"the BRICS and mini-BRICS...must do penance for $5.7 trillion in dollar debt"
"We are entering a new financial order where there is no longer an automatic “Fed Put” or a “Politburo Put” to act as a safety net for asset markets"
"Expect a shake-out of 20pc [S&P 500] comparable to the LTCM crisis in 1998 when the wheels came off in Russia and East Asia, though don’t be shocked by worse. Emerging markets are a much bigger part of the world economy today, and their combined debt ratio is a record 175pc of GDP."
Emerging Markets High Yield Debt Fund:
The interest rate differential doesn't matter, if the currencies are moving the wrong way...
The two major global carry trade currencies are the Dollar and the Japanese Yen
Both countries have been experimenting with 0% interest rates for the past six years, which created a gold mine for carry traders borrowing at 0% and investing overseas with massive leverage. Now the dollar is rising parabolically, annihilating foreign borrowers of dollars. The Yen however, has been continually weakening in dollar terms, but is now trying to bottom in this area around where it bottomed in 2007. It's the last leg supporting the globalized Ponzi Scheme.
The Yen has already begun to strengthen against other Asian currencies, which is a far more relevant comparison than the dollar.
Malaysian Ringitt: Peaked in November in Yen terms:
In dollar terms, a Yen reversal would be a seismic event for all risk assets. However, it's not necessary for a near-term Yen/dollar strengthening to occur, in order to blow-up the rest of Asia. All that matters for that to happen is continued weakening of Asian currencies relative to Yen.
The Yen/dollar inverted with the Dow:
Yen/Dow Close-up:
The most recent late December Dow peak was not accompanied by a new high in the dollar versus Yen i.e. the dollar/Yen peaked a month ago:
Risk is binary. We've had ample warning.
