The Fed's Inflation Will Crush
Emerging Markets
Posted by: Phoenix Capital... Post date: 12/31/2012
The Fed's
inflationary policies will damage Emerging Markets... not push them higher. http://albertpeia.com/fedsinflationtocrushmarketsprofitmargins.htm
‘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.
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/