Delojozafado

India Unraveling: Stay Short Emerging Markets

In 20/20 hindsight of course! What a prescient call on PXR as it outperformed with a plus 5% one day move in trading a day after this article ran. While it is probably correct to write off Russia the major emerging market players of Chindia, Brasil, Korea and Singapore still have plenty of unspent ammunition. Whereas the Fed & Treasury are now out of ammunition & have eschewed the printing presses in favor of the electronic creation of money. The Treasury now has T bill auctions scheduled for nearly every day of the year in 2009. They are hoping for an implosion in the treasury market and it will come eventually and rival the market down turn of the last 14 months. Not that that down turn is over as of yet with the bankruptcy of the autos and their suppliers only postponed. Once the bond market reverses the major near term clear and present danger of DEFLATION will have been slain. While last year pundits were predicting China's GDP growth to slow to 3%, now with massive stimulus there and now in other emergent economies India most prominently, we see predictions rising to the 7-8% range. China has tons of cash to invest in itself and India need only ease it's foreign investment restrictions. This is bad news for the US debt market particularly low yielding LT treasuries. Global infrasrutucture companies and their bonds are likely to fare quite well going forward into this year. The US has resorted to desperate measures to prop things up. The issuance of TRCAs, which are not really temporary at all just rolled over on expiration is just one example of how bad it is for the US and it's currency. The idea that the US was responsible to prop up and bail out foreign banks and governments shows how desperate the situation is. There is likely not going to be any whole sale liquidation of short and Med term US Govt debt, just a gradual degradation in it's value. The long +10 year paper is just heading for the junk bond scrap heap or yield model. Probably both! China and India are just going to accelerate their consumption of stuff as they build more power plants, power grids, roads, bridges, public transport and the rest. They will continue to use lots of steel, coal, oil, Nat Gas (N/A sourced LNG?), copper, lead zinc and the rest. They may not have been decoupled going into the global recession/depression but they certainly look poised to "emerge" quicker and leaner than the rest of the world.