Emerging Market Liquidity Flows At Crisis Levels

Tyler Durden's picture

The growth in Emerging Market 'External Liquidity' recently was only ever slower in the quarters either side of the crash in 2008. This is a very worrying sign. EM nations are highly dependent on 'external' capital inflows (to smooth current account deficits) and have empirically been exposed to the 'sudden stop' nature of these inflows. It appears that Europe's banking crisis and deleveraging is indeed having a critical impact on EM nations - which may oddly mean domestic policy adjustments will be necessary (raising rates to encourage capital inflows) that will further exacerbate the problems as global growth slows. This brings to mind our recent comments on the shadow banking system and the drop in deposits among traditional risk-hungry EM funding banks - as we note that the more deposit-free the banking system, the slower the funds will flow. The newer the debt- and asset-inflation-based 'capitalism', the faster it is impacted at the margin - and it appears many EM nations are being affected rather rapidly.



Source: Sean Corrigan of Diapason Commodities

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VonManstein's picture

watching WTI on this quiet wednesady.. could make a move

ObungaBoy's picture

check the source of these data - IMF

Totally false !

the emerged countries have surplus , they do not need new printed USD and EUR to grow - in a contrary they try to prevent the new printed USD and EUR to hit their capital markets

Gromit's picture

Yes you are correct that many small emerging countries have current account surpluses, and trade surpluses,

But they still have to pay 10% on 2 year government p[aper in local currency. Go figure.

Centurion9.41's picture

To be an objective piece, the IMF chart needs to go back further than 99 and y-axis needs to be a log-scale

donsluck's picture

I love technical accuracy. +1

scalperjim's picture

In 2002 I did the only prediction of Seat Prices for the Chicago Board of Trade Full Membership prices that I know of. They were trading $300,000 & my research showed they'd move up to 4 Million. Why? Volume. After recording every trade for seats on the CBOT going back to 1899 and matching them with volume it was evident that 2002 was the 3rd best time in history to buy a Full Membership. 

The first was 1942 when seats hit $25 after topping $61,000 in 1929. The 2nd best time was 1933 when volume was high and seat prices were extremely low.  Seat prices would not cross $61,000 again until 1973. 

In all 3 instances the prices were low and volume was high. All three times proved to be a good trade, even 1933 when they rebounded up until Hilter's 1939 invasion of Poland, then, things got dicey. 

The point? After the seat prices hit their highs, in the previous decade, my charts show that they'd plunge. That price can be found in the CME stock prices because that what the CBOT Full membership became after the CBOT went public. All full member were given 27,000 shares of stock at the $80 offering price (2.1 million dollars). Plus they kept their memberships which brought low fees for trading. Then those who didn't cash out doubled and quadripled their money when the CME bought the CBOT for 10 billion. 

When volume disappears, the stock prices of the now public exchanges tank. There's nothing on the horizon that points to a pick up volume. 

Several things support this statement but I'll stick to one thing that Zero Hedge has been writing about: Scott Paterson's book, Dark Pools: High-Speed Traders, A.I. Bandits, and the Threat to the Global Financial System. This book is the knife in the heart of trading volume. Trust is gone and this book proves beyond any doubt what ZH has been writing about for a very long time; the game is rigged and we have proof. (Thank's Scott.)

Paterson's Book, The Quants was the first book I'd read that provided what I'd and others had suspected all along; manipulation. His latest book "Dark Pools" backs this up and we all know what will come of it...hand slapping.

So, we do what we do best, walk away. When WE walk, volume falls, hence, their stock prices will plummet.

Thank You,
Jim Goulding
Chicago, IL

Origianl Seat analysis linked below. 

fonzannoon's picture

Volume has been dead for years. Weekly flows are always out. When does your point get proven?

WallowaMountainMan's picture

i know nothing!

but if i were to guess it would be just a little before uncle ben's rice runs out. they're on the inside, so it makes sense they'll front run it.

rsi1's picture

EMs are mostly forming Head shoulders formations in the equity markets so a crash would not surprise me..

onebir's picture

Something's wrong with the chart: total liquidity was falling (blue line went down) for a while around Mar 08 & recently, but the ROC stayed above zero...

Not Too Important's picture

Wait till the EM's see the cost of US wheat, corn and soybeans now that the heat wave is destroying everything. Didn't the Arab Spring uprisings really start over the cost of wheat for their bread?

Imagine the entire spring/summer US crop eliminated from the market. Hedge accordingly.

PS. The heat wave is due to all the Fukushima radiation in the atmosphere spread over the US. This isn't going away soon. Not to mention all the rain we've had since 3/11 that did fall on the US farmlands was all radioactive, but we won't get into that.

Ungaro's picture

No one talks about Hungary, a member of the Eurozone but not the currency union. I am in Budapest and the situation is worse than dire. The Value-Added Tax is 27% and it is slapped on virtually everything except the most basic food stuff, even when buying a house or apartment. On top of that, there is a 1% financial transaction tax, payable every time a deposit, withdrawal, or check cashing takes place (even on direct-deposit of paychecks and ATM withdrawals).

The economy is at a standstill, almost every business, house, apartment is either for sale or rent -- and there are no buyers. Restaurants that have been in business for over 100 years are closing their doors. The few tourists who are still coming, eat at McDonalds or Burger King. Hotel occupancy rates hover between 10 and 20% -- in the middle of summer! There are entire (large) cities without municipal services. We visited one a couple of days ago -- Esztergom -- it was the capital city of Hungary at one time. There is no public transport in the city, it all stopped two years ago. A year ago, public street lighting was shut off.

There are a great many homeless who sleep under bridges and many people are literally starving. All the taxes confiscated go to pay the country's enormous foreign debt. It seems to me that this cannot last and sooner rather than later Hungary will default.

Gromit's picture

Have you read "Prague" by Arthur Philips?

mick_richfield's picture

Thanks for this description.

Can you make more predictions?  Are people angry enough to make political changes?  Are people avoiding the taxes?  Is the military a factor?


Ricky Bobby's picture

Thanks for the boots on the ground report.  Good luck to all the good citizens of Hungary.

slewie the pi-rat's picture

one moment, pulllleeeeese.. i'll connect you with the the responsible Party in china...

...one ringy-dingy...


oh!  btw while we're waiting here together i overheardheard one of the bi gals, bilingual...[snort]... gals [snort]...  mention to some emerging whiner that china had advised him to sell something!  quick!

...five ringy-dingy...

...i'm sorry but i must get back to my nails now...

CheapBastard's picture

Ominous sign for these EMs except for China which Soros said was, "going to pull the world out of the depression."

Liquidity is the lifeblood of the global banking/financial system just as oil is the lifeblood of the military.