Best of the Week
Most Popular
1. TESLA! Cathy Wood ARK Funds Bubble BURSTS! - 12th May 21
2.Stock Market Entering Early Summer Correction Trend Forecast - 10th May 21
3.GOLD GDX, HUI Stocks - Will Paradise Turn into a Dystopia? - 11th May 21
4.Crypto Bubble Bursts! Nicehash Suspends Coinbase Withdrawals, Bitcoin, Ethereum Bear Market Begins - 16th May 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.Cathy Wood Ark Invest Funds Bubble BURSTS! ARKK, ARKG, Tesla Entering Severe Bear Market - 13th May 21
7.Stock Market - Should You Be In Cash Right Now? - 17th May 21
8.Gold to Benefit from Mounting US Debt Pile - 14th May 21
9.Coronavius Covid-19 in Italy in August 2019! - 13th May 21
10.How to Invest in HIGH RISK Tech Stocks for 2021 and Beyond - Part 2 of 2 - 18th May 21
Last 7 days
Coinbase vs Binance for Bitcoin, Ethereum Crypto Trading & Investing During Bear Market 2021 - 11th Jun 21
Gold Price $4000 – Insurance, A Hedge, An Investment - 11th Jun 21
What Drives Gold Prices? (Don't Say "the Fed!") - 11th Jun 21
Why You Need to Buy and Hold Gold Now - 11th Jun 21
Big Pharma Is Back! Biotech Skyrockets On Biogen’s New Alzheimer Drug Approval - 11th Jun 21
Top 5 AI Tech Stocks Trend Analysis, Buying Levels, Ratings and Valuations - 10th Jun 21
Gold’s Inflation Utility - 10th Jun 21
The Fuel Of The Future That’s 9 Times More Efficient Than Lithium - 10th Jun 21
Challenges facing the law industry in 2021 - 10th Jun 21
SELL USDT Tether Before Ponzi Scheme Implodes Triggering 90% Bitcoin CRASH in Cryptos Lehman Bros - 9th Jun 21
Stock Market Sentiment Speaks: Prepare For Volatility - 9th Jun 21
Gold Mining Stocks: Which Door Will Investors Choose? - 9th Jun 21
Fed ‘Taper’ Talk Is Back: Will a Tantrum Follow? - 9th Jun 21
Scientists Discover New Renewable Fuel 3 Times More Powerful Than Gasoline - 9th Jun 21
How do I Choose an Online Trading Broker? - 9th Jun 21
Fed’s Tools are Broken - 8th Jun 21
Stock Market Approaching an Intermediate peak! - 8th Jun 21
Could This Household Chemical Become The Superfuel Of The Future? - 8th Jun 21
The Return of Inflation. Can Gold Withstand the Dark Side? - 7th Jun 21
Why "Trouble is Brewing" for the U.S. Housing Market - 7th Jun 21
Stock Market Volatility Crash Course (VIX vs VVIX) – Learn How to Profit From Volatility - 7th Jun 21
Computer Vision Is Like Investing in the Internet in the ‘90s - 7th Jun 21
MAPLINS - Sheffield Down Memory Lane, Before the Shop Closed its Doors for the Last Time - 7th Jun 21
Wire Brush vs Block Paving Driveway Weeds - How Much Work, Nest Way to Kill Weeds? - 7th Jun 21
When Markets Get Scared and Reverse - 7th Jun 21
Is A New Superfuel About To Take Over Energy Markets? - 7th Jun 21
Why Tether USDT, Stable Scam Coins Could COLLAPSE the Crypto Markets - Black Swan 2021 - 6th Jun 21
Stock Market: 4 Tips for Investing in Gold - 6th Jun 21
Apple (AAPL) Summer Correction Stock Trend Analysis - 5th Jun 21
Stock Market Sentiment Speaks: I 'Believe' We Rally Into A June Swoon - 5th Jun 21
Stock Market Russell 2000 After Reaching A Trend Channel High Flags Out - 5th Jun 21
Money Is Cheap, Own Gold - 5th Jun 21
Bitcoin and Ravencoin Cryptos CRASH Bear Market Buying Levels Price Targets - 4th Jun 21
Scan Computers - How to Test New Systems CPU, GPU and Hard Drive Stability With Free Software - 4th Jun 21
Hedge Funds Getting Bullish on Gold - 4th Jun 21
THERE ARE NO SOLUTIONS When the Media is the VIRUS - 4th Jun 21
Investors Who Blindly Trust the ‘Experts’ Will Get Left Behind - 4th Jun 21
US Stock Market Indexes Consolidate Into Flagging Pattern – Watch For Aggressive Trending Soon - 4th Jun 21
Microsoft (MSFT) Stock Trend Analysis - 3rd Jun 21
No More Market Bloodbath – Beyond Cryptos - 3rd Jun 21
Bank run, or run from the banks? - 3rd Jun 21
This Chart Shows When Gold Stocks Will Explode - 3rd Jun 21
The Meaning Behind Gold’s Triple Top - 2nd Jun 21
Stock Market Breakout Or Breakdown – What Does The Next Big Trend Look Like? - 2nd Jun 21
Biden’s Alternate Inflation Universe - 2nd Jun 21
What You Should Know Before Buying Car Insurance - 2nd Jun 21
Amazon (AMZN) Stock Summer Prime Day Discount Sale - 1st Jun 21
Gold Investor's Survival Guide - 1st Jun 21
Silver and Copper to Benefit from Global Electrification Push - 1st Jun 21
Will Gold Shine Under Bidenomics? - 1st Jun 21
Stock Market Buy the Dip, Again?! - 1st Jun 21
Stock Market Consolidation Ahead - 1st Jun 21
Stock Market Summer Correction Review, Crypto CRASH, Bitcoin Bear Market Initial Targets - 31st May 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Justice for All and The Curious Case of Zambia

Stock-Markets / Africa Nov 20, 2015 - 03:38 PM GMT

By: John_Mauldin

Stock-Markets

By Jared Dillian

This chart is driving everything in the financial markets right now.


The Curious Case of Zambia

If you can’t see where I’m going with this, just give it a minute.

I’m fully aware that many people might be unable to find Zambia on a map, so here is Zambia on a map:

A few years ago, Zambia accessed the capital markets and did a dollar bond deal at an incredible 5.625%. People said at the time that the emerging/frontier trade was getting goofy. I disagreed. I thought Zambia was a better credit than, say, Italy.

It hasn’t worked out that way…

As you can see, the yield on that bond has gone from 6% to 11%, just in the last year.

Whoops.

Zambia found itself in a position where it had to issue more debt, at much higher interest rates. It had a huge budget deficit, because the government gets a huge amount of revenues from royalties on…copper mining.

Whoops.

And the reason copper is tanking is because China is in recession, and because of the chart I showed you at the beginning of this essay.

So why is the dollar going up?

Because even though the Fed hasn’t raised rates yet, relative to everyone else, the United States is actually sort of tightening its monetary policy.

When the Fed declined to raise interest rates because of “international concerns,” this is what they were talking about. Zambia, and everyone else like them.

For once, it is actually not Zambia’s fault. They were trucking along, growing at about 6.5% a year, and then a piano fell on their head. They were confident enough in their growth that they thought they would be able to issue dollar bonds.

You know what the problem with dollar bonds is: If your currency goes down, you are screwed.

Zambia was once a frontier-markets darling. No more.

But nothing has changed within Zambia. Same people. Same natural resources. Same government. Same thesis. They just got caught up in the macro s---storm.

Hold that thought.

A Just World

A just world is not one in which innocent third parties get mangled by developed-country economics. But that is what’s happening.

When a big macro/FX trend changes, there’s a lot of pain.

I heard about some research on this. Apparently, when you go from one FX regime to another, there is a period of adjustment that lasts about a year or two, then things start to get better as people get used to it. Lots of people think copper will turn around when the dollar falls.

Maybe not!

Maybe copper will go up when it’s just done going down, and base metals and the dollar will learn to coexist.

One thing I’ve learned about markets over the years is that they have a pretty good sense of karma. In the long run, people get what’s coming to them. Top of the list is Greece. Silicon Valley will have its turn in the barrel someday. I think it is already starting—hearing about private valuations dropping. And of course, the Canadians. Eventually, the markets catch on and will punish excess.

Zambia is hardly a symbol of excess, though. To the extent that it benefited from frontier portfolio flows, it wasn’t very much.

If you want to talk about excess, a lot of people have made a lot of money shorting miners. The market sure is taking its time getting around to redistributing bad fortune.

The Five-Year Plan

It’s pretty rare that bear markets last longer than two to three years. Even the really bad ones.

Crash/Great Depression: 1929-1932
Dot-com: 2000-2003
Financial crisis: 2007-2009

The metals bear market started in early 2011, so we are coming up on five years now.

I actually remember early adopters showing up to the short EM trade when I was still at Lehman. Seven years ago.

This has gone on long enough that I’m sure there is a whole cohort of young traders who think mining companies only go down. I, too, was born in a bear market.

Two things could potentially turn the metals market around:

  • Fed chickens out
     
  • China massively eases monetary policy, rallies

I think the second one is quite possible, and you never know with the Fed.

Or maybe the bear market just gets down to tag ends on its own.

You know, in the dot-com bust, there were literally hundreds of tech stocks that were down 95-99% from the highs. Those turned out to be great trades—at least the ones that didn’t go out of business. But it’s a dangerous game. If you buy something that’s down 98% and then it ends up down 99%, you just lost 50%.

The math behind this explains why bear markets just go on forever.

Jared Dillian

If you enjoyed Jared's article, you can sign up for The 10th Man, a free weekly letter, at mauldineconomics.com. Follow Jared on Twitter ;@dailydirtnap

The article The 10th Man: And Justice for All was originally published at mauldineconomics.com.
John Mauldin Archive

© 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