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Why Brazil Doesn't Matter to the Banks

Things are different in the post-Long Term Capital world.
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Just when I decided I couldn't take this negative Brazil stuff any longer, the financial buyers of this country decided that Brazil didn't matter any more. Look at yesterday's trading. Brazil could not have been worse. We have some governor defaulting, banks having troubles, and a sense that these guys look like, well, us, when we were running those moronic deficits.

And what do the Brazilian financial plays in our country do: They go up huge.


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, that troika of Latin pain from last summer, were roaring, like wildfire yesterday, despite Brazilian pain.

Why? Let me give you two reasons. First, the quarters from






were stunning. These two companies in a short six months turned on the jets away from the stock market and made a ton of money. Expense control also went far to explain the positives. These companies can reinvent themselves on a dime and next time we hear they are in trouble and we see their stocks get clocked, we should remember that. I am a buyer on any weakness.

Secondly, there is something else going on that explains their strength on a day when they would have been 5% decliners: The world is no longer as linked as it was, hallelujah. During the days when hedge funds had unlimited capital and ruled the world, there used to be a group of funds that would almost make themselves right. They would come in and buy put after put on these banks and then spread panic and rumor and knock them to smithereens.

Then the

Long Term Capital

debacle occurred and these funds got their massive loans from banks cut off. They could no longer leverage up and become more of a factor in the market than they should be. These were the funds that pressured the futures down and the funds that raided Lehman in the late summer when the company seemed so vulnerable. (Somebody ought to look into the rumoring that went on against Lehman. The company itself showed its true strength in the summer, combating demons that seemed to come out of the walls!! Gratz to them.) These hedge fund guys have lost the power, and they are no longer destroying stocks at will. Thank heavens.

The result is a rational, more sane place. Brazil is important, but the one thing we know about when the smoke clears in places like Brazil these days, the local banks lose and Citi wins. The market share Citi gained after the Mexican debacle was mind-blowing. When Brazil straightens its finances out, I imagine the troika will rule this incredible growth economy.

So, when you hear of a problem overseas and think it is going to wreck our markets, remember yesterday, because yesterday was the day when the core strength of these financial institutions could not be overshadowed by renegade hedge fund trading. Yesterday was the day when the tyranny of the minority, the minority hedge funds, ended¿

Random musings:

Something to ponder:






both saw online coming. Schwab rushed to embrace and Merrill rushed to shun. It is more than just mania that Schwab's market cap roared up to Merrill's during this period. It is a bet on the future of trading.

James J. Cramer is manager of a hedge fund and co-chairman of At time of publication his fund was long Citigroup, although positions can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Cramer's writings provide insights into the dynamics of money management and are not a solicitation for transactions. While he cannot provide investment advice or recommendations, he invites you to comment on his column by sending a letter to