Around the Globe 06.12.2013

Behind the Massive Bet Against the Emerging Markets.

Brazilian Real Selloff Sparks More Intervention: Sao Paulo Mover – Bloomberg.

Bank Indonesia Raises Deposit Facility Rate After Rupiah Slide – Bloomberg.

Emerging-Market Bond Anxieties Surging by Most Since 2008 – Bloomberg.

Analysis: Asia’s ticking time bonds; time to cut and run? | Reuters.

Charts from Bloomberg.com

May 2nd was an important inflection point in world markets, as the chart above illustrates.  Since that date, emerging market currencies, bonds and stocks have all weakened.  The news of the day indicated contractionary manufacturing sectors in both the U.S. and Europe, but that news does not seem to be the catalyst for the changes in emerging markets.  At the present rate of decay, a liquidity crisis is in the cards, which is all the more reason why EM should level off shortly.

Markets May Be Overpricing Risk of Fed Tapering.

From marketwatch.com

Since peaking in May, the S&P 500 has entered a correction phase.  The decline could be because of the dreaded taper tantrum, or it could just be that the market has risen so quickly and so high since Presidential elections that it was just due for a correction.  It could also be the start of a bear market.

Here’s a little something I just read in MauldinEconomics.com.  Mauldin pointed out that the last three market crashes occurred during a period of loose monetary policy from the Fed.  Could the fourth be forming as we speak?

Greece First Developed Market Cut to Emerging as UAE Raised – Bloomberg.

From Developed Back to Emerging: Greece’s Full Circle.

Greece back in crisis mode on state TV shutdown, downgrade | Reuters.

From ZeroHedge

Greece’s largest export is bad news.  The government shut down the public broadcast system and fired 3,000 workers at the behest of the troika.  Greece has 650k public workers, so the closure was largely a symbolic move.  For some reason, PM Samaras did not consult his coalition partners from the left prior to the shutdown, and they’re pissed.  The coalition is threatening to fall apart as opposition Syriza is bringing a no confidence vote.

Meanwhile, Greece has been downgraded to Emerging Market status.  This means that over the coming few weeks, managers will need to wind down Greek holdings in order to adhere to their investment mandates.  Greek markets had been selling off prior to this news, so there is the chance that this swoon could turn into a rout.

Don’t worry about all of this.  As we learned yesterday in the mainstream media, Greece is beginning to recover.

Orange grove gangs are product of Spanish crisis | Reuters.

Look, I know this isn’t a Spanish bandito.  Give me a break.  I couldn’t find an image for the right kind on the Internet, so this one will have to do.

The Spanish living in the countryside have resorted to brigandry.  Roving gangs have been stealing produce and equipment from far-flung farms that lack the means to secure themselves.

The Spanish are surviving their economic depression by resorting to lives of crime.  Thefts and robberies have increased dramatically since 2009, and this should not come as a surprise.  Whether it be participating in the black market or outright stealing, people will do what is necessary to continue eating.

ECB and Bundesbank square off over bond-buying plan | Reuters.

Constitutional courts are part of the government, so they have inherent conflicts of interest that simply cannot be resolved.  Courts who rule to increase government power are increasing their own, too.

While the 35,000 Germans who filed this petition with the court are seeking justice, all they will find is some tortured reasoning telling them that the ECb does not have to obey treaties and can do whatever it wants to save the euro.

When this decision is handed down in September, it will leave all ECB programs intact and merely require that the Bundestag rubberstamp certain ECB decisions.

 

Hold On, Japan Bond Market Swings Aren’t That Wild.

This article confuses two different concepts: price declines and volatility.  JGBs have not declined enough to cause concern on an historical basis as yields are around their averages from 2012, but volatility has clearly increased since the 2-2-2 plan was unveiled in April.  In fact, the chart above shows the increased volatility better than a paragraph or an analyst’s model.  Note the jagged pattern since early April as compared to the relatively smooth line prior to then.