As Brazil Heads for Crisis, Stocks Look Ready to Dive

Brazil's central bank announced this morning it would remove the real's mini-band.
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Today was the day Wall Street was supposed to spend gushing about

Intel's

(INTC) - Get Report

earnings. Today was the day traders were supposed to spend figuring out

Yahoo!'s

(YHOO)

split.

Today is not that day. Today is the day we remember to worry about Brazil again. This morning, Brazil's central bank announced that it would remove the real's mini-band -- the range in which the bank tried to keep the currency trading -- while broadening the maximum range that it would trade in. Call it a devaluation to the tune of about 9%.

Brazilian central banker

Gustavo Franco

resigned on the news, to be replaced by

Francisco Lopes

, who had been the central bank's monetary policy director. News reports cite sparring between Franco and Lopes as one of the reasons for Franco's departure. But the big reason is that President

Fernando Henrique Cardoso

has apparently given in to pressure to abandon his rigid interest rate and foreign exchange regime -- one that the

International Monetary Fund

deemed necessary, though it was not popular with Brazilian businesses.

The IMF will not be happy about any of this, and it looks like the bailout package it led for Brazil may be in danger. Meanwhile, it looks like the change in the bands will do nothing to help Brazil and may hasten crisis. The real fell 8.6% in early trading, and with cash fleeing the country, it will cost if the central bank wants to defend the new bands. With currency reserves of only about $35 billion, Brazil may be heading into crisis.

"$35 billion doesn't even get you to Valentine's day," said one portfolio manager this morning.

Again, the market is faced with the possibility of capital flight and contagion effects -- Argentina, Hong Kong, China. Again, we must worry about bank exposures. Again, we are looking at a morning where stocks fall off a cliff at the open.

"Once again, we can't solely look domestically," said Brian Piskorowski, market analyst at

Prudential Securities

. "We have to look at what is going on in the world stage. In many respects, it's probably healthy -- perhaps it will send a reality check to some day traders and retail investors."

At 9 a.m., the

S&P 500

futures were off 27, lock-limit down, about 30 points below fair value. In

Dow

points, that suggests a drop of more than 200 at the open.

With the Treasury market was seeing flight-to-quality gains, the 30-year was up 1 14/32 to 101 26/32, dropping the yield to 5.13%. But because today's buyers are probably all domestic players getting out of stocks, those gains may be fleeting.

"We have good statistics going back to last fall saying what kind of money came into the market," pointed out Tony Crescenzi, chief bond market strategist at

Miller Tabak Hirsch

. "There was good buying, but it wasn't by foreign-based accounts. That meant the buying must have been from domestic-based accounts -- domestic accounts that decided their asset class was under threat."

Japanese stocks edged higher, helped by the

Bank of Japan's

stanching of dollar declines yesterday. The

Nikkei

added 42.63 to 13,402.6.

Hong Kong stocks fell on more worries about China.

GuangdongEnterprises

and its Hong Kong affiliate announced last night that they do not have enough cash on hand to pay off debts soon. It's the second Guangdong-based company to damage sentiment in Hong Kong recently -- the failure of

Guangdong International Trust & Investment

hurt Hong Kong shares earlier this week. The

Hang Seng

fell 437.79, or 4.1%, to 10,273.77.

European bourses were all getting pummeled. In Frankfurt, the

Dax

was down 311.01, or 6%, to 4889.09. In Paris, the

CAC

was off 235.18, or 5.7%, to 3865.52. In London, the

FTSE

was down 275.9, or 4.6%, to 5757.7.

Wednesday's Wake-Up Watchlist

By

Brian Louis

Staff Reporter

    In a surprise move,

    Lucent

    (LU)

    said it's buying

    Ascend

    (ASND) - Get Report

    for roughly $20 billion in stock.

    TheStreet.com

    wrote about what a Lucent-Ascend

    get-together might mean to

    Cisco

    (CSCO) - Get Report

    this week.

    Nortel

    (NT)

    announced the acceleration of its operations strategy, which it said will simplify and streamline its businesses and operations processes over the next three years. The company expects to save between $250 million to $300 million a year in "outer years." The program isn't expected to "significantly impact" 1999 financial projections from continuing operations, the company said. About 10% of the company's workforce will be affected by the program.

    In other news (earnings estimates from

    First Call

    ; earnings reported on a diluted basis unless otherwise specified):

    Axent Technologies

    (AXNT)

    , an information-security company, announced its acquisition of Fremont, Calif.-based

    Internet Tools

    , a provider of the intrusion-detection software,

    ID-Trak

    . Under the terms of the deal, Axent expects to issue 750,000 shares to

    Internet Tools'

    stockholders and option holders.

    Ethan Allen

    (ETH) - Get Report

    reported second-quarter earnings of 75 cents a share, beating the 12-analyst consensus estimate by 2 cents and up from the year-ago 65 cents.

    Footstar

    (FTS) - Get Report

    expects to meet fourth-quarter and full-year earnings estimates before restructuring charges of $22.7 million, after tax. The seven-analyst consensus projects fourth-quarter earnings of 56 cents a share and $2.16 for the full year.

    After the close, Intel posted fourth-quarter earnings of $1.19 a share, 12 cents higher than the 31-analyst outlook and above the year-ago 98 cents.

    Liposome

    (LIPO)

    said it expects to report an operating profit for the fourth quarter -- the first quarterly operating profit in the company's 17-year history -- thanks to strong sales of

    Abelcet

    and increased manufacturing efficiencies.

    MicroAge

    (MICA)

    said it expects first-quarter earnings to be in the low to mid-teens. The current four-analyst consensus projects earnings of 17 cents.

    Palm Harbor Homes

    (PHHM)

    reported third-quarter earnings of 40 cents, in line with the four-analyst consensus estimate and up from the year-earlier 33 cents.

    Wendy's

    (WEN) - Get Report

    , the fast-food chain, is the subject of a bullish article in the Heard on the Street column in

    The Wall Street Journal

    .

    Witco

    (WIT) - Get Report

    said it will divest or seek a strategic alliance for its

    Oleochemicals and Derivatives Group

    , which in 1997 had sales of approximately $413 million, or 19% of the company's revenue. Witco said it will use the proceeds in part to reduce debt and buy back stock. Witco expects capital spending for 1999 to total about $180 million, which is substantially reduced from the 1998 level of roughly $270 million, the company's peak spending year.

    Yahoo! posted fourth-quarter earnings of 21 cents a share after the close Tuesday, topping the 24-analyst forecast of 16 cents and the year-ago 2 cents.