Best of the Week
Most Popular
1. Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - Raymond_Matison
2.Uber’s Nightmare Has Just Started - Stephen_McBride
3.Stock Market Crash Black Swan Event Set Up Sept 12th? - Brad_Gudgeon
4.GDow Stock Market Trend Forecast Update - Nadeem_Walayat
5.Gold Significant Correction Has Started - Clive_Maund
6.British Pound GBP vs Brexit Chaos Timeline - Nadeem_Walayat
7.Cameco Crash, Uranium Sector Won’t Catch a break - Richard_Mills
8.Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - Dan_Amerman
9.Gold When Global Insanity Prevails - Michael Ballanger
10.UK General Election Forecast 2019 - Betting Market Odds - Nadeem_Walayat
Last 7 days
Weekly SPX & Gold Price Cycle Report - 17th Oct 19
What Makes United Markets Capital Different From Other Online Brokers? - 17th Oct 19
Stock Market Dow Long-term Trend Analysis - 16th Oct 19
This Is Not a Money Printing Press - 16th Oct 19
Online Casino Operator LeoVegas is Optimistic about the Future - 16th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - Video - 16th Oct 19
$100 Silver Has Come And Gone - 16th Oct 19
Stock Market Roll Over Risk to New highs in S&P 500 - 16th Oct 19
10 Best Trading Schools and Courses for Students - 16th Oct 19
Dow Stock Market Short-term Trend Analysis - 15th Oct 19
The Many Aligning Signals in Gold - 15th Oct 19
Market Action Suggests Downside in Precious Metals - 15th Oct 19
US Major Stock Market Indexes Retest Critical Price Channel Resistance - 15th Oct 19
“Baghad Jerome” Powell Denies the Fed Is Using Financial Crisis Tools - 15th Oct 19
British Pound GBP Trend Analysis - 14th Oct 19
A Guide to Financing Your Next Car - 14th Oct 19
America's Ruling Class - Underestimating Them & Overestimating Us - 14th Oct 19
Stock Market Range Bound - 14th Oct 19
Gold, Silver Bonds - Inflation in the Offing? - 14th Oct 19
East-West Trade War: Never Take a Knife to a Gunfight - 14th Oct 19
Consider Precious Metals for Insurance First, Profit Second... - 14th Oct 19
Stock Market Dow Elliott Wave Analysis Forecast - 13th Oct 19
The Most Successful IPOs Have This One Thing in Common - 13th Oct 19
Precious Metals & Stock Market VIX Are Set To Launch Dramatically Higher - 13th Oct 19
Discovery Sport EGR Valve Gasket Problems - Land Rover Dealer Fix - 13th Oct 19
Stock Market US Presidential Cycle - Video - 12th Oct 19
Social Security Is Screwing Millennials - 12th Oct 19
Gold Gifts Traders With Another Rotation Below $1500 - 12th Oct 19
US Dollar Index Trend Analysis - 11th Oct 19
China Golden Week Sales Exceed Expectations - 11th Oct 19
Stock Market Short-term Consolidation Does Not change Secular Bullish Trend - 11th Oct 19
The Allure of Upswings in Silver Mining Stocks - 11th Oct 19
US Housing Market 2018-2019 and 2006-2007: Similarities & Differences - 11th Oct 19
Now Is the Time to Load Up on 5G Stocks - 11th Oct 19
Why the Law Can’t Protect Your Money - 11th Oct 19
Will Miami be the First U.S. Real Estate Bubble to Burst? - 11th Oct 19
How Online Casinos Maximise Profits - 11th Oct 19
3 Tips for Picking Junior Gold Stocks - 10th Oct 19
How Does Inflation Affect Exchange Rates? - 10th Oct 19
This Is the Best Time to Load Up on These 3 Value Stocks - 10th Oct 19
What Makes this Gold Market Rally Different From All Others - 10th Oct 19
Stock Market US Presidential Cycle - 9th Oct 19
The IPO Market Is Nowhere Near a Bubble - 9th Oct 19
US Stock Markets Trade Sideways – Waiting on News/Guidance  - 9th Oct 19
Amazon Selling Fake Hard Drives - 4tb WD Blue - How to Check Your Drive is Genuine  - 9th Oct 19
Whatever Happened to Philippines Debt Slavery?  - 9th Oct 19
Gold in the Negative Real Interest Rates Environment - 9th Oct 19
The Later United States Empire - 9th Oct 19
Gold It’s All About Real Interest Rates Not the US Dollar - 8th Oct 19
A Trump Impeachment Would Cause The Stock Market To Rally - 8th Oct 19
The Benefits of Applying for Online Loans - 8th Oct 19
Is There Life Left In Cannabis - 8th Oct 19
Yield Curve Inversion Current State - 7th Oct 19

Market Oracle FREE Newsletter

Stock Market Trend Forecast Oct - Dec 2019 by Nadeem Walayat

Emerging Markets Decoupling, The Great Dichotomy Continues

Stock-Markets / Emerging Markets Mar 29, 2010 - 07:37 AM GMT

By: Martin_D_Weiss

Stock-Markets

Best Financial Markets Analysis ArticleWhile the U.S. economy is still bogged down by massive federal deficits and a new wave of home foreclosures, key foreign economies are already leaping ahead without those heavy burdens.

Just look at the scoreboard:


The Dow is up 20 percent since the first day of trading of last year, thanks in great measure to government bailouts of the U.S. banking system … brokerage industry … housing and mortgage markets … Detroit … and virtually every other sector that got into big trouble.

Meanwhile, in the same period …

Key Country ETFs
  • The leading ETF that tracks China’s blue chips (FXI) is up 31 percent, over 1.5 times better than the Dow.
  • The ETF tied to South Korea’s stock market (EWY) is up 68 percent, more than tripling the Dow’s performance. And ..
  • The Brazil ETF (EWZ) is up 92 percent, four and a half times better than the Dow.

But this is certainly not a new story. We have been avidly telling readers about it for years …

Martin's Family

Foreign currencies and stocks exploding higher: In October 2007, we showed you how key currencies and foreign stocks — such as the Japanese yen and the Brazil ETF — were headed sharply higher. In contrast, we stressed unequivocally that a “shocking new plunge in the housing market [was] a heavy-weight on the U.S. dollar and economy.” Both came to pass in aces and spades. (See Global economy surging; U.S. still sagging.)

Dow in the dust

Great wealth shift: One month later, we explained why the “U.S. stock market has consistently and persistently fallen woefully behind other key markets.” And we warned that the “housing bust, mortgage meltdown and credit crunch guarantee a U.S. recession,” while other key nations would be hurt less and recover sooner. (See The Greatest Wealth Shift of All Time.)

Collage of Pictures

The Great Dichotomy (two years ago): In June 2008, I told you about my travels throughout Latin America and Asia over the past half century, using them as my springboard to explain why “our economy is losing the critical strengths that made it great, while theirs are overcoming the great obstacles that made them weak.”

I concluded that “[this] great dichotomy is not a passing phenomenon. It’s growing larger. And barring drastic changes, it’s likely to be with us for many years to come.” (Read The Great Dichotomy.)

Ben Bernanke

Lehman collapse: In July 2008, two months before the collapse that changed the world, we warned that Lehman was a key danger which threatened to derail the U.S. And, separately, we explained that major emerging markets would be less directly impacted.

I wrote: “Lehman Brothers’ death spiral is, in some ways, even more troubling: If it fails, it will send the message that all the Fed’s horses and the Fed’s men can’t put this Humpty Dumpty back together again.” (See GM, Fannie, Lehman: Too big to fail? Or too big to save?)

China has replaced the US as Brazil's largest trading partner

Brazil among first to recover: Following up in August of last year, I demonstrated “why Brazil was the last to suffer from the financial crisis and is the FIRST to recover …

“While the U.S. Federal Reserve has cut official interest rates to practically zero, Brazil’s central bank has kept its key rates high, helping to enforce monetary discipline and prevent speculative bubbles. Thus, while the U.S. was experiencing a massive housing boom, Brazil’s mortgage financing was limited to less than 1 percent of GDP. …

“Brazil grew at about double the pace of the U.S. economy in the first nine months of 2008; fell by half the pace of the U.S. in the fourth quarter of 2008; contracted by one-eighth the pace of the U.S. in the first quarter of 2009; and is likely to grow twice as fast as the U.S. in 2010. …

“Another major factor: For the first time in history, China has now surpassed the United States as Brazil’s largest trading partner.” (See Among the First to Recover.)

Take a moment to check out each of these landmark reports. Many of the key facts and forecasts they contain are vividly relevant to what’s happening today — and what’s coming next ..

New Evidence of the Great Dichotomy

Are emerging markets completely decoupled from the U.S.? Of course not. If the U.S. stock market sinks, theirs will too.

Right now, we don’t expect the stock market to suddenly fall out of bed. But we have every reason to believe it will continue to greatly underperform key foreign markets.

The main reason: Time after time and case after case, we see how they recover sooner and rise further. And we have every reason to believe that will be the case in the future as well. Specifically …

China’s fast-track economy has consistently exceeded expectations, including Beijing’s:

  • It was expected to grow 8 percent in 2009 and clocked in at 8.7 percent, even in the wake of the worst global crisis since the Great Depression.
  • Economists talked about a slowdown for 2010, but it’s now likely to grow by 9.6 percent.
  • They expect it to slow to 8.1 percent next year, but it could surprise them again.

In February, retail sales rose 20 percent. Industrial production did the same. And Chinese exports surged 46 percent compared to the year earlier. Yet domestic demand is even stronger — a key reason China is expected to actually report a trade deficit for March.

The government’s challenge ahead: Taming China’s speculative bubble in urban properties without causing a bust. That danger does not warrant shunning Chinese investments. But it does mandate caution and an emerging market portfolio that is not China-heavy.

Brazil’s numbers are not as spectacular as China’s, but its economy makes up the difference with a series of factors that lend it more stability, namely

  • A more mature, diversified, capitalistic economy, with …
  • Free, direct elections …
  • Supported by democratic institutions that rival almost any in the West.

And contrary to popular belief, the primary driver is not exports to China; it’s Brazilian consumers. That’s why Brazil’s retail sales in January rose the most in 18 months … why Brazil’s outgoing president is so popular … and why his chosen successor, Dilma Rousseff, is surging to the polls on her way to presidential elections in October.

South Korea’s exports surged 31 percent from the year earlier, the fourth consecutive monthly increase … while the confidence of its manufacturers has surged to the highest level in more than seven years. Industrial production is up 31 percent compared to last year. And auguring continued growth ahead, its leading indicators have jumped 11.3 percent.

Our recommendations:

  • Unless you are short-term trader, reduce your exposure to U.S. stocks.
  • If you feel you are still overexposed, think about hedging against downside risk with a modest amount in inverse ETFs that are designed to profit from U.S. market declines.
  • Seriously consider a solid, diversified portfolio of emerging markets — either via ETFs or individual stocks. Don’t assume the three I’ve discussed here are necessarily the best going forward. Also look at India, Japan, and others.

Above all, approach ALL investing in this environment with great caution. That means plenty of cash in a safe place and staying vigilant to the unexpected.

Never forget: It was only a year and a half ago that our financial system was on the brink of collapse. And it is largely due to Washington’s Herculean efforts that the U.S. economy is recovering.

Good luck and God bless!

Martin

Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit http://www.moneyandmarkets.com.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules