Sunday Night Special: Where’s the blood at?

The Yinzer Analyst has always been a fan of Baron Rothschild’s famous advice to buy when there’s blood in the street and after reviewing the charts of the damage wrought by the dollar’s strong advance you won’t find any markets bloodier than the emerging markets. EEM may be down 2.5% in 2015 but that doesn’t begin to compare to the trailing 1 year performance (down 2.5% compared to SPY’s 13.32 advance) and the even worst 3 year number (up 2.5% to the SPY’s 16.04% advance). It’s been a rough ride for the emerging market nations ever since the Fed embraced QE and the recent run-up in the dollar hasn’t helped the situation this year, but the bloodshed has reached an extreme that has me wondering if the time has come to embrace the fallen angels.

Let’s start with the broader iShares MSCI Emerging Markets ETF (EEM), its breakout early this year has been hit hard by the dollar’s rally but as it nears support can it hold the $38 level?


A lot of the support in 2015 has come from the strong performance of the China A-share market but every basis point the Shanghai added has been lost by Brazil where the situation has gone from bad to worse. But what has the Yinzer Analyst intrigued is that the terrible performance has more to do with the collapse of the Brazilian Real than with the actual equity performance. Check out EWZ:


And then check out DBBR:


Yes, DBBR’s two week loss has been nearly twice as bad as the S&P’s performance, but comparable to EEM’s downdraft.  The corruption scandal engulfing the Brazilian government doesn’t look to be dying down anytime soon so a move back below $12 might in the future.

But what about the basket cases, those countries with so many issues that the blood never seems to stop flowing. Where the issue isn’t simple dollar exposure but a more systemic and pervasive issue, like they’re being run by a megalomaniac who uses the national tax system to extract the country’s wealth for their own personal gain? Case in point, Russia:


I’ve never been a Kremlin watcher but the case of the disappearing Tsar has captured the world’s attention.  Just where in the world is Vladimir Putin?

Or how about Argentina, where the strongest case for a brighter future is the fact that current president Cristina Fernández de Kirchner (who made it illegal to publish accurate inflation statistics) will be forced to leave office when he current term expires at the end of the year.


And what about Europe’s perennial problem child? Are the rumors of Germany trying to potentially force Greece OUT of the Eurozone really to be believed?


Is there a lot or volatility in buying a troubled market…absolutely.  But how do you think the pro’s make the big bucks?  Low volatility=low returns and you won’t find many international markets more bloodied and battered than these.

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