Doctor Copper needs to make a house call to the emerging markets and he needs to prescribe ‘bullish’. MSEMF (lower panel) looks like it is in some kind of a massive topping pattern (it does not look like a bullish consolidation to me) and the problem is that the good Doctor is making the same pattern.
The potential is for a 2008 style deflationary Armageddon in commodities and emerging markets. Now, would the US (and maybe Europe), with their respective funny munny financial chicanery get off scott free, perhaps even getting the big bid as the world rushes out of commodities and EM’s? Well as obnoxious as it sounds, it could happen. Though I wouldn’t bet on it.
Imagine the world rushing to T bonds, amplifying the Fed’s current operation. Imagine US mortgage rates tanking. Imagine the shining new era of Fortress America and its financial apparatus. What was the last ‘new era’, the Dot.coms and the ‘new economy’? Could we have a new one that rejects the old fashioned notion that the US stock market has a copper roof? Sort of the modern edition of the circa 1999 rejection of a ‘brick and mortar’ business model?
Just riffing here. I think commodities and EM’s are a bearish divergence to the US and Europe. But unfortunately, with the Fed in the markets 24/7 now these type of questions need to at least be considered.
European and emerging stock markets have hit targets.
Boy this is a macro market newsletter that dug and dug until it came up with a lot of possibilities for various markets going into Q4 and beyond. It also highlighted something significant going on in T bond yields that I don’t think is being considered by most people.
This as 10-year yields have just about hit the 3% target we established back in May in NFTRH 239. The 30-year is closing in on its target of 4.2%. But there is something going on in yield relationships that I really need to think more about and get on top of. Anyway, even the little promo blurb for this letter is getting too involved.
Got to love the markets; never an easy answer nor a dull moment. NFTRH 255 out now.
The beautiful thing about the financial markets is that no matter what is going on, whether bullish, bearish or some combination thereof, there is always opportunity somewhere.
Last summer Templeton’s Emerging Markets Income fund (TEI) came on sale and I bought it. I then took profits ‘too soon’ just under the measured target of 17 (and got a nice dividend as well) and mostly used the fund as an indicator the rest of the way; as in, ‘I know we are all supposed to bow down and be bearish in the face of the Euro sovereign debt crisis, the divisive US election and the oncoming Fiscal Cliff, but this sensitive market indicator remains on the bull’.
TEI daily chart
Yesterday TEI declined hard, which is weird because a quarterly ex-div. date is still upcoming. So is this an opportunity to buy the 200 day moving averages similar to November or is it a warning of some sort on the broad markets? I for one am going to look closer.
The NDX led the SPX out of the 2009 bottom. The bottom panel shows QQQ in relation to SPY rolling over since the spring of 2012.
The most recent rally out of the summer was led by the emerging markets. The top panel shows the EEM-SPY ratio threatening to break down.
What’s it mean? Maybe the S&P 500 will just keep going up with a flight to equity safety tout, but as of this moment it is losing its leaders. Oh for a hard correction.
You may recall a post I did last year highlighting what looked like a bottom in the EEM:SPY ratio and speculating upon a would be rally to be led by the emerging markets. The first hint was the stellar performance of emerging market bonds, which I then sold and transferred to positions in emerging equities.
Well, now I have bought back emerging bonds after a recent correction and sold the equities. But I want the equities back and may buy them sooner rather than later, with offsetting protection in a bear or volatility stance against the US market.
Anyway, here’s EEM:SPY as of today.
EEM:SPY ratio at the bottom of a trend channel
Last year the Templeton Emerging Markets bond fund provided great gains. Now Templeton’s Mark Mobius has provided excellent 9% and 7% returns (Plus dividend income) on what are essentially mutual funds. I don’t want to get greedy.
I am still constructive on the Emerging Markets and Asia compared to US markets, but it is time to pare back on some positions now and evaluate. I still hold the Templeton Global Income fund, which is +5% since purchase and spitting off monthly income.