Credit is Gold #1 and Icebergs

[unhappycamper]

http://www.prudentbear.com/2014/01/credit-is-gold-1-and-icebergs.html#more

Credit is Gold #1 and Icebergs
January 24, 2014 posted by Doug Noland

~snip~

Backdrops conductive to crises can drag on for so long – sometimes seemingly forever - as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.

EM currencies came under intense selling pressure this week. Most dramatically, the Argentine peso sank 15.1%. The Turkish lira fell 4.4%, the Brazilian real 2.3%, the Russian ruble 2.9%, the South African rand 2.0%, the Chilean peso 2.0%, the Colombian peso 1.5%, the South Korean won 1.9%, the Indian rupee 1.8%, and the Mexican peso 1.6%.

Notable market yield increases included the 59 bps surge in Turkish 10-year (lira) yields to 10.58%; the 113 bps increase in Venezuela 10-year (dollar) yields to 16.26%; the 122 bps jump in Ukraine 10-year (dollar) yields to 9.54%; the 19 bps increase in Russian 10-year (ruble) yields to 8.13%; the 19 bps jump in Mexico 10-year (peso) yields to 6.58%; the 25 bps increase in Brazil’s 10-year (real) yields to 13.14%; the 30 bps jump in Hungary’s 10-year (forint) yields to 5.71%; and the 30 bps jump in Indonesian (rupiah) yields to 8.78%.

The apt Bloomberg currency market headline read: “Contagion Spreads in Emerging Markets as Crises Grow.” Note plural “crises” as opposed to a singular EM crisis. This is a pertinent issue. A popular CNBC contributor posited Friday that EM-related market stress was not as troubling because it was related to individual country issues as opposed to what would be more challenging “macro” forces. I would counter that the unfolding global crisis will be particularly problematic because of what has been a dangerous interplay between global “macro” and individual country “micro” Bubble dynamics.