21 Responses to “Notes From Underground: The Power of Big Data In the Time of Correlative Investment”

  1. kevinwaspi Says:

    Yra,
    Thanks for reminding me that history may rhyme, but does seldom repeat itself. Your analysis of each element of each market is a prudent exercise, while drawing parallels is the lazy (and often wrong) analysis.
    Kevin

  2. Lou Baron Says:

    Hi Professor Ira, I’m afraid I’m going to have to take advantage of your office hours to clarify my understanding of your fascinating lecture. Sometime you call it a current account deficit (example Turkey going from 2% to 7.22% … not good), and sometime you refer to it just as a current account and place a minus sign in front of it (example Russia in 1998 the current account was -2%, and at the present it is 1.96% … good, since it went from a negative to a positive); so can I assume that in your lecture a current account deficit of 2% of GDP is the same as a current account of -2% of GDP? And if I’m reading the figures correctly (at least the current account as a percent of GDP) the order of performance of the five countries you listed is: Brazil (from -2% to + 3.59%); Russia (from -2% to +1.96%); Mexico (from -5.8 to -1.81%); Turkey (from -2% to -7.22%); and South Africa (from -1.5% to-6.8%). And interesting enough the ranking seems to correlate somewhat with the rate of currency devaluation (vs the dollar) that has occurred in each country respectively. So is the takeaway that the first three countries are headed in the right direction (and not subject to a “structural funding issue”) and the last two countries are headed in the wrong direction (and could have a “structural funding issue”)? And does it seem that deflating against the dollar might be the salvation of the last two countries? And finally I’m not looking for a better grade in saying this, but I really have been enjoying your classes.

  3. asherz Says:

    What is the danger of each threatened currency resorting to competitive devaluations, which 80 years ago got out of hand? How do Argentina and Venezuela compare today with over a decade ago? Could QE at some point lead to the dollar leading a bout of currency wars? If the U.S. economy slows down, wouldn’t the Yellin Fed reverse the tapering course and move to amplification (is that the proper antonym?)? We have avoided that until now, but isn’t the threat out there?

  4. Chicken Says:

    I really appreciate these analysis Ira, thanks for the explanations.

  5. Shocked to Find Gambling Says:

    Yra, I think the bigger problem is that these EM problems are happening within a totally mispriced and destabilized world economic system, brought on by QE, ZIRP, supporting bad assets,etc, and a level of debt that is unsustainable. The EM countries are the canaries in the coal mine.

  6. yra Says:

    Lou–sorry Brazil should be a minus[deficit]–all else you have correct

  7. Chicken Says:

    Thus, assuming I’m comprehending correctly, Brazil’s account deficit has deteriorated from -2% to -3.59% over the period while Mexico’s has improved from -5.8% to -1.81%.

  8. yra Says:

    absolutely–now the complete analysis will be to also measure the non-inflationary growth in the GDP—but Chicken–you see the dramatic improvement

  9. Chicken Says:

    I see your point Ira, the Mexican peso has depreciated from 6 to the today’s < 13.5 over the period. Looking the chart over, a 7 month pendent breakout of 13.461 suggests a potential run to 15~17

    This formation appears to have recently failed though, and thus Mexican Peso has recently begun appreciating.

  10. Shocked to Find Gambling Says:

    Yra, Could you explain why the pundits say that QE Taper is hitting the emerging markets? Rates have gone down this year, despite the Taper, so I don’t get it.

  11. Chicken Says:

    So whomever is offering CDS’s on EM debt is probably raking in the business about now, wouldn’t you think?

  12. Chicken Says:

    Debt denomination – And, it should matter if the EM government debt is denominated in $US or the local currency, because if the local currency is under pressure but the debt principal and interest are due in $US, then it will make it more expensive for the government to service their debt, ie: converting tax receipts in the local currency into $US for servicing debt will bring extra cost.

  13. Nate Says:

    Shocked to Find Gambling,

    I am no expert, and I’m sure there are several who will disagree, but I BELIEVE the reason is the QE currencies were searching for RETURNS. With Bonds high, real estate high, US, DM Equities overvalued, the QE found its way to EM. Now, there is less QE finding its way to EM, therefore specs are jumping ship.

    Yra, Do I have that correct? I’m sure it’s more complex than that though.

  14. Shocked to Find Gambling Says:

    Nate,

    That makes sense, EXCEPT that U.S. Treasury rates have gone down during the last phase of the EM problems, so Treasuries are now a less competitive investment. I’m missing something here.

  15. rockeye118 Says:

    Risk?

  16. rockeye118 Says:

    I’ll offer you 12%, but there is a 99% chance it will fail, or I’ll give you 2%, with a 1% chance it will fail… Hyperbole, but what I think is happening.

    I should have said PERCEIVED RISK in my last statement.

  17. joe Says:

    Doff of the cap to anyone who profits from an excellent analysis of this world-over chess game, that when over, winner takes nothing.

  18. yra Says:

    Nate–dead bang on–remember a central theme of my thought process and this blog is the relative nature of global finance.Politics and economics are our focus and when money seeks stability rather then higher yields we pay close attention.

  19. Dustin L. Says:

    Yra-There is plenty of USD debt held by EM corporations. I remember a few years back reading a piece on the Turks taking advantage of low US rates and a falling dollar and borrowing aggressively in USD. This happened all throughout EM’s. So as far as EM currencies go I am not interested in being long even for a rally here or there. However, I think EM economies will not collapse and growth will adjust as their currencies adjust much like you have pointed out. But, if EM central banks fight depreciation and raise rates too much my position would change quickly. They must take the short-term pains of panicked capital outflows and a falling currency to sustain growth in the intermediate to long-term. Aggressive rate rises are not the answer! The Rotten Heart of Europe is great at making this clear in the case of several countries during the ERM era.

  20. yra Says:

    Dustin –very good post and I would advise reading a piece released today by the BIS Working paper 441—by Philip turner

  21. Dustin L. Says:

    Yra- Thanks for the recommended reading! I very much enjoyed the paper. It was good to see data on just how large international bond markets have become relative to bank lending of late. Also appreciated the calculation of the US nominal term premium since 2000 which would seem to go a long ways in explaining long-term foreign corporate and foreign subsidiary borrowing in USD and leaving much of this exposure unhedged. Plenty of useful tidbits of info all throughout.

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