Deep Dive: Emerging Markets

The reverse repo facility has been flat lately, and there’s still $433 billion in it. The big draining of the reverse repo facility from over $2 trillion in May 2023 to the current low levels was the main reason why the Fed was able to keep performing quantitative tightening without causing further liquidity problems in the banking system.

When we use Brazil as a quintessential example, we can see how much their dollar-denominated GDP suffered during the three times where the dollar index spiked significantly:

The most expensive stocks currently are generally the defensive non-cyclical ones. The strong performance of the S&P 500 as of late is not because investors are crowding into bullish cyclical stocks on a strong economy; they’ve instead crowded into wide-moat “sure thing” risk-off stocks with low earnings volatility, such as big tech and compani

Back in the 1990s, the United States had a legal conflict regarding using encrypted communications. Phil Zimmerman developed Pretty Good Privacy or “PGP” in the early 1990s, which was free and open-source peer-to-peer encryption software. It spread internationally, and so the U.S. government launched a criminal investigation into Zimmerman for “exp

Back in 2020, the misery index briefly spiked due to lockdown-induced unemployment, and consumer sentiment fell, but that reversed quickly as lockdowns ended and as fiscal stimulus went out to people and businesses. In 2022, as inflation washed over the economy, the misery index rose to very high levels, and consumer sentiment fell to deeply recess

Emerging markets are responsible for the majority of marginal economic growth and commodity demand growth in the world, since they collectively have a larger population and have far less per-capita commodity usage as a starting point compared to developed markets. Emerging markets also have a lot of dollar-denominated debt, which is lent to them fr

And they tend to approximately rotate together. Decades where American growth stocks do well and the dollar is strong tend to be the decades where value stocks, emerging market stocks, and gold/commodities collectively underperform. And then when an asset rotation occurs, American growth stocks (which at that point are quite expensive along with a

The first and more notable one was the payroll data. Back on August 21st, the BLS revised job numbers downward by 818,000 or about 30% for the 12-month period from April 2023 through March 2024. This is the biggest downward revision since 2009. They still estimate that jobs were created, but 818,000 shy of the previously reported cumulative number

(Early 2020 was a big exception to that, since the fiscal impulse and the rate of quantitative easing were so big that they overrode the rise in the TGA, which on its own would be negative for liquidity. The TGA was only increased that high basically for extra financial buffer to support everything else that was happening, since the sheer magnitude