention the names of the institutions. The Ibovespa collapsed immediately after the news. There are also stories of leverage fixed income funds losing 50% of net asset value. These were funds targeted at retail investors. My brother tells me banks are offering a fixed income product paying the devaluation plus a negative 70% per year! The banks could not get hold of "cambiais" today (government paper indexed to the dollar, so they could not hedge themselves against a further devaluation risk, hence the ridiculous -70%. Last I heard outflows were about $1 billion. The IMF agreement precludes reserves (excluding the $9 billion provided by the IMF) from falling under $20 billion. So at this pace the $31 billion or so they have now would last for another 10 days. It is very unlikely that they can wait the whole month of February for the Lower House on the CPMF tax. There are several alternatives, including these. The numbers in parentheses give my subjective probabilities for the scenarios. 1) (25%) They implement another devaluation, and attempt to hold the line at a lower exchange rate. The slope of the new peg would then be zero. 2) (10%) A currency board. 3) (40%) They let the rate float. 4) (2%) The IMF and the G7 provide further support, and they try to hold the current exchange rate. 5) (20%) The current exchange rate holds without any further help from multilaterals or the G7. 6) (3%) Something else.