Best of the Week
Most Popular
1. The Trump Stock Market Trap May Be Triggered - Barry_M_Ferguson
2.Why are Central Banks Buying Gold and Dumping Dollars? - Richard_Mills
3.US China War - Thucydides Trap and gold - Richard_Mills
4.Gold Price Trend Forcast to End September 2019 - Nadeem_Walayat
5.Money Saving Kids Gardening Growing Giant Sunflowers Summer Fun - Anika_Walayat
6.US Dollar Breakdown Begins, Gold Price to Bolt Higher - Jim_Willie_CB
7.INTEL (INTC) Stock Investing to Profit From AI Machine Learning Boom - Nadeem_Walayat
8.Will Google AI Kill Us? Man vs Machine Intelligence - N_Walayat
9.US Prepares for Currency War with China - Richard_Mills
10.Gold Price Epochal Breakout Will Not Be Negated by a Correction - Clive Maund
Last 7 days
Trading Natural Gas As The Season Changes - 16th Sep 19
Cameco Crash, Uranium Sector Won’t Catch a break - 16th Sep 19
These Indicators Point to an Early 2020 Economic Downturn - 16th Sep 19
Gold When Global Insanity Prevails - 16th Sep 19
Stock Market Looking Toppy - 16th Sep 19
Is the Stocks Bull Market Nearing an End? - 16th Sep 19
US Stock Market Indexes Continue to Rally Within A Defined Range - 16th Sep 19
What If Gold Is NOT In A New Bull Market? - 16th Sep 19
A History Lesson For Pundits Who Don’t Believe Stocks Are Overvalued - 16th Sep 19
The Disconnect Between Millennials and Real Estate - 16th Sep 19
Tech Giants Will Crash in the Next Stock Market Downturn - 15th Sep 19
Will Draghi’s Swan Song Revive the Eurozone? And Gold? - 15th Sep 19
The Race to Depreciate Fiat Currencies Is Accelerating - 15th Sep 19
Can Crypto casino beat Hybrid casino - 15th Sep 19
British Pound GBP vs Brexit Chaos Timeline - 14th Sep 19
Recession 2020 Forecast : The New Risks & New Profits Of A Grand Experiment - 14th Sep 19
War Gaming the US-China Trade War - 14th Sep 19
Buying a Budgie, Parakeet for the First Time from a Pet Shop - Jollyes UK - 14th Sep 19
Crude Oil Price Setting Up For A Downside Price Rotation - 13th Sep 19
A “Looming” Recession Is a Gold Golden Opportunity - 13th Sep 19
Is 2019 Similar to 2007? What Does It Mean For Gold? - 13th Sep 19
How Did the Philippines Establish Itself as a World Leader in Call Centre Outsourcing? - 13th Sep 19
UK General Election Forecast 2019 - Betting Market Odds - 13th Sep 19
Energy Sector Reaches Key Low Point – Start Looking For The Next Move - 13th Sep 19
Weakening Shale Productivity "VERY Bullish" For Oil Prices - 13th Sep 19
Stock Market Dow to 38,000 by 2022 - 13th Sep 19 - readtheticker
Gold under NIRP? | Negative Interest Rates vs Bullion - 12th Sep 19
Land Rover Discovery Sport Brake Pads and Discs's Replace, Dealer Check and Cost - 12th Sep 19
Stock Market Crash Black Swan Event Set Up Sept 12th? - 12th Sep 19
Increased Pension Liabilities During the Coming Stock Market Crash - 12th Sep 19
Gold at Support: the Upcoming Move - 12th Sep 19
Precious Metals, US Dollar, Stocks – How It All Relates – Part II - 12th Sep 19
Boris Johnson's "Do or Die, Dead in a Ditch" Brexit Strategy - 11th Sep 19
Precious Metals, US Dollar: How It All Relates – Part I - 11th Sep 19
Bank of England’s Carney Delivers Dollar Shocker at Jackson Hole meeting - 11th Sep 19
Gold and Silver Wounded Animals, Indeed - 11th Sep 19
Boris Johnson a Crippled Prime Minister - 11th Sep 19
Gold Significant Correction Has Started - 11th Sep 19
Reasons To Follow Experienced Traders In Automated Trading - 11th Sep 19
Silver's Sharp Reaction Back - 11th Sep 19
2020 Will Be the Most Volatile Market Year in History - 11th Sep 19
Westminister BrExit Extreme Chaos Puts Britain into a Pre-Civil War State - 10th Sep 19
Gold to Correct as Stocks Rally - 10th Sep 19
Market Decline Will Lead To Pension Collapse, USD Devaluation, And NWO - 10th Sep 19
Stock Market Sector Rotation Giving Mixed Signals About The Future - 10th Sep 19
The Online Gaming Industry is Going Up - 10th Sep 19
The Unknown Tech Stock Transforming The Internet - 10th Sep 19
More Wall Street Propaganda - 10th Sep 19
Stock Market Price Structure Still Suggests We Are Within Volatile Rotation - 9th Sep 19
Stock Market Still Treading Water - 9th Sep 19
Buying Pullbacks in Silver & Gold - 9th Sep 19
Government Spending - The High Price of a "Free Lunch" - 9th Sep 19
Don't Worry About a Recession - 9th Sep 19
Large Drop in Stocks, Big Rally in Gold and Silver - 9th Sep 19

Market Oracle FREE Newsletter

The No1 Tech Stock for 2019

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