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October 23, 2008



I agree that the emerging markets are just starting to feel the effects of this, but
what is decent argument you can make that the we have bottomed in the advanced economies?

I just wrote about housing this morning. We have just gone through the first wave of subprime ARM mortgage resets. Next up are Alt-A ARM resets. How much different is the credit quality of Alt-A and is it enough to offset the fact that Alt-A issuance peaked later meaning many more Alt-A mortgages are under-water.

And then we have option ARMs... I can't see housing being anything but a major headwind for the economy for the next 5 years at least. Are equities really pricing in no or negative growth for 2 year, maybe more?

I don't know the answers, but if someone can cheer me up by telling me we are near a bottom I would be extremely grateful!


Barkley Rosser

Funny that at the time of the IEA conference in Istanbul in June, there was all this talk of the IMF about to become irrelevant and being the "Turkish Monetary Fund." Now Iceland has gone hat in hand and this morning it was announced that Pakistan has also. Hungary might need to shortly, along with South Korea, with quite a few other candidates out there.

Per Kurowski

Dani you are working from a desk! You have no idea of the capacity to adapt out there on the street, Take a full run in an emerging country and the day after, though hurting, its people might be ready to roll, again, but try to do that in the US of today and you might find yourself with a totally different set of problems.

And who are you to talk to emerging markets about fragile fiscal system running a huge deficit… that will only grow and having some presidential elections based on tax cuts.

Yes IMF should help… but should it help to try to avoid the collapse or should it help after the collapse.

Do you not see the scale of the mess we´re in?

Do you not see that one of the attractiveness of Sarah Palin is that she could at least go out and shoot a moose for dinner?



It may be true that emerging markets are hungrier, but who is going to provide a market for their goods? That's the problem. The premise of decoupling has been debunked. If US consumers aren't willing or are unable to buy what they are selling on credit, they don't buyers. No buyers = no business.

Beyond that, many emerging markets (Brazil, Russia) are emerging because of their resource base. If oil settles below $50 as has been speculated, that puts a serious crimp in their ability to expand.

This is a global recession (depression?) and it has just begun.



SpeciousRiches my concern is regarding the CDS markets ‘black hole’; overly leveraged companies in China and Russia; as well as foreign retail banks that operate in the emerging markets experiencing a local “money run” due to instability at home (US).

As for Brazil, the country doesn't have an OIL based economy, they export other goods that where becoming expensive due to an unusual currency appreciation... Brazil has huge reserves of untapped oil that where found in 2007 and 2008, but with oil price's sinking these reserves are likely to be left untouched.

Brazil is a very UNIQUE case, because the culture of borrowing is almost non-existent among its business community (after years of high inflation) average citizens also borrow very little. Before the sub prime crises started, Brazil already had one of the highest rates (for lending) on earth. The mortgage market is government securitized and almost un-existent. In Brazil companies can only borrow against collateral and leveraging is regulated since the hyperinflation years in the 90’s. This detail makes their economic reality quite different from the Chinese, Argentine, Indian, or Russian.

Opposite from the Argentinean Economy (already running out of cash), or the totalitarian governments in Russia and China, Brazil is a solid democracy with strong institutions and an independent Central Bank.

YES, the stock exchange had been hurt and the influx of foreign capital is decreasing due to commodities trading at new lows… But what is happening is a cut in the "exuberance factor" as well as a much needed adjustment in prices and the exchange rate. If you look at the FGV indicators, the Brazilian Economy is slowing but not showing signs of fragility as those suggested above.


ACM, very good points about Brazil. I guess my point was more broadly about commodity exporters in general, not specific to Brazil and Russia.

Much of the emerging market growth we have seen has been driven by a boom in commodity prices. That is now reversing and doing so quickly.


Per Kurowski

SpeciousRiches says “The premise of decoupling has been debunked. … This is a global recession (depression?) and it has just begun.”

Except for some story-spinning hedge funds, few really believed the decoupling nonsense.

Yes, this is truly a global recession and this time around, I have a feeling that the relative social negative impact of the crisis could be much larger in the developed world than in the developing countries, and so we need to be very watchful on that front too.

There is for instance a crazy storyline that says “this crisis is fiscally manageable” going around in Washington (in London too) but I guess that is only because elections drives out all the inconvenient truths.

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