Iceland really is in a scary spot. True, the small nation has sort of been asking for it by pushing their carry trade these last many months, and inviting the scrutiny of any number of large macro players, any one of whom could, at least in the short term, whipsaw the currency around, and any three of which could cause rather serious medium-term shocks, but we are sort of collectively charmed by the urge Iceland has to swim with the big fish- even when sharks are in the water.
It's one thing for your market to be down 77% on the day. (A rather serious thing-- interesting comment on the usefulness, or lack thereof, of trading halts). It's another all together when the supermarkets are bare. And this time, it seems they really are. Rumors to this effect before seemed overblown, but our friend in Reykjavik told us by telephone last night that shortages are quite frightfully real, and that the run on the currency makes the obviously import-dependent nation a scary place to be.
Norway, in response to the bank failures in Iceland, had an interesting "mark-to-market" approach for assets in which no ready market exists. To wit:
The OMX Nordic Exchange said in a release late yesterday that it set the prices of the three nationalized banks to zero in the index after ``not being able to receive valuations from market participants.''
Take that, Rule 157. Between this and their bank re-capitalization plans, Scandinavia seems to know how to deal with a crisis without pussy-footing around, and without creating fictional marks to support flagging institutions. (It may help that in this case it is Norway setting marks on Icelandic banks, rather than Norway setting marks on Norwegian firms).
In any case, do keep Iceland in your thoughts? You do like rooting for the underdog. Right?
Icelandic Stocks Drop 77% as Trading Resumes After 3-Day Halt [Bloomberg]
Previously:
Unfounded Rumor Of The Morning: Bankrupt Bjork-ville Edition
Well, Can I Get A Slushee At Least?
Like, The Shortest Peg Ev-arh?
Who Couldn't Go For A Quick Jaunt Up North?
Icelandic Meltdown?
Posted by guest , Oct 14, 2008 1:22PM
Right on EP. SMOKEY! MARK IT FUCKIN' ZERO! IF YOU DON'T MARK IT ZERO YOU ARE ENTERING A WORLD OF PAIN!
Posted by guest , Oct 14, 2008 1:25PM
Iceland should take a page out of Somalia 's book and use their strategic position relative to shipping lanes as a hedge against lack of food. I believe the original settlers were familiar with this trade.
Posted by johnhhaskell , Oct 14, 2008 1:26PM
similar thing happened in Russia Sept '98. Head of the Central Bank decided that he didn't like the USD/RUR rate that was being quoted and decided to just shut the market until the price was "right."
Someone reminded him that 75% of Moscow's food supply was (at the time) imported and he changed his mind. Probably the Icelanders will do the same.
Posted by guest , Oct 14, 2008 1:26PM
I've been to Iceland.
Most expensive country I've ever visited (coming from London no less)
Food shortages?? C'mon, Europe help a neighbor
Posted by guest , Oct 14, 2008 1:28PM
#3, Iceland isn't trying to protect the value of the currency. Literally no one wants it at any price. That's why it's not trading.
Posted by guest , Oct 14, 2008 1:30PM
@4...let'em eat snow cones.
Posted by guest , Oct 14, 2008 1:36PM
Nice sweater
Posted by guest , Oct 14, 2008 1:44PM
There's hope after all for the prevention of future crashes. A new study is being undertaken to isolate the undue risk-taking gene.
Posted by johnhhaskell , Oct 14, 2008 1:48PM
#5, if the Zimbabwe dollar can be exchanged vs the USD and the ZAR why can't there be a market for Icelandic kronor? Your statement makes no sense.
If it is in fact true that no one wants ISK at any price I will fly there with $1 and buy the whole country.
Posted by guest , Oct 14, 2008 1:49PM
"Investors demanded a higher premium to hold Icelandic government bonds, while the price of the country's currency remained ``undetermined,'' according to TD Securities."
The Iceland OMX is denominated in ISK - the index is an actually at 0 since the ISK is essentially worthless.
Posted by guest , Oct 14, 2008 1:51PM
#4 - right, like England helped Ireland?
Posted by diablo , Oct 14, 2008 1:58PM
Something doesn't compute. The index has a whole bunch of mostly banking stocks that are still halted.
Check this out:
http://omxnordicexchange.com/priceinformation/indexes/Microsite_Index/?InstrumentId=ICEIS0000004380
So, it's really down 5.84% today when you recompute the index using the stocks that are actually trading.
Posted by TraderEagle , Oct 14, 2008 2:04PM
@9 You really don’t understand. No one wants ISK, you can buy all the IKR you want for a $ but now one will give you anything for any amount of ISK.
Posted by guest , Oct 14, 2008 2:06PM
Totally irrelevant that their market dropped 70%. This was only because they had to refix the index now three of its biggest constituents have gone bust.
Posted by Ben_H , Oct 14, 2008 2:15PM
The reason that there isn't a quote in EUR/ISK or USD/ISK is partly technical. All the dealing banks in Iceland are bust. Would you buy EUR from Glitnir for T+2 settle? Likewise, offshore trading doesn't work because there is no place for offshore dealers to settle ISK. The JPMs, DBs, etc of the world settle ISK in their nostro accounts at one of the domestic Iceland banks. Basically: Kaupthing, Glitnir, or Landsbanki. All bust. CBI is trying to set up a bank that offshore guys will be comfortable having nostro with -- that's the idea behind "New Landsbanki", but it will take some time to set up. Perhaps the Central Bank itself could serve this function, but then again with the sovereign trading in the CDS market at 15pts upfront + 500bps running, would you want to have exposure?
Posted by guest , Oct 14, 2008 3:39PM
@9 In Zimbabwe, people use barter (mealie bags donated by the UN and other charities), donations from family who live abroad, the South African Rand, the US dollar, the British pound and for the lucky few, gold. Barclays and Standard Chartered operate in Zim. Also the Brits and foreign investors want to keep the gold mines so they will have a safe haven. Iceland's main exports are aluminum, fish and sweaters. It has geothermal energy and lots of sheep so they should be warm and well fed. But their party hearty culture is over.
Posted by evan7257 , Oct 15, 2008 12:44AM
@4
Its expensive? I've convinced my entire family to vacation there based on the cheap hotel rooms and thermal vents. Damn.
Posted by guest , Oct 15, 2008 3:21AM
What's up with all those references to Norway? The Nordic stock exchange operator OMX is based in Stockholm, Sweden. There is a non-subtle difference between "Nordic" and "Norwegian". Or would you excuse Europeans confusing Minnesota with the Midwest?
Posted by guest , Oct 15, 2008 3:26AM
@18 very well said... maybe some of our mid-western based reporters are not as international as they sound... na who would want to trip down that rabbits hole and discover reality...
Posted by ep , Oct 15, 2008 3:44AM
Actually, the quote was pulled from an individual of Norwegian origin who also happens to be an official for OMX. That's not made clear in the piece. Sorry.
Posted by guest , Oct 15, 2008 8:49AM
They have plenty of herring and lamb and dairy products...they won't starve ... it's just that they got spoiled by having access to the same goodies everyone here takes for granted.
They'll have to get back to their roots -- I recommend they all suck it up and re-read the friggin sagas and "Independent People" by their great novelist Halldor Laxness.
That country is expensive as fuck. 8 bucks for a totally sucky beer back in 2005 at the Castro Bar in Keflavik...
Only 12 bux to soak in the Blue Lagoon if you bought the tix at the MWR office on base though...