Monday Markdown: Morgan Stanley's Fragile 5 Become The Troubled 10

Includes: FXI, SPY, TSLA
by: Philip Davis


Morgan Stanley has a new list of 10 troubled currencies.

Japan is clearly in recession.

Investors are easily distracted by idiotic upgrades on popular stocks like Tesla.

Currencies are melting down all over.

For a long time, Morgan Stanley has kept a list of emerging market currencies that were running the worst account deficits and faced the greatest risk of being devalued against the Dollar. Those currencies are:

  • Brazil's Real
  • India's Rupee
  • Indonesia's Rupiah
  • Turkey's Lira
  • South Africa's Rand

It has been a good list and all of those economies have suffered considerably against the rising Dollar over the past few years but now China is giving some of these countries a double-whammy as they adjust their own currency. MS has added 10 names to their currency watch list (some overlap) and we should now also be concerned about:

  • Thailand's Baht
  • Singapore Dollar
  • Taiwan Dollars
  • South Korean Won
  • South African Rand
  • Brazil's Real
  • Chili's Peso
  • Peru's Sol
  • Columbia's Peso
  • Russian Rubles

China is the top export destination for most of the countries on the troubled 10 list. "It's all about vulnerability," said Hans Redeker, head of foreign exchange strategy at Morgan Stanley. "Major victims of the policy this time are currencies of countries with high export exposure and export competitiveness with China."

Even with the yuan roiling markets, investors still see the Federal Reserve sticking to its plan to raise interest rates for the first time in nine years, threatening to lure capital away from emerging markets. Futures contracts show traders see a 75 percent chance the U.S. central bank will move by year-end. "The biggest concern is that we are not going to turn the corner and the economic performance in China will continue to disappoint," Redeker said. "Investors will watch China data closely and trade the yuan accordingly."

To summarize, eight countries have been added to the list of countries that are in deep economic trouble and none have gotten better (two have just become much worse) and, for some reason, Japan isn't on that list even though the Yen is the worst-performing country on Earth and their economy, per today's GDP data, is clearly in a recession DESPITE drastic attempts by their Central Bank to print money faster than the economy is declining.

Japan's GDP is DOWN 1.6% for Q2 and that's before China began having serious issues, which are certain to impact Japan's largest trading partner (China buys 10% more from Japan than the US does). US and European investors really have to have their heads in the sand if they think this is all just a minor bump in the road. China began falling apart on June 15th, with just two weeks left in Q2. Since then China has become far worse, with stimulus so far having little impact and there are clear indications the economic bad news is spreading fast - yet the US market chugs along near record highs? MADNESS!!!


Caution hasn't just been thrown to the wind. Caution has been shot, stabbed, beaten, poisoned and drowned in this silly bull market which is, even as I write this, adding $2Bn of market cap to Tesla (NASDAQ:TSLA) (6%) as our friends at Morgan Stanley have been very busy this morning, calling for TSLA to reach $465, 66.6% above Friday's close (the mark of the Blankfein - as it is known).

Why 66.6%? That's to let MS's masters know the fix is in and to signal the financial media that they need to play along and not question this ridiculous call - even though MS is one of the lead banks handling Tesla's recent refinancing - something that would be a very clear conflict of interest. If only we lived in a world where it wasn't perfectly OK for Banksters to have huge conflicts of interest...

This is how Elon Musk plays the Wall Street game. TESLA did a $500M raise last week and Musk put in $20M of his own money. Only his own money, $10Bn of his $13Bn net worth, in fact, is tied up in TSLA stock so buying $20M/10,000M more of it is a pointless gesture - unless the point is to fool suckers who can't do math into following him with far more than 0.2% of their own money. Here's the report.

Tesla uses Goldman Sachs (NYSE:GS), Morgan Stanley, JPMorgan (NYSE:JPM) and Deutsche Bank (NYSE:DB) to run their offering and spread the bribes fees around and the Banksters reciprocate by talking up the stock and driving the beautiful sheeple into the already overpriced stock. A Tesla is not a cure for cancer - it's an $80,000 car (base model) that sells 50,000 units a year and makes no money at all. Tesla's own rosy projections (which they are missing) have them making $2.72 next year. That's $2.72 per $255 share for a P/E of 93.75 - at $465, just double the idiocy.

Like much of the market, Tesla's pie-in-the-sky valuation is based on all sorts of things that not only haven't happened yet, but aren't even in progress yet. That's the new fad - you buy a company like Tesla because they might start making mobile connection systems which might become great sellers at great margins and then we just take some of Apple's huge market cap and add it to Tesla's and viola! - we have our new valuation.

It's a really fun game - get out there and start your own company and play along. Don't forget - don't actually make any profits or they'll have a base valuation. As long as you don't make any money - it's very easy to project infinite growth - especially if you are planning to market in China!

Disclosure: I am/we are short DIA, SPY, QQQ, IWM, NFLX, BWLD.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Positions as indicated but subject to RAPIDLY change (fairly bearish mix of long and short positions - see previous posts for other trade ideas). Positions mentioned here have been previously discussed at - a Membership site teaching winning stock, options & futures trading, portfolio management skills and income-producing strategies to investors like you.