Thursday, May 9, 2013

EM's BoP Nightmares

As the world slows down and the lack of growth in Global Trade remains... idling productive capacity that needs to be paid off...

Now consider how much FX reserves non-DM guys have and what most of their growth models are based on.... and then match that with very loose monetary policies in the US, Eurozone, Japan.. and lack of global inflation to keep cash flows stable in order to pay all the global debt pile.

Here is the nightmare of Chinas, Brazils, Koreas, Taiwans, Mexicos, etc... basically mercantilists, exporters.

The depreciation of the Yen and the improving current account in the US and Europe is just starting to hit non-DM Balance of Payments, etc.

Now add that a lot of their corporations have recently issued debt in USD, as an example, as yields were lower than homeland's.

Who will consume?

Payback time.

US: quarterly figures for the Current Account / monthly figures for Trade Balance
1995 = USD strong / JPY weak = start of deterioration in East Asian exports and we know 1997.

Eurozone: monthly figures for Current Account.

*Disclaimer: charts and data are presented as I receive/see them. Sources are usually not checked for validation and my own calculations are of 'back of the envelope'-type. I am aware that some math that I do myself might be wrong and/or misleading to some extent. In financial markets the rate of change of economic data is often more important than the actual level and the perception of 'what is priced in' is more important than 'what is actually going to happen'. This is actually the way people pick entry and exit points. So... yes, sometimes you might say 'This guy is an idiot, this is way wrong!' with a high conviction, being right. Not to worry. Markets are made of expectations and the clash of conviction between its participants. Portfolio managers know that being an idiot is sometimes profitable and being smart is often a bad choice. It is all reality, sometimes good, sometimes bad. By the way: corrections to my analysis and intelligent debate is welcome. theintriguedtrader AT gmail do com

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