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The Fed's Inflation Will Crush Emerging Markets

 

A final feature of the Fed’s decision to implement QE 4 will be greater inflationary pressures. This will result in lower economic growth (in real terms) as well as higher operational costs, which will eat into corporate profit margins.

 

As an example, consider Brazil.

 

As the largest exporter of most commodities in the world, few economies benefit from higher commodity prices like Brazil. However, in spite of this supposedly strong backdrop, Brazilian stocks actually peaked back in early 2011 and have been languishing ever since:

 

 

Few analysts understand that much of the boom in emerging markets over the last 10 years was the result of the Fed’s easy monetary policies post 2003. With money flooding the system and interest rates low, capital flowed into higher growth projects in the emerging market space. As a result, virtually every emerging market rallied strongly from 2003 until the 2008 Crash.

 

Indeed, Ruchir Sharma of Mortgan Stanley notes that only 50 countries grew their GDPs at a rate greater than 5% a year during the ‘80s and ‘90s. However, from 2003-2007, more than double this number (114) saw growth of greater than 5% per year. This is out of just 183 countries in the world.

 

You can this in Brazil’s action in the chart above as well as Russia’s in the chart below: both charts show explosive growth going into 2003 followed by pronounced weakness since 2008.

 

 

This era ended with a bang in 2008. And it’s not coming back. The Fed and other Central Banks continue to flood the system with money, but they’re not pushing economic growth anymore. Instead, what we’re seeing is higher inflation, which is resulting in higher costs of loving and occasional outbreaks of civil unrest.

 

With QE 4 and QE 3 now in effect we’re going to be seeing more of this as the below articles show:

 

Farmworkers demanding higher wages in South Africa’s biggest table grape-growing region resumed protests today in the absence of new talks between the government, labor unions and the main farmers organization.

 

About 150 people protested peacefully near a shanty town outside Worcester in the Western Cape province, demanding that the minimum wage be increased to 150 rand a day ($16.92) from 70 rand. In Stofland, on the outskirts of De Doorns, about 50 people marched through the streets of the settlement singing songs and carrying banners of the United Democratic Front, a civil rights group.

 

http://www.bloomberg.com/news/2012-12-04/south-african-farmworkers-resume-protests-over-higher-wages.html

 

Spreading protests and escalating demands from Indonesia's labor groups could delay or even derail spending on the country's overburdened infrastructure, industry leaders warned.

 

Jakarta's governor agreed to increase the minimum wage in the capital by 44% this week. As other regions are expected to follow suit, the populist move could trigger higher wages and inflation and discourage investment in Southeast Asia's largest economy, say some analysts and executives. Unions say workers deserve higher wages, better benefits and better job protection as the country's economy blossoms.

 

http://online.wsj.com/article/SB10001424127887324352004578136521801067406.html?mod=googlenews_wsj

 

Nearly half of the bus drivers from China who were involved in a dispute over salaries on Monday did not show up for work on Tuesday morning.

 

SMRT said 88 of the 171 drivers who refused to work on Monday did not report for work again on Tuesday.

 

SMRT said it takes a serious view of the bus service delays that were brought about by the irresponsible behavior of the bus drivers who did not report for work as scheduled.

 

It said SMRT's priority is to ensure that bus services are restored to normal as soon as possible.

 

http://www.channelnewsasia.com/stories/singaporelocalnews/view/1239610/1/.html

 

There is no indication this trend will be ending. Once wages begin to rise aggressively is when inflation really begins to take hold in the system. This process has begun and will accelerate in the coming months.

 

This concludes this article. If you’d like more information on inflation and protecting yourself from it, we feature a FREE Special Report detailing the threat of inflation as well as two investments that will explode higher as it seeps throughout the financial system. You can pick up a FREE copy of this report at:

http://gainspainscapital.com/gpc-inflation/

 

Best Regards,

Graham Summers

 

PS. We also On that note, feature a FREE report concerning the threat of a European Banking Collapse. It’s called What Europe’s Collapse Means For You and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.

This report is 100% FREE. You can pick up a copy today at:

http://gainspainscapital.com/eu-report/

 

Obama Said No Deal, McConnell Denies, Says "Agreement Reached On All Tax Issues"

Just when one thought the posturing couldn’t hit more ridiculous levels, here comes GOP Senator Mitch McConnell refuting what the president said, refuting the supposed GOP revulsion to the president’s prior statement, and stating that there is actually a deal, although if there actually was a deal, there would be voting going on right now, and passing it, instead of endless useless speeches meant simply to ramp headline scanning algos higher:

  • MCCONNELL SAYS AGREEMENT REACHED ON ALL TAX ISSUES
  • MCCONNELL SAYS `WE’RE VERY, VERY CLOSE TO AN AGREEMENT’
  • MCCONNELL SAYS HE REACHED OUT TO BIDEN TO SOLVE FISCAL CLIFF
  • SEN. MCCONNELL SAYS `LET’S PASS THE TAX RELIEF PORTION NOW’

So if agreement on tax issues, what is there disagreement on? Oh yes, there is no agreement on the spending side, but who needs details.

And while everyone follows their talking points, and is taking the charade to unseen before heights, nobody has voted on anything yet, and nothing has actually passed Congress. But once again, the algos seem to like it, for now, and are taking the market on yet another stop run higher.

 

Let’s see if this can break now that ES VWAP is up to yesterday’s…

China PMI Surges To 19-Month High – US (And Chinese) Equities Sigh

There was a time when the US was the cleanest dirty shirt; it seems now, given the US equity futures’ (total lack of) reaction to tonight’s 19-month-high surge in the ever-trustworthy over-invested mal-allocated Chinese PMI that for once, all that matters is domestic issues. HSBC’s China PMI surged to 51.5, its highest since May 2011 and the Shanghai Composite is even shrugging it off as new export orders fell slightly (but of course all that matters is the top-line); and not wanting to burst anyone’s bubble but – a majority of survey respondents (nearly 85%) reported no change in the level of outstanding business, employment levels also remained broadly similar in December, with nearly 92% of panelists noting no change to workforce numbers. But apart from that, the drop in inventories (and jump in input prices) apparently was enough to jerk this idiotic barometer of whatever it is to something that purports to show the best manufacturing growth in 19 months. It seems clear that our Chinese ‘friends’ at the PBoC are telegraphing that we are on our own – there will be no easing from them in this environment – Trade accordingly…

 

 

and US equity futures reaction…

 

Shanghai Comp…