News From Terre Haute, Indiana

Z_CNHI News Service

September 25, 2013

Beware of emerging market currencies

You know the old one-liner jokes that start with “You know you’re in trouble when … .” Now we can add one from the world of finance: You know you’re in trouble when the Greek stock market beats your stock market.

From the end of 2012 through the middle of August, all four BRIC countries (Brazil, Russia, India and China) could claim this dubious distinction. In U.S. dollar terms, Brazil’s stock market was down 29.9 percent, Russia’s market was down 14 percent, India’s market had fallen 21.4 percent and China’s market had dropped 7.1 percent.

During that same period, the Greek stock market posted a 1 percent return. The point here is all about the BRICs, the recent darlings of the investment world, and how they have fallen.

In large part, global consumption drove the incredible growth in these four countries — along with many others around the globe — during the past 15 years.

The thirst for energy and gadgets exploded during the late 1990s and early 2000s, giving raw material providers and cheap labor countries an incredible boost to their economies and their markets.

Yes, the 2008 financial crisis briefly hit these emerging countries, but then the central banks of the world took over. As they flooded the world with cheap capital, providers of raw materials and cheap labor got their second wind. It seemed for a couple of years, from 2009 through 2011, these countries would be able to take a pass on the fallout from the greatest financial upheaval since the 1930s. Until now.

The feeling was that a rise of economic activity in these young, developing nations could offset a drop in activity in the aging countries of the world. This view held for a while, but then reality hit. It turns out that, while these youthful economies do have legitimate domestic consumption and growth, most of their outsized gains are reliant on selling to those stodgy, old, Western economies (as well as Japan) that are now limping along.

Without the U.S., the European community and Japan buying more and more, the BRICs had to devise their own plan for creating growth, which typically involved extending a lot of credit on easy terms. We all know how this story ends — with lots of bad loans and questionable assets on bank books.

As the Fed lowered interest rates to basically zero, the hot money went looking around the world for better returns. Money poured into emerging market countries looking for higher rates. This also drove their currencies higher and created challenges as to what to do with all the money. As is often the case, not all of it was deployed wisely.

We are now seeing a preview of what happens when it goes the other way. In the past few months, with just the hint that the Fed “might” begin tapering the amount of QE (bond buying), the hot money has been leaving emerging countries like rats leaving the ship. Currencies in India, Brazil, Indonesia and many others fell like a rock. Of course, the Fed says that is not their problem, but if it spirals out of control it will become our problem.

The same buyers who poured into these emerging market currencies are now quickly rushing out. This leaves developing countries with few options and all of them are bad. They could raise interest rates (attracting more carry trade buyers), but that would slow or choke their economic growth. They could buy their own currencies in bulk to prop up prices, but they’d deplete their currency reserves. Or they could do nothing (allowing the free market to figure it out), which likely would put emerging market currencies into a free fall and create high inflation. This is truly one of those “between a rock-and-a-hard-place” scenarios.

The global economy is teetering in a precarious position. All it will take is one major crisis to trigger a chain of events that spirals out of control. The collapse of emerging market currencies, much like what happened in 1997, could be it. You could call this being hit by a BRIC. Beware. The one positive consequence for us, as I’ve been saying for a while now, is a bullish outlook for the dollar. 

Nick Massey is a financial adviser and columnist for the Edmond Sun in Edmond, Okla. You can reach him through nickmassey.com.

1
Text Only | Photo Reprints
Z_CNHI News Service
  • Screen shot 2014-04-18 at 4.44.15 PM.png Paint, doodle and sketch: 3 apps for art lovers

    In the absence of a palette of watercolors and a sketchpad, these three apps can fill in as your art supplies of choice.

    April 18, 2014 1 Photo

  • Smartphone kill switches are coming

    Smartphones need kill switches. It's a relatively easy solution to the pricey (and irritating) problem of smartphone theft. But who would have thought that the big carriers would team up with Apple, Google, Microsoft, Nokia, Samsung and lots of other manufacturers to voluntarily begin adding the technology by July 2015? The cooperative spirit! It makes so much sense!

    April 18, 2014

  • Why do wolves howl?

    Of all the myths that dog the wolf, none is more widely accepted than the idea that wolves howl at the moon. Images of wolves with their heads upturned, singing at the night sky, are as unquestioned as a goldfish's three-second memory or a dog's color-blindness (both also myths).

    April 18, 2014

  • Biggest student loan profits come from grad students

    This week, the Congressional Budget Office projected that the federal government would earn roughly $127 billion from student lending during the next 10 years.

    April 18, 2014

  • quake.jpg Pennsylvania won’t take action following Ohio ruling on quakes, fracking

    Pennsylvania officials plan no action despite new Ohio rules on drilling that affect a seismically active area near the state line.

    April 18, 2014 1 Photo

  • taylor.armerding.jpg Warren's populist pitch on student loans is off key

    Sen. Elizabeth Warren's populist rhetoric pumps up students about their loan burdens, but she conveniently neglects to mention the real problem - the exorbitant cost of college - much less how she's benefitted from those high prices.

    April 18, 2014 1 Photo

  • VIDEO: Boston bomb scare defendant appears in court

    The man accused of carrying a backpack containing a rice cooker near the Boston Marathon finish line on the anniversary of the bombings was arraigned Wednesday. He's being held on $100,000 bail.

    April 17, 2014

  • Consumer spending on health care jumps as Affordable Care Act takes hold

    Nancy Beigel has known since September that she would need hernia surgery. She couldn't afford it on her $11,000 yearly income until she became eligible for Medicaid in January through President Barack Obama's signature health care law.

    April 17, 2014

  • Lindley, Tom.jpg Golf turns into snooze-fest without celebrities like Tiger and Phil

    The Masters lumbered on last week without two of pro golf's biggest names, Tiger Woods and Phil Mickelson, and fans changed the channel. The PGA needs someone with star power if it's going to lure people back to the game.

    April 17, 2014 1 Photo

  • The case for separate beds

    The other night I slept on a twin bed in the guest room of the house I share with my husband and our two kids.
    It was the best night's sleep I've had in years.

    April 17, 2014

  • Raw oysters spike U.S. rise in bacterial infections, CDC reports

    Raw oysters, so good with hot sauce, increasingly can carry something even more unsettling to the stomach: A bacteria linked to vomiting, diarrhea and pain.

    April 17, 2014

  • To sleep well, you may need to adjust what you eat and when

    Sleep.  Oh, to sleep.  A good night's sleep is often a struggle for more than half of American adults.  And for occasional insomnia, there are good reasons to avoid using medications, whether over-the-counter or prescription.

    April 16, 2014

  • Doctors to rate cost effectiveness of expensive cancer drugs

    The world's largest organization of cancer doctors plans to rate the cost effectiveness of expensive oncology drugs, and will urge physicians to use the ratings to discuss the costs with their patients.

    April 16, 2014

  • Low blood-sugar levels make for grousing spouses

    Husbands and wives reported being most unhappy with their spouses when their blood-sugar levels were lowest, usually at night, according to research released this week in the Proceedings of the National Academy of Sciences. Missing a meal, dieting or just being hungry may be the reason, researchers said.

    April 16, 2014

  • Screen Shot 2014-04-16 at 12.51.22 PM.png VIDEO: Toddler climbs into vending machine

    A child is safe after climbing into and getting stuck inside a claw crane machine at a Lincoln, Neb., bowling alley Monday.

    April 16, 2014 1 Photo

  • portraitoflotte.jpg VIDEO: From infant to teen in four minutes

    Dutch filmmaker Frans Hofmeester’s time lapse video of his daughter, Lotte — created by filming her every week from her birth until she turned 14 — has become a viral sensation.

    April 16, 2014 1 Photo

  • Victimized by the 'marriage penalty'

    In a few short months, I'll pass the milestone that every little girl dreams of: the day she swears - before family and God, in sickness and in health, all in the name of love - that she's willing to pay a much higher tax rate.

    April 15, 2014

  • Allergies are the real midlife crisis

    One of the biggest mysteries is why the disease comes and goes, and then comes and goes again. People tend to experience intense allergies between the ages of 5 and 16, then get a couple of decades off before the symptoms return in the 30s, only to diminish around retirement age.

    April 15, 2014

  • Lindley, Tom.jpg Wildcats aren't champs but we're all still watching Calipari

    Kentucky coach John Calipari is a college basketball phenom for his ability to knit together championship-caliber teams of freshmen. How long will Calipari's success last as other coaches catch on?

    April 15, 2014 1 Photo

  • treadmill-very-fast.jpg Tax deduction for a gym membership?

    April marks another tax season when millions of Americans will deduct expenses related to home ownership, children and education from their annual tax bill. These deductions exist because of their perceived value to society; they encourage behaviors that keep the wheels of the economy turning. So why shouldn't the tax code be revised to reward preventive health?

    April 15, 2014 1 Photo

  • bomb1 VIDEO: A year after marathon bombing, Boston remains strong

    The City of Boston came together Tuesday to honor those who were injured and lost their lives at the Boston Marathon on the one-year anniversary of the bombing. While the day was sure to be emotional, those affected by last year's race are showing they won't let the tragedy keep them down.

    April 15, 2014 1 Photo

  • Google acquires drone maker Titan Aerospace to spread Internet

    Google is adding drones to its fleets of robots and driverless cars.
    The Internet search company said it acquired Titan Aerospace, the maker of high-altitude, solar-powered satellites that provides customer access to data services around the world. Terms of the deal weren't disclosed.

    April 14, 2014

  • E-Cigarettes target youth with festivals, lawmakers say

    The findings, in a survey released Monday by members of Congress, should prod U.S. regulators to curb the industry, the lawmakers said. While e-cigarettes currently are unregulated, the Food and Drug Administration is working on a plan that would extend its tobacco oversight to the products.

    April 14, 2014

  • Search teams will send unmanned sub to look for missing Malaysian airliner

    Teams searching for a missing Malaysian airliner are planning for the first time to send an unmanned submarine into the depths of the Indian Ocean to look for wreckage, an Australian official leading the multi-nation search said Monday.

    April 14, 2014

  • Why Facebook is getting into the banking game

    Who would want to use Facebook as a bank? That's the question that immediately arises from news that the social network intends to get into the electronic money business.

    April 14, 2014

  • Screen shot 2014-04-11 at 4.49.09 PM.png Train, entertain your pets with these 3 smartphone apps

    While they may not have thumbs to use the phone, pets can benefit from smartphone apps designed specifically for them.

    April 11, 2014 1 Photo

  • Stepping forward: The real Colbert

    Letterman changed the late-night TV game between his run on NBC's "Late Night" and starting the "Late Show" franchise in 1993. And while it's tough to replace a pop-culture icon, Colbert, in terms of pedigree and sense of humor, makes the most sense.

    April 11, 2014

  • Millions of Android phones, tablets vulnerable to Heartbleed bug

    Millions of smartphones and tablets running Google's Android operating system have the Heartbleed software bug, in a sign of how broadly the flaw extends beyond the Web and into consumer devices.

    April 11, 2014

  • mfp file Hoffner Fired coach unjustly accused of visiting porn sites

    The president of Minnesota State University-Mankato accused a football coach of looking at Internet porn on a work computer before firing him, an arbitrator has revealed. The official said the claim could not be supported, and the coach shouldn't have been fired.

    April 11, 2014 1 Photo

  • 25801486.jpg VIDEO: Northern California bus crash kills 10

    At least nine people died in Northern California on Thursday night, in an accident involving a bus, a car and FedEx truck. The bus was filled with high school students from Southern California who were on their way to visit a college campus.

    April 11, 2014 1 Photo

Latest News
TribStar.com Poll
AP Video
Raw: Obamas Attend Easter Service Raw: Space X Launches to Space Station Raw: More Than 100,000 Gather for Easter Sunday Raw: Easter Morning Delivery for Space Station Raw: Crowds Rally at '420' Celebration in Denver Raw: Fire Destroys 3 N.J. Beachfront Homes Raw: Massive 7.2 Earthquake Rocks Mexico New York Auto Show Highlights Latest in Car Tech Man Charged in Kansas City Highway Shootings Raw: Greeks Celebrate Easter With "Rocket War" Raw: Students Hurt in Colo. School Bus Crash Police Question Captain, Crew on Ferry Disaster Raw: Ferry Captain Received Medical Treatment Small Reactors Could Be Future of Nuclear Energy New York Auto Show Highlights Latest in Car Tech Marathoners Celebrate Easter With Tradition Raw: Orthodox Christians Observe Easter Rite Ceremony Marks 19th Anniversary of OKC Bombing Captain of Sunken SKorean Ferry Arrested Raw: Church Tries for Record With Chalk Jesus
NDN Video
ET Presents The Summer Movie Preview Lauren Stoner Shows Off Her Incredible Bikini Body Teen hitchhikes in wheel well of flight from California to Hawaii Celebs Share Their Easter Fun At Boston Marathon, a Chance to Finally Finish Hundreds Gather for Denver Pot Rally on Easter Dr. Phil Put In The Hot Seat By His Own Wife Jabari Parker's Top 5 Plays From Duke Career Kourtney Kardashian Is a Bikini Babe More Manpower Than Ever Expected At 4/20 Rally Debunk'd: Miley Cyrus AIDS, Cheeseburgers Cause Cancer, Military Warning Bill Previewing the NBA playoffs Raw: Orthodox Christians Observe Easter Rite My name is Cocaine Raw: Space X Launches to Space Station Lohan Gets Candid About Her Sex List The 2014 New York Auto Show Meet Johnny Manziel's New Girlfriend Chelsea Clinton Announces Pregnancy Funny: Celebrating Easter with Martha Stewart and Friends
Parade
Magazine

Click HERE to read all your Parade favorites including Hollywood Wire, Celebrity interviews and photo galleries, Food recipes and cooking tips, Games and lots more.
  • -

     

    March 12, 2010

activity