* Mkt is a state of YET another Panic.
* EUR barriers appear to be getting triggered every 50 pips.
* Main pain trades now are EUR/USD and GBP/USD. Since open this morning... EUR is down 3.6% and counting. GBP is down -4.6%.
* NO real volume to talk about.. Even Bank dealers are stepping aside to watch the entertainment as well.
* JPY/AUD/NZD not having that dramatic a move....
* CDS have widened dramatically..
*
* Asian FX is (relatively speaking CALM!). No real story to talk about there.
* Equity mkts are down 1-5% (all are down). Best perfromed in Asia now is
* Articles like the one below from WSJ will only add to the fear that there is going to be more Corporate pain to come.
Big Currency Bets Backfire
From WSJ
Huge Losses From Dollar's Gains Surface at Companies in Developing World By ANTONIO REGALADO in Mexico City and JOHN LYONS in São Paulo, BrazilArticle
A Mega store run by Comercial Mexicana, which is in bankruptcy protection. Such abrupt reversals have gotten more common these days. As global stock markets have plunged in recent months, so has the value of almost everything else, from
Throughout
Losses from bad-currency bets are ricocheting through the world's major developing economies, including
For now, however, such losses appear to be most widespread in
The surprise disclosures have sent stock prices tumbling, and regulators in both countries are investigating whether companies adequately disclosed their trading risks to investors.
Some local reports have speculated that the damage in
"We really don't have the details yet, and it's definitely not clear where the losses are. There are a lot of transparency issues," says Alexander Carpenter, senior vice president for
The bad bets were made using currency derivatives -- contracts tied to the value of the U.S. dollar. Companies lost badly when the dollar shot up in value starting in early September as investors cashed out of investments in emerging markets, fleeing to safer havens. And as companies raced to close out their positions they forced local currencies to tumble still further.
Latin American central banks, seeing risks to their economies, sold billions of dollars from their reserves to currency markets to prop up their currencies and cushion the blow from derivatives losses.
"The companies that bet and lost will have to face up to their responsibilities," Brazilian President Luiz Inácio Lula da Silva said recently as corporate losses mounted. "Obviously, what
In
Among the first Latin American companies to swallow a loss was Brazilian pork and poultry processor Sadia SA, which has seen its stock slide 45% since it announced in September it had lost $360 million in currency trades.
"We had no idea they had these kinds of contracts," says Marcos De Callis, who runs a $300 million
Since then, a dozen more Latin American companies have announced large currency losses. And investors are punishing companies they think might be in danger.
Shares in Cemex SAB, the world's third-largest cement maker, fell nearly 56% this month as concern grew over $21 billion in derivatives on its books. Executives said in an earnings call with investors Friday that Cemex was closing out its positions and would cut its global work force by 10%.
Some bankers predict the losses will prove manageable. Marcos Lisboa, executive director of risk and internal controls at Unibanco in
He added that some companies who lost money on the dollar's rise will make it up with more-competitive prices for their exports.
Still, the finger-pointing has started.
In other cases, risk-control experts say weak governance is to blame. The companies have said their boards and top management didn't know about the trades.
Companies appear to have been lulled into making risky bets, perhaps without fully understanding them. Both
Executives at Comercial Mexicana, whose stores sell digital cameras, TVs and other imported products, had protected itself against exchange-rate fluctuations by buying up dollars on futures markets. But, in recent months, with the peso's continuing rise, that insurance proved costly.
So, starting during the summer, Comercial Mexicana's treasury department stopped buying dollars as insurance and instead began laying bets against the
"They got into a comfort zone, and tried to make money on the appreciation of the peso," says Nicolas Olea, an executive with KPMG in
The retailer, along with other companies, made the bets using currency contracts sold by big banks, including J.P. Morgan Chase & Co. and Barclays PLC, both of which declined to comment.
Under the deals, the banks offered financing and currency trades at favorable rates. But there was a hitch. If the U.S. dollar strengthened beyond a certain threshold, then the companies would have to sell dollars at a loss. In some cases, the contracts had triggers that doubled the number of dollars the companies owed.
Comercial Mexicana purchased the contracts from five different banks. At first, the deals were profit makers.
But when the company's finance chief, Francisco Martinez de la Vega, returned from a two-week European vacation on Oct. 1, he found a situation spiraling out of control.
By then, investors panicked over the widening financial crisis had begun pulling money out of
Comercial Mexicana suddenly faced huge losses. Mr. de la Vega had to call in bankers from Credit Suisse over the weekend of Oct. 4 to help him analyze the situation. The total cost to close the position: $1.4 billion.
Later that week, Commercial Mexicana filed for bankruptcy, unable to pay the debt. In a note released to markets, the 76-year-old retailer said it would seek to keep its 221 stores in business.
"Operating fundamentals are the most solid they have been in several years," the company said
