Emerging Troubles

Published on
August 17th, 2018
Duration
16 minutes


Emerging Troubles

Trade Ideas ·
Featuring Tony Greer

Published on: August 17th, 2018 • Duration: 16 minutes

Tony Greer, founder of TG Macro, discusses his outlook for emerging markets as Turkey’s currency crisis fuels fears of financial contagion. He explains why he’s adding to his short position on an emerging market ETF in this interview with Justine Underhill. Filmed on August 15, 2018.

Comments

  • CJ
    Craig J.
    5 October 2018 @ 08:40
    Great call Tony
  • DR
    David R.
    27 August 2018 @ 14:15
    Another week, another weak start of the dollar. The dollar chart is broken. Very ugly. The only Emerging problem for the coming weeks will be the crashing dollar, exacerbating the already running-away inflation numbers in the US. Better get your investments out of US if you haven't already, ASAP. Sure, US stocks are rising, but the dollar is falling just as fast, as international investments are crushing US investments again, just like for the 14 months before February. The worm turns, again.
  • AE
    Alex E.
    20 August 2018 @ 20:45
    A lot of noise vis-a-vis dollar direction. Seems a lot of people have forgotten that Fed is shrinking balance sheet to the tune of $60 B per month starting October. On top of increasing interest rates, how on Earth is this bearish for the Dollar? Less dollars available makes it worth more. Or is there some sort of magic wand the Orange one is going to wave and make the dollar suddenly worth less???
    • DR
      David R.
      24 August 2018 @ 16:25
      Real rates are negative and getting MORE negative. Nominal rates don't matter. The tiny, tiny balance sheet rollover is irrelevant to its massive size nad especially the 240-trillion in total US government debt!! (incl off-balance sheet). That's a dozen times as big as the entire economy. Can you say BANKRUPT country?...Cuz that's exactly what US is. So indeed the dollar bear market rally is OVER and the primary dollar bear trend has reasserted itself, now for the 2nd consecutive week. This week is BRUTAL for the dollar which is utterly crashing. Down a huge 350 pips against Euro since just last week. Down a massive 1000 points just today against cny even. Dollar crashing against EVERY thing this week. And in the long run, DXY is now 900 full points below where it was near the start of last year. Very WEAK dollar. The Trump Admin should be keel-hauled for currency manipulation, the hypocrites. Worst major currency in the world since the end of 2016.
  • DR
    David R.
    20 August 2018 @ 16:34
    To follow up, yet another bearish key reversal in the plunging dollar today. Barring a remarkable turnaround in the final hours, price action over the past week demonstrates that the primary dollar bearish trend has re-asserted itself. Again, the term "dollar strength" is a false narrative as in FACT the reality is dollar WEAKNESS. Whether this spills into a renaissance of EM strength is yet to be seen, although select EM markets never were weak and those are likely to accelerate so be selective.
    • DR
      David R.
      20 August 2018 @ 19:22
      Zero pushback late in the day in the dollar today after last week's collapse. That's as bad as it gets, technically. The Euro and Dollar have exceeded levels that indicate you should almost certainly be looking for an entry point to go long Euro and short dollar, if you haven't already, against most currencies. The dollar bear market rally is already over or nearly over, 90-95% probability. Dollar will be ugly for months with a relentless tumble on the horizon. The charts say so.
  • DR
    David R.
    20 August 2018 @ 00:34
    Something else I'd worry could blindside that thesis. What does "macro" say happens in two weeks after Labor Day, when suddenly the imminent US elections take center stage, with the prospect of a fast approaching probably lurch to the far left in congress with the power (and motivation) to start the presidential impeachment. It was pretty ugly for the dollar and all US assets in 1973-74 during the Nixon impeachment process and afterwards. The US twin deficits were bad then, but much worse now, and also back then like now inflation was in its early ascendancy. And the nifty stocks of the day, into which most equity investment was concentrated, collapsed into ashes, just like could happen again with today's few market darlings, as the impeachment gathered pace and the nation's mood soured and consumer confidence fell off a high cliff just like where it is today.
  • DR
    David R.
    20 August 2018 @ 00:21
    Convincing and interesting, but cherry picking the currency timeline without going far enough back to provide the correct technical perspective. Looks like the presenter opined long dollar just about on the day of at its peak, especially given the dollar collapse on Friday and the bearish key reversal both on the daily and the weekly against virtually every major currency. Ugly. Smart money had already moved out of the dollar (if not short yet), away from all the small fish and retail hacks. At this point, even restaurant waiters are parroting the "dollar strength" false narrative. Which, as any technician can plainly see on the chart, is farcical, as thus far it's merely been a bear market retracement, most likely over already, or else nearly over, for this move before reversing the other direction for months anyway. Good trading.
  • SB
    Stewart B.
    19 August 2018 @ 17:09
    One of the better 'Trade Ideas'. Thank you. It is worth considering a long period of ZIRP & printing in developed economies has funded and no doubt created misallocations in EMs. Central Bankers Statist/Socialist policies always have unintended consequences. Perhaps an EM crisis will be the next.
    • ML
      M L.
      19 August 2018 @ 22:50
      ZIRP and printing has created misallocations in only EMs? Just EMs? Step back a little bit and perhaps take the fashionable headlines with a pinch of salt. If the buyside are talking about adding to shorts in EMs, they are probably going to do the opposite. Does anyone here really believe the strong US growth we hear so much about is i) sustainable or ii) real? It is just fiscal stimulus taking over from monetary stimulus and bringing forward some of the 2019-2020 growth to 2018.
    • DR
      David R.
      20 August 2018 @ 00:17
      Agree with ML. First of all, not all EM are the same just like DM. In fact I know some of the smartest, biggest institutional and ultra-high net worth advisors have already repositioned clients. For example Evergreen in Seattle and Gavekal institutionally around the world are public samples anyone can research. The former recently moved clients into EM bonds for a 45% recent gain. The time to go into the dollar was 7 months ago when everyone was screaming about its collapse; not now when they're all screaming "strong dollar" (lol, as if) just like they did 20 months ago before the buck plunged 20% in a year, and double that against some EM. Until the dollar recovers its Dec 2016 level, it's just a bear market retracement (probably over already, or very close to over). Heck, the dollar has been falling since 1985, just not linearly.
    • DR
      David R.
      20 August 2018 @ 19:37
      Dollar bear market rally is over. Resumption of the primary trend (dollar bear market) is confirmed technically. Expect months of dollar price weakness and possibly a new low ahead.
    • DR
      David R.
      20 August 2018 @ 19:43
      Europeans and Asians have a LOT of money in US which has propped up the dollar. Europeans must be unhappy about the nearly 200 pips collapse in the dollar in mere days. They'll be pulling their money out after August and a fed rate hike won't stop that with the dollar tumbling. Who knows how the US expects to fund its grotesque deficits as foreigners flee. USDJPY is getting ready to puke again - undoubtedly to new lows soon enough. Sell a dollar rally, if you haven't already.
  • AK
    Anton K.
    19 August 2018 @ 04:34
    If you're Short EEM, you're Long Trump Derangement Syndrome (TDS). It's the same trade.
  • tW
    tgwtom W.
    18 August 2018 @ 20:57
    Beautifully presented and comprehensive thought process, This ability to seamlessly convey one's knowledge is admirable and very helpful.
    • TG
      Tony G. | Contributor
      6 September 2018 @ 17:57
      Kind of you to say thank you.
  • DS
    David S.
    18 August 2018 @ 20:08
    I agree that your trade should work well. Watch out after the elections when US debts will take center stage. China is playing a long-term game whereas Trump is looking for short-term political gains. If China does not buy American oil, it can get plenty of oil from elsewhere. It already gets a lot of oil from Russian payable in Yuan. The oil market is too broad to be controlled by country. American oil can be easily diverted to China. China is now looking to help Turkey. They can fund plenty of influence by selling US bonds with the dollar high. All this disruption is helping Putin with Europe and the Middle East – Putin and Merkel meeting this week. At some point the Chinese market will be back to bargain levels, and I will buy then. The emerging market ETFs are too broad for me to understand, so I will leave them to much smarter investors. All the corporate tax savings going into stock purchases at high prices will prove non-productive for shareholders. The tax savings are a one-time effect. Interesting times, Best of luck trading. DLS
    • EF
      Eric F.
      19 August 2018 @ 01:44
      Interesting and informative comments, much appreciated David.
    • DR
      David R.
      19 August 2018 @ 19:05
      Also watch out after Labour Day when the prospect of a socialist Democrat sweep of Congress, a hard lurch to the far left and congressional push to impeach Trump take center stage. That changes everything for the dollar, US stability and US assets. Japan, the beacon of a stable society, is looking really good, already haven stolen the mantra of safe haven among the big, smart money. Keep an eye on usd/jpy.
  • DB
    Douglas B.
    18 August 2018 @ 16:59
    I believe Raoul stated on Twitter that he is short EEM as well
  • RV
    Renoir V.
    18 August 2018 @ 12:55
    I think this trade is going to go really bas , really soon
    • DR
      David R.
      28 August 2018 @ 10:30
      I think you meant "really bad" not "really bas".... if so, you (and the smart money) were bang-on.
  • WS
    Will S.
    18 August 2018 @ 00:09
    I'd seriously consider pursuing Justine for marriage. :-) Off topic...I know...but come on...
    • WS
      Will S.
      18 August 2018 @ 01:06
      Come on don't down vote me, I'm just being playful :P
    • WM
      Will M.
      18 August 2018 @ 19:40
      Common Will, get serious, this is not some twitter session.....
    • NE
      Neil E.
      19 August 2018 @ 01:29
      I’m long Justine
  • SM
    Sarit M.
    17 August 2018 @ 21:02
    I'm curious to hear a follow up from Tony about his FCX trade.
    • DY
      Dmytro Y.
      18 August 2018 @ 15:26
      me too! looks he got it wrong on the copper and FCX
  • AK
    Arthur K.
    17 August 2018 @ 20:47
    Bad timing ? as Larry Kudlow says "low level" trade talks will start up again. This news was between when video recorded and published.
    • DY
      Dmytro Y.
      18 August 2018 @ 15:27
      the trade talks do not stop USD strength and EEM softening?
    • DS
      David S.
      18 August 2018 @ 20:14
      Kudlow will say anything to cut taxes and/or confuse the markets. Before long we will need 10% real GDP growth to balance the current budget. I agree with Dmytro Y. about the trade. DLS
  • SH
    Steve H.
    17 August 2018 @ 18:40
    I assume this one was scripted in the White House? Incidentally, Turkey boycotting Apple might seem "ridiculous". China doing the same would sink US equity markets, US tax receipts (which rely inordinately on CGT), and worsen an already floundering fiscal situation. That's China's 'nuclear option', not selling USTs. Sure it would hurt China via the supply chain, but just as Putin rightly said that the North Koreans will "eat grass" before they'll agree to de-nuclearize (is that a real word?), so the Chinese are prepared to suffer in order to pursue China2025 - which is Trump's real target here. TG is far too sanguine about America's strength and invulnerability. As for his trade call - maybe, maybe not. Personally, I don't think I'd take it this side of Jackson Hole.
  • lD
    lance D.
    17 August 2018 @ 18:02
    HAHAHAH Most people lose their 'shirt' in the markets looks like this guy loses his SOCK...
    • DY
      Dmytro Y.
      18 August 2018 @ 15:26
      what makes you think so?
  • AV
    Alberto V.
    17 August 2018 @ 12:40
    Emerging Troubles...is this a new chapter of Basic Instinct?
  • CY
    CHIHLUN Y.
    17 August 2018 @ 11:55
    Interesting discussion, and Tony has obviously anticipated some form of the current events playing out before it happened. One question I do have - if the dollar strengthening and tariff approach is so powerful as a tool - why it was not more appreciated or liberally applied in recent memory, especially if it comes with loss for the RoW and relatively little for the US?
    • AM
      Andrew M.
      17 August 2018 @ 15:27
      Because it destroys global free trade world order and hampers multi-national corporations. Weaker dollar lubricates trade, simple. Obama, Bush, Clinton were proponents of this order - and especially the Dems, who have turned their back on the working class to become corporatists and pedal NAFTA, WTO, and more recently the diasstrous TPP. Conversely, Trump's electoral mandate is to smash that order, and she he can basically take the gloves off when it comes to dealing with China. He would be betraying his base were he not to.
    • CY
      CHIHLUN Y.
      18 August 2018 @ 04:12
      Hi Andrew, See the logic of your answer, much appreciated. Although I don't take a political stance when it comes to investment decisions, it looks like both proponents or opponents of the past order treats it (or are forced to treat it) as a zero-sum game, making the decision to choose one approach or another partisan and acrimonious. I wonder if there a balance that makes it more than zero-sum.
    • AM
      Andrew M.
      20 August 2018 @ 09:15
      I am simplifying of course. Trump likes a weak $ to appease his base, but he's only just recently realised how a strong dollar can wreak so much havoc (esp. for China).. See his recent tweet on the $ for example. Past administrations would weaponize the dollar, but only in isolated (read - not affecting global trade) cases ala sanctions against NK, Iran, Iraq, Russia or whatever. Trump has no such concerns for now; a strong $ will bring Europe and China to their knees, and then perhaps US can negotiate a new Plaza Accord in order to extract concessions. The weaker $ thesis used to be "Trump wants a weak $". Maybe not anymore.
  • CC
    Chris C.
    17 August 2018 @ 10:43
    Tony I always love your analysis “the market is spiking the football” but this ETF has non emerging market holdings. Some of its top holdings include Tencent, Alibaba, Taiwan semiconductor and Samsung. These aren’t emerging market companies. You don’t see these companies propping up this ETF even in bad times?
    • PM
      Priyanshu M.
      17 August 2018 @ 23:08
      All those are emerging markets companies... China, Korea, and Taiwan are EM as defined by MSCI (and correctly so)
    • WS
      Will S.
      18 August 2018 @ 00:07
      The only country in that basket that I would argue is not EM is S. Korea. China and Taiwan are EM.
    • DR
      David R.
      20 August 2018 @ 00:44
      Taiwan is EM despite its higher disposable per capita income than US and infinitely superior quality of life per Mercer and HSBC who specialize in executive expat relocation? Not to mention on the economic freedom index. They see USA as the EM in that matchup, and worsening in comparison every year. Just sayin.
    • DR
      David R.
      20 August 2018 @ 00:48
      ^ probably not a fair comparison as expats (executives and professionals who have lived & worked in numerous countries for an extended time, ie. multiple years), have ranked Taiwan in the Top 5 for several years, including #1 in the world the year before last. The USA has failed to place top ten in over a decade.
  • Nv
    Nick v.
    17 August 2018 @ 09:56
    Tony gave us the consensus view on the trade "landslide" Yet, the US is ex-stimulus and China has stimulus ahead of it - from here the S&P500 has more downside than the Chinese market Dollar strength will cause US earnings downgrades as 40% of S&P500 revenue is from offshore Apple has a China product boycott ahead in its most profitable market - do some research on what happened to Toyota, Huyndai, Kia, Lotte during Chinese product boycotts due to US-Japan and US-South Korea spats
    • Nv
      Nick v.
      17 August 2018 @ 10:15
      Meant to say China-Japan, China-South Korea spats