Armstrong Economics Blog/Foreign Exchange
RE-Posted May 7, 2018 by Martin Armstrong
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It is amazing how people have simply declared that the dollar is in a perpetual bear market as if the USA is the only nation with a debt. They judge the entire future by a few weeks of price action. That is what is so dangerous – emotional trading. I have been warning that ONLY a dollar’s resurgence would create a monetary crisis. The entire world is free to issue debt in dollars and emerging market have done so. As interest rates were manipulated to a 5,000 historic low by central banks, they never thought about what would happen to pensions. So many pensions ran into the open arms of emerging debt which doubled its issue in less than 8 years. The foolish fund managers ran headstrong into emerging markets seeking HIGH YIELD!
The dollar rally is now rippling through emerging markets, sparking steep falls in stocks, bonds, and their currencies wiping out whatever gains they thought were guaranteed. We are looking a devastation around the globe with the Turkish lira falling almost another 6%. Argentina’s peso is also in trouble as the central bank raised the interest rate to 40% trying to support the currency.
The MSCI Emerging Markets Index, which measures stock performance, is also down 1.5%. Then there is the JPMorgan index for emerging-market government bonds in their respective local currencies has also dropped almost 4% in the past month. These declines illustrate that there is rising uncertainty about the outlook for emerging-market assets among fund managers. Many have been showing that 2018 would be a Directional Change following the surge many saw during 2017. Since January 2018, this turning point which made many call a bear market in the US shares has also marked the beginning of a shift in worldwide trends.
Complexity. You have to Love the interconnections. Keeps the brain awake.