Let’s Just Close The Markets?

With the global rout of stock markets over the past few weeks, during which time we’ve seen almost a decade of economic growth disappear, some countries around the globe are deciding that they’ll just close their exchanges until things get better.  Indonesia is closed for the second day in a row today.  After Wednesday’s open saw shares on the exchange plunge a whopping 14% in the first 30 minutes, Russia closed the MICEX, where most Russian stocks are traded, on Wednesday and it will not reopen until tomorrow (Friday).  Crazy times we’re living in…  Don’t know if just closing the exchanges is going to really fix a whole lot, though!

I put a post up a few days ago about the central banks executing a coordinated rate cut in an attempt to stem the rout.  Didn’t do a whole lot of good so far…  The Mexican Central Bank is taking a slightly different approach.  Mexico’s central bank (and Brazil’s too, actually) has been initiating publicized currency intervention for the past couple of days, holding auctions for billions of dollars worth of the Peso in an attempt to stem its jaw-dropping depreciation.  Publicly auctioning currency like this can sometimes be an invitation for leverage to attack the move and drive an exchange rate even further away from where the government would like it; but in this environment, where credit is seemingly harder and harder to come by, the Mexican Central Bank is obviously of the opinion that they can make stem the depreciation.  I meant to put up this post yesterday, but just ran out of time; the image above (click on it if it’s too small) is the spot exchange rate for the Peso intra-day yesterday.  From the close of New York on Tuesday to 30 minutes before stocks opened on Wednesday the Peso depreciated a whopping 15.6% against the US dollar.  This isn’t a stock or future we’re talking about here, this is the currency of a pretty sizable country!  Nuts…  To top it off, the auctions of USD by the Mexican Central Bank did seem to have some effect and sent the Peso right back to where it started the day.  What a ride!  Dollar Mex was trading with a nine handle not too long ago, during a week or two when everyone when yield crazy and the EM currencies like MXN and TRY went on appreciation rampage.  I bet companies like Volkswagen, who manufacture the majority of their cars for the US market in Mexico, are grinning from ear to ear as they watch their labor costs go through the floor with this Peso depreciation…