Posted on 08/23/2015 4:33:16 AM PDT by dennisw
The large mutual funds that helped fuel rapid growth in developing countries have begun hastily retreating from those investments, contributing to the recent sharp decline in global markets.
In the last week alone, investors pulled $2.5 billion from emerging-market bond funds, the largest withdrawal since January 2014.
The world’s fastest-growing economies — led by China — have been propelled by soaring commodity prices, robust currencies and access to cheap loans, primarily through the sale of high-yield, high-risk bonds. But China’s decision to devalue its currency has set off a chain reaction of panicked selling around the world that contributed to the biggest one-week loss on Wall Street since 2011, sending the Dow Jones industrial average into correction territory (10 percent below its recent peak). The index was down 531 points on Friday and nearly 6 percent for the week.
“The growth rates for many of these countries were vastly overstated,” said Dani Rodrik, a professor at the Harvard Kennedy School of Government who has studied the impact of foreign capital flows in developing economies. “It was all very unsustainable.”
The selling spree has raised concerns among regulators and economists about a broader contagion that could make it difficult for individual investors to withdraw money from their mutual funds.
While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell — especially in a bear market.
If investors ask to be repaid all at once — as happened in 2008 — a run-on-the-bank scenario could unfold because funds would have difficulty meeting the demands of people wanting their cash back.
(Excerpt) Read more at nytimes.com ...
The great unwinding
Should be an interesting week ahead
Lots of deflation in the air. We could get a repeat of autumn 2008 into spring 2009 which was a deflationary panic. WTI at $40 is dramatic! Natural gas in down about 33% from a year ago. Copper...way way down and copper is an industrial activity indicator. China used to hoard copper ingots and store them outside. Hoarding them in anticipation of the copper being needed for manufacturing electronics and more and for wiring new buildings and laying electric cable
Overseas markets open later today. Overseas Futures markets indicating another big drop ahead .... Very gloomy report from commodities insider, if Internet posting to be believed... Using words like “ never seen before”... Major manipulation expected by TPTB.... Insider saying not gonna work this time
Uh oh, gotta go, helicopter just flew over my house .... Lol!
It would be justice to have this phony recovery collapse while the Chief Liar is still in office and the Democrats are trying to retain their dwindling power.
>>Should be an interesting week ahead<<
Yes it will. Probably see a short term bounce of triple digits, then continue the bleed.
I follow the Bloomberg economic calander for indicators of the direction of the economy. Gotta say, these analyst desperately paw at any tiny lil report pointing even slightly positive.
Over the last several months, various reports such as PMI manufacturing, durable goods, GDP, various regional manufacturing indicies have looked horrible.
I have been thinking the same. Better to collapse under OZero than under Donald Trump or another Republican
When China sneezes , all world economies catch a cold - or in the upcoming scenario, maybe an economic pandemic flu and we know those take years to burn out
The international markets give us some hours warning of incoming tsunami
Watch out for Ho-Ree Cao! Chinese version of O sh!t
Som Ting Wong
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