Saturday, 18 April 2009

The Future is Uncertain, The End is Always Near

Dear Readers of Market Memorandum:

After 10 months of much-needed relax and reflexion, I was offered a job at an international company. I took it, I didn't have to ponder much about it. I stopped adding new stuff in the blog since April 8, when I formally joined that company, and for that I owe you an apology. In recent days, and I don't mean this to sound as an excuse, I have also been busy coordinating my move, sorting out some personal problems and especially, getting myself focused on this new responsibility. I am sure you do understand that.

I don't know if my new employer will allow me to carry on with this blog. Perhaps it will under certain conditions, perhaps it will not. Since the future for this space of opinion and news is uncertain, I have to say that the end to it might be closing in too. For the past three months I enjoyed doing this and some very nice readers, especially my very good friends Carlos Puyo and Hans Paul Tobler, encouraged me to kick it off. Early in December, Otto Rock and Fernanda Sofio, my sweetheart for years, helped me start with this project. At some point the blog had 400 hits a day and the readership was growing rapidly in late March. I was very pleased because it was a sincere effort to bring to all of you the news that mattered in these turbulent markets as well as data that readers might have no easy access to. I really hope you readers enjoyed this.

But this space wasn't only created to discussing market stuff. We also wrote about social issues, poetry, music. I was surprised by the very warm response of yours about some of this stuff. My sincere gratefulness to all of you who participated and shared your opinions with me and the other readers. I will be grateful forever. There were comments, especially about markets and politics, that were harsh and many times I was shocked by the rudeness of some comments. I have no reason to hold any grudges to them: when you write about sensitive stuff you have to be ready to get passionate, or maybe rude, responses from your readers, who are in the end the last destination of your writing pieces and your very judges. So, to all those who were rude at some point, my thankfulness goes too -- you guys taught me to think better the stuff I was putting in.

Well, I might also have to stop with this blog because I need to focus on my new life -- it's a new career in a new town. Blogging requires a lot of time and if you are to do this responsibly you need to give it the time it needs. It's like a little kid. I learned that from Otto Rock, whom I respect a lot. Blogging requires the utmost attention. I am not sure I am able to blog at this point.

Thanks to Fernanda, Otto, Jim, the Carioca Grouch, Anna Pérez (my very friend and a person who also found this effort useful for her work,) my friend Elzio Barreto in São Paulo, Toby Muse, and other bloggers such as Fausta, Genovieve Signoret, Miguel Octavio ... I run the risk of forgetting names. Occasional readers included lots of former colleagues at Bloomberg, Dan Shirai of LatinFinance (to whom I owe a lot professionally-wise,) my colleagues and bosses at the market intelligence companies I used to work for. Thanks to all.

One last thing. There is one person I cannot mention by name -- for work and personal reasons -- who was a constant source of inspiration when writing this blog. Since the very first time we talked, that person always allowed me to see the other side of the coin. Every story has two sides. We know that. The person's clarity and very rational points of view, the person's pursuit of objectivity and always warm speech helped to make that concept much clearer. I wanted to recall that enlightening conversation we had about Evo Morales, a chat that helped change my views radically about the situation in Bolivia. I have to thank that person for her continuous stimulus and encouragement, and the time we shared exchanging views about the world, life and things.


It's all over -- for now.

Thanks a lot,

Guillermo Parra-Bernal

Wednesday, 8 April 2009

New Issuance -- Telemar, Part of Brazil's Newly-Created Phone Giant, Mulls Selling 2019 Bonds

The following is information on the planned sale of dollar bonds by Telemar Norte Leste, on behalf of Oi, the telecom group created with the merger of Telemar and Brasil Telecom under the sponsorship of President Luiz Inacio Lula da Silva. The sale will likely take place by the end of next week, according to anonymous sources.

The sale is part of a plan under which the company, in this case Telemar, will refinance debt incurred during the acquisition process of Brasil Telecom. The takeover transaction was valued at about 5 billion reais at the time and a greater part of it was financed by state penson funds and the BNDES development bank.


Issuer: Telemar Norte Leste SA
Ratings: Baa3 (stable)/BBB- (stable) (Moody's/Fitch)
Format: 144a/RegS Senior Unsecured Notes
Size: Dollar-Denominated Benchmark (At Least $500 Million)
Tenor: Ten Years (Due 2019)
Bookrunners: Citigroup Inc. / Banco Itaú BBA SA / Banco Santander SA / BB Securities / Banco Bradesco BBI
Use of Proceeds: Debt Refinancing, General Corporate Purposes
Roadshow: April 13-16

Tuesday, 7 April 2009

Lies Lies Lies ... Check This Posting by Felix Salmon on the G-20 Package

We were discussing this subject of the crisis and the role of the G-20 with friends over rum and vodka last night at a Bogotá bar. We were asking whether is true this thing about the market rally and all that. It's a bear market rally. I am not that convinced that the rally will prevail, confidence will be fixed and signs of a global recovery will be seen this year (my most optimistic scenario sees it coming by the end of the second quarter of 2010.) My friends, though, are just exhilarated by the idea of Barack Obama fixing the markets and overhauling the culture of greed in America -- making America more human. They keep dreaming. I think they were drunk, not me.

Check this blog posting by Felix Salmon -- We all saw the show of these G-20 presidents gathered altogether in London, trying to show they are acting to avert the mistakes that led to failed coordination policies of the Big Three back in the 1930s. The collapse of such scheme back then led to the worsening of the global depression. I hated the meeting, I have to say: seeing U.S. President Barack Obama kissass-ing Brazil's Luiz Inacio Lula da Silva was stupid. Lula, in turn, could only say stupid things such as the crisis was triggered by the actions of ''white people with blue eyes.´´ Jesus! It was just that, show and cameras and unfortunate statements. They announced trillions of dollars in aid for the next five years and all that. But, what of all that is new money?

Felix Salmon says: ''Net-net I’m inclined to believe that any hard-and-fast statement about how much new money there really is in the G20 package is almost certain to be false: the fact is that no one knows for sure, and won’t for some time yet.´´

New Issuance -- IFC Might Sell Dollar Bonds in International Markets

The International Finance Corporation, the investment-banking-like arm of the World Bank, mandated BNP Paribas SA, HSBC Holdings Plc. and JPMorgan Chase & Co. for a five-year dollar-denominated Global benchmark issue, according to people involved in the transaction. The sale might take place in ''the near future, subject to market conditions.´´ This might happen as expectations that the bear market rally we have witnessed in previous days (stocks are falling for the first time in several days today) is likely to stay for a bit longer. I have my doubts about it. In the meantime, companies are looking for windows of opportunity to sell debt or arrange new financing schemes -- and for the IFC this is probably be a good time to place a benchmark size issue in the markets at a competitive yield.

The IFC is rated Aaa by Moody's Investors Services and AAA by Standard and Poor's.

Friday, 3 April 2009

SEC Said to Be Mulling Short-Selling Curbs, According to Bloomberg Report

This is the text of a story by Bloomberg News about possible curbs on short-selling. Many people in the markets reject the idea, for short-sellers can be critical to efficient liquidity allocation and somehow as easy operation of energy, commodity, currency and derivative markets.
The U.S. Securities and Exchange Commission is considering dictating when traders can bet that stocks will fall, after lawmakers said short-sellers fueled the financial crisis by driving down shares, according to two people familiar with the matter. The SEC may offer two proposals April 8 that would place more stringent limits on bearish bets than a plan backed by four U.S. stock exchanges, according to the people, who declined to be identified because the proposals remain under discussion at the agency. Since taking over in January, SEC Chairman Mary Schapiro has faced pressure from Congress to reinstate the so- called uptick rule, which required traders to wait for a price increase before executing short sales. (Click here for a link to the Bloomberg story. )
The imposition of a temporary ban on short sales in September fuelled a witch hunt on hedge funds. Apart from the igniting remarks of politicians, victims of market drops and even the Church, which has fueled more confusion and anger over the role of financial speculators on the financial system, we have seen little debate over the role of hedge funds in general, the importance and excesses of short-selling and whether the latter two are beneficial to the health of the financial markets. One investor, Fernando Meibak of Sunrise Investments in São Paulo, told this blog back in December that, for the case of bank shares around the world, the current framework that makes banks over reliant on wholesale funding and vulnerable to a downturn in investor confidence, makes financial stocks a target of short-sellers. One thing is, he said, that short-sellers manipulate the markets for profit reasons, and another is the role that short-selling plays on the correct functioning of market pricing. Market abuse is already illegal and should be punished -- not the activity of shorting per se. Short-selling is an important part of financial markets these days. It isn't an exclusive activity of hedge fund managers.

Thursday, 2 April 2009

South Korea's Kexim, IDB Sign Accord to Fund $2 Billion in Projects

The Export-Import Bank of South Korea and the InterAmerican Development Bank will sign an accord to co-finance public and private sector projects worth as much as $2 billion in the next three years in Latin America and the Caribbean. Kexim, as the Korean official export credit agency is known, and the IDB ''will work together to share information and identify and finance projects in infrastructure, information technology, trade finance and other areas,´´ according to a statement.

The Kexim sold bonds in international markets recently. Check our archive for the posting.

Latin Governments are Resorting to Protectionism to Cushion Their Economies From Effects of Global Crisis, According to Analysis Piece by Reuters

Read this interesting analysis piece by Reuters reporter Helen Popper (click on this link to read the story.) Recent evidence found by ING Bank NV economists says Brazil, a country with a very closed economy and lots of restrictions on imports, is to benefit from shutting its borders to imports or awarding cheap credit to local companies during the current crisis. Brazil has been lending massively to companies through the BNDES, the state development bank, for expansion projects, the continuation of ongoing plans and debt refinancing efforts. Some see that as protectionist, since it may break some WTO rules -- we will soon see.

Among the few countries that aren't considering restrictions are those that used the boom of the previous years to build their cash position, reduce public debt and pursue long-term free trade accords: Colombia, Chile and Peru. Of those three, the latter two are better suited to weather the current global downturn. Colombia is struggling, partly because it has structural fiscal and external sector shortcomings.

Going back to the main purpose of the Reuters piece, Popper shows examples of recent measures by Ecuador, Paraguay and Argentina raising barriers on imported goods and tells us of the increased willingness from other governments in the region to retaliate against their partners. This should have implications for companies that, like Brazil's Embraer or steelmaker Gerdau, have some of their natural, more profitable markets in neighbouring Latin nations.

Worth reading it.

Odebrecht Raises $200 Million in Sale of Five-Year Debt, Sources Say

Issuer: Odebrecht Finance Ltd.
Rating: BB (stable) / BB+ (stable)
Tenor: Five-Year (April 2014)
Size: $200 Million
Yield: 10.00 Percent
Bookrunners: Banco Santander SA / Banco Itau Holding Financeira SA
Co-Manager: Banco Espirito Santo SGPS

Accounting Rules Eased in the U.S. ... Finally

The U.S. Financial Accounting Standards Board decided to ease mark-to-market rules that banks say fail to work when markets lack of buyers. Well, as University of Chicago professor Eugene Fama used to spot, in markets characterised by ''fat tails´´ there are no buyers, normally speaking. Well, the FASB identified this, a bit late -- that is the problem of regulatory and oversight agencies in general. They are always late.

The changes approved today to mark-to-market rules will allow companies to value assets in such a way that the writedowns stemming from market declines on certain investments, including asset- and mortgage-backed securities, reflect those declines in a less violent fashion. We should expect the net income results of financial companies being boosted following the changes.

CAF Sells Debt in Colombia -- Showing Resilience of Local Corporate Debt Market During Crisis

Corporación Andina de Fomento, the multilateral institution created by the Andean Region nations to promote investment and lending in greater scale, sold 240 billion pesos (or about $95 million) in fixed-rate bonds on Colombia’s domestic debt markets. The Caracas-based multilateral sold 112 billion pesos in 2014 bonds at 9.60 percent, and 128 billion pesos in bonds due in 2019 at a yield of 10.79 percent. This is CAF’s third peso-denominated bond offering in Colombia -- it had sold 240 billion pesos of floating-rate debt in December. Market talk had put a CAF offering at the end of the second quarter; in a recent talk we had with one bank executive, he said the chances of issuing in Colombia were gaining momentum because of the local markets' rising demand for corporate and quasi-government debt paper amid tanking bond yields. InterconexiónEléctrica SA, the largest utility in Colombia, is expected to place almost 200 billion pesos in six- and nine-year bonds as early as this week. The Colombian debt market is, thus, the most active so far in Latin America; relative to Brazil or Mexico, offerings have been ten times bigger, the market response has been active and movements in yields have reflected the different stages of the current liquidity crisis.

The local securities unit of BBVA, the Spanish lender, managed the transaction. Demand for the CAF bond topped 300 billion pesos, according to buyers of the issue.

Pemex Issues 10 Billion Pesos of Domestic Three-, Seven-Year Bonds; First Step to See Local Bond Spreads Narrowing, People Say


Petróleos Mexicanos SA, the giant oil company controlled by the Mexican government, sold debt in the domestic markets amid hefty demand for long term instruments. We had extensively talked about the health of the Mexican debt market -- which for months has only allowed for corporate paper issuances at the expense of long-term corporate bonds offerings. It seems that finally, issuances from the highest-rated companies are kicking off. Pemex's transaction was a litmus test for the depth of this market -- clearly it passed it well, according to some analysts.

Terms of the Pemex sale were: three-year floating-rate notes (FRN) linked to the benchmark interbank interest rate TIEE; the issue was priced to yield TIEE plus a spread of 100 basis points. The total issued of this tranche was 6 billion pesos. Pemex also placed 4 billion pesos of seven-year, fixed-rate bonds at a yield of 9.15 percent. The yield has an equivalent in Mexican Treasury notes rates -- the Mbonos of similar maturity plus 1.6 percentage points.) Demand for the offering topped a sizzling 24 billion pesos, and most of the bids came in from local pension funds. These funds ended up being the major buyers of the paper, according to a banker involved in the sale.

Wednesday, 1 April 2009

Taleb, 'Black Swan´ Author, Says U.S. Bank Plan Will Tank. We Agree.

Last night I was chatting with an old friend of mine about the U.S. plan for its lousy financial system and he was clear -- sort of felt that he was right: ''Why do people, taxpayers, have to pay for the lousy risk-assesment strategies of these idiots?´´ I agreed with him. Then I stumbled across this story on the Bloomberg News Web iste, and I decided to reproduce it. Nassim Taleb, the author of ''Black Swan,´´says removing toxis assets from balance sheets will do little to kickstart credit and revive the U.S. economy. Sorry to say this, he is right. We expected the Barack Obama administration to be as strict with Wall Street firms as it has been with companies in Main Street (check our posting early this morning about the president's reported remarks over the future of General Motors Corp. and Chrysler Corp.)

Reach your own conclusions -- we have already done that at MM. Click here to read the story (with pictures and all the gadgets.)


Nassim Taleb Says Geithner’s Bank Plan Will Fail (Update1)

By Jeff Kearns and Erik Schatzker

April 1 (Bloomberg) -- U.S. Treasury Secretary Timothy Geithner’s plan to remove toxic assets from bank balance sheets will fail to revitalize the financial system, “Black Swan” author Nassim Nicholas Taleb said.

“We’re heading in exactly the wrong direction,” Taleb said in a Bloomberg television interview. “I want an overhaul, I want something drastic. This is going to fail, this is not it.”

Geithner has proposed to revive banks without resorting to nationalization through the Public-Private Investment Program that will buy difficult-to-value assets. Leaders from the Group of 20 nations meeting in London this week are unprepared to fix the global financial system because they don’t grasp how markets work or the root causes of the credit crisis that has led to $1.2 trillion in losses and asset writedowns, Taleb said.

Rare and unforeseen events are known as “black swans,” after Taleb’s 2007 book, “The Black Swan: The Impact of the Highly Improbable.” Taleb is a professor of risk engineering at New York University and also advises Universa Investments LP, a Santa Monica, California-based firm opened in 2007 by Mark Spitznagel, Taleb’s former trading partner.

The Treasury’s plan is unfair to taxpayers and rewards the failure of banks that didn’t understand the risks they took when using debt to boost returns in the mortgage market, Taleb said.

Subsidize Failure

“I don’t understand why I as a taxpayer need to subsidize those who failed, by giving them options so they can rebuild their balance sheets,” he said. “Taxpayers take the downside and Wall Street as usual is going to take the upside, another classical problem of socializing the losses, privatizing the gains.”

Taleb said it’s “shocking” that the government would allow banks to estimate the value of the toxic assets that remain on their books because there is effectively no market for the securities, making them almost impossible to value.

“I don’t understand letting banks mark to market, after all this incompetence,” he said. “Why don’t we allow people to mark their house at what they think the value of their house is?"

Odebrecht Bond to Be Priced Early Tomorrow; Books Closed in America, Sources Say

The Odebrecht bond put up for sale yesterday has the bookbuilding closed in the U.S.; European investors will close orders tomorrow and pricing should be ready by midday, said sources involved in the deal. We will see current market demand and pricing trends -- whether they are supportive of indications of an improvement in risk-taking.

Check This Posting on a Reuters Blog: Debt Restructuring in Europe Being Chased Out by Distressed Debt Funds

Check this posting. We will yet see whether the same happens in Latin America. There are sectors in distressed financial situation and with grim prospects of debt refinancing in the short term: ethanol, meat, foods, farming companies.

Brazil and Some Details About the Fiscal Numbers for February


Those who read this blog regularly probably know that I am not especially a fan of Brazil's government, its very ambiguous economic policy framework and particularly its management of the fiscal situation. This time I won't defend the awful administration of public finances by Criswell, the lousy finance minister who assured his countrymen that the global crisis would only touch Brazil marginally, be just a ''marolinha´´ -- a roller, a shallow wave. What an idiot. The economy posted its worst quarterly contraction in the fourth quarter and is going straight to recession.

Well, the thing here is, yesterday the government announced that the consolidated primary budget surplus, or the excess of revenues over expenses excluding debt payments, narrowed by 66 percent in the first two months -- amounting to about 2 percent of gross domestic product in relative terms. The accumulated result is certainly bad. I listened to some radio and specialised TV programmes predicting the fallout of Brazil and some doom scenarios. The numbers are certainly worrisome, but we have to take into account some aspects in the bottom line that should keep readers cool about the (deteriorating yet far from end-of-the-world-like) fiscal position of the Brazilian government.

The primary surplus was 4.1 billion reais in February, narrowing from 5.1 billion reais in January -- and without a doubt, a couple of disappointing monthly results. The numbers were though better than the market’s average estimate surplus of about 1.2 billion reais. Furthermore, the consolidated nominal budget deficit narrowed to 6 billion reais in February from January's 9.2 billion shortfall. All in all, a whooping 10.1 billion reais in interest payments were to blame for the sizzling back-to-back deficits. Despite the fact that the primary surplus was about half the value of February 2008's 9 billion real surplus, my guess is that, once you take a look at the figures unveiled by the central bank yesterday, there is an improvement on the margin in the interest/GDP ratio. This is consistent with recent declines in domestic borrowing costs and especially, the reduced weight (sensitivity if you like it) of currency fluctuations on debt dynamics. Anyways, taking into account the awful erosion of tax collections during the past five months and the irresponsible increase in expenses sponsored by that lousy finance minister and related to the government’s economic salvage plan, the data in my view was not that worrisome.

Nonetheless, be sure that at some point the same rating agencies that were quick to see Chile's strength and especially comfortable fiscal and external position to award the nation an increase in debt ratings, will be quick enough to spot the weakest aspects of Brazilian policy making -- which we believe is erratic and desperate in our view. We believe that at some point the rating agencies that awarded Brazil investment-grade last year will begin revising their stance -- it would surprise me if they at least don't send a warning on Brazil's deteriorating fiscal numbers.

Argentina Mourns Former President Alfonsín, Who Died Yesterday

Murió Raúl Alfonsín. I am reproducing Bloomberg News reporter Eliana Raszweski's obit on the man who helped bring back democracy to Argentina.

March 31 (Bloomberg) -- Raul Alfonsin, who presided over Argentina’s return to democracy from military dictatorship and later resigned amid economic chaos, died today. He was 82. Alfonsin, who was battling lung cancer, suffered recently from pneumonia, his doctor Alberto Sadler told reporters in Buenos Aires. Dozens of people carrying candles gathered outside Alfonsin’s house in the capital.
Click here to read Raszweski's story. Alfonsin dismantled the armed forces's power structure. He created the National Commission on the Disappearance of Persons to record human rights abuses that took place under the past military leadership. One footprint of democratic values that our leaders should always use as a model. We have so many undemocratic leaders in this region that use votes and institutions created for people like Alfonsín to perpetuate in power. The Chávez, Uribes and so on won't be as fondly remembered as the old Alfonsín will. Rest in Peace, Mr. President.

Click on this link to read Otto Rock's IncaKolaNews' very touchy posting on Alfonsín. It's partly in Spanish, lo cual lo hace más sentido aún.

New Issuance: Odebrecht Becomes First Private Company in Brazil This Year to Offer Bonds in International Markets

This came out yesterday, and I apologise, dear readers, I was on holiday. Bloggers have holidays too. Odebrecht, the construction giant, is offering bonds in international markets to buy stakes in some ventures and units, as well as to improve its corporate structure. This might be the first latin dollar bond sale since Digicel's very bumpy $335 million offering a few weeks back. On the use of proceeds, these Odebrecht bankers branded it as UOP for general corporate purposes -- I wish these bankers were more transparent. I wished the company was more transparent too.

Here are the details of the offering:


Issuer: Odebrecht Finance Ltd.
Rating: BB (stable) / BB+ (stable)
Tenor: Five Year (April 2014)

Size: $ 150 Million

Yield Guidance: To Be Announced

Change of Control: 101% (Ratings Downgrade)

Format: 144A/Reg S

Bookrunners: Banco Santander SA/Banco Itau Holding Financiera SA

Co-Manager: Banco Espirito Santo SGPS

Use of Proceeds: General Corporate Purposes (including equity investments in Odebrecht group units)

Timing: This Week

Finally! Obama Believes Bankruptcy Best Solution for GM, Chrysler. Now, What is the Solution for Banks Like Citigroup or Financial Companies Like AIG?

Bloomberg News moved this story late last night:

April 1 (Bloomberg) -- President Barack Obama believes a quick, negotiated bankruptcy is the most likely way for General Motors Corp. to restructure and become a competitive automaker, people familiar with the matter said. Click here for the link to the entire story.

The thing is, my comments have to be more moderate from now on. The surprise will come on April 8. Anyways, I am surprised by the assymetry of the comments by the newly-sworn in president: he has failed to produce a similar comment concerning the situation of banks that, like Citigroup Inc. or financial services companies like AIG, had awful risk-assesment strategies and led the credit markets to the shambles they are on right now.

I ask, When this new U.S. administration will say something solid, concrete and strict about the heath of these financial companies and when the world will stop bailing out these institutions?

Wednesday, 25 March 2009

New Issuance -- Peru, Hana Bank, Slovenia to Tap Markets as Risk-Taking Improves

In a further sign that markets are becoming more prone to take risk these days -- following the announcement of the bank rescue plan by the Barack Obama administration and prospects of faster-than-initially-expected recovery in some emerging markets, mainly Brazil, China and Chile, today we see Peru ready to sell 1o-year debt, Slovenia to sell five-year debt and Hana bank exploring a debut offering.

Tuesday, 24 March 2009

New Issuance: World Bank to Sell Debt for First Time This Year

In a proof that risk-taking is improving, the WB is tapping markets. This came out just now.

Issuer: World Bank (International Bank for Reconstruction and Development)
Rating: Aaa/AAA/A
Format: Global
Maturity: 3 Year
Coupon: Fixed Rate
Size: U.S. Dollar Benchmark
Managers: Citigroup Inc. /HSBC Holdings Plc. /JPMorgan Chase & Co. /Royal Bank of Scotland Plc.
Timing: This week

New Issuance -- Kansas City Southern de Mexico to Offer $200 Million of Seven-Year Debt

For those who kno little about this company, KCSM operates the primary commercial corridor of Mexico's railroad system. Here are details on the issue:

ISSUER: KANSAS CITY SOUTHERN DE MEXICO SA DE CV
SIZE: $200 MILLION
ISSUE: SENIOR UNSECURED NOTES
MATURITY: 2016
EXPECTED RATINGS: B2/B+
LEAD MANAGER: BANK OF AMERICA SECURITIES
JOINT LEADS: BANK OF NOVA SCOTIA / SUNTRUST
CHANGE OF CONTROLS: PUT AT 101% PLUS ACCRUED INTEREST
USE OF PROCEEDS: REPAYMENT AND TERMINATION OF THE COMPANY'S CREDIT FACILITY AND TERM LOAN; GENERAL CORPORATE PURPOSES
TIMING: TODAY

BusinessWeek Article -- on Wall Street's Crimes Against Humanity! (Jesus!)

Click here on this link to read this peculiar article about Wall Street and its bankers' crimes. Columnist Shoshana Zuboff writes that, by refusing to consider the consequences of their actions, those who created the financial crisis exemplify the banality of evil.

I wonder why some people don't write about this during times of boom -- or why the media just don't publish articles like this. Must be that, during times of prosperity, every country in the world wants to have their little own Wall Street ...

Monday, 23 March 2009

Vacation Time -- Back in Early April

Dear readers,

This blog will ocassionally post news and commentary during the March 24-March 31 period. In April we will be back in full fashion -- we hope so!

Thanks a lot,

Market Memorandum

Obama Unveils Plan to Buy $1 Trillion in Banks' Toxic Assets; Shares Rally Worldwide

The U.S. government finally disclosed today its long-awaited plan to buy toxic assets from the balance sheets of the country's financial system. Simply as that, they are wagering their last bet on no-banking nationalisation. As Elvis used to sing, ''it's now or never.´´ Under the plan, as reported by Reuters and Bloomberg News, as much as $1 trillion in purchases of illiquid mortgage bonds and loans will be made using Treasury money.

Says Bloomberg: ''Barely two months after President Barack Obama took office, he and Treasury Secretary Timothy Geithner are staking much of the new administration’s economic credibility on the theory that removing the devalued loans and securities from banks’ balance sheets will help them start lending again and help resuscitate the economy.´´

And Reuters says: ''Public and lawmaker fury over the bonuses, and efforts on Capitol Hill to claw them back, have made many investors skittish about partnering with the government, but Treasury specified that private partners in its latest effort to revive credit markets will not face tough executive pay restrictions.´´ The story talks about the outrageous effort by financial companies to keep paying bonuses to their employees, most of whom are seen as responsible for the havoc created through the marketing and sale of asset-backed securities tied to mortgages -- the infamous sub-prime securities.

Immediately after the announcement, Reuters came up with this excellent scoop: click here to read the story and watch the video. Bill Gross, the head of the world's largest bond fund, Pacific Investment Management Co., ''gave the Obama administration's financial stability effort a much-needed endorsement on Monday,´´ saying Pimco will participate in the public-private plan. We have said in this blog extensively that Pimco is one of the much-needed engines to make this thing work -- but at the same time it faces conflicts of interest that we hope don't derail the plan as a whole. Check the previous postings by typing Pimco on the search box (your upper-left corner, right next to the Market Memorandum big title in your screen.)

The Standard & Poor’s 500 index rose 3.6 percent; the S&P 500 Financials Index jumped almost 9 percent. Yields on the 10-year Treasury notes were down 1 basis point at 2.62 percent. The Bovespa rallied 4 percent in Brazil. The world is giving the plan an early confidence vote -- we will see how markets behave tomorrow.

Friday, 20 March 2009

EMTA Says Emerging Market Bond Funds Had Outflows of $117 Million in Week Ended March 18

For the week ended March 18, emerging markets debt funds saw net investor outflows of $117 million, equivalent to 0.30 percent of assets under management (AUM) -- less than the $308 million net redemptions seen in the prior week, according to EMTA. Outflows were seen across all fund types. In total, market effects (namely an appreciation of emerging market currencies against the dollar) played a positive role by offsetting the outflows: the positive contribution of $195 million related to foreign exchange-related effects helped debt fund assets to grow by $719 million from the previous week, despite the negative investor outflow, according to ING Bank NV.

Israel Bond Pricing Sheet (From Last Night)

ISSUER: State of Israel
ISSUE RATING: A1 / A
SIZE: $1.5 Billion
MATURITY: March 2019
YIELD: 5.190%
COUPON: 5.125%
TREASURY SPOT: UST 2.75% 02/15/19 Priced at 101-19+ to Yield 2.565%
SPREAD: Equivalent Treasury Yield +262.5 Basis Point Spread

IncaKolaNews Views on Recent Fed Measures and Impact on Carry Trade

El Incisivo Otto

Click on this link to read Mr. Otto Rock's posting on the effects of the recent Federal Reserve measures on inflows of dollars and the trend of Latin America currencies. Agree 100 percent on Brazil. Venezuela ... uhhmm, the cash situation they face seems more serious than we imagine. It's the proto-republic of mystery ...

I insist, put IKN on your radar.

S&P Downgrades Six Brazilian Homebuilders on Financial, Demand Concerns; Cut Follows Fitch's January Downgrade


Standard and Poor's cut the credit ratings of Brazil's No. 1 real estate company Cyrela Brazil Realty SA, its closest rival Gafisa SA and four other homebuilders on concern a prolonged decline in demand and financing sources as well as tougher refinancing conditions will lead to financial difficulties. In a report, analyst Reginaldo Takara said the rating actions ''reflect the difficulties being faced by the homebuilders to finance their working capital, the risks of a prolonged contracted sales slowdown, more uncertainties about the sale of the existing portfolio of projects and the trends for the industry in the medium term.´´

Cyrela, majority owned by billionaire Elie Horn, was cut one level to BB- from BB (S&P kept the rating on a stable outlook.) Gafisa, Brazil’s second-largest real estate company and one that has focused very much on high-end and commercial real estate megaprojects, was lowered to brA- from brA (there are ratings in the local scale) with a negative outlook. Gafisa, which has not issued notes abroad as far as I am concerned, has sold notes in the domestic markets. The move means that the situation for Gafisa might relatively be more challenging than for Cyrela. S&P also downgraded Rossi Residencial, MRV Engenharia e Participacoes, Tecnisa and KlabinSegall.

S&P is the second rating agency that downgrades the sector this year -- the first was Fitch, which on Jan. 21-22 reduced the ratings of six companies in the sector (
click here for link on the report we did at the time.) Check this posting too, we wrote it a few days after the Fitch downgrade -- in it, LatinFinance, the magazine and specialised newsletter, warns of the dangers the sector braces for amid the weakest Brazilian economy in decades.


The fourth quarter was the end of the world for some of these companies; Cyrela saw the value of projects tumble by 66 percent.
Leverage, therefore, will likely remain a factor of pressure for the industry in 2009 -- as prospect sales value falls, the weight of debt on cash usage turns bigger. Total debt excluding Housing Financial System (SFH) loans compared to the industry's Ebitda (a measure of debt-servicing capacity) was 3 times debt in September, compared with 2 in June 2008. It probably rose during the fourth quarter to somewhere close to 3.5 times. The increased use of cash to cover ''construction, advertising and operational costs´´ will affect the indicator even more. Liquidity position measured by cash to short term debt dropped to an average of 2 by December 2008, versus 3.4 in June.

Thursday, 19 March 2009

Brazilian Central Bank Might Continue Aggressive Monetary Policy Front-Loading, Policy Meeting Minutes Suggest

The Banco Central do Brasil released its monetary policy minutes today. According to the document, The downturn has substantially gained momentum since the fourth quarter, making it more likely that inflation slows towards or below the target for this year. The impact of the crisis is making the scenario more adverse, and weak economic conditions will ''remain in place for a longer period of time.´´ This is a worrisome statement, because it means that, despite a possible depreciation of the real and other unfavourable shocks, the likelihood of deflation at the wholesale level is growing. Brazil is already in recession -- GDP will shrink easily by a couple of points in the first quarter. President Lula is considering easing the primary surplus target to free up more money for investment as tax collections will be below target by about $20 billion. He is just buying time, not avoiding the inevitable.

Now the question is, Will the next reduction be close to 100 or 150 basis points? Probably 100 points. That is what most analysts expect.

New Issuance -- Posco Bond Guidance at 9%, Sources Says

This is information on the Posco bond sale -- which was initially scheduled for the start of the week. The unexpected announcement yesterday by the U.S. Federal Reserve messed valuations and guidance for this and other bonds (the Panama case was a special one, with its size being cut and the republic getting hurt by a reduction in issuance-related cost savings.)

Issuer: Posco
Ratings: A1 (negative) / A (stable)

Tenor: Five year

Size: To Be Defined

Yield Guidance: 9 Percent +/- 5 Basis Points

Bookbuilding: Citigroup Inc. / Deutsche Bank AG /Goldman Sachs Group Inc. /HSBC Holdings Plc. /Merrill Lynch & Co.

Timing : Today

Israel Bond to Price Today After Violent Swings in Treasuries Caused by Federal Reserve Repurchase Decision

One good source told us that the bond transaction involving Israel will be priced today. The bookbuilding was suspended following the dramatic movement in Treasury yields that followed the announcement by U.S. authorities of a planned $300 billion in Treasury bond repurchases.

Price guidance on the 10-year bond was around 290 basis points above the equivalent Treasury yield ( ten year bond) a few hours before the Fed announcement. No indications were given on the direction of the new price guidance -- and I don't want to risk saying where the yield is headed for -- I have no freaking idea!

Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. are handling the sale.

Colombia Swapped $1.8 Billion of TES Yesterday; Second-Round of Debt Exchange is Expected

Colombia, which in the past six years became the farm of President Alvaro Uribe, swapped yesterday $1.8 billion in domestic Treasury bonds, known as TES, to stretch out maturities through 2024 and avert billions of dollars in short-term debt repayments. More debt should be included in a second round of the swap. In the past six months, the government succesfully swapped over $4 billion of maturing bonds. Nice!

CAF Lends $100 MIllion to Ecuador to Help the Nation Cope With the Impact of the Credit Crisis

Corporación Andina de Fomento, the multilateral lender founded by the countries of the Andean region, approved a revolving credit line worth $100 million to Ecuador. The transaction will help ''ease financial stress stemmed from the impact of the current credit crisis,´´ CAF said in a statement. The borrower will be the nation's Corporación Financiera Nacional. No details on the credit line were disclosed.

Fed's Plan to Buy Longer-Termed Treasuries, Agency Debt Should Lead to Dollar Drop, Rising Stocks, Bond Markets Across Latin America

The Federal Reserve's decision to buy long-term Treasuries might be one of the most aggressive policy steps taken by U.S. policymakers during this crisis. This, apart from sparking much-needed momentum to debt refinancing, should lead to a weaker dollar, a narrowing of mortgage rates spreads and a decline in the 30-year Treasury bond yield, and leeway to refinance the U.S. fiscal deficit. Two analysts told us in e-mailed replies to questions that the move bodes well for Latin America -- as it might propel a rally in some of the region's most traded currencies (the Brazilian real, the Colombian and Chilean pesos, etc.) and set a stable, permanent floor to some stock markets.

The Fed wrote in its statement yesterday that, in order to ''provide greater support to mortgage lending and housing markets,´´ policymakers increased ''the size of the Federal Reserve's balance sheet further by purchasing up to an additional $750 billion of agency mortgage-backed securities, bringing its total purchases of these securities to up to $1.25 trillion this year, and to increase its purchases of agency debt this year by up to $100 billion to a total of up to $200 billion.´´ Moreover, ''to help improve conditions in private credit markets,´´ the Fed decided to purchase up to ''$300 billion of longer-term Treasury securities over the next six months.´´ The 30-year yield fell from 3.8 percent on Tuesday to around 3.5 percent at the end of yesterday's session.

Bloomberg News led its U.S. market wrap close this way on Wednesday:

March 18 (Bloomberg) -- U.S. stocks and Treasuries surged and the dollar tumbled after the Federal Reserve unexpectedly announced plans to buy $1 trillion of bonds in an effort to lower consumer borrowing costs and end the recession. The Standard & Poor’s 500 Index added 2.1 percent, extending its rally since last week’s 12-year low to 17 percent. Yields on 10-year notes dropped the most since at least January 1962 after the central bank said it will spend $300 billion buying Treasury debt and up to another $750 billion on bonds backed by government-controlled mortgage companies. The dollar sank the most against the euro since September 2000.

Wednesday, 18 March 2009

Federal Reserve Keeps Target Rate Range Unchanged, Plans Purchasing $300 Billion of Longer-Termed Treasuries

Bill Gross, the head of bond powerhouse Pimco, the same that bets against the government and manages sme portfolios for the TARF, has said buying longer-termed Treasuries isn't as good and effective a government policy as bailing out banks and repurchasing mortgage-backed notes. Maybe, I don't really know -- the thing is the Fed today announced a programme to repurchase $300 billion of long term Treasury debt. This will prop up the government debt holdings of Pimco as well as China. Ah! And Pimco will keep buying ... at good prices.

The Fed kept the fed Funds rate range between 0 percent and 0.25 percent. Please click on Link 1 for Bloomberg News' transcription of the FOMC decision, and Link 2 for the story by Reuters.

Link 1

Link 2

New Issuance -- Panama Reopens 2015 Bond; Size at $323 Million, Signalling Risk-Taking Remains Limited (Update)

Issuer: Republic of Panama
Ratings: Ba1 / BB+ / BB+ (stable/stable/positive)
Maturity: Reopening of 7.25% Notes Due March 2015
Size: $323 Million
Price Guidance: $101 Area
Format: Senior Fixed Rate Global Notes
Use Of Proceeds: General Budgetary Purposes
Books: Morgan Stanley & Co. / UBS AG
Timing: Today, March 18

New Issuance -- Israel Offers Benchmark Size, 10-Year Bond on Sale Today

ISSUER: State of Israel
ISSUE RATING: A1 / A

SIZE: Benchmark Size in U.S. Dollars

TENOR: 10 Year

PRICE GUIDANCE: Equivalent Treasury Yield + 287.5 Basis Point Spread

FORMAT: Global SEC-Registered Fixed Rate Notes

BOOKRUNNERS: Citigroup Inc. / Deutsche Bank AG / Goldman Sachs Group Inc.

TIMING: Today

One in Three Colombians Believe The Country is a Democracy. Urrgghh!

A government survey found that 35 percent of Colombians (about one in every three) said the country is democratic. About 10 percent were clear-cut -- they said it isn't; fifty-five percent said the country is not a strong democracy. About eight in every ten said democracy is the best system of government.

Yes, people are not stupid. Yesterday the Prosecutor General, a radical Catholic man called Alejandro Ordoñez, scrapped a process against two government officials for their alleged involvement in bribing lawmakers. Ordoñez will not proceed with the disciplinary investigations against Social Welfare Minister Diego Palacio and current ambassador to Rome Sabas Pretelt de la Vega (a former Interior Minister) -- both were suspected of having bribed former congresswoman Yidis Medina to vote for an amendment to pass the re-election of Uribe. Ordoñez's decision will further taint the image of judicial institutions in Colombia.

Click on the link to read the results of the poll, in a Caracol Radio story (the story is weak and badly written, let me say to you.)

According to the DANE, the government statistics agency, more than 15,000 people were interviewed in 24 cities. President Alvaro Uribe wasn't available for comment, when sought by this blog, said one top press aide. He said we could get comments from Jose Obdulio Gaviria, Uribe's Rasputin, on the poll. We declined -- we don't like being brainwashed.

Why The World Should Be Permanently in Recession: The Cases of Russia and Venezuela

God, have mercy of these two!

I am sorry Otto, I am not giving my cherry away, not yet!

Yesterday, Russian President Dmitry ''The Puppet´´ Medvedev vowed to press ahead with a rearmament program seeking to quash NATO's military expansion close to Russia's borders. The Puppet and U.S. President Barack Obama will meet early next month to discuss the economic crisis and ... uhhmmm geopolitics. Russian Defense Minister Anatoly Serdyukov went beyond remarks made by the Puppet. Serdyukov accused the U.S. of trying to push Russia out of its traditional sphere of influence -- the former Soviet Union countries -- in order to secure energy and commodity supplies. Jesus!

Then we have the President of the Bolivarian Revolutionary Pathetic Republic, formerly Venezuela (otrora a great country, now ruined by ten years of Chavismo) seizing airports and ports from regional governments -- read the opposition -- after the president's cronies passed his long-sought re-election amendment. Why I say the world should be permanently in recession? Because these stupid presidents are using the wealth of their countries to pursue nuke weapons, curtail political opposition in their countries, create alliances with allies to spark regional imbalances (the case of Venezuela and Ecuador hinders Colombia's war against the FARC and drug traffickers) and all that. Countries like Iran do the same -- annoy its neighbours and put the world under more stress.

Capitalism has bolstered these regimes that treat democracy like a tool of their leaders, have little of pluralist and much of oppressive. I know there are too many sympathisers of Mr. Hugo Chávez in this region. Shame on them -- I do wish the world was permanently in a recession to impede people like Chávez or The Puppet from carrying out their stupid projects.

Tuesday, 17 March 2009

Cherry

The cherry is and will always be yours ...

(Otto, I am not giving it away.)

Brazilian Companies Understand Reality Better Than Government: Corporates Bound to Create Derivatives Risk Alert Mechanism

This is the news of the month, or the year -- despite it is signalling only an intention to do something (good.)

Self-regulation works well if inflicted or sparked or triggered by fear (or embarrassment.) Brazilian companies finally became conscious of the danger of exposing their balance sheets excessively to toxic derivative structures such as those loans in reais that locked up lower-than-market rates betting on an ever-lasting dollar drop. Now, they are taking a first step to create a risk-alert mechanism similar to the credit risk-related one implemented by the central bank. It was an idea of companies themselves -- not President L.I.L.D.S. (a.k.a. Lula!) who in his infinite knowledge thought of it. Someone was ahead of Brazil's Messiah -- for the first time.

The other day, the local media unveiled a central bank classified report that calculated the notional value of corporate losses stemmed from gone-awry derivative contracts at $30 billion. The report said banks have all counter party risks under control. So far we have no information on losses in corporate balance sheets for the fourth quarter of 2008 -- market rumours put the situation as serious for some sectors such as ethanol, food processing and soybean crushing. Remember the scandal we have reported extensively here in this blog, the one that led Sadia to put itself up for sale (even as the board doesn't admit it,) and VotorantimCelulose to acquire Aracruz -- creating the most leveraged company in the paper and pulp industry in the world!

Well, Corporate Brazil (a reason of pride for Brazil, not of shame as the Lula administration wants to portray it) is seeking to prevent future problems. That is why the Brazilian Banking Association (Febraban) led the effort of creating this risk alert mechanism with Cetip, the biggest clearing house (90 percent of derivatives transactions are cleared through Cetip.)

Locombia? Golombia? The War-Torn Country's Occasional Fiscal and Debt Bulletin

Last Fort of Neoliberalism in the Americas!

Golombia: Consolidated Public Sector Posted 0.1 Percent of GDP Fiscal Deficit in 2008. Better Than Expected, But Does It Mean Colombia Has Fiscal Room For Salvage Package?

The government scored a goal last year. Government 1 - Market Skeptics 0. The consolidated public sector posted a 0.1 percent of GDP deficit in 2008, smaller than the 0.8 percent deficit forecast. It was narrower than the deficit posted in 2007 -- about 0.8 percent or so of GDP. The central government posted a 2.3 percent of GDP shortfall that was partially offset by a surplus at the state owned enterprises of 0.2 percent and a 1.1 percent surplus at provinces and municipalities. Does it mean Colombia can do the crazy things that Brazil is doing? NO. Eroding fiscal revenue will deprive President Alvaro Uribe of his second favourite weapon (the number 1 is violence and war) to stimulate the economy. Government 1 - Market Skeptics 1.

Locombia: New Debt Swap

The Finance Ministry will offer to swap tomorrow as much as $25 billion of peso-denominated fixed-rate TES and UVR-linked bonds maturing between 2009 and 2018 for new fixed-rate bonds maturing in 2012, 2014, and a new paper maturing in 2024. This new bond will lengthen the local curve to a 15-year maturity, lovely isn't it? Will the government be able to improve its debt profile? Probably yes, TES yields are falling considerably these days, so better prices should favour holdings of TES. Now, is it good for the long part of the curve? For those looking to play long TES bonds, yields might already be rather low. Despite the rally in the peso in the current month (almost a 7 percent gain), for those who want to be TES long with long maturities and are also active in other regional debt markets such as Mexico or Brazil, the Colombian yield compression is reaching its limits, according to an analyst. Anyways, amid the current monetary easing (markets are expecting another 100 basis point reduction in the Repo rate this Friday, the government should succeed in its attempt to revamp its debt profile.

Monday, 16 March 2009

This is Bad News for Latin America: Remittances Seen Falling This Year For First Time, Says IADB

After almost a decade of growth, remittances to Latin America and the Caribbean are likely to decline in 2009 -- the first decline since the Inter-American Development Bank started tracking flows in 2000. Bad news. Remittances have been decreasing since the fourth quarter of 2008 -- the first quarterly decline also in nearly a decade. Migrants are either being hit by the economic recession in the U.S. and most developed economies; remittances are also being affected by swings in exchange rates -- with a stronger dollar, it is harder for migrants to send more; the effect is mixed for recipients. Says the IADB in a report released today: ''The break in the upward trend took place after the first semester of 2008. After a flat third quarter, in the fourth quarter remittances dropped to $17 billion, 2 percent less than in the same period of 2007. For the few countries that have reported data for January, totals were down by as much as 13 percent.´´

What's at stake here? A lot: remittances sent home by migrant workers provides millions of families across Latin America and the Caribbean with a source of income that was the most stable source of dollars for years. Even banks have played large on this, repackaging flows into bonds that they sold along the past three or four years. According to the IADB, Latin American and Caribbean expatriates transferred $69 billion to their homelands, 1 percent more than in 2007. It's a lot of money -- the decline will be dramatic for sure.

Exchange rates swings started to have greater influence than in the past, especially in countries that experienced sharp devaluations or have large expatriate communities in Europe. Migrant workers who sent money from Europe into their homelands were hit by the sudden drop in the value of the euro since mid-2008. Remittance senders and their beneficiaries back home were also hurt by last year’s skyrocketing oil and food prices.

Tumbling Trade, Flagging Shipping Industry Put European Banks at Jeopardy, Says S&P

The flagging shipping sector is putting downward pressure on the ratings of European banks exposed to the industry, Standard and Poor's said in a report today. S&P forecasts that at some point banks will have to provision more for bad trade loans to shipping companies -- provisioning against profits means banks will therefore require more capital. "Many shipping companies are struggling following a sharp downturn in global trade and challenging funding conditions. We expect these difficulties to result in a material increase in banks' loan loss provisions,´´said analyst Harm Semder. Pressure will come from an increasing number of loan defaults, eroding credit quality at shipping firms, and weaker recovery expectations due to falling asset values -- banks' capital ratios may decline as deteriorating creditworthiness increases the relative risk-weighting under Basel II.

We have witnessed a process of deterioration in the quality of shipping and trade and logistics companies in Latin America (especially in Brazil) following a dearth of trade financing, higher borrowing costs and a decline in demand for exports and imports. The Baltic Dry Index reported a drop in shipping fees of 92 percent between May and November last year -- just when the crisis began to unleash. Let's see whether rating agencies start looking for symptoms of the same phenomenon in Latin America. Banks that might suffer with a dramatic tumble in regional commerce and the quality of shipping and trade companies include BNDES, Banco Itaú, Banco Bradesco of Brazil, Proexport in Colombia, Bladex (probably) and the Mexican Ex-Im bank.

Reuters' James Saft Renews Attacks on U.S. Policies to Keep Zombie Banks Alive -- Attacks Are Welcome!


Click here to read James Saft's Reuters.com column for this week. Here is one short excerpt:

''The U.S. policy of keeping zombie financial institutions alive is so clearly failing that it is now attracting attack from inside policymakers’ circle of covered wagons.
The most interesting intervention in the banking debate in the past few weeks was an extraordinary attack by Kansas City Federal Reserve President Thomas Hoenig on what he termed a policy of “piecemeal” nationalization which leaves discredited management in place, repels new capital from the banking system and allows bad assets to fester rather than be cleared.´´

Até Tú, Eike? LLX Brings BNDES in as Shareholder -- Meaning Business Isn't Going Too Well, Right?

X-Man: The days he used to talk happilly about ex-wife Luma
and his almost always money-making business ventures

The following is the text of a press release we just got, from LLX Logistica SA, the logistics arm of Brazilian billionaire Eike Batista's massive yet illiquid empire.

Rio de Janeiro, March 16th 2009. LLX Logística S.A., an EBX Group Company, hereby announces that, BNDES PARTICIPAÇÕES S.A. - BNDESPAR, a wholly-owned subsidiary of the Brazilian Development Bank (BNDES) ("BNDESPAR"), approved in a Board of Executive Officers Meeting the subscription of shares in the LLX´s capital increase. This capital increase will be effective upon the execution of an agreement among the Company´s controlling shareholder, Mr. Eike Batista, his subsidiary Centennial Asset Mining Fund LLC ("Centennial"), Ontario Teachers´ Pension Plan Board ("OTPP") and BNDESPAR.

The capital increase of R$ 600 million results from the issuance of 333,333,335 new common shares and will be priced at R$ 1.80 per share which represents a premium of 27% over the volume weighted average price of the last 60 trading days. Under this agreement, BNDESPAR shall subscribe the equivalent of 25 percent of the total newly issued shares, representing R$ 150 million, and resulting in an equity stake in LLX of 12.05 percent.


BNDESPAR will become LLX´s shareholder through the assignment of a portion of the preemptive rights of the controlling shareholder, Centennial and OTPP in favor of BNDESPAR. In consideration for the assignment of these preemptive rights, BNDESPAR has granted to the Controlling Shareholder and to OTPP a call option for the purchase of 50 percent of the shares issued by the Company paid-in by BNDESPAR under this transaction. This call option will be exercisable after a 36 months period from the date on which the capital increase is confirmed, at an exercise price of R$ 1.80 per share, adjusted in accordance with the Brazilian Extended Consumer Price Index - IPCA, published by the Brazilian Institute of National Statistics and Geography - IBGE, plus a rate of 15 percent per year ("Exercise Price").
A few questions were left open -- How will this hurt minority shareholders? Will this mean that by bringing the government Mr. Batista will overcome recent problems with his projects including the Porto Brasil? Following the move, will he be able to line up new, cheaper financing for the Açú and other logistics projects?

BNDES may turn a dangerous partner in the long run -- depending on who wins the country's presidency on 2010. The BNDES is taking control of certain aspects of the Brazilian economy amid the ongoing crisis. The bank's tentacles are now on several sectors, including food, paper and pulp, mining, real estate ... As a friend used to say, in the new Brazilian economy you either are with or against the BNDES. If you are, you will be fine -- but if you aren't, run for your life.

New Issuance: Israel Considers Tapping International Bond Markets

The government of Israel mandated Citigroup Inc., Deutsche Bank AG and Goldman Sachs Group Inc. as joint lead managers (JLM) on a potential benchmark size, dollar-denominated bond offering off of the country's SEC registered shelf.

No terms, details or timeline for the transaction were disclosed. This year emerging market sovereign issuers have issued about $7 billion of bonds -- thanks to a recovery in risk-taking and demand from specific issues of the most creditworthy nations (Brazil, Colombia, Indonesia, Mexico as opposed to Argentina, Venezuela or Pakistan.)