Brazil falls, Argentina falls, China falls.
If you want to put a label on what has kept investors from sleeping well over the weekend, that is it. And that was why stocks sold off again after rebounding from their morning lows late Friday. People worried over what they might see when they come in Monday morning. Given the choice Friday of loading up on stock or loading up on cash, most chose the latter.
There is not, unfortunately, a whole lot of new information out there. That Brazil's currency will continue to get pressured. If not tomorrow, this week. Capital continues to leave the country, and it looks like Brazilian companies are reaching the point where their dollar pools have dried up. Once they have to start buying dollars to service dollar-denominated debt, there could be more declines in the real.
What happens to the markets is less certain. That the real is in trouble is not a secret, so it seems doubtful that that in itself could cause too much trouble in global marketplace. What will really matter is how much credence people give to the notion that the trouble in Latin America could force China to devalue the yuan. Though there is a laundry list of reasons China will not devalue, recall that there was a similar list back last spring. Yuan jitters hurt the market then, and they could hurt the market now.
Whether that happens will partly depend on how Hong Kong does when it opens. It will depend in part on what happens in Sao Paolo tomorrow morning. And it will depend on what Wall Street thinks when it opens.
Over in Japan, the
Nihon Keizai Shimbun
is reporting that the
Industrial Bank of Japan
will ask the government for 600 billion yen in public funds to boost its capital. Despite its troubles, though, IBJ believes that it can maintain the minimum capital adequacy ratio of 8% needed to keep its overseas operations going.
In other Japan news,
announced that it will buy the leasing business of troubled
for an estimated $7 billion. The move is only the latest in a series of Japan acquisitions by the company. GE head
has said repeatedly that the crisis in Japan has created bargain prices, and he apparently aims to put his money where his mouth is.
opened slightly lower, dropping 56 to 14,098. Meanwhile, early trading on
suggests a less-than-spectacular start on Wall Street. The
futures were down 3.5, putting them only about 3 points above Friday's close on the cash index.
In the Papers
By far the most important article to come out over the weekend, and the most important article to come out in some time, was Michael Lewis' piece on
Long Term Capital Management
The New York Times Magazine
This is not to say that one must entirely agree with what Lewis has written. Some will say that Lewis, who worked under LTCM head
in the late '80s, was too close to the people at the hedge fund, and that as a result he painted them more as vilified than villains. The mistakes that LTCM made were largely responsible for a credit-market panic that bond traders (struggling for analogy) compare to the '87 stock crash. Lewis gives that fact short shrift.
But the notion that LTCM was solely to blame for the crisis is certainly laid to rest by the article. It seems that some firms, seeing the trouble at LTCM, were more interested in winning turf than in stabilizing the market. The bit that will be most talked about on Wall Street tomorrow morning is this bit on some five-year equity options the fund had sold short:
Meriwether received phone calls from J.P. Morgan and Union Bank of Switzerland telling him that the options he had sold short were rocketing up in thin markets thanks to bids from American International Group, the U.S. insurance company. The brokers were outraged on Meriwether's behalf, as they assumed that AIG was trying to profit from Long-Term's weakness. A spokesman for AIG declined to comment. But what the people who called Meriwether did not know was that at just that moment, AIG was, along with Warren Buffett and Goldman Sachs, negotiating to purchase Long Term Capital's portfolio. But one consequence of AIG's activities was to pressure Meriwether to sell his company and its portfolio cheaply. Meriwether is convinced that AIG was trying to put him out of business, a contention AIG would also not comment on.
A bit later, Lewis quotes Meriwether as saying that the AIG shenanigans were "minor compared to some of the things we saw," with the suggestion that some members of the 14-firm consortium that eventually bought 90% of LTCM may have been up to their eyeballs in it. People talk now of the heroic effort
and his colleagues put forth in stemming the panic of 1907. Though history will likely smile on
for what they did during the crisis, it seems doubtful that anyone on Wall Street will be getting any accolades.