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Emerging Market FX Hits Fresh 5-Year Low - Contagion Unfixed
It was only a few days ago that Emerging Market FX was rallying on the back of a Turkish Central Bank rate hike that "fixed" everything. It was only a few days ago that investors were told they were "stupid" if bearish on US stocks because of EM weakness. Things have not gone as planned. That temporary blip has been demolished and EM FX has crumbled lower to fresh 5-year lows with many hitting record lows... and no, this does not mean money will flow back into US stocks (as we exclaim below).
- *COLOMBIAN PESO EXTENDS DROP, FALLS 1.7% TO 2,050.25 PER USD
- *ARGENTINE PESO WEAKENS 0.2% TO 8.0344/USD IN OFFICIAL MARKET
- *TURKISH STOCK INDEX DECLINES 2ND DAY TO LOWEST SINCE JULY 2012
- *YANUKOVYCH SAYS UKRAINE MUST STOP `EXTREMISM AND RADICALISM'
EM FX hits fresh 5-year low...
As the hope of "fixed" is gone...
We suspect the topic of "buying US stocks because money will flow back to the US from EM" will be popular among asset-getherers (and Tom Lee) - we offer the following clarification of that idiocy (from Sean Corrigan):
The ironists among market punters will even attempt to construe all this as a reason to buy more developed world stocks on the premise that the money flooding out of such places as Thailand, the Ukraine, Turkey, and Argentina will be parked in the S&P and the DAX (perhaps overlooking the fact that the purchase price of these now-unwanted positions was most likely borrowed, meaning that their liquidation will also extinguish the associated credit, not re-allocate it).
...
For their part, the biddable are already trying to drown out the noise of the Cacerolazo by making the fatuous argument that the EMs account for such a piffling portion of world GDP that their fate should be a matter of complete indifference to the rest of us.
Needless to say this is a touch disingenuous at best. Their share of end consumption-biased GDP may be lower, but they account for an equivalent fraction, if not a small majority, of global industrial production – and they have been responsible for an even bigger proportion of its growth this past decade. Ditto for trade and ditto for resource use.
Spot the difference - one of these is EM FX, one is USDJPY, and one is the S&P 500...
Charts: Bloomberg
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When do the margin calls start?
Well...first off GREAT question. Second...these aren't "margin calls" in the traditional sense because they involve sovereigns and "sovereign credit."
Inherently these situations are resolved by the use of force.
The "charade" that we're all "climbing aboard the peace train" here is just that...a bunch of b.s....put forth to cover a FACADE that the bulk of these conditional realities will be resolved with the use of aggression in one form or another.
I don't see the USA on a hair trigger...but that's not true of the rest of the world. It has been said of the American revolution "all it took was a bad look" and that was enough to start something.
This is a very dangerous "dance" going on right now in Ukraine.
But that place is literally just the "tip of the iceberg."
None of these debts are going to be repaid. ZERO.
What I should say is as Shakespeare teaches us is "they will be repaid in kind."
"Hedge accordingly."
The Indian rupee loves getting ass-raped. While inflation drowns most everyone, it helps keep the IT revolution meme alive by allowing dollar and euro payers to continue paying.
The whole deal is a house of cards. There are stories of developers on full pay, upto two years on the bench. Not fudging job numbers. Paying people to stay on th ejob, on full pay.
And the biggest customers are global banks and insurance companies. The usual culprits.
ori
The whole outsourcing thing has been a nightmare for India, in every way...
http://aadivaahan.wordpress.com/2011/03/01/on-outsourcing-and-its-ills/
Who said the dollar will die peacefully in his bed ?
Some of the cornered EM economies might be forced to part
with some gold...
Forget outsourcing, ori, reshoring is the new buzzword.
http://www.worldfinance.com/home/featured/davos-update-david-cameron-to-...
Capital controls or a ratings downgrade or a rupee free fall or massive lay offs or bank collapse to begin post the summer elections. Any one of these events will bring more civil unrest aside from daily rapes and now Indians killing fellow Indians by calling them Chinese! Even Chinese media has kept this news at its top pages despite the Spring Festival holidays! http://www.scmp.com/news/asia/article/1419334/are-you-china-young-man-ki...
Gov. Rajan issued an explicit threat to USA that they must stop the tapering and consider the impact on Emerging markets, especially India, ELSE, US (industrial countries) will not like what India will do next....a not so subtle CAPITAL CONTROL THREAT. Watch between 2.40 to 3.06 here: http://www.youtube.com/watch?v=dlP2_Rxf-RU
De-globalization, self survival and self growth is the new mantra! Currency wars have barely begun. Wait for the currency meltdown, defaults, rising barriers and protectionism worldwide....and then a global trade war led collapse.
Indonesia just fired the first salvo....http://www.thejakartapost.com/news/2014/01/12/indonesia-implements-ban-u...
US downgraded Indian Airlines' rating and India announced a 'retaliation' soon if US does not increase the rating, by suggesting to impose more checks on foreign airlines landing in India...http://timesofindia.indiatimes.com/india/Foreign-airlines-planes-may-soo...
Very good points all DB.
In fact, given what is going on, I feel this election will be marred first (violence etc., very polarized campaign already).
India is off-balance on many axes, internally and externally. No doubt.
Countervailing arguement, where elese can they sell to (from a market perspective) and therefore will they keep it pumped here? The average Indian middle class Indian is probably putting out half their salaries to pay loans on things they cannot really afford.
ori
Buying staff we don't need with money we don't have....uhm were I heard about this?
I can assure you that it has been a nightmare here in the US for the working class. But Gates, Zuck, and Brin love it and only ask, nay demand, more......bow to your paymasters, bitchez...
What is this? We can't switch crap bought with debt from EMs to other, more stable markets? What folly is this?
You can, you just have to take the "hit" when you sell your leveraged EM's and hope you have enough cash left to hand over, er play in US stawks...
Anyone noticed they changed the geen ligt bulbs to red on the trade floor?
"and no, this does not mean money will flow back into US stocks (as we exclaim below)."
No, of course not. It means the money will flow to bonds.
Unwinding a global economy is a bitch. This emerging markey mess brings us one step closer to a new global currency.
Gold is breaking out today to the upside $1265
U.S. Mint Gold-Coin Sales Jump 63% in January; Silver Triples
How January goes, so the year does - we will see whether this year will prove it to be right again, but so far general equity markets are down in January and Gold, Silver and Miners are strongly up for the month. It is very important to see the demand for physical Gold and Silver is picking up not only in China, but in US as well. Similar reports are coming now from Mints all over the world.http://sufiy.blogspot.co.uk/2014/02/us-mint-gold-coin-sales-jump-63-in.h...
ECB caught off guard, in a strong Euro mode, US dollar will have to pick up the slack, get to work Yellen you reptilian.
The Euro is strong because that's the only way those bankrupt fucks can pay for Brent.
Which happens thus:
Royal Dutch Shell Plc (RDSA)’s Argentine unit was accused of conspiring against the country’s interests by Cabinet Chief Jorge Capitanich after the oil producer increased fuel prices following a devaluation of the peso.
"$1270 is key."
http://www.zerohedge.com/news/2014-01-23/bank-america-gold-squeeze-gets-...
Now the fed will bankrupt emerging markets, in the fantasy that these countries will become so desperate they will dump all their physical gold holdings, just as people did in 2013 when the gold price collapsed through fed manipulation.
As you can see, January has turned out to be a blow out month for physical buying.
These fools never learn. Keep tapering. Or if you want more QE. I think it does not make a difference in the physical markets anymore.
Bye bye birdie
Cedar Point needs to fashion a coaster based on the JPY trade. It will be extremely fun until the g forces rip your body to shreds.
So what's the over/under on banker "suicides" this week?
Strange you should ask:
http://rt.com/business/russell-investments-chief-economist-dead-564/
I think these EM punters need to print more. If I was a punter, I would print moar. Think of the children.
That is cool. I am sure they can keep a lid on gold, even though every reason they though it was a good sell has been a farce or a complete lie. Every prediction made by dreaming CBs and governments has not come to pass. I would venture to say gold is a slam dunk buy. But seriously. Do me the favor of holding it at approx 7% of the value it had at the peak in 1980 vs the confetti supply. I am not complaining.
Ole' Yeller probably didn't know her job description would be "herding cats".
Pretty soon, keeping a lid on gold is going to be like hauling a wheelbarrow of frogs acrossed the street.
I smell capitulation, coming to a stock market near you!
Oh, please.
The Fed printed up from 670. 670!!! Do you know how far that fall is? Do you really think the Fed and govts would just stand by and let that happen and not change the stock prices by decree?
I think you can add GBP to that basket.