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Posted by BradyNet ( Friday, September 26, '03 )

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GLOBAL MARKET HIGHLIGHTS

Globalizing corporate reform 09-26-03 (Yahoo) LONDON From the collapse of Enron two years ago to Richard Grasso's departure last week as head of the New York Stock Exchange, the stresses that personal greed imposes on American capitalism have seldom been laid so bare.

Housing Sector Shines Amid Otherwise Mixed Data 09-26-03 (Yahoo) WASHINGTON (Reuters) - A batch of U.S. economic reports on Thursday showed a sizzling housing sector and a hint of improvement in the jobs market, but a drop in demand for costly factory goods left a reminder the economy is not yet back to full health.

Clark Lays Out Economic Plan For Presidency 09-26-03 (Washington Post) Retired Army Gen. Wesley K. Clark offered the first domestic plan of his young presidential campaign yesterday, calling for a reduction of the Bush tax cuts for households earning more than $200,000 to pay for new spending on homeland security, state governments and job-creation programs.

U.S. Income Gap Widening, Study Says 09-26-03 (NY Times) he gap between rich and poor more than doubled from 1979 to 2000, an analysis of government data shows.

Credit Card Delinquencies Down a Bit 09-26-03 (Yahoo) WASHINGTON (Reuters) - U.S. credit card delinquencies slipped in the second quarter from a record high as mortgage refinancing gave consumers extra cash to pay bills, a bank group said on Wednesday.

IMF Board OKs Argentina Deal 09-25-03 (Yahoo) DUBAI (Reuters) - The IMF (news - web sites) approved an economic plan for Argentina on Saturday aimed at bolstering investor confidence and growth in a country deeply scarred by a botched peso devaluation and a record sovereign debt default last year.

Strong Dollar, Weak Dollar: Anyone Have a Scorecard? 09-25-03 (NY Times) ASHINGTON, Sept. 23 — Rarely have so many people in so many countries been pushing for the dollar to get weaker rather than stronger.

LATIN AMERICA

Provincial poll puts the heat on Argentine president 09-26-03 (Financial Times) Spring has only just come to Posadas but the heat is already beginning to tell. Listless construction workers sip iced herbal tea from hollowed-out gourds,

Brazil to Lift Ban on Crops With Genetic Modification 09-26-03 (NY Times) ORTO ALEGRE, Brazil, Sept. 24 - Brazilian farmers, the world's No. 2 producers of soybeans, got the go-ahead today to plant genetically modified seeds this season after the country's vice president said he would lift a ban on transgenic crops.

Brazil seeks to unite developing countries in anti-subsidy fight at WTO 09-26-03 (Yahoo) BRASILIA (AFP) - The government of Brazilian (news - web sites) President Luiz Ignacio Lula da Silva is appealing for greater solidarity among developing countries attending a WTO conference next week in their fight to tear down trade barriers in the developed world.

Holders of Argentine Bonds Reject 25% Redemption Offer 09-25-03 (NY Times) rgentina's gambit of offering to pay back a quarter of the $94 billion it owes private bondholders worldwide provoked a predictably angry rejection from investors yesterday, and analysts predicted long and painful negotiations.

Chilean president pay tribute to poet Pablo Neruda 09-25-03 (Yahoo) ISLA NEGRA, Chile (AFP) - Chilean President Ricardo Lagos and hundreds of others paid tribute at the grave of poet Pablo Neruda on the 30th anniversary of his death.

RUSSIA

Russian position gains as US hunts for oil 09-25-03 (Yahoo) Nearly every international oil company has a horror story about losing money in Russia in the 1990s, but Moscow is again teaming with foreign oil executives and in Houston, Russia has lost its reputation as a dirty word.

ASIA

Support for Philippine president at a new low 09-26-03 (Financial Times) The approval rating of Gloria Macapagal-Arroyo, the Philippine president, fell to a record low this month, apparently hurt by accusations of corruption against her husband and associates.

Doubts Expressed as Bush Presses Asia on Currency 09-26-03 (NY Times) ASHINGTON, Sept. 24 — Publicly berating China and Japan over their exchange rates is winning the Bush administration praise from American manufacturers, but is not playing so well among economists.

Asian currencies to see biggest impact from dollar shift: analysts 09-25-03 (Yahoo) WASHINGTON (AFP) - Stronger Asian currencies and a weaker dollar are the likely result of an effort by the Group of Seven industrialized nations to deal with economic imbalances, analysts said.

AFRICA

UN Seeks Vaccine Cash for Africa Meningitis Belt 09-26-03 (Yahoo) GENEVA (Reuters) - The World Health Organization (news - web sites) said Thursday it was running out of time to raise money for a vaccine that protects people in Africa's "meningitis belt" from a vicious new form of the killer disease.

One gun for every 20 Africans 09-25-03 (BBC) There is one weapon in circulation for every 20 people in Africa, according to a report released on Tuesday.

OIL PRICES

OPEC cuts oil targets 3.5% in surprise move 09-26-03 (Yahoo) Prices for home heating oil and gasoline jumped sharply yesterday on the New York futures markets and the stock market suffered its largest one-day percentage drop since May after the Organization of Petroleum Exporting Countries, in a surprise move, cut oil production targets 3.5 percent yesterday in an effort to bolster profits.

Price of Oil Climbs as OPEC Plans to Cut Output 09-26-03 (NY Times) IENNA, Sept. 24 — OPEC unexpectedly agreed today to cut oil production on Nov. 1, just as most of the developed world will be heading toward winter and demand for heating oil is likely to be rising.

OPECs Surprise Production Cut Sends Market Into Nosedive 09-25-03 (Washington Post) The stock market went into another steep slide today after the Organization of Petroleum Exporting Countries unexpectedly agreed to cut crude oil production by 3.5 percent.

Energy Futures Soar as OPEC Agrees to Trim Output 09-25-03 (Yahoo) NEW YORK -- Crude-oil and petroleum-products futures jumped Wednesday after the Organization of Petroleum Exporting Countries unexpectedly agreed to reduce the group's oil-production target by 3.5%.

Newest messages appear on top.

09-26-03 PILLZ: < lebtrader: Would anyone consider Argentina at these levels?>

Is it a joke ??

09-26-03 Glutt: ozy <But the default is not an economic fact, it is a legal and political one. It is a crime, indeed. > WELL SAID... i agree on this

09-26-03 alois25: Carib <but life in Rio costs less than HALF of life in Rome> That is obviously correct. The statistic refers to "life as a tourist" in the capitals of the named countries. It's not by dpa, it's by the german office of statistics. And they say, costs may be a lot lower outside the capitals. For example: Ankara is by far more expensive than the turkish east and south coast.

09-26-03 Gaucho1: <Is Brasil's framework so different? I would say, only in grade. Credit markets work, but the cheap BRL, high unemployment & GDP gap seem to be present, even if in a more moderate degree. >

Brazil has some economic idiosyncrasies which greatly reduce the efficiency of monetary policy, thus requiring higher interest rates than would otherwise be necessary.

Widespread indexation, a legacy of the 80's that persists (though at a much lower degree) to this day, makes Brazilian inflation a rather unique phenomenon in the world. Utility tariffs, rentals, mortgages and, to some extent wages, are contractually indexed to past inflation. Indexation allowed the economy to function during hyperinflation-- the price was ever accelerating inflation (what is known as "inflation inertia"; Brazilian hyperinflation was nothing like German 30's or even Argentinian 80's hyperinflation, in that life was quite bearable if you had access to a bank account, in which money itself was indexed and real value, preserved; that is probably a major reason why Brazilian society tolerated inflation longer than most any other).

In Brazil, you have:

inflation(t) = a*inflation(t-1) + b*Expected[inflation(t+1)] + c*GDP gap + random shocks

Because of indexation, coefficient "a" (a quantitaive measure of inflation inertia) is still high and becomes higher still in times of acute price rises, as in the last year. That is why, in 2003 inflation has already hit 7.2%, even with record unemployment, high idle capacity and 30% BRL appreciation. "a" being high, real interest has to be that much higher just to keep inflation from spiralling out of control. Indeed, you can say that monetary policy has been trying to keep expected inflation(t+1) free of contamination from inflation(t-1); in the absence of a tight monetary policy, inertia produces a positive feedback that would gets us back to the inflationary spiral of the 80's.

A second major friction point for Brazilian monetary policy is the fact that 50% of public debt is in the form of floater, rather than fixed-income bonds. This means higher interest rates have a positive wealth effect (floating bond-holders become wealthier, thus more likely to spend more), rather than the opposite effect observed in countries with fixed-income debt securities.

And of course, there is the risk that the fiscal cost of higher rates outweigh the monetary benefit, throwing the country into a vicious cycle, a phenomenon known to academics as "fiscal dominance".

Because of all the above and then some, many critics say Inflation Targeting should be abandoned altogether, arguing that the benefits in term of stability are small compared to the costs in terms of GDP. These critics (among which, until recently, every member of the PT) routinely engage in Central Bank bashing.

Yet for all its shortcomings, I am convinced that IT is the worst regime except for all the others. Even if structural factors greatly reduce the efficiency of monetary policy in Brazil, the last year has demonstrated beyond doubt that monetary policy works, even in Brazil-- and that it is sufficiently flexible to avoid large costs in terms of GDP (what other country emerged from major currency depreciations without a fall in GDP?). A high degree of inertia is present, reducing the efficeiency of IT but making a strong and credible monetary policy all the more necessary. Fiscal dominance, while a problem, can be minimized with the right dose of fiscal policy.

We may disagree about the dosage but, at the end of the day, high real interest rates are a consequence, not a cause, for subpar economic performance. The battered old cliché is no less true for excess repetition: the road to lower real interest rates lies in structural reform, not in demonizing monetary policy or the Central Bank (or the IMF!).

Alas, there are no short cuts, there are no quick fixes.

09-26-03 wally: <some dpa numbers do not add up...> source and basis of calculation is BS <carib> (Statistisches Bundesamt, Wiesbaden). what can one expect from those pencil-pushers?

09-26-03 Fox: < I do not remember many cases of non defaulting countries that are not superpowers and have access to credit at reasonable rates...that stopped borrowing. But I agree: there is always a first time.> Dont know but maybe we should understand how much of the defaulted debt was on foreigners hands. If a substantial part of debt is held by locals, renegotiation becomes easier?

09-26-03 panasonic: <pelegrino: carib, when i grow old i wanna be like you! no kidding!> Carib is a young man, so better rush :-)

09-26-03 Fox: < Savo sleeping, or knew all about it already?> Probably both. ;-)

09-26-03 carib: Sept. 26 (Bloomberg) -- Venezuela's national electoral council unanimously approved rules for recall votes, clearing a major obstacle for holding a referendum on President Hugo Chavez early next year. Council President Francisco Carrasquero said late last night that petition organizers will have four days to gather signatures, and that the agency will have 97 days to validate them. According to opposition leaders, a vote on Chavez could be held as early as Feb. 29. ``It's a setback for the government and its strategy to postpone a vote,'' Vitali Meschoulam, Latin American director for political risk advisers Eurasia Group in New York. ``But there are still a lot of places where obstacles could be put in place.''

09-26-03 lebtrader: Would anyone consider Argentina at these levels?

09-26-03 Fox: Ozy, let me take your attention to the US, how you think it will play out the <Public & Private> indebteness, meaning how the Private Balance Sheet will be solved & how will be deficit reduced?

09-26-03 Pelegrino-spo: <Brasil não deve renovar acordo com FMI O presidente Luiz Inácio Lula da Silva afirmou, nessa quinta-feira (25), em Nova York, que o Brasil está numa situação econômica tão estável atualmente que não precisa fazer um novo acordo com o FMI (Fundo Monetário Internacional). Lula também fez questão de enfatizar que o Brasil hoje é um porto seguro para investimentos e que os principais nós da economia brasileira - a inflação e a vulnerabilidade externa - já foram desatados.> Lula says no IMF agreement needed. I think a stand by agreement would be necessary. Just in case.

09-26-03 Fox: Ozyyyyy!!!Please!! Keep posting like this!!!!!! Point taking! ;-)

09-26-03 Pelegrino-spo: <I was thinking something similar last night, swimming in my pool.> carib, when i grow old i wanna be like you! no kidding! hehehehheh... glub.

09-26-03 moneypenny: I bet Central America gets the Levi's plants. Best blue-jeans-makers in the world. Booming already, they are going to get even ritchier.

A reason to buy Central American paper if there is any. Honduras, Nicaragua, El Salvador and Guatemala are The Other China. I cannot believe the volume I see from these guys down at the docks.

09-26-03 carib: Fox: good posting. I was thinking something similar last night, swimming in my pool. Savo is arguing Brasil should stop borrowing for quite a while (probably he was thinking to the examples of Russia and Ecuador. Russia stopped borrowing for three reasons, IMHO: 1) to recover credibility after the GKO default and Ruble collapse 2) because high oil created a very large BOT surplus 3) because Russia is a superpower that does not want a large debt in foreign currency to limit its sovereignty. Ecuador stopped borrowing because 1) it just defaulted 2) nobody would lend at affordable rates, unless in exchange of oil rights, maybe. Brasil devalued without default, has a positive BOT but not "russian size", has sovereign ambitions, but is not yet a "superpower". I do not remember many cases of non defaulting countries that are not superpowers and have access to credit at reasonable rates...that stopped borrowing. But I agree: there is always a first time.

09-26-03 ozymiani: <FOX><I dont think that Brazil is going to default by choice! I believe in the Goodness of Human Nature & that Sovereigns only default if they are forced to>: quite the contrary is true. And the Nixon/Gold case shows it. It was Johnson who generated the conditions for the gold/dollar breakdown, nixon couldn't manage it and degaulle went for the jugular because he could. But Nixon (and the Nixon era Congress) CHOSE to do it.

<"Unvoluntary act"> by a <"sovereign"> in matters of fiat money and sovereign debt sounds like an oxymoron.

What happens, is that "sovereigns" sometimes believe that their rule extends to economic reality, which is not the case.

But the default is not an economic fact, it is a legal and political one. It is a crime, indeed.

09-26-03 Pelegrino-spo: <Fox> I have not read it yet, but congrats in advance for your article on Brasil.

09-26-03 PILLZ: Goooood moooooorning colores

09-26-03 carib: I just posted good news from Guanovia! Savo sleeping, or knew all about it already?

09-26-03 carib: Alois: I am not sure dpa can count....but thanks for the posting. It might well be that Rome is now more expensive than Frankfurt, and Lisboa as expensive (I doubt)...but life in Rio costs less than HALF of life in Rome, some dpa numbers do not add up...

09-26-03 Fox: Concerning Brazil let see if I can organize my thoughts, like Glutt said is a weekend & might be a good starting point to understand were we are & were we are going, or alternative to try to find out how lost we are.

My thoughts & Observations:

1)We live in a Boom-Bust world, financial crisis occur with regularity. The only reason I could come up with, is that since the Japanese debacle G3 Central Banks have pumped so much liquidity to try to avert the other busts that today we have this huge amount of financial capital seeking for returns that contribute to the next crisis when they sell their preaquired assets.

2) I dont think that Brazil is going to default by choice! I believe in the Goodness of Human Nature & that Sovereigns only default if they are forced to, by external or internal shocks. Remember what happened when DeGaulle asked Nixon to show him the Gold France was keeping in the US?

3)Sovereigns must take Sovereign decisions!!! You dont conduct heart surgery on a corpse! You dont Default after suffering 4 years of economic depression & have burned most of your economic structure! In this case your are Defaulted!!! Argy is the perfect example.

Brazil & Russia are Sovereigns that make <Sovereign Decisions> Argy must learn to become a Sovereign State.

Now lets go back to our Dear Brazil.

If default is the only resort Brazil has to solve its problems believe me it will Default without hesitation.

We are far away from this conclusion both economically & politically. For those who are not Brazilians let me give you a bit of <Color>, different to many LA countries Brazil has historical <ambitions> as a Sovereign State. Its basic Geopolitical ambition is <South American Hegemony>, this is does not depend on who is in office. There are certain basic guidelines that are preserve within the country´s institutions such as <Itamaraty>.

If you we could tape Lula´s <confessionary> you could hear what he really thinks of Argy <Country with a strong inclination to be & become <UMA REPUBLICA BANANERA>> But business is business so <he buys the Argys for what they are worth & will try to sell them latter on, for what they think they are worth>

Now concerning prices & the market, well most of investors are stupid!! Why? Because they follow stupid <Anals> that dont have the faintest idea of what they are doing!!

Additionally they are lost because the <Hegemonic Economic Thinking> or <Washington Consensus> is broken & the rules of engament are different & changing.

Another important feature of Brazil is its <Elites> both <Political & Economic> they are deeply linked to the Country´s success like or not! & are not regressive or waiting to jump ship!

I will start posting some material I been reading in <ColoresFiles> unfortuantely some is only in Portugues or Spanish so I will ask the friends ot help me make some sort of summaries in English.

a) Prices @ current levels a couple dollars up or down as long as USA Current Account corrects in an orderly manner.

b) The present debate about economic growth has nothing to do with Lula if Serra was in office he would have the same problem. Just as the fixed exchange rate exausted its use in 1999 the <High Real Interest Rates> have also exausted their use & or lifetime.

PS: Sorry for such a long posting.

09-26-03 carib: Sold residual Tur 30 too. If Leo -bull sold....

09-26-03 panasonic: <Brazil> given the latest "opinions" from Lula after Dubya's support to Argi hard-nego with bondholders, isnt Brazil expensive? for instance:

11% Ukraine '07 at 111.5%
11.25% Brazil '07 at 110%

Both are expensive, but which one has better risk reward ratio?

09-26-03 carib: Quito.
El gobierno de Lucio Gutiérrez se anotó ayer un triunfo político en el Congreso. Una nueva mayoría coyuntural, integrada por el PSC, Sociedad Patriótica (PSP), Prian, DP e independientes, llevó adelante la aprobación del proyecto de Ley urgente de Servicio Civil, Homologación y Unificación salarial del sector público. Hasta el cierre de esta edición faltaban por tramitar 26 normas (entre artículos y disposiciones), de un total de 195, pero se preveía que el trámite iba a terminar a favor del Régimen.

09-26-03 alois25: sorry, should read: might be of intertest to some.

09-26-03 alois25: This might be interest to some. The purchasing power of the Euro in relation to germany in various countries (where Colores might meet). Source german press agency dpa, german national office for statistics:

Dominikanische Republik Santo Domingo 1,36, Polen Warschau 1,29, Südafrika Pretoria 1,26, Tunesien Tunis 1,17, Brasilien Rio de Janeiro 1,16, Türkei Ankara 1,00, Australien Canberra 1,00, Portugal Lissabon 0,99, Griechenland Athen 0,98, Niederlande Den Haag 0,95, Kanada Ottawa 0,92, Österreich Wien 0,91, Italien Rom 0,91, USA Washington 0,86, Frankreich Paris 0,86, Schweden Stockholm 0,85, Irland Dublin 0,84, Schweiz Bern 0,82, Großbritannien London 0,81, Norwegen Oslo 0,72, Japan Tokio 0,61. August 2003

09-26-03 Glutt: <carib: glutt: here it's Friday MORNING. We just woke up...> Saluti, Signor Carib, hopefully sun is shining and your new MAC is functioning and on line… meanwhile new W/E topic is <size>...nothing particular but in general… is it always big size is best? I doubt this claim philosophically speaking…

09-26-03 Rocafort: Advice, why do you stubbornly argue that a combination of higher risk premium based on future higher oil prices (wait until winter arrives)/lower economic growth (as defense spending dwindles)/lower USD would NOT harm Brazilian capital markets? I think Brazilian economic situation is "somewhat" different from, let's say, Chile, or may be the country is protected by the powers of Orixa, Axe, and other Afrobrazilian gods?

09-26-03 carib: glutt: here it's Friday MORNING. We just woke up...

09-26-03 Glutt: <09-26-03 Advice55: <it is weekend> soo your weekend starts on friday morning! Nice, very nice! New year parties start when? Beggening of october? > oh you smart boy, right you are… Fridays begin weekends. I now plan soon to leave my office, go city, do some small shopping, go home then take my wife and go to restaurant… all this I will do after sold last batch of Brazil, unfortunately have not seen your bid. As regards sizes you may think as you please but I did not say or meant anything except what I said. So scroll back and read it again… actually size may be said meaning brains or guts or money… not only what your wife has to deal with, sorry to say this.

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