Credit Writedowns

This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government.

The death of North Korea’s Kim Jong-il in the middle of December can be either a bump or grind. More likely, the change of leadership will mark a continuation of the status quo. Not only do North Korea’s elite and military seem firmly in control, but the international focus is North Korea’s acquisition of nuclear weapon capability.

North Korea’s dear leader, Kim II, died a few days ago. His 3rd son is now in charge, as Kim III, Kim Jong Un (pictured). There is no better time to talk about North Korea than now, as evidenced by some timely expert opinions. So it’s time for me to chip in my two cents. I will briefly but succinctly answer five pertinent questions as follows

BoE holds steady, with markets awaiting the ECB press conference; European stocks firmer. Important speeches from Bernanke and Obama; Bernanke likely to signal potential measures. Brazil swaps and futures market pricing in significant rate cuts; BoK left rates on hold at 3.25%.

After posting the W bottoms on the S&P500 and the Brazil ETF here is our favorite, the Korea ETF (EWY). We learned during the 1997 Asian Financial Crisis never to short Korea and never underestimate the resolve of the Korean people.

I am concerned that the emerging markets have overheated and are now reversing direction quickly. Policy rates are still low when adjusted for inflation. But, given the economic weakness now manifest across North America and Europe, the risk is clearly to the downside for now.

By Win Thin With BRL breaking below 1.65 and KRW below 1100, it is tempting to suggest that EM policy-makers are becoming more willing to accept currency strength to help limit inflation. We’ve heard this many times before, almost every time a major EM currency breaks a notable resistance level. But what typically follows is not ongoing appreciation, but simply [...]

By Win Thin Korea February inflation data came in much higher than expected, and supports our view that a rate hike on March 10 is a done deal. The central bank kept rates steady February 11 after a 4-2 vote in favor of a 25 bp rate hike on January 13. Inflation continues to rise above the 2-4% target range, [...]

By Win Thin and his Emerging Markets Strategy Team at Brown Brothers Harriman India: Economic and Currency Snapshot Macroeconomic Update: GDP rose 8.9% y/y in both Q2 and Q3, and is expected to grow about 9% in 2010 and 8.5% in 2011. Industrial production grew by only 2.7% y/y in November vs. 11.3% y/y in October, but was likely caused [...]

Press is reporting that the government may impose a bank levy next year of about 0.1% on what it terms “non-core overseas debt.” It appears that the authorities are getting more serious about addressing the nation’s high short-term debt exposure. Finance Ministry official said the tax is initially going to be on both short- and long-term external debt, but no further details have been given yet. We are hesitant to call this tax a capital control, as appears to be aimed at local banks that are taking on too much external debt. However, we await further clarification. If controls that impact foreign investors do eventually emerge, it would signal a more aggressive stance by the Korean authorities as USD/KRW was about 4% above the year’s low around 1103 when the bank levy was reported today.

by Marc Chandler At the end of last week, the US and Korea appeared to reach the basis of agreement that will also resuscitate the moribund free-trade effort. In essence it appears that slowing down the liberalization in the auto sector and pork was what broke the log jam. The US tariff on Korean auto will end in five years [...]

by Win Thin The won has been one of the worst performers so far today due to developments in the Korean peninsula.  Clearly, North Korea is trying to make a statement to the West with its recent saber-rattling, and reports of the failing health of North Korean leader Kim Jong-Il (age 69) means that there is a struggle behind the [...]