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.)

Venezuela Seizes Trawl-Fishing Vessels, Donate Them to Cuba -- What The Hell is Going On There?

Que tipejo odioso!

The Bolivarian Revolutionary government of Venezuela (which is nothing else than an inflamatoryproto-state trying to spark serious geopolitical imbalances in the region by welcoming Russian fighter jets and vessels) banned trawl-fishing on March 14, citing no reasons. At this point, nationalisations and confiscations need no reason -- Mr. President thinks the country of 29 million is an extension of his family's farm in Barinas state. Venezuela is the first country in Latin America that is actually banning trawling -- saying it harms small fishery. Yesterday the government of President Hugo Chávez decided to take over 30 trawlers and donate them to a fishing and food joint venture with Cuba. According to Bloomberg, 70 percent of the country’s fish are provided by small fishermen, while trawlers mostly catch shrimp for export -- ah! the president was the source of that info (he is an endless source of data that always fits for his distorted view of things.)

We insist that the president will step up his policy of confiscations and nationalisations in the food and, next, the banking industries. Why? Food is scarce and inflation is rampant. He probably sees the food industry as the most likely next sector through which his enemies would try to oust him -- by hoarding food or raising prices. A Castro-fueled paranoia. Chávez's cowardice knows no limits -- he has been impoverishing his own populations by squeezing businesses and forcing the cost of goods higher through his policies. Banking, we see banking as another target, because the crisis will force banks to cut credit. And he can't afford that -- a decline in credit. But we also believe that the policy of paying for nationalisations may have to be reconsidered if the drop in oil windfalls is too dramatic and the deterioration of PDVSA finances deepens.

Bogotá is The City of Chaos These Days: Moreno, Go to Hell! Rojas Birry Faces Corruption Allegations

''Hey Francisco, look: we know you are squeezed with those expensive bills of
one of your mistress and your new car, and your country house. You help us with
one contract, and we will give you a small present. But make sure you get
another mistress so she can be used as testaferra.´´

Click here on this link to read this Cambio magazine story about a corruption scandal in Bogotá. To make a long story short, you have probably read in the media about the pyramids scandal in Colombia. Some people say the tentacles of one of these pyramid scheme companies reached the presidential palace. Well, the mastermind of the largest of such companies, DMG, a crook called David Murcia, bribed thousands of influential people -- or hired them -- in order to either evade justice or get more businesses.

One of those people Murcia's organisation bribed -- or hired -- is Bogotá's Personero Distrital. Personero Distrital, uhhmm, one of those useless positions in the bureaucracies of Latin America, has no translation -- but the guy is the person who evaluates and go-aheads city contracts with public and private entities. So, summarising, this crook has influence and power. The Personero: Francisco Rojas Birry, a former senator and a representative to the indigenous communities. Don't call me a racist -- I don't freaking care if this guy is white or not. Rojas Birry
(photo, centre) allegedly received $90,000 from DMG to pay old debts, Cambio reported. He used his wife, a lady with a weird name, as front woman for a car he got from ... uhhmm, we still don't know eh? ... Cambio details some of his contract dealings as well as extravagant lifestyle antics in a very good story. Funny, annoying but funny.

Am I wasting your time here? Probably yes. But I love lashing out at those idiots from the Polo Democrático
faction supporting that other crook called Samuel Moreno Rojas, who happens to unfortunately be the mayor of Bogotá, a city of about 9 million people managed by Moreno like a freaking village. The city lost its appeal and a chance to attract billions of dollars in new investments (and become a hub for investment in the region) the day that idiot took office. We hope that Bogotanos continue their efforts to impeach such idiot. And for Rojas Birry, the personero, his situation is untenable -- he will probably face a political trial at the city assembly. His sorrowful wife is probably counting his days on her fingers.

A WeeLate, Right? G-20 Finance Chiefs Vow to Spend More of Our Tax Money Cleaning Up Banks' Balance Sheets

Click here for Bloomberg News' story on the G-20 statement over toxic assets. Superb reporter Simon Kennedy writes.

Well, here is the nut graph of Simon's story and a very good comment from Mohamed El-Erian, the CEO of bond powerhouse Pimco. The thing is, all the efforts to write off and wipe out toxic assets have cost us between $1 trillion and $3 trillion. What else is deemed as necessary to clean up balance sheets once and for all? No one seems to know -- the truth is, there must be more rubbish to throw away.


The commitment, made three weeks before G-20 leaders gather in London, comes as investors demand faster action in the face of turmoil that’s showing few signs of abating. The Standard & Poor’s 500 Financials Index has dropped 35 percent this year and a lack of lending is pushing the global economy deeper into its worst recession in six decades.
''Markets are looking to policy makers around the world to move from the recognition and design stages to implementation, and to do so in a coordinated, or at least correlated, fashion,´´ Mohamed El-Erian, the co-chief executive officer of Pacific Investment Management Co. in Newport, California, said in an interview. ''Tackling toxic assets is a necessary condition for sustainable progress.´´

Brazilian Corporate Profits Plunged About 50 Percent in Fourth Quarter as Financial Expenses, Value of Dollar Soared

Economática, a São Paulo-based economic research company, said net income at 85 listed Brazilian companies tumbled 50 percent in the fourth quarter, pressured by a surge of 363 percent in the cost of borrowing and the rise of 22 percent in the price of spot dollar.

Financial expenses rose to 9.1 billion reais in the quarter from about 2 billion reais a year earlier. The stock of debt for all those companies surged 50 percent (without taking into account inflation for the year) to 188 billion reais ... this should make us think that the derivatives situation is probably worse than we are imagining.

Bernanke Speaks in a 'Rare TV Interview:´ Warns Wall Street Bankers Their Days of Lavishness Are Over

Ay! I screwed up!

Ha! Ben Bernanke, the U.S. Federal Reserve Governor and, as the WSJ puts it, ''the self-professed 'Main Street´ guy who once worked construction and waited tables in a poncho´´ sent a dart to some on Wall Street, saying "the era of this high living, this is over now.´´ Click here for the link to the WSJ story. Well, Great Ben: every time there is a Wall Street-triggered crisis, politicians love blaming bankers for national disgrace. The Gecko character in that old Michael Douglas film was created so he would symbolise the hateful side of Wall Street. But everyone wants to be like those bankers (and earn what they earn.) So there must be something wrong in the American way of life, and the way citizens see their bankers -- people love their lifestyle. They all wanna be as rich as a Wall Street banker. The funniest thing is, once the crisis was a problem in the savings and loans sector, the other was excess leverage, the other time was the dotcoms, now the problem was that another market innovation led to excesses. The only way to stop these bankers from making money and derailing equilibrium in the system is paring innovation in credit markets. Is it affordable Ben? No. Neither is a problem of more regulation and scrutiny over bankers' pay nor it would be solved through strict self-regulation. The problem is quite complex, more complex than we ever imagined -- the system is going through a serious problem of confidence -- but confidence can't be restored by making bankers the occasional scapegoat. The government is badly responsible for all this mess too.

Friday, 13 March 2009

Chile Delivers Another Massive Rate Reduction; Currency Should Rally Slightly

The Banco Central de Chile, commanded by economist José de Gregorio, delivered a 250 basis point cut in the benchmark overnight lending rate to 2.25 percent (in line with market forecasts.) That is what a responsible country does when it has the firepower to do it, namely fiscal ammunition, low debt, etc. This is the third rate reduction this year -- 100 basis points in January, 250 basis points in February, and 250 basis points this month.

We have been insisting on markets' preference for countries with an aggressive package of anti-recession policies. We have seen how well the Brazilian real and the Chilean peso fared compared to the Colombian and Mexican pesos (and we insisit these two countries were late to act against the crisis.) The Chilean peso has gained momentum in recent weeks, following the announcement of a $4 billion fiscal stimulus package at the end of last year. One important thing to highlight here is that the Chile has more fiscal room to implement counter cyclical policies than Brazil. The peso therefore might rise to levels close to 580 to the dollar, from 594 pesos now.

Brazil Retail Surged; Hey, Slow it Down -- Consumers Have Longer Lagtime to Trim Spending During Crisis

The government reported today that January retail sales in volume terms increased 1.4 percent on a seasonally-adjusted, month on month basis, and 6 percent year-over-year. According to a Bloomberg survey, it was about twice as fast the increase expected by a survey of economists. In general, analysts were expecting January retail sales in volume terms to post a 0.2 percent decline month-on-month and a 2.7 percent increase on a year-on-year basis.

While this might mislead people by telling the downturn in the retail industry was not as bad as initially expected, we have to remember that the process of adjustment in the industry tends to be quicker than with consumers. I don't know where I read this a few days ago (probably it was from ING Bank's Zeina Latif) that the lagtime for consumers to slow demand tends to be close to six months, and for companies to be less than three months. Some investors, on the other hand, might expect the central bank to be more careful when cutting interest rates. We don't think so -- we insist on our call, that the bank will be pressured to keep cutting rates by large amounts so the Selic target might be below 10 percent before June.

The risk of inflation spiking is big, but, who cares? Activity is plunging, confidence remains very weak and the president thinks he will be able to avert a recession. Expect more political noise, little congressional action and more unreasonable government spending events (that on the political risk side) in coming months.

Korea's Posco Considers Bond Offering When Market Conditions Improve

Posco, the South Korean steelmaker that recently privately-placed $550 million in bonds to fund its Brazil investments, is considering selling debt again in international capital markets. The company mandated Citigroup Inc., Deutsche Bank AG, Goldman Sachs Group Inc., HSBC Holdings Plc. and Merrill Lynch & Co. -- yes the guys with the bonus problems -- to arrange a road show with investors between March 16-18. A bond transaction should be launched following the roadshow, subject to market conditions, according to a good source. The modality (senior unsecured, guaranteed, terms, duration, etc.) is yet to be defined. My understanding is that the bonds won't be offered in the U.S. -- therefore they will have FSA registration or will be listed in Luxembourg. We will keep you updated.

Posco placed the yen-denominated bonds in December to a group of investors led by Japan's Sumitomo Mitsui Financial Group -- which ended up being the sole buyer of the Samurai bonds with a three-year maturity.

IncaKolaNews' Mixed Bag of Links -- Today's Recommendation

Click here to read IncaKolaNews's take on blog postings. Nadie como el viejo Otto Rock para poner todo en el contexto crudo de quein conoce bien lo que pasa en esta región.

Thursday, 12 March 2009

Madoff Pleads Guilty. Let's See How the Financial Media is Covering This

Bernard Madoff, accused of running the biggest financial fraud in Wall Street history, pleaded guilty to swindling investors of about $60-$65 billion over the past two decades. Let's check how the financial media is covering this --

THE WALL STREET JOURNAL: (click here for link to main story on the Web) -- Lede focuses on Madoff being jailed until sentencing comes in June. Probably the lightest start of the three big wires' versions of this big story.

Madoff Pleads Guilty; Judge Orders Him Jailed

Financier Bernard Madoff pleaded guilty to swindling billions of dollars. The judge ordered him jailed pending sentencing on June 16. "As the years went by, I realized my risk, and this day would inevitably come," Mr. Madoff said.

BLOOMBERG: (click here for link to main story on the Web) -- Strong lede, focused on the distrust that Madoff's actions brought about to the global financial system; in this sense, Bloomberg is correctly stating that the size of the investment losses/swindle is significantly smaller, infinitely smaller than the loss of confidence the fraud sparked in global markets.

MADOFF PLEADS GUILTY

Bernard Madoff admitted he was the mastermind behind the largest Ponzi scheme ever, an historic fraud that swindled investors out of as much as $65 billion and made him the symbol of investor distrust in a global recession.

REUTERS
: (
click here for link to main story on the Web) -- The lede focused on the calls for stricter regulation that stemmed from Madoff's actions. This is an important point we have been extensively been covering for months -- whether more, tougher oversight of hedge fund and wealth management companies should come as a result of all these scandals (Madoff, the Stanford CDs sales, the Colombian pyramids, the Brazilian insider sales and derivatives scandals, the Mexico's Metrofinanciera problems, all that.)

Madoff pleads guilty to fraud, says "deeply sorry"

Bernard Madoff pleaded guilty on Thursday to charges he orchestrated the biggest financial swindle in Wall Street history, cheating investors out of billions of dollars in a fraud whose magnitude shocked the public and drew demands for stricter regulations.

Song of the Day: Acontece by Brazilian Sambista Cartola

Angenor de Oliveira, o Cartola, foi um dos maiores sambistas brasileiros. Morreu no Río há um pouquinho mais de 20 anos. Esta música foi tocada nesses días por um amigo meu, quem ría enquanto errava na letra. Foi uma delicia ouvir essa música da voz do meu amigo -- a interpretação de uma música é possivelmente o mais importante na hora de ouvir uma canção, especialmente quando você conhece pouco da historia do compositor.

Bom, isso aquí parece ser o choro de um homem que não quer falar o que ele está falando. Têm amores difíceis, amores proibidos, amores que não dão certo. Mas isso não parece ser o amor que o Cartola canta aquí.


Acontece
(Cartola)

Esquece o nosso amor, vê se esquece.
Porque tudo no mundo acontece
E acontece que eu já não sei mais amar.
Vai chorar, vai sofrer, e você não merece,
Mas isso acontece.
Acontece que o meu coração ficou frio
E o nosso ninho de amor está vazio.
Se eu ainda pudesse fingir que te amo,
Ah, se eu pudesse
Mas não quero, não devo fazê-lo,
Isso não acontece.

Pode clicar aquí para escutar a versão de Caetano Veloso no YouTube -- o video é muito brega, isso sim. Desculpe, não fiz eu!

The Most Prominent Fallen Angel in Years: General Electric Loses AAA Ratings at S&P; Now Rated AA+, Outlook Stable

We are almost done -- no triple-As during this crisis ...

Standard and Poor's today lowered its long-term ratings on General Electric Co. and units, including General Electric Capital Corp., by one notch to AA+ from AAA. This is the most prominent fallen angel we have had in the markets in years. These guys had that top credit rating since 1956! I mean, this crisis is not peanuts -- institutions such as GE are losing credibility before creditors. This is a huge (although expected) event ...

The main factor behind the GE downgrade was S&P's assessment of the stand-alone credit profile of financial services unit GECC, -- which has been under attack for, surprise, surprise, a lack of transparency. Investors fretted about GECC in recent weeks, saying it might be facing swelling losses stemming from failed real estate investments and a growing deterioration of its credit card business (delinquency rates are climbing.) S&P views CECC credit quality at a level comparable to an A rated company, compared to the A+ it indicated before. "We believe that GECC is under increasing earnings pressure, due to the recent sharp deterioration in general economic conditions around the globe,´´ said S&P analyst Robert Schulz. "This will result, in our opinion, in rising credit losses across key segments of GECC's finance portfolio. Still, we believe that GE's industrial-based cash generation capabilities remain fundamentally strong -- even in the face of enormous global economic headwinds -- and that it will generate growing cash balances from current levels over the next two years.´´

To be sure, -- I am happy to see that rating companies' reports are finally including these, -- S&P may reexamine the (stable) outlook if, ''for example, we came to believe that GE would fail to generate discretionary free cash flow (after dividends) of around $2 billion in 2009 and significantly more in 2010 and retain a very substantial portion of this cash -– we would view a portion of this cash as available to support GECC.´´ Ha! In light of the recent sharp reduction in the dividend, such step would require net earnings below $9 billion in 2009, which the ratings company says could occur if revenues fell more than 5 percent (a very possible event,) if industrial gross margins fell 100 basis points or more (which might be possible too,) and GE had little success in managing working capital in 2009 (and we are sure investors won't let GECC get away with things.) So ... another downgrade may be on the works if these GE guys, especially CEO Jeff Immelt, doesn't get his act together now.

Says Reuters: ''S&P lowered its outlook on GE's ratings to negative in December. A month later, Moody's Investors Service took a stronger step, putting its ratings on review for possible downgrade.´´ The downgrade leaves just a few U.S. companies at the top of credit ratings rankings -- Berkshire Hathaway of Warren Buffett; Microsoft of the world's richest man, Bill Gates; Exxon Mobil, the oil giant ... I remember at the start of last year there were nine!

Que Los Cumplas Feliz, Compae IncaKolaNews!


Check IncaKolaNews, the Latin Affairs blog run by Otto Rock. Wish IKN a Happy Birthday -- the blog is on its first anniversary. We wish him and IKN well.

Keep the good work, amigo.

Market Roundup by IDEAGlobal -- Brazilian Local Yields React to Policy Front-Loading ... We Told You So!


IDEAGlobal, the New York-based economic research company, said local investors in Brazil were expecting policy makers at the central bank to overreact to the the very negative activity numbers and speed up monetary policy action with a 100+ basis-point cut. Their view grew more dovish since the past month -- as other economists including Marcelo Carvalho of Morgan Stanley were already pessimistic about the trend, let's say, four months ago maybe? Kudos for Carvalho and his team -- who says Brazil will be on a recession as early as April. Check on these postings -- (one) and (two) and (three) ... Rates were to fall, and a dramatic correction in local yields was expected.

The Copom, as the bank's body in charge of setting monetary policy is known in Brazil, trimmed the Selic target rate to a record low of 11.25 percent last night (a reduction of 150 basis points.) ''Local markets have long been anticipating an acceleration of the trend towards lower rates on the part of the Brazilian central bank, which has placed this nation in a similar situation to major fixed-income markets in Latin America, as rates along domestic curves compress against those held on U.S. dollar-denominated sovereign curves,´´ writes the shop.

IDEAGlobal says: ''the constant decrease in the offered yield on the 2017 NTN-F (inflation-linked securities with long maturities) has moved the spread between this instrument and that of the 2017 dollar-denominated Global down to positive 576 basis points, after last year’s extreme blowout in differentials.´´ A more dramatic drop in the real may hamper this spread compression trend, because the weaker the real, the bigger the perceptions of future inflation -- and NTN-Fs are inflation-linked securities. ''Inflation importation takes a hold on longer-duration NTN-F paper,´´ IDEAGlobal clarifies.

The shop's expectation is that ''domestic rates remain in a downtrend as the domestic growth picture continues to complicate, while the external front of dollar Global bonds draws little interest as the recessionary environment takes stronger hold in Latin America.´´ It recommends playing ''long Brazil’s 2017 NTN-F against short the 2017 Global bond, looking for spreads to trend towards more than 500 basis points, while stopping out of this exposure if we witness a reversal back towards spreads of 620 to 630 basis points.´´

Brazilian Securities Regulator Says Petrobras Purportedly Leaked Details of Its Quarterly Results

The CVM notified Petróleo Brasileiro SA of irregularities on its release of the fourth-quarter results report in recent days (this week.) The release of a ''relatório financeiro´´ -- sort of a leaflet with some key financial information -- was seen by the CV as a briefing of the results, which should only be unveiled until after the market closes.

One of the many irregularities in the Brazilian stock markets is the systematic leakage of price-sensitive information, transactions and the use of insider trading by key executives and shareholders. The Brazilian government is making a great effort to correct this, but the success has been limited by a restricted budget and the lack of qualified staff at the regulatory agency to detect these problems.

Wednesday, 11 March 2009

Brazil Cuts Interest Rate to 11.25 Percent (Update)

Check this Bloomberg News story by reporter Andre Soliani. Very good reporting with all relevant data.

SeekingAlpha Says Copper Price Drop is Hammering South America Producers. Will We See a Chile-Peru Copper Cartel?

Click here to read SeekingAlpha's posting on copper producing countries in South America. Says Paul Harper, the smiley guy who writes this blog:

''With global copper prices sinking from a 2008 high of $4 per lb, down to today's miserly, $1.25 per lb, it is hardly surprising that the two major copper producing countries in South America are looking at ways to buoy up their operations. Last week, Peruvian president Alan Garcia dropped some strong hints that Peru and Chile should coordinate on copper production, in order to achieve greater control of prices on international markets.

“I believe that as countries with a strong mining presence in the world we must work in a joint manner, because when brotherly countries produce and compete with the same metal, the only thing we achieve is a fall in the price of copper, and we are both losers,” said Garcia.´´

S&P Reaffirms Chile Ratings -- and Sends Warning Over High Corporate Debt Ratios

Everyone keeps saying Chile is the safest country in the region it sounds like a fragment of a Psalm. It became creed. Chile, is true, is a hell of a safe place to invest your money -- but it also has problems, do you know? Standard and Poor's reaffirmed its A+ ratings on the Andean nation, saying its ''record of disciplined fiscal management, which has brought greater economic stability and predictability, supports´´ (the ratings.)

Yet, constraining the ratings are Chile's narrow economic base and high private-sector external debt, said S&P. Although Chile's overall international investment position has improved in recent years, the country's private sector's reliance on external funding makes the country vulnerable to the impact of the global credit crunch.

Unfortunately, we don't have available data on Chile's corporate debt stock, or interest payments, or refinancing needs. We will have them for the next posting -- hopefully it won't be too late by then.

LatinFinance Has Interesting Story on Brazilian, Peruvian Banks' DPR Sales This Year

Magazine LatinFinance's daily newsletter today moved an interesting story about booming sales of bonds backed by Diversified Payment Rights (which is nothing else than a securitisation of future flows) in Latin America in recent weeks. The newsletter says on today's edition that, for regional banks, it has become ''the obvious option´´ the ''securitisation of future flows, including remittances, exports, and foreign direct investment (FDI) flows, through issuing DPR bonds.´´

The step indicates a departure from common practice in recent years, when the world abounded in liquidity and issuers were able to place unsecured debt instead of guaranteed paper. It reflects that conditions for corporates are becoming much tougher by the day -- remember our recent postings on Cemex and Digicel. Potential issuers such as Colombia's Ecopetrol (which is considering the sale of $8.1 billion of debt in coming months and has embarked on a $3 billion refinery upgrading project alone) will face more investor scrutiny; companies like Petrobras will face tougher refinancing conditions; and companies like PDVSA will have access to credit closed (unless the Chinese want to break the market rules.)
LatinFinance says: ''The boundary between bonds and loans becomes blurred with MT100s, since they are typically privately placed with a small group of investors.´´

According to LatinFinance, Brazilian banks sold around $2.3 billion in DPRs alone, (also known as MT100s,) and ''several Peruvian banks including BCP, BBVA Continental, and Interbank also deployed the structure.´´ Among the banks that are considering tapping the markets through DPRs are Interbank (the fourth largest Peruvian bank) and Brazil's Banco Bradesco (which is a very active issuer in the DPR and private placement markets.) For those who know little about the structure, we recommend visiting a 2005 posting by Ambac in which the structure is explained with details. Here is the link.

Pimco's Gross Boosts Holdings of Government Debt to Highest in Two Years

Bill Gross, manager of the world's largest bond fund, the $800+ billion Pacific Investment Management Co., boosted its holdings of government bonds to the equivalent of 15 percent of its Total Return Fund -- the largest percentage since 2007. The TRF has a size of about $140 billion. A sign of the times -- suggar daddy offers a safe haven ... hopefully not for long.

On the other hand, the strategy might suggest the California-based fund is also concerned over the return of inflation in a few months. Good news? definitely -- after all the recession being endured by the U.S. shouldn't turn into depression, which at this very moment can only be a good news.
Government debt offers investors protection against accelerating inflation.

By the way, we still don't have a picture of Bill Gross.
Apologies.

Click here to read Bloomberg News story on Gross.

WSJ Opinion Column on Biotechnology: When Governments Irresponsibly Want to Impose Controls on Markets ...

The same evil we fear will happen to the financial industry if the path of nationalisation is chosen is clearly haunting the U.S. biotechnology and health insurance industries -- if the Barack Obama administration begins to flirt with price controls and rationing. The Wall Street Journal says:

The U.S. is the last major pharmaceutical market without universal price controls, and as such has been the world's main financier of new drug discoveries. In a world of government-run and -priced health care, biotech innovation will also be as much at risk as traditional drug development. The biggest price we may pay for a health-care system run from Washington are the therapies we never get as a result.

Click here to read the entire article.

Bloomberg News columnist Amity Schlaes also
wrote about this issue (her article is quite complicated though.) Click here to read her article.