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Emerging Markets Exodus is Americas Gain

12/23/2014

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All it takes is the mere suggestion of interest rates rising at some undetermined point in the future to set off a chain reaction. 
The USD $ is being perceived as a safe haven. Look at this beast.
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The American energy sector is fucked. Look at the job growth in Oil & Gas from the Financial crises compared to all other non-farm payroll jobs. A lot of people working in the oil patch are about to lose their jobs.
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The silver lining for American markets is that the extent of destruction in our Energy sector can't even compare to other countries who are much more dependent on high oil prices to finance their economies such as Russia, Venezuela, etc.. Look at what's happening right now in 'emerging' markets.
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The strength in the USD is beginning to wreck serious havoc on emerging market currencies.
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Make no mistake, many American companies are multinational corporations that do business around the world. We are not immune from contagion. However, we are relatively strong compared to the developing world and so people are pulling their money out of Emerging Markets and flooding the USD and American Markets.
Compared to Developing Markets, whose assets have been growing slowly, Emerging Markets have been flooded with investment dollars and have
nearly doubled in size since 2008

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(Composition of financial assets, emerging markets, US$ billion)
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(Composition of financial assets, developed markets, US$ billion)
So  basically there is a ton of easy $ floating around in emerging markets right now as a consequence of the developed markets extreme easy money, QE, ZIRP policies. Keeping interest rates too low for too long tends to create malinvestment. When Investors get scared about the safety of their investments, they GTFO of there and will not hesitate to place it somewhere they percieve as 'safer.' So the Stock Market Indices are rising, the USD is rising, we are playing musical chairs right now but this is a late stage bull market and everybody is chasing yield and gains, taking on too much risk, using too much leverage. It's going to totally implode at some point but my read on things is that we will be the last holdout, the bastion of safety. Once the contagion finally reaches the United States, everybody is going to be fucked.  Short selling America right now makes no sense, it's still too early.
I don't trust this rally one bit. I still think that this energy sector implosion is going to rear it's ugly head into the data sometime in the near future but until then I am focusing my strategy hedged Long America/ Short Emerging Markets. 

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Ambrose Evans-Pritchards on Fed Rate Hikes & Emerging Markets @ 25:45

 Merry Christmas

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