Emerging Market Balance of Payments, Current Account Deficit, And Banks

One can look at drivers of growth and earnings over last couple of years. Where developed country huge GDP's have gone almost up, or flat and into decline, emerging markets have been the investment vehicles for U.S. dollars. These dollars have now come to end.

Yet, we see drivers of money finally finding a last death in a U.S. stock market. Like a Frankenstein monster, this stock market refuses to see comparative pricing levels. Bubbles....who really cares at this point. Entire proposition of a cycle exhausting comes from real time data.

China, a major global driver, is obviously running by a different tune, a different set of monetary policy. China, by the way, has been hesitant in bringing new accommodative monetary measures. They seem very internally focused amid growth rates that now disappoint, if not show "new sprouts of growth". Investors really have to be more astute and see direction, instead of sprouts.

Major emerging markets are now in current account and cash flow deficit, together with falling currency values. This means these falling markets have higher foreign debt exposure, versus their currency values when these foreign loans were garnered to finance past growth. Simple proposition now days is these emerging markets have an overhang of debt, owed in foreign dollars, when their native dollars pay back less of foreign debt every day.

Add to this increases in current account deficits and developing capital/financial account deficits in emerging markets, and these countries are reliant on cashed in U.S dollars. That is, these markets have declining net income, but growing reserve currency values. Sure, these reserve currencies, brought by foreign investments cashing in, can help support their native currency. But, after substantial declines in native currency, these markets will use all of their foreign currency reserves to maintain a balance against foreign debt. One must realize, foreign currency denominated debt in these countries is how financing of investment occurred.

Once foreign currency reserves are exhausted to support foreign debt amid declining native economies and currency values, a currency crises arises. As always, given time, an emerging country shows its interconnection in a system of global finance.  80's Latin America, 90's was Asia. Great Recession?

Developed country banks generally are divergent with European banks, which look weak as cats, where U.S. banks look strong. Europe in general remains in recession, U.S. only avoids recession due to a strategic cash lockup in U.S banks.

Markets currently see money only from a banking perspective....huge earnings growth from financial sector recently. Biggest investment of last four years, being emerging markets, is now convincingly turning against itself.

Major question right now is why oil is high, equating to levels of when emerging markets had positive balance of payment numbers. Emerging markets are now cash flow negative, and oil is currently in speculation....on the wrong side.

With Brent and WTI almost at parity, and no major plays on global delivery, it's unfounded speculation hanging over from reversing a couple pipelines into the Gulf of Mexico.