QOTD: “Until we get the Lehman moment, there’s nothing to talk about”

“Emerging markets obviously need to restructure,” said the CIO, top performer, years running. “The reason lower commodity prices drive the dollar is reflexivity.” As prices fall, emerging market balance sheets get worse, investors flee to the dollar, tightening global liquidity, and driving commodity prices lower still. “No one trusts the balance sheets of anyone other than the US.” Europe has yet to properly recapitalize their banks. Japan’s an experiment. China’s an enigma. “These trends continue until the market can get a full accounting of EM and Europe.” That only happens in the aftermath of a Lehman moment; a cleansing crisis. But of course, when Dick fulded, the US government was able to step in and shift risk to the public balance sheet. But Brazil will not have that same luxury. Nor will South Africa, Russia. The list goes on. “And I get it, they’re crowded trades; I do think there will be a big counter-trend trade.” Which could be driven by any number of things, but most likely, it’ll involve the Fed admitting they can’t raise rates. “So here are the only questions that matter this year: What do you want to do? Time your way through that counter-trend move? Or ride it out? Wait for the dip?” Do you really believe you’re smart enough and good enough to do that? “Until we get the Lehman moment, there’s nothing to talk about; buying emerging markets is blindly getting long into a secular bear market; I don’t know many guys who’ve made a lot of money doing that.” Which won’t stop people from trying, sifting through oversold indicators, convincing themselves some new politician will make a difference. “The time to buy US financials was mid-2009; you don’t buy these kinds of markets till it feels as wrong as marrying the antichrist.”

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