Inflation Destruction And Competitive Currency Deflation Operate To Destroy Investment Wealth In The Emerging Markets

I … Inflation Destruction Destroys Investment Wealth In The Emerging Markets  

Ben Bernanke’s Quantitative Easing I and Quantitative Easing II steepened the 30 10 Yield curve $TYX:$TNX, up until the formal announcement of QE 2 in November 2010, and stimulated investment in the whole spectrum of emerging market investments. But these fell lower on Friday January 28, 2010, as Inflation Destruction is finally taking its toll with Emerging Markets Dividend, DGS, -3.8, Emerging Market Consumer, ECON, -3.5, Emerging Market Financial, EMFN, -3.4, Emerging Market Small Caps, EWX, -3.1, and Emerging Markets, EEM, -3.1

Michael Patterson and Ron Harui of Bloomberg report Egypt Spurs Jump in Developing Money-Market Rates: Money-market rates in developing nations are increasing at the fastest pace since 2008 as central banks from China to Brazil lift borrowing costs and banks hoard cash on concern unrest in Egypt may destabilize the Middle East. The yield on JPMorgan Chase & Co.’s ELMI+ Index of short term debt in emerging markets rose to 2.5 percent on Jan. 28 from a record-low of 1.74 percent on Dec. 31. Overseas borrowing costs also jumped, sending the extra yield on developing-nation dollar bonds over U.S. Treasuries to a four-month high of 2.79 percentage points, according to JPMorgan’s EMBI+ Index. Inflation is accelerating in seven of the 10 biggest developing nations after surging prices for food, cotton and oil pushed the S&P GSCI Index of commodities toward the highest level since September 2008.

Tom Lauricell and Alex Frangos of the WSJ report Inflation Stalks Emerging Markets: The political turmoil in Tunisia and Egypt is a reminder of the days when emerging markets were the Wild West of investing. While it is easy to dismiss events in those countries as unlikely to be repeated elsewhere, especially in Asian (as seen in South Korea Small Caps, SKOR, the Taiwan Small Caps, TWON, and the Chinese Small Caps, HAO … SKOR, TWON, HAO ) and Latin American nations, (as seen in the chart of Brazil Small Caps, BRF, and the Latin America Small Caps, LATM … BRF, LATM) with strong economic growth, investors in emerging markets are facing a much riskier landscape as a result of inflation.

Zhou Xin and Michael Martina of Reuters and CNBC report China Central Bank Says Fed Easing Ineffective and Dangerous: Quantitative easing by the Federal Reserve and other central banks cannot address fundamental economic problems but may lead to excessive global liquidity and competitive currency depreciation, China’s central bank said on Sunday. The central bank said the Fed’s monetary easing was pushing up international commodity prices and asset prices in emerging markets, including China. “It is creating imported inflation and short-term capital inflows, pressuring emerging markets,” it said.

Hilda Wang of the New York Times and CNBC report Inflation Slowing China’s Export Engine: Inflation is starting to slow China’s mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific. Markups of 20 to 50 percent on products like leather shoes and polo shirts have sent Western buyers scrambling for alternate suppliers. Already, the slowdown in American orders has forced some container shipping lines to cancel up to a quarter of their trips to the United States this spring from Hong Kong and other Chinese ports.

Kamal Ahmed of the Telegraph reports ‘China Syndrome’ Means Country Faces Dangerous Property Bubble. One of China’s leading economists has said that the country is facing the possibility of a dangerous real-estate bubble and rising inflation which could put growth at risk. Yu Yongding, senior fellow at the Chinese Academy of Social Sciences (CASS) and former member of the monetary policy committee of the People’s Bank of China, said that the demand for new property was so high that prices were in danger of soaring out of control. Speaking at the World Economic Forum in Davos, Mr Yongding said that China’s authorities would have to act to calm the market and that the rate of growth would have to be lowered: “Definitely inflation is the biggest concern so far. At the same time we are concerned about a real estate bubble. “The demand for houses is still tremendous. So there is a tug of war between the central bank and the real estate developers. If the bank loosens [the property] policy there may be a re-emergence of a real estate bubble.” CASS is affiliated to the State Council, one of the major government bodies in China. Mr Yongding’s warning comes after a series of signals that markets are becoming concerned that the rapid rate of growth in China is not sustainable. Yahoo Finance Chart of China Real Estate TAO, China Financials, CHIX, and China, YAO … TAO, CHIX, YAO  

II … FX Traders Commence Global Competitive Devaluation Starting First With The Emerging Markets

Yumi Teso of Bloomberg reports Baht Set for Worst Monthly Fall in Almost 10 Years on Protest:. Thailand’s baht is set for its biggest monthly slide since March 2001 on speculation global funds will trim holdings as nationalists block a Bangkok street to pressure the government in a border dispute with Cambodia. The currency dropped to its weakest level since September after overseas investors sold $81 million more Thai stocks than they bought last week, taking this month’s net sales to $904 million, according to exchange data. Political turmoil in Egypt also weighed on the baht, spurring investor appetite for safe-haven assets such as the dollar.

The 3.2% fall in Thailand, THD, on Friday January 28, 2011 together with the ongoing fall in the optimized carry ETN, ICI, beginning in early November 2010, documents that one cannot profit from investing long in stocks with carry trade loans from the Bank Of Japan. The world has entered into a debt deflationary, Ben Bernanke inflation induced, competitive currency devaluation era, where bond vigilantes have seized control of the US 30 Year Government Bond Interest Rate, $TYX, the US 10 Year Note Interest Rate, $TNX, as well as world government bond interest rates, flattening the 30 10 US Sovereign Debt Yield Curve, $TYX:$TNX; and where currency traders are conducting a global currency war with sovereign nation states and their central banks for control of the world’s people and resources.

An epic investment and economic sea change has started: the Emerging Market Small Caps, EWX, are leading the way down in a debt deflationary sell-off at the hands of the currency traders, as is seen in the chart of EWX, VSS, and EEM.

One of the most successful world small cap investments beginning with the recovery from the financial crisis has been Focus Media Holding Ltd, FMCN, as seen in the chart of FMCN, EWX, and HAO.

The chart of FMCN shows that the 2.3% fall on Friday January 28, 2011, occurred in the middle of a broadening top pattern that goes back to October 4, 2011: this suggests further falling will now commence.

The ongoing chart of EWX, SCIF, BRF, HAO, LATM, SKOR, and TWON suggests that the India Small Caps, BRF, and the Brazil Small Caps, BRF, are the emerging market loss leaders.

The Brazil Financials, BRAF, are pulling Brazil Small Caps, BRF, down, as is seen in the combined chart of BRAF, BRF, EPI, and SCIF. The chart gives credence to the concept that the Emerging Market Financials, EMFN, are at the epicenter of an emerging market meltdown, as these entered an Elliott Wave 3 down on January 1, 2011, and entered an Elliott Wave 3 of 3 Down on January 28, 2011.

III … Falling Stock Values are Likely To Create An Investment Demand For Hard Assets    
Falling world wide stock values, VT,  are likely to create an investment demand for precious metals, JJP.

I encourage that one invest in and take physical possession of gold, GLD, and silver, SLV.    

(Hat Tip to Gary of Between The Hedges for all of the news items above)


One Response to “Inflation Destruction And Competitive Currency Deflation Operate To Destroy Investment Wealth In The Emerging Markets”

  1. jill Says:

    via WSJ:

    [Congressman Barney] Frank was dressed something like a rock star himself, wearing a paisley tie that was wrapped almost completely around the outside of his collar. He had just emerged from a meeting of the world’s leading economic officials, including European Central Bank President Jean-Claude Trichet. Reporters asked him whether Mr. Trichet had expressed worries about inflation. No, he said.

    They asked again; that began to annoy Mr. Frank.

    “I am terribly sorry. Look, I understand not giving bad news to journalists is like not giving candy to children. But I apologize I have no bad news to give you.”

    One reporter would not be dissuaded: There was no discussion of inflation?

    “That’s the third time you’ve asked me, and you would obviously like me to say there was inflation, and I can’t make it up!”

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