Charts of the Day: Emerging Market Debt: Up Up Up and Away!

With the world's zero bound standard PLUS NIRP for developed economies, ballooning debt should be a natural consequence to such policies.

Writes the Financial Times: (bold fonts added)

Levels of debt in emerging markets continue to rise and are becoming a source of “significant concern”, the Institute of International Finance warned on Wednesday.

Total government, household, financial sector and corporate debt in emerging markets rose $1.6tn last year to $62tn, or more than 210 per cent of gross domestic product, according to the IIF, which represents global banks and other financial institutions. It happened even as developed markets reduced their overall debt by an estimated $12tn last year, to about $175tn.

“Total debt in EMs is high and getting higher,” said Hung Tran, the IIF’s executive managing director. “This will inhibit the ability to borrow to support growth, and the need to delever in the future will be a strong headwind to future growth.”

Mr Tran said the IIF’s figures were consistent with those of the Bank for International Settlements, which said recently that dollar-denominated lending to EMs had peaked in the middle of last year and subsequently fallen for the first time since the global financial crisis.

The BIS, the central bank of central banks, warned of a vicious circle of deleveraging, financial market turmoil and a global economic downturn.

“Many non-financial corporations in emerging markets and especially in China have paid down their foreign currency debts so the BIS is correct,” said Mr Tran. “But they have increased their local currency debts by more than the amount they have paid down so net on net the stock of debt continues to increase everywhere, particularly in China.”

Companies in developed markets reduced their level of debt to GDP by 0.4 percentage points during 2015 to 87.4 per cent, the IIF’s figures show, while those in emerging markets added 6.7 points to reach 101.3 per cent of GDP. The IIF’s figures are for 19 emerging markets; in those countries taken together, corporate debt rose more than $1.9tn in 2015, to more than $25tn.

Surging debt on lower growth: have these not been ingredients which crisis are made of?

Video: Marc Fabeer: Best course of action is to actually not buy anything, but rather to reduce positions on a rebound

In the following video interview by CNBC my indirect investing mentor Dr. Marc Faber, the Swiss fund manager and publisher of the 'Gloom, Boom and Doom Report thinks that browbeaten markets may stage an oversold bounce. (ht: lewrockwell.com)

He also thinks that the US equity markets will fall soon:

I think the high was 1,687 on May 22nd and will go down 20-30%

He also warns of a likely contagion on EM markets premised on what a sees as a slowdown or even a "no growth" in China's economy.

Dr. Faber thinks that China has a "massive" credit bubble.

Amusingly he even lectures media talking heads

I would listen to the markets. I mean, look, some emerging markets have tumbled by 20-30% since their highs earlier this year, some have dropped 20% in 3 weeks...I would listen to that and not sit there and say everything is fine.

Same goes here, one-two day rebound and "everything is fine"

Dr. Faber remains bullish on gold, even if he thinks that gold prices may go lower for 2 reasons: Commercials (professionals) have a very short exposure on gold, and that the cost of production has gone up dramatically.

Dr. Faber's has a good advise which I share:

I think as an investor you need discipline and patience, and I think the best course of action is to actually not buy anything, but rather to reduce positions on a rebound

Paradigm Shift: Brazil, Indians and Chinese Invest in Overseas Properties

Past performance do not guarantee future results.

Many of today’s international property investors have not hailed from the West, but rather from the Nouveau riche of the BRICs (excluding Russia), whom have reportedly been on a buying spree.

First, the Brazilians.

From the Bloomberg, (bold highlights mine)

Surging real estate prices in Brazil and the currency’s 45 percent gain against the U.S. dollar since 2008 are sending Brazilians to South Florida in search of bargain vacation homes and property investments. That’s helping bolster Miami’s condo market, with total sales increasing 79 percent in the first five months of 2011 from a year earlier, according to data from the Florida Association of Realtors released today.

In the Miami area, Brazilians bought 9 percent of homes and apartments sold to international buyers in the 12 months through March 2010, behind only Canadians and Venezuelans, according to the Miami Association of Realtors. Since then, “anecdotal evidence certainly points to a significant increase,” said Lynda Fernandez, a spokeswoman for the group. In May, international clients bought about 60 percent of existing houses and condos and 90 percent of newly built homes, the association reported today.

Next, the Indians

From loansafe.org

Wealthy Indians are keeping the family bonhomie alive in the heart of London, buying not one but a cluster of houses or apartments for themselves, their children and small teams of personal staff. Tony areas like Kensington, Mayfair, Knightsbridge and Belgravia are some of the popular destinations for such clusters.The homes typically are a network of residential properties on a street or an apartment block. The central idea behind such purchases is that it will give the children a sense of independence, staying just a few houses away from their parents, with support staff being just a buzz away.

High networth individuals from India and the Middle East are the main cluster buyers in London. In fact, there has been a marked increase in the number of Asian buyers. “Asians are our biggest single group of purchasers now, accounting for 44 percent of sales in 2010. Of this, 17 percent were Indians. In 2008, only 7 percent of the purchases were made by Asians,” Shirley Humphrey, sales and marketing director of Harrods Estates, a property broking firm, said. According to her, a weak British pound and low interest rates have contributed to the appeal of cluster buying in prime residential areas. (bold emphasis mine)

Finally the Chinese

From China Daily (bold emphasis added)

An increasing number of China's rich are snapping up properties overseas in the expectation that domestic inflation will continue to rise after the consumer price index reached a 34-month high in May.

According to Colliers International, a real estate service provider, the proportion of Chinese buyers in Vancouver's property market is on the rise. At the end of the first quarter this year, it increased to 29 percent of all homebuyers.

In the past six months, Chinese spent 1.3 billion yuan ($200 million) through Colliers' international property department, with Canada, the UK and Australia topping the buying list.

"We are expecting a clear increase in the extent of mainland buyers' purchases of overseas properties this year because of the government's rigorous restraint on the number of homes a family can buy in key cities," said Alan Liu, managing director of Colliers International (North Asia).

Due to the latest financial push from China, the average price of a home in Greater Vancouver rose 12 percent in 2010 and is expected to rise another 3 percent this year, according to the Canada Mortgage and Housing Corporation.

Demand from mainland immigrants now accounts for 29 percent of all new homes in Vancouver.

The situation in London is similar. Last year, overseas nationals purchased 28 percent of all resale properties across all prime London sites and 54 percent by value in the prime central London area in the more than 5 million pound ($8 million) price bracket, according to a recent report by Savillsresearch.

"If the money from China were to start flowing into London at the same rate it does from billionaires in other countries, we would expect the value of ultra-prime London properties to grow by as much as 15 per cent," said Yolande Barnes, head of Savills residential research.

"The issue at present is that Chinese buyers aren't taking, or can't take, their money out of China."

The biggest increase in global billionaires since 2007 has occurred in China and the Commonwealth of Independent States (CIS). While CIS buying activity has been strong, accounting for 15 percent of prime central London purchases by value, Chinese billionaires have yet to have a real impact, accounting for just 3 percent of prime central London resale purchases by value.

More thoughts.

International and domestic monetary policies have been a significant factor in driving property investments overseas.

There is also globalization.

Finally, the irony is that the erstwhile ‘poor’ appears to be saving the traditional ‘rich’ as in the case of London and South Florida.

How times have been changing.

The Power of Slow Change: The China-Emerging Market Story

We learned yesterday that China has surpassed Japan as the second largest economy in the world.

But this isn’t much news to us since, as an example of the power of slow change, China has been creeping towards economic outperformance in many areas such as banking (see our 2009 post A Tectonic Shift In The Global Banking Industry!) to finally catch up with OECD nations.

Nevertheless this has been a dead giveaway—as manifested in the markets for a long time. All that is needed is to open one’s eyes to see this coming.

China’s stock market performance today isn’t at all sterling. It’s been in consolidation after the boom bust cycle of 2008.

Chart from Bloomberg

Year to date China is way down about 19%.

However over the past years, China’s gains have basically outclassed the OECD economies, even if her stock market has stagnated. Of course, most of the world followed a similar boom bust dynamic, including the Philippines.

Yet, Bespoke Invest has a great presentation of this massive paradigm shift.

Bespoke writes,

Japan's stock market capitalization is currently 7.97% of world market cap. China ranks second at 6.89%. Five years ago, Japan accounted for 10.34% of world market cap, while China accounted for just 1.10%. Back in 2005, China ranked just 17th in terms of market cap, behind countries like Saudi Arabia, Spain, Switzerland, South Korea, Taiwan, India, and the Netherlands. Now with the world's second biggest economy and third biggest stock market, it's hard to classify China as an emerging market, but it is indeed still emerging in terms of growth.

The context has to be seen in the light NOT confined to China, as the gains have been made mostly by Asia and emerging market economies.

Instead, what you are seeing is a paradigm shift of growth mostly away from developed economies to emerging markets.

No, this isn’t about cheap labor.

This is about a menagerie of factors as demographics, savings, debt burdens, urbanization and etc... all founded upon the foundations of deepening of free trade, economic freedom and globalization.

So the China-powered emerging market growth story seen in the stock market and economic performances merely epitomizes this power of slow change.

Unless there would be structural political-economic factors that would reverse engineer globalization, I won’t dare bet against this paradigm shift.

Three More Reasons Why The Euro Rally Should Continue

``Inflation is not the result of a curse or a tragic fate but of a frivolous or perhaps even criminal policy.” -Ludwig Wilhelm Erhard

Lady Luck seems to smile at us, given that our forecasts of last week appear to have been serendipitously realized. The Euro surged by 2.4% over the week and risk assets turned materially positive, exactly as we spelled out[1].

But of course, we hardly ever talk about ONE week, we allude to near to medium term which may cover the outcome for the rest of the year. Perhaps the Euro may recover to the 1.30 to 1.32 level by the yearend?

There are three more reasons why the Euro should persist to rally and why risk asset markets are likely to gain momentum.

First of all, emerging markets continue to lead the way in terms of economic growth[2], whereby EM economies may do some heavy weightlifting to buttress developed economies.

And the cyclical broad based EM led global economic recovery, as a result of the expansive monetary policies and from globalization friendly policies, will likely expand global trade.

By cyclical recovery we allude to the bubble cycle.

Yet considering what mainstream calls as ‘global imbalances’, seen in many ways as ‘savings glut’, ‘dearth of investments’ or ‘Bretton Woods II’, instead we see this in terms of the Triffin Dilemma, where an international reserve currency, particularly the US dollar, would need to run large deficits in order to finance this burgeoning global trade from the cyclical recovery.

The Triffin Dilemma, according to Wikipedia[3], ``was first identified by Belgian-American economist Robert Triffin in the 1960s, who pointed out that the country issuing the global reserve currency must be willing to run large trade deficits in order to supply the world with enough of its currency, to fulfill world demand for foreign exchange reserves.”

``The use of a national currency as global reserve currency leads to a tension between national monetary policy and global monetary policy. This is reflected in fundamental imbalances in the balance of payments, specifically the current account: to maintain all desired goals, dollars must both overall flow out of the United States, but dollars must at the same time flow in to the United States. Currency inflows and outflows of equal magnitudes cannot both happen at once.”

This is one explanation mainstream can’t accept because it puts into the light or magnifies the inherent flaws of the current monetary standard, which the theory projects as unsustainable. Of course, homemade or national policies exacerbate such conditions.

But the point is, mainstream sees that the de facto currency reserve standard as an entitlement that must never be compromised, hence espouse theories even where water, in its natural state, can move upstream.

For instance, some see monetary policies will be engineered to promote exports.

Figure 7 BCA Research: Bearish On US Dollar

According to BCA Research[4], ``The U.S. also needs strong exports and an improving trade balance to add to GDP growth. Last week’s news on the U.S. trade front was not encouraging, with the deficit widening again in April. Furthermore, cyclical and structural factors are pointing to even wider trade and current account deficits ahead. In turn, with the unemployment rate still near 10%, U.S. policymakers are also unlikely to tolerate significant strength in the dollar and the consequent drag on growth.”

This outlook sees the application of monetary policies as a ‘one way street’ or where the policy actions of the other pair (or the other nation which is represented by the opposite currency) may not offset those of the US. This is pretty much one sided because monetary policies are not only relatively dynamic but also has relative impacts from perpetually evolving policy actions.

Secondly, the implication is that export growth can only be achieved by devaluation. Hence the kernel of this mercantilist leaning view is that every nation will try to out-export each other by competitive devaluation, or the race to devalue via inflationism which presumptively leads to prosperity.

Yet this outlook could lead to fatal results, as Ludwig von Mises warned[5], (bold emphasis added)

``they depend on the condition that only one country devalues while the other countries abstain from devaluing their own currencies. If the other countries devalue in the same proportion, no changes in foreign trade appear. If they devalue to a greater extent, all these transitory blessings, whatever they may be, favor them exclusively. A general acceptance of the principles of the flexible standard must therefore result in a race between the nations to outbid one another. At the end of this competition is the complete destruction of all nations' monetary systems.”

In other words, nations don’t trade people do. Yet people don’t trade to generate economic growth, people trade to have a need fulfilled and or to obtain profits. Nations only account for the cumulative actions of individuals. Hence inflationism isn’t an optimum way to meet such goals.

Besides, merchandise trade (exports and imports) for the US is only about one-fourth of the economy, such that the call to devalue in order to support the export industry, which is only 12% of the economy at the expense of the 88%, would seem absurd. Moreover, US unemployment from the 2008 crisis has been less related to the export industry as most of the job losses has emanated from the bubble areas (e.g. mortgage, construction etc...).

For me, the Triffin Dilemma has played the biggest role in shaping the underlying trend of the US dollar. And a global recovery translates to a weaker US dollar.

Next, the credit risks seem tilted towards US states than from the Eurozone economies (see figure 8)

Figure 8: The Economist: American states' finances are worse than those of some euro zone countries

According to the Economist[6], (bold emphasis mine)

``RECENT comparisons made between some American states' finances and those of Greece are exaggerated. But credit-default-swap (CDS) spreads, which measure investors’ expectations of default, are wider for some American states than for some of the euro zone’s other peripheral economies. On June 17th the cost of insuring Illinois’ bonds against default hit a record high, rising above that of California, America’s largest municipal borrower. Both considered riskier than Portugal’s debt. New York and Michigan are higher than Ireland’s. Like euro-zone members, American states may not declare bankruptcy and cannot be sued by creditors. And like many European governments, legislators are reluctant to impose the pain necessary to close budget deficits.”

As we pointed out last week, the downtrodden state of the Euro has emanated mostly from overly depressed sentiment. This has constrained demand for the Euro and has been more than the problem of relative structural issues, which seem to lean against the US. Thus, when finical sentiment shifts, structural issues will come into play.

Importantly as the Economist explains, fiscal discipline may not be stringently observed by both the affected parties in the Eurozone and in the US states. That’s because this may not be politically palatable for politicians. This serves as euphemism more inflationism.

Lastly, if the Euro is soon destined towards disintegration, as alleged by some, then she is probably looking towards the inclusion of more nations to join her death leap.

That’s because the Eurozone has enlisted Estonia as her newest member. Estonia will be the 17th country to carry the Euro by January 1, 2011.

Earlier we dealt with Estonia’s free market leaning approach even towards dealing with the recent crisis[7]. And perhaps such accomplishment has been recognized by the Euro bureaucracy.

According to the New York Times[8], ``Meeting in Brussels, Europe’s 27 governments hailed the “sound economic and financial policies” that had been achieved by Estonia in recent years. They said Estonia would shift from the kroon to the euro on Jan. 1, 2011.”

And unlike Greece who fudged their data to foist herself into the EU membership, Estonia seems more qualified.

Or perhaps could it be that Euro officials have been desperately looking for an agitprop to buttress their position? This from the same New York Times articles[9],

“The door to euro membership is not closed because we are going through a sovereign debt crisis,” said Amadeu Altafaj, a spokesman for Olli Rehn, Europe’s commissioner for economic and monetary affairs. “Estonia’s admission is a sign to other countries that our aim is to continue enlarging economic and monetary union through the euro.”

“Continue enlarging economic and monetary union through the euro” even when the Euro is in the death throes? Hmmm.

In my view, these three factors, specifically, growing global trade which should expand US trade deficits and amplify the effects of the Triffin dilemma, the credit risks slanted towards US states more than the EU and Estonia’s as the Euro’s newest member should all add up to boost the Euro vis-a-vis the US dollar.

Of course, a better bet in place of the Euro should be Asian currencies, including the Philippine Peso.

---

[1] See Buy The Peso And The Phisix On Prospects Of A Euro Rally

[2] See Another Reason Not To Bet On A 2010 'Double Dip Recession’

[3] Wikipedia.org, Triffin Dilemma

[4] BCA Research Currencies: Still Broad U.S. Dollar Bears

[5] Mises, Ludwig von The Objectives of Currency Devaluation, Human Action, Chapter 31 Section 4

[6] The Economist, Risky business, June 18, 2010

[7] See Estonia’s Free Market Model And The US 1920-1921 Depression

[8] New York Times, What Crisis? The Euro Zone Adds Estonia, June 17, 2010

[9] Ibid

Another Reason Not To Bet On A 2010 'Double Dip Recession'

Here another reason why it does not seem worthwhile to bet on a double dip recession.

This from the Wall Street Journal Blog, (bold highlights mine)

``This year is likely to be among the last in which developed economies account for the largest share of global economic output, according to a report published Wednesday by the Organization for Economic Cooperation and Development.

``The Paris-based think tank said that in 2010, its 31 developed-country members will account for 51% of world economic output. But with the rapid growth of China, India and other developing economies, that share has narrowed from 60% in 2000 and the OECD predicts it will shrink further to 43% by 2030.

“The world’s center of gravity has moved towards the east and south,” the OECD said. “This realignment of the world economy is not a transitory phenomenon, but represents a structural change of historical significance.”

The OECD said that as a result of the entry of China, India, the former Soviet Union and others into the global market economy from the early 1990s, the number of nations converging with the wealth levels of developed economies has risen to 65 from 12.

The OECD defines a converging economy as one in which growth in output per person is double that of developed economies.

Another consequence of the shift in global economic growth is the sharp fall in the number of countries defined as poor, to 25 from 55.

The OECD said that while the initial spur to growth in developing economies came from their move away from central planning and state ownership, two additional factors have contributed to the shift in economic power.

The rapid expansion of China, India and other large developing economies boosted demand for many commodities, to the benefit of producers in Africa, Latin America and the Middle East.

And many converging economies became net creditors rather than net debtors, keeping U.S. and global interest rates low.

Some comments

-Clearly the 'converging economy' dynamic is mainly a function of globalization. Voluntary exchange or free trade isn't a zero sum game as mistakenly thought by the mainstream. That because the benefits are broad based or dispersed.

To quote Murray N. Rothbard,

``The process of exchange enables man to ascend from primitive isolation to civilization: it enormously widens his opportunities and the market for his wares; it enables him to invest in machines and other “high-order capital goods”; it forms a pattern of exchanges—the free market—which enables him to calculate economically the benefits and the costs of highly complex methods and aggregates of production."

-second, the additional two factors mentioned, particularly the expanded use of commodities and a shift to net creditor status, are consequences of and not causal variables to the converging economies. As cited above, wider trade enables for added investments (higher commodity demand) and capital accumulation (net creditors).

-lastly, given the backdrop of increasing globalization, there are many additional variables that contribute to the complexity of markets and economies. Bottom line: the narrow focus on one or two issues may prove to be inadequate in making a cogent analysis.

Donald Coxe: Underweight US Markets, Overweight Commodities, Canada And Emerging Markets

Donald Coxe in his December issue of Basic Points has some interesting recommendations (hat tip: Prieur Du Plessis)

From Mr. Coxe: (bold and italics highlights mine)

1. Remain underweighted in US equities - as a percentage of equities within global portfolios, and as a percentage of assets in US balanced portfolios. Underweight US bonds in global portfolios.

The long-term financial projections for the US are scary, even if one accepts the Obama assumptions: ten years of large deficits, no recessions, strong, sustained economic growth, and a mere 1% increase in Treasury yields. Those numbers make no allowance for the costs of health care, which will be huge. Debilitating tax increases are inevitable, even if the global warming “cap and tax” legislation does not pass.

2. Within US equity portfolios, underweight US economy-related stocks and overweight stocks tied to foreign economies.

US stocks outperformed after Obama’s election, but that created what could be called erogenous risk for investors. As long as the KRE [Regional Bank Index] continues to underperform both the BKX [Philadelphia Bank Index] and S&P, risks of a double-dip economy remain.

3. Overweight Emerged Markets (such as China, Hong Kong, Brazil, India and Korea) within global and international equity portfolios.

These markets should no longer be discounted heavily because of assumed gaps between their accounting and American practices. The credibility gap has been narrowed significantly. The FASB’s capitulation to Congressional pressure on big banks’ balance sheets is a sign that Volcker-style virtue is outdated.

4. Remain overweight commodity stocks within balanced accounts and equity-only accounts.

Strong commodity-oriented companies are tied to global growth trends, led by the Asian powerhouses, which means they have less endogenous risk than companies tied to the US and Europe.

5. Emphasize gold stocks in commodity stock accounts.

Gold and other precious metals appear to have entered a period of above-average volatility, but the unprecedented creation of paper money and national debts means ownership of the metals and producers will tend to reduce endogenous risk in most portfolios. The stocks will tend to outperform bullion on the upside; the bullion will outperform on the downside.

6. Continue to overweight the agriculture stocks.

The best-performing commodity group in the past three months has been the agricultural stocks, led by the machinery and fertilizer stocks. Street analysts turned negative on these groups during the summer, when it looked as if US crop production would reach painful levels. Then the weather intervened. We remain of the view that the best of the agriculture stocks are among the best-quality core positions among all equities.

7. Maintain exposure to the energy stocks, but continue to emphasize oil producers and to de-emphasize natural gas producers.

Oil and natural gas are both in oversupply at the moment. The difference is that crude oil prices remain strong despite oversupply, as oil companies and speculators hoard oil in anticipation of stronger demand next year - and in fear of a new Mideast war. Shale gas may be too readily available to be good short-term news for either the profits or stock prices of oil and gas producers - but Exxon’s move on XTO Energy shows what having huge shale reserves can do for takeover values in politically-secure terrain.

8. Base metal stock prices are somewhat riskier than those of other commodity groups, but are worth holding.

The producers are dependent on China’s willingness to continue to buy more metal than it needs for current consumption.

9. Within balanced portfolios, emphasize long-duration, high-quality bonds at the expense of Cash. Canadian bonds should be used by foreign investors, where possible, as alternatives to Treasurys and US corporates.

Cash isn’t a true risk reducer, because it delivers no yield and cannot rise if there’s a new panic. If you must own something that pays you nothing, buy gold. In contrast, long-duration bonds are the best hedge against a renewed economic downturn.

10. Canada offers better government, better governance, a better currency, and a better stock market than the USA. Buy Canadian.

The flip side to this is a wise balance sheet policy for Canadian companies. Borrowing in American dollars makes sense for Canadian exporters and resource companies - and for some other Canadian industries. Take advantage of (1) Bernanke’s heroin injections into US debt markets, and (2) Canada’s new financial prestige to reduce your endogenous currency risk by bulking up your borrowing in greenbacks.

Read the rest of Mr. Donald Coxe's report here.

BMO Capital Markets Basic Points Dec 2009

The US Dollar Meltdown Validates Our Version Of The September Syndrome!

``A good trader has to have three things: a chronic inability to accept things at face value, to feel continuously unsettled, and to have humility.” -Michael H. Steinhardt, American investor and philanthropist

The September “syndrome” struck again!

But this time it hadn’t been what the mainstream had expected. Instead, it had been what we had been expecting.

Coming into September we pounded on the table that 2009 won’t be 2008; where US banking system went apoplectic from which the world endured a consequent “sudden stop” and where global economic activities went into a freeze-frame or a virtual standstill-our Posttraumatic Stress Disorder (PTSD).

2009 will most likely produce a different seasonal pattern, we asserted.

It would probably center on the US dollar’s weakness and gold’s strength which should also provide support to stock markets especially in Asia and Emerging Markets, as we suggested in The US Dollar Index’s Seasonality As Barometer For Stocks, Gold As Our Seasonal Barometer, Gold As Our Seasonal Barometer (For Stocks) II and Gold and the September Stock Market Seasonality Syndrome.

Well, all these have been captured in Figure 1.

Figure 1: A US Dollar Meltdown Equals Rising Gold And Stock Markets

The US dollar Index’s meltdown has had a mirror or inverse effect on Gold (surged to close at record highs), global stock markets (DJW) and Emerging Market stocks (EEM).

So far this has only shown how the mainstream had been looking at the wrong angle and had been very much fixated with traditional metrics but has significantly been caught disoriented by overlooking the genuine dynamics of the market.

Worst, they have relied on cognitive biases, such as the hindsight bias (rear view mirror syndrome), the focusing effect and anchoring, as foundations for their analysis.

For instance, deflation advocates have used China’s recent crash as evidence to advance their cause (a case of selective perception).

However we averred that the directions of the US dollar will likely determine the degree of the correction in China’s Shanghai index (SSEC), as we wrote in Will China’s Stock Market Correction Spread Globally?, ``if the US dollar fails to rally while global stocks weaken, then any correction, thus, will likely be mild and short.”

The Shanghai Index has advanced by 4.5% this week and will most likely follow the path of Russia’s RTSI, see figure 2.

Figure 2: Bulls Recapture Russia RTSI, Shanghai To Follow

Earlier Russia’s RTSI had corrected by 30% but has now entirely reclaimed the losses.

With a bullish reverse head and shoulder (chart) pattern along with a sustained feebleness in the US dollar, the likelihood is that the RTSI will make a significant breakthrough soon (if not by next week).

Moreover, many have called for a major correction due emerging markets attributing overvaluation levels.

For example this news from Bloomberg underscores on such extravagance, ``Developing-nation stocks rose, driving the MSCI Emerging Markets Index to its most expensive level in nine years, as Indian software makers rallied and higher oil prices boosted the revenue potential of economies sustained by exports.

``The MSCI Emerging Markets Index increased 0.8 percent to 887.05 at 5:01 p.m. in New York, pushing valuations to 20 times reported earnings for the first time since June 29, 2000, according to data compiled by Bloomberg”

While we basically agree with the concept that “markets have risen too fast and too soon”, that would be interpreted as looking at the markets from the lens of the mainstream.

Again, excessive dependence on conventional metrics will likely persist to befuddle mainstream analysis.

In addition, they seem to forget that in major trends, whether in bullmarkets or in bearmarkets, momentum can lead to trend overextensions.

Of course the principal error has been that the mainstream has all underestimated the impact of government printing press on the financial and economic sphere.

World's Priciest Emerging Market Properties

The Real Estate Business Intelligence Services (REDIN) showcases the most expensive properties in the emerging market world as categorized by...

Residential
Office

Retail

Industrial

and Land

(HT: Paul Kedrosky)