Anyone See a Correlation?

I have been told that China is slowing down. I have been told that with the US Fed tapering, some money is being drained out of the Emerging Markets and going to the United States. I have been told that the Emerging Markets will have reduced competitiveness that will benefit the United States.

I have no idea how any of this will end, but I can tell you factually that the S&P 500 has been very correlated to the performance of emerging market stocks and debt in the last few weeks. In particular, take a look at the rate action instigated by Turkey and its impact on the Lira along with its impact on the S&P 500. I would say they were pretty tightly correlated:

My guess is that the S&P 500 will find stability when the emerging markets find stability. My guess is that stability will not be found for a few months and could provide an interesting market environment. I will let the others pontificate on what will happen and spend my time analyzing what is actually happening.

Posted in Markets.

Tagged with emerging markets, Lira, S&P 500, Turkey.

1 comment

By SurlyTrader – January 29, 2014

Noteworthy News – January 27, 2014

Economy:

The Myth of Industrial Rebound – New York Times

In Climbing Income Ladder, Location Matters – New York Times

Europe, Facing Economic Pain, May Ease Climate Rules – New York Times

Here Are The 47% Of Jobs At High Risk Of Being Destroyed By Robots – Atlantic

Markets:

Venezuela grapples with 56% inflation – Financial Times

Analysis: Emerging markets rout a reality check for Davos elite – Reuters

Currency Crises in Emerging Markets – Council on Foreign Relations

Stocks plunge on fears over emerging markets – Los Angeles Times

Politics:

Our Dangerous Budget and What to Do About It – New York Review of Books

Obama to offer a modest agenda – Boston Globe

Banks:

HSBC imposes restrictions on large cash withdrawals – BBC

China Halts Bank Cash Transfers – Forbes

Money in the Bank No Longer Belongs to You – Liberty Voice

Posted in Economics, Markets, Media, Politics.

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By SurlyTrader – January 26, 2014

GMO Calls for Another Ugly Decade of Equity Returns

Unlike the investment banks that prioritize making money off of their clients, GMO seems to think making smart investment decisions is the more important job. On an annual basis GMO releases their 7 year forecasts for different asset classes. Most recently they released a rather uninspiring forecast that puts US equities as one of the least attractive:

If you get a little skeptical about the forecast, take a look at their 10 year results from 1999-2009. I can’t say that there are many who called it better: