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10/15/08

Brazil decides to lapse into hysteria

Worker bee explains to the drones where to locate the cool flowers he found

Is it possible that the Bovespa dragged down the Dow? When news of the Bovespa being halted filtered through the Dow clearly legged down again, so there's at least some evidence to suggest that, at least in the final stretch, BVSP was the cause and SPX the effect.

The reason behind the Brazilian panic today is summed up in this Bloomie report that tells how analysts suddenly decided Brazil and its companies were facing U$27n in currency losses. Add to the mix the US retail sales, Brazil retail sales that were down a touch (though still quite strong, it has to be said), pour into a greased tin and bake in a medium oven for 35 minutes and the result was a lot...a LOT...of screaming traders on the Sao Paolo trading floor today (and a certain President Lula who must be regretting turning his back on socialist roots right now).

The selling was clearly overdone today and offers the bargain hunter a good window tomorrow. A lot of the issue is pure psychology that isn't helped by regulations that are supposed to calm nerves but do the exact opposite to the Latino mindset. If a trading halt due to a 10% index loss in enforced up there in the North, traders wuite rightly step back, have a look around, have time to think a bit, phone the big hitting clients, be rational etc etc. Then when trading re-starts the deired effect of a rebound happens more often than not.

Not true down here, as that's the right rule for the wrong continent. The 35 minute trading halt on the Bovespa today was just enough time to stew already frayed latino nerves to a state of hysteria; when trading re-started the immediate move was an immediate 600 point drop that finished another 2,000 points down once all was done and dusted. So that 14% gain I pointed out just two days ago has been all but totally wiped out in a single session (check out PBR at $25 once again), and it goes without saying that the story has been repeated at all the other main exchanges, too.