This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Brazilian Loan Gets Stocks Doing Samba

Stock proxies were pushing higher today, in no small part thanks to strength in financials, which were rallying following yesterday's approval of a $30 billion loan to Brazil by the International Monetary Fund.

As of 2:24 p.m. EDT, the Dow Jones Industrial Average was up 1.7% to 8601.18, the S&P 500 was higher by 2.1% to 895.1 and the Nasdaq Composite was higher by 1.5% to 1299.51. The Philadelphia Stock Exchange/KBW Bank Index, meanwhile, was up 4.5% paced by money center banks with (ta-da! ) big Latin America exposure, including Citigroup (C), J.P. Morgan (JPM) and Fleet Boston Financial (FBF). Separately, Brazilian-based firms such as Brazil Telecom (BRP) were among the day's biggest percentage gainers, lately up 16.1%.

"The IMF package means to dangle a big carrot in front of whomever the Brazilians choose to become President," said Mark Dow, who co-manages the $300 million (MEDIX)MFS Emerging Market Debt fund for MFS Investment Management in Boston. "In the short-term it gives politicians like [Luiz Inacio Lulla da Silva and Ciro Gomes] an incentive to moderate their harsh rhetoric."

The fund produced total returns of 1.50% year to date through July, 12.75% for the 12 months ended July 31 and 19.02% for the three years ended July 31, the latter two were each tops in the fund's peer group.

To the extent the two leftist candidates -- who've each made some antimarket and anti-IMF statements -- do that, a "virtuous cycle where they're perceived as more stable" can emerge, Dow said. "That's the gambit. It's not a sure shot [but] it's a smart move by the IMF."

Dow knows a little something about IMF gambits, having worked at both the IMF and U.S. Treasury before MFS. As an aside, he said that while he was negotiating emerging market countries' debt for the Treasury, there was a strong notion that such actions should not be perceived as a bailout of the banks. Many people, I know, believe the latest IMF action was intended to do just that. But "it's not like the 1980s when you need to bail out banks to give them time to build reserves," Dow countered. "They'll suffer if Brazil goes down but it's not going to kill them. Guys are reading too much into things."

Dow also bucked the conventional wisdom that Brazil's current woes are the result of a "contagion" effect of Argentina's debt default earlier this year, noting Brazil's markets rallied sharply in the months immediate following that event. Back in January, he suggested there was neither economic or portfolio "transmission mechanism" for such contagion, unlike the emerging market crises of 1998 or Uruguay's current situation. Uruguay, conversely, is hurting from the absence of Argentine tourism and the repatriation of assets out of Uruguayan banks, he said.

Brazil is suffering mainly from concerns its next president won't continue the policies of the last few years, which have "kept fragile macroeconomic imbalances at bay," Dow said. "If [the next president] isn't sympathetic, the whole thing unravels." (This could explain the IMF's "gambit" and the Bush administration's flip-flopping on the subject.)

Dow remains cautious on Brazil but is trying to stay liquid in the fund because "it can break either way," he said. "We felt Argentina was a one-way [bet]. This is tougher [although] our bias is slightly negative because of the global backdrop," specifically concerns about the U.S. economy and the inability of banks to extend credit overseas given prior losses in Argentina, Enron, WorldCom, heightened regulatory oversight, etc. etc.

Speaking of the economy, today's unexpected drop in the Producer Price Index and weekly jobless claims also are helping stocks today. The PPI -- which fell 0.2% in July and 0.3% in the core -- is reawakening deflationary fears in some circles, although not, apparently, in the U.S. Treasury market, where prices are lower across the yield curve (i.e. the opposite of what you'd expect if the market was worried about deflation.)

The price of the benchmark 10-year Treasury was recently down 9/32 to 99 22/32, its yield rising to 4.41%. Obviously, Treasuries, which have had a huge rally, are reacting more to developments in the stock market than today's economic news.

Rearguard Action

As some readers have suggested, I should have included the IMF news in the rundown of catalysts for yesterday's late-day rally, although I did post it in RealMoney.com's Columnist Conversation.

Among the other suggestions from readers as to why the market went up was the simple fact that so few traders were looking for it, and the market likes to do what is least expected of it.

Aaron L. Task writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He invites you to send your feedback to Aaron L. Task.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,039.49 +60.36 0.36%
S&P 500 1,992.37 +5.86 0.30%
NASDAQ 4,532.1040 +5.6220 0.12%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs