THE GROUND FLOOR: There's a touch of the holiday season around. Most of my trading friends don't care what the Fed is doing with interest rates; they're tired of participating in rallies only to see them slide back into declines and fed up with cheap bonds that are getting cheaper all the time. And they can't hack much more analysis that says the worst may still be to come.
At least we're not in Latin America where the worst always seems to be coming. If you'd mentioned Brazil last June the picture conjured up was of face-painted, samba-beating football supporters high in the belief that their team was going to win the World Cup. And legendary scenes of jubilation when they did just that. But the excitement and pride of the football achievement has long since been diluted by the country's continuing dire economic performance.
Despite warnings about no bail-outs to countries in difficulty and despite the fact that help for Argentina was cut off last year, Brazil still managed to land a package of $30 billion (€30.67 billion) in aid from the IMF last week. The World Bank and the Inter-American Development bank have also announced their intention to extend facilities totalling $7 billion to Brazil. The amount promised by the IMF is nearly double what analysts had anticipated.
Most players in the region consider the money to be a carrot for the next administration to pursue the kind of economic policies favoured by the international agencies. In fact the conditions attached to the loan are extremely stringent - $24 billion won't be paid unless defined budgetary targets are met, including maintaining a budget surplus of 3.75 per cent for the next three years (and ask Charlie McCreevy how difficult he thinks that might be in the current environment).
It may be an appealing carrot but both Luiz Inacio da Silva and Ciro Gomes, the left of centre candidates who are contesting the election, have strong reservations about the impositions being placed on the management of their economy by the IMF.
The strategy is intended to support the currency right through the election campaign and during the new administration, because it's partly the prospect of the election in October itself that has given investors cause for concern. The most unusual aspect of this particular IMF loan is the fact that it hasn't been explicitly endorsed by any of the leading candidates although da Silva has publicly said the deal and its conditions were "inevitable". But it's going to take a lot of financial engineering to manage a budget surplus in a country where government borrowing is around $264 billion, unemployment is rising and the currency has gone into a tailspin. Not exactly promising when you remember Brazil's last economic crisis was only three years ago.
The general consensus of those who deal in Latin American debt is that countries like Brazil which have "approved" economic policies but which have suffered because of the troubles of Argentina will (despite the reservations of US treasury secretary, Paul O'Neill) continue to receive aid. But in the case of Argentina, continued negotiations with the IMF to restore funding has not yet seen any money released. Unfortunately without funds from somewhere Argentina will more than likely end up defaulting on even more debt, which sparked off the latest crisis in the first place.
Meanwhile holders of Latin American paper have just put it into the same black hole as their holdings of new economy bonds and equities.
Latin American trading desks were always considered high-risk but at least you knew why. Traders in WorldCom probably thought that they were dealing in as close to blue-chip as they could get before realising that in fact they were holding a black hole.
I do like the suggestion put forward in the US (by the Republicans, naturally) that the Democrats should put the $100,000 donation given to them by the Salomon Smith Barney analyst and WorldCom supporter, Jack Grubman into an "investor restitution fund". Jack is currently being investigated for his WorldCom recommendations and, according to an article in the Washington Post, he handed over the six-figure cheque on the same day that he received a subpoena to testify at the WorldCom hearings. Grubman's attorney said that the two events were unrelated.
Mind you, $100,000 won't exactly set investors' hearts fluttering with joy considering the amounts they've lost. In a sudden rush by US politicians to return donations from potential white-collar felons, Hillary Rodham Clinton will be forwarding funds received from Sam Waksal, the founder of ImClone, currently charged with obstruction of justice, bank fraud, securities fraud and perjury. Hillary has also sent contributions from Enron and Arthur Andersen to a fund set up to help employees of the bankrupt firm.
And, of course, both the Republican and Democrat parties have been busy returning Enron and WorldCom cheques too. Hard times on Capitol Hill as well as Wall Street.
At the moment all that most people can do is wait for the tide to turn, even if the analysts are continuing in gloomy mode. However, so that you can get your investment priorities right, I'm sharing with you a piece of analysis from the US which arrived in my mailbox recently.
"If you had bought $1,000 worth of Nortel stock one year ago, it would now be worth $49. An equal investment in Enron would have left you with $16.50. WorldCom would leave you with less than $5. But if you had bought $1,000 worth of beer, drank it all and then turned in the cans for the 10 cent deposit, you would have $214. Based on the above, my current investment advice is to drink heavily and recycle." It might be the only course left!
