All heck broke loose in equities, after an already iffy start of the year, and Friday’s hair-raising plunge across the board left the Dow down 3.7% for the week. They got clobbered worldwide: in Asia, except China, in Latin America, in Europe – with Germany’s DAX down 3.6% for the week and Spain's IBEX 35 down 5.7%.
And emerging markets, oh my! Equities plummeted. And outright bloodletting took over the currency markets. The Turkish lira dove, though the central bank tried to prop it up. Argentina, which is desperately lacking dollar reserves and might not be able to service its dollar bonds, simply threw in the towel and let the peso devalue, rather than blow more dollars that it didn’t have on slowing down the fall. BOOM – 13% of whatever wealth was tied up in the peso has evaporated.
"Global emerging markets are now trading in full-blown panic mode," explained Benoit Anne, global head of emerging-market strategy at Société Générale in London.
A teeny-weeny bit of taper, and look what happened.....
Mega gains based on printing money out of nothing have become the norm. Everybody has gotten used to them. Wall Street players have gotten immensely rich off them. No one can imagine a different scenario. Nothing else is apparently allowed to happen.
Forget the corporate revenue and earnings debacle. Forget the employment quagmire, the lack of corporate investment in anything other than their own shares, the lousy shopping season, the layoffs in retail and tech. Forget the sky-high stock prices, the IPO bubble, the distortions and mal-investments. So long as the Fed prints enough money, asset prices will go up. And that’s the only bet left, apparently
2---Emerging markets rout: The end of easy money, naked capitalism
The scaling back of the Fed’s easy-money policies ["tapering"] has hit some emerging markets hard. When the Fed was pushing U.S. rates lower, emerging markets had seen an inflow of capital from investors seeking higher returns than they could get in the United States. Now investment is flowing back to America, hammering currencies in emerging markets. …
“Talk that the U.S. Federal Reserve will announce another reduction in its monthly bond purchases next week … (is also) contributing to a in some emerging markets,” [Jane Foley, a currency strategist at Rabobank] said.
In some countries, over the local political or financial situation have worsened the market volatility dramatically. That was most obvious in Argentina, where the peso this week suffered its sharpest fall since the country’s 2002 economic collapse. …
Turkey’s national currency, the lira, hit multiple record lows in recent weeks as investors worried about the fallout of a corruption scandal that threatens to destabilize the government. …
Beyond political problems, the countries that have seen their currencies fall most are those that rely heavily on exports of raw materials used in manufacturing. The Russian ruble was trading at 34.58 per dollar, from below 34 on Thursday. The South African rand weakened to 11.13 per dollar, from 10.98 the day before....
IMF warns Fed could worsen markets rout Ambrose Evans-Pritchard, Daily Telegraph (dateline “in Davos”).
Roughly $4 trillion of foreign funds have poured into emerging markets since the financial crisis in 2008-2009, much of it “hot money” going into bonds, equities and liquid instruments that can be sold quickly [Party like it's 1997?!]
Officials are concerned that this footloose capital could leave fast in a crisis, setting off a cascade effect.
Tidjane Thiam, Prudential chief executive, said his $800bn funding empire would stay the course in Asia and the developing world. “What we are seeing is an adjustment process that is necessary. Some of those currencies need to fall. Imports will go down, exports will go up and things will come back in balance. he said.
However, global fund managers are split over the gravity of the threat. “We think there is going to be a big crisis, with Turkey and Venezuela in the front line,” said one European insurance fund....Why emerging markets worry Wall Street Adam Shell, USA Today
Here are some reasons why what happens in emerging markets matters to Wall Street.
*Hot money turn cold. … [N]w that the Fed has started to dial back its stimulus, many investors are yanking their cash out of emerging markets and bringing the cash back to more stable markets and economies, such as the U.S., hurting the developing nations in the process, explains Russ Koesterich, chief investment strategist at BlackRock.
*Currency crisis create economic crisis...
Contagion Spreads in Emerging Markets as Crises Grow Bloomberg
The worst selloff in emerging-market currencies in five years is beginning to reveal the extent of the fallout from the Federal Reserve’s tapering of monetary stimulus, compounded by political and financial instability.
Investors are losing confidence in some of the biggest developing nations, extending the currency-market rout triggered last year when the Fed first signaled it would scale back stimulus. While Brazil, Russia, India, China and South Africa were the engines of global growth following the financial crisis in 2008, emerging markets now pose a threat to world financial stability.
3---What’s Behind the Emerging-Market Meltdown , Bloomberg(Bloomberg editors--Blaming the victim of experimental monetary policy)
Emerging-market economies had a brutal week. For years, during the crash and its aftermath, they did well as the advanced economies slumped. Recently, not so much. Many developing countries are seeing their currencies drop and their bonds and equities hammered. Just as the global recovery appeared to be strengthening, a fresh source of instability has presented itself.
The issue now is how to keep the turmoil from derailing the global expansion. In a way, this was not an unexpected development: The recession in the advanced economies caused central banks to push short-term interest rates to zero and buy assets to drive long-term rates down as well. Capital flowed to the developing world in search of better returns. As investors prepare for a resumption of normal monetary policy, demand for emerging-market assets is bound to fall. The question has always been whether this adjustment would be smooth or abrupt.
The problem is that two things are amplifying the adjustment of capital flows: first, the dependence of global capital markets on the dollar, and hence on the policies of the U.S. Federal Reserve; and second, policy mistakes in some of the most-watched developing economies. In the short term, there’s little to be done about the dollar’s destabilizing pre-eminence. But economic reform in some of the main emerging-market economies, desirable in its own right, would help calm nerves ....
There’s also more emerging-market governments can do. They should recognize that this week’s financial-market turmoil was, to varying degrees, their own fault...suffice to say, the best way for emerging-market governments to restore confidence would be to improve their policies. In this week’s financial turmoil, factors beyond their control were in play, but they aren’t innocent bystanders, and they aren’t powerless.
4---Slow Progress On Long-Term Unemployment Benefits As 1.6 Million Miss Out, Huff Post
At the end of December federal benefits had abruptly ended for 1.3 million Americans. Each ensuing week another 70,000 workers have reached the end of state benefits, bring the total to 1.6 million. Since 2008, Congress has provided additional weeks of benefits for workers who cross the six-month unemployment mark -- as Congress has done in previous recessions. Democrats say it's too soon to drop the extra compensation, but Republicans aren't so sure.
5---Spinmeister Abe: Abe creates phony crises to divert attention from economic policy failures. Japan Times
national polls show hardly anyone believes they are benefitting from Abenomics, and that less than 20 percent of employers plan wage hikes. Soured public sentiments have a way of snowballing, and once a premier’s approval ratings start sliding, they continue to do so. Usually.
Time to launch a crisis or two.
First there was the sham crisis over China’s Air Defense Identification Zone, followed by that visit to Yasukuni Shrine — both designed to goad China into shrill blustering
6--US Riled as Afghan Report Details Civilian Deaths in Air Strikes, antiwar
Karzai used the report as an opportunity to reiterate his opposition to a Bilateral Security Agreement (BSA) that would keep the occupation going “through 2025 and beyond.” Karzai added in a statement that he wants the US to start peace talks with the Taliban, or failing that to just leave outright.
7---Afghan president says U.S. should start talks with Taliban or leave, antiwar
President Hamid Karzai appeared to stiffen his resolve on Saturday not to sign a security pact with Washington, saying the United States should leave Afghanistan unless it could restart peace talks with the Taliban.
"In exchange for this agreement, we want peace for the people of Afghanistan. Otherwise, it's better for them to leave and our country will find its own way," Karzai told a news conference.
The president said pressing ahead with talks with the Taliban, in power from 1996-2001, was critical to ensure that Afghanistan was not left with a weak central government.
"Starting peace talks is a condition because we want to be confident that after the signing of the security agreement, Afghanistan will not be divided into fiefdoms," he said.
8---Income disparity by country, marc to market
This Great Graphic was posted on CNN Money by Tami Luhby. It shows the percentage income in a eight countries, including the US, that the richest 1% receive. The lighter bars are for 1981 and the darker bars are for 2009. The data comes from a new Oxfam report.
While the 1% in the US command a much greater share of national income than their counterparts in the other countries represented here, it is even more. Data from 2012 suggests that the 1% command 20% of the national income in the US.
The disparity in the US has become part of the national dialogue. Republicans and Democrats are trying to define the issue and the policy response. It will likely be prominently featured in Obama's State of the Union address. Wealth and income disparity was a topic at the World Economic Forum in Davos, though it seems rather surreal.
9---Three years of the Egyptian revolution, wsws
the unfolding of the revolution brought the working class into conflict with the social and political forces through which the Egyptian capitalist class and its imperialist backers successively sought to stabilize their rule in Egypt. As workers launched one wave of struggles after another, the irreconcilable conflict between the working class on the one side and bourgeois and petty-bourgeois forces on the other came to the fore.
Initially, the army sought to continue its rule without Mubarak, installing the Supreme Council of the Armed Forces (SCAF) junta, pushing through anti-strike and anti-protest laws and cracking down on demonstrations in Tahrir Square.
When the ruling class responded to an upsurge of mass protests against the SCAF by organizing presidential elections that brought the Islamist Mohamed Mursi to power, the MB was exposed as a defender of the same class interests as the hated Mubarak regime. Mursi held talks with the International Monetary Fund to prepare austerity measures against the workers and served as a stooge of US imperialism, supporting Israeli air strikes against Gaza and the escalating US-led proxy war in Syria....
The victory of revolution depends on establishing the political independence of the working class, in opposition to liberal and pseudo-left forces in the middle class who will stop at nothing to block a social revolution.