Jim Croci, " will, and when, AOL move up? " good question.
Well I think that market back drop will matter. As long as there is political instability in the US all bailouts of Brasil are up in the air. The real has fallen 40%. If it continues to fall then ALL FOREIGN currency will flee Brasil, then other SAmerican currencies( the domino effect ) to the safety of the Dollar which will make it harder for us to export. That will mean lower US wages and/or layoffs. That will be compounded by cheaper US imports: Americans will buy the cheaper imports and thus displace higher cost US workers.
Ultimately what we have here is a world-wide spinning Ponzi scheme of Governments having high Master Card debts I call it sticking it to increasingly impoverished citizens who have zero savings. They can't buy anything (read Japan and Asia, and now Brasil etc, ans soon all of SAmerica ). Whatever wealth is avialable in the US is as a result of the stock market gains. However those gains depend on the greater fool theory.When you are ready to use that wealth , you depend on somebody else taking the stock off your hands at a higher price than you've paid for it. Well you can say that while interest rates are falling, people will rather buy a high PE stock than low paying bonds.
OK. But let us remember that a lot of these high PE s in the last 7 years have been fueled in good part by foreign booms ( Applied Materials selling tons of chip machines to Micron Technology to build overcapacity in S Korea for example ). Well that is now gone. Those countries are now poor; and the Banks won't lend to them.
So the only answer is for Greenspan to continue to further keep the Ponzi scheme spinning in cyberspace by lowering interest rates. OK :That worked in Oct 98. The result is that now you can add more money to your giant Mastercard debit at lesser cost.
But how low can you go? Well Japan gives us the answer: Eventually you can lower rates down to 0.25% !!!!! as in Japan, and still not be able to get out of recession because people realize that
they are actually poor based on the giant Master Card debit that they have.
Soon the European union will fail because it is predicated on an impossibility: Keep the yearly increase in Government debt to below 3% of GDP or they will be fined. Italy has shoved all kinds of public debt under the carpet “to look good “. European Governments ( France, Italy, etc ) are still influenced by a HEAVY dose of centuries old thinking of redistribution ( socialism) ,and tax and spend (based in part on erroneous Biblical interpretations along the line that the more the tax the better for the economy and all; all these ideas instead have killed the Economy in Europe which is why they are trying to backpedal with their Union. But it is hard to teach an old dog new tricks.
I think in the US we have a faster ability to leap ahead of all the above economic mumbo jumbo and blue smoke and mirrrors. Sooner or later the whiz kids out of the Univer Of Chicago biz school will stand up and ask: “How much do we owe and who is paying th e bill ? “. All of us will then turn around and say in unison, “ not me, not me “. Well a rat will thus be rapidly smelled somewhere in all this and the markets will ditch till we figure out how much is the bill and who's paying it And with the Prez's problems, at least for the next 2 weeks things will be cooler.
Evidence is CSCO will open lower, 109 this AM in spite of their 33% increase in earnings .
I think ecommerce is different and has a lot of growth potential. However the stocks may follow the market downards in the next to weeks until we find out if the Prez is out of the woods and can bail out Brasil, JPM, MER, and Co etc etc It is more likely to go back down to 155 than back up to 177. I would buy back at 155 if the market looks strong.
Markets will open lower today.
Over time I have noticed something interesting: Watch Tuesday. The market for the whole week tends to do what Tues does. Down yesterday: likely down this week.
All IMHO,
TA
Bak later,
Here is the Brazil story with my comments:
msnbc.com
Feb. 2 — In a stunning move Tuesday, Brazil replaced its central bank president, Francisco Lopes, just three weeks after he oversaw a surprise devaluation of the real currency. Economist Arminio Fraga, who until recently worked for billionaire financier George Soros, has been appointed to replace Lopes, a decision the foreign exchange markets applauded. But while the real rallied nearly 10 percent, the key question for investors is: will yet another central bank head make the difference in cleaning up Brazil's financial mess?
BRAZIL'S DIVING CURRENCY and deepening recession have dragged down with them the popularity of President Fernando Henrique Cardoso - whose approval rating has hit a record low of 22 percent.
Now, he's nominated Fraga to head up the nation's central bank in hopes that another leadership shuffle will help turn the tide with Brazilian citizens and investors.
“It looked to us that, without a significant change, we were going to see this all go in one direction — and the direction was down,” Joseph Petry at Salomon Smith Barney. “I think what this move does is it gives them a chance to turn that around and gives them a little bit of space to maneuver.”
Just last month, Gustavo Franco stepped down as the head of Brazil's central bank — a man who had been tightly linked to Brazil's plan to peg its currency, the real, loosely to the dollar. Franco was replaced by his second in command, Francisco Lopes — a change designed to let the government make a dramatic policy U-turn and cut its currency loose from the U.S. dollar. Among Lopes' first acts was to abolish the previous system of tight Central Bank control over the foreign exchange market, permitting the real to float against the U.S. currency. Interim Central Bank president Francisco Lopes was replaced Tuesday after just three weeks.
But the real greatly overshot the 20 percent devaluation that analysts had expected. In fact, the Brazilian currency has lost nearly 40 percent of its value against the dollar since mid-January, as investors worried that Brazil's government did not have a long-term workable strategy in place.
Enter Arminio Fraga, a former central bank official now nominated to be Brazil's next central bank chief — until recently a key player on the team of international investor George Soros. So what will Fraga bring to the table?
“One is the ability to speak the language of the markets,” said Frances Freisinger at Merrill Lynch. “And in a situation like this where credibility is essential, talking the right language is a good start. The second thing is he is a new figure who wasn't associated with the old exchange rate regime. He comes with a clean slate. And so when he speaks he can speak with more confidence.” <?b>
commentary: more blue smoke and mirrors.
‘Today's changes do not in any way imply a change in foreign exchange policies, including the policy of floating the Brazilian real against the U.S. dollar.'
— BRAZIL CENTRAL BANK SPOKESMAN
The Finance Ministry said Tuesday Fraga's nomination must receive Senate confirmation. Until then, he will work as a special adviser to the Finance Ministry, while Central Bank International Affairs Director Demosthenes de Pinho Neto acts as interim president.
Fraga's nomination came as a surprise to investors. The real currency immediately fell after the announcement before recovering later in the day.
commentary
the markets saw through the blue smoke and mirrors
Experts say restoring investor confidence is crucial to stabilizing the real and bringing down sky-high interest rates. Newspapers reported that the government now forecasts an economic contraction of 2.5 percent and average inflation of 7.8 percent for 1999 compared to previous forecasts from November of a 1 percent slide in the economy and inflation of 2 percent.
Brazilian central bank officials played down the policy impact of Tuesday's reshuffling.
“Today's changes do not in any way imply a change in foreign exchange policies, said a spokesman for the Central Bank, “including the policy of floating the Brazilian real against the U.S. dollar.”
FINANCE MINISTER TO STAY
Meanwhile, Brazil's Finance Minister Pedro Malan said on Tuesday that he had submitted his resignation together with Lopes, but President Fernando Henrique Cardoso rejected it.
“I will stay for as long as Cardoso wants,” Malan said. Brazilian Finance Minister Pedro Malan said Tuesday that he 'will stay for as long as Cardoso wants.'
Malan told a news conference, held minutes after the announcement of Lopes' departure, that the Central Bank president nominee Fraga is completely in sync with the economic team.
Malan said that there would be more changes in Central Bank board of directors, but he refused to disclose who would be involved. He told a news conference that the Central Bank president nominee Fraga is completely in sync with the economic team.
TOP IMF AIDE IN TOWN
The shakeup comes as an International Monetary Fund team, led by Deputy Director Stanley Fischer, meets with Brazilian officials to sort out the fueled hopes the IMF will pledge even more money to shore up Brazil's battered currency.
Commentary Same old same old; " give us more money US of A. Bail us out US taxpayer, Bill Clinton and assorted suckers. You've done this for 30 years. Why stop now?.
Under Fischer's guidance, the IMF and Brazil's economic team will begin discussing how Brazil will manage its newly floated currency to avoid the wild fluctuations after the government left the real's fate to the market on Jan. 15.
By Wednesday, the two sides are expected to hammer out new targets on the budget deficit and interest rates and pave the way for a transfer of around $9 billion to Brazil.
/returnrewards/returnrewards
The new numbers will reflect the negative changes the devaluation brings to the economic landscape. Newspapers reported that the government now forecasts an economic contraction of 2.5 percent and average inflation of 7.8 percent for 1999 compared to previous forecasts from November of a 1 percent slide in the economy and inflation of 2 percent.
Meanwhile in Washington, U.S. Treasury Secretary Robert Rubin reaffirmed U.S. support for President Cardoso's economic programs.
“President Cardoso is very much focused on reforms necessary to deal with Brazil's issues,” said Rubin. “In terms of personnel issues, I shouldn't comment on staff,” Rubin said.
Optimists say Brazil is doing the right thing, and the real should stabilize from here. Skeptics say the crisis isn't over yet.
Reuters contributed to this story. |
