Deep Dive: Emerging Markets

As we perform analysis in this unusual economic environment, it pays to make sure we’re treating it with fresh eyes each time. By many metrics, ironically other than the traditional developed market metrics, we’ve a lready had a recession, and are arguably still in the later stages of it. But instead of showing up as a credit event and unemployment

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

Global liquidity, which I measure as global broad money supply of major currencies, translated into a dollar denomination, continues to be rangebound as well. The weaker dollar index has been supportive for global liquidity growth in recent months, but China’s flat money supply from March 2024 to the present has been a drag on global liquidity grow

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.

Basically, if someone went into these past couple of years owning a house with a low fixed-rate mortgage, a portfolio of financial assets, and decent income, then they’re probably feeling pretty okay right now, economically speaking. However, those who didn’t manage to get a house before mortgage rates rose sharply, and/or who don’t have a lot of f

characterize two types of recessions.

-The first type of recession leaves most people relatively unaffected, but is really bad for the much smaller subset that lose their jobs. This is a classic disinflationary developed market recession.

-The second type of recession spreads the pain a bit more broadly. Perhaps a third or half of people are experien

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 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 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