What Goes Around Comes Around

Are emerging markets the future?

An old saw goes that Brazil is the country of the future and always will be. Certainly the past 10 years have seen significant growth in many emerging markets. Investors are now standing on their heads trying to find ways to put money to work there.

But history tells us that investment booms can lead to financial busts. When investors take an interest, capital flows in leading to currency appreciation, commodity price increases, and domestic credit expansion. Banks lend more and more on looser and looser terms because asset prices are rising. When the investment tide turns, prices fall, a banking crisis ensues, private debt turns into public debt, and the economy goes through a painful adjustment.

Sound familiar? This is exactly what happened here when the “global savings glut” caused our domestic institutions to go collectively insane. Fan and Fred, the Fed, the ratings agencies, the brokers, AIG—they fooled themselves into thinking that “it couldn’t happen here.” But the dynamics this time are similar to the Latin American crisis of the late ‘70s.

That ended in a string of sovereign defaults. Hopefully the US won’t join the new party.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T18:36:36+00:00 April 11th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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