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“A man’s feet should be planted in his country, but his eyes should survey the world.”
-George Santayana

This country’s immediate threat of another natural disaster has passed, and those with their feet firmly planted in US denominated cash should be feeling proud to be home this morning. As the US Dollar Index charges higher again, everything commodity related continues to deflate. The USA comes out a winner, and the rest of the “emerging” economic world the loser.

An ‘Eye On Winners and Losers’ was a new Investment Theme we introduced over the weekend. We are no longer operating in a global economy where every asset class, across countries, moves up into the right of a price chart. As global growth slows, so will commodity inflation. Alongside that new reality, Asian currencies and stock markets alike will continue to fall.

This, of course, is not good for those enamored with the “Sovereign” Theme. Dick Fuld better sell to the Koreans before they go bankrupt again! Current account surpluses from the Middle East to South East Asia are all of a sudden contracting. Local currency deflation is something that Americans are all too familiar with. It equates to imported inflation. It doesn’t stop in “oil” or “BRIC” countries either. This morning, Romania reported a producer price inflation reading of +20.4% year over year. Eastern Europe will find itself on the ‘Losers’ side of this global scorecard when all is said and done.

In Asia, geopolitical and economic tensions continue to rise, in unison. Japan’s Prime Minister, Fokuda, unexpectedly resigned, after only being in office for 11 months. Japan’s Nikkei lost another -1.8% of its value as a result. I wrote another negative note on Japan on Friday afternoon. This situation in the world’s 2nd largest economy is plain ugly.

Forever and a day though, the “it’s global this time” crowd has told me that I shouldn’t be focused on Japan, because China is set to overtake it. Well, that may very well happen, but it won’t be this year, or next. And unless you are running a hedge fund that has a 3 year lock, instead of 3 month redemption features, you better be careful buying Japan “because it’s cheap”. Things that are hemorrhaging have a funny way of getting a lot cheaper. China’s stock market hit fresh new lows this morning, closing down another -0.87%, taking its cumulative losses since October to -62%.

Away from Japan, lately I have been focused on Thailand’s geopolitical risk factors. Overnight, Thailand’s PM declared a “state of emergency” in Bangkok, and Thai stocks dropped another -2.3%. The Thai Baht lost another -0.50%, and is part of the emerging ‘Losers’ asset class called Asian currencies. The South Korean Won continues to lead that list of losers, after losing another -1.6% of its value today. The Won has lost a startling -18% for the year to date!

The Australians are most closely affected by Asia losing, so they promptly cut interest rates today. Aussi central banking chief, Glenn Stevens, is a ‘Winner’. He was 1st to recognize global inflation, raising rates to 7.25%. Now he is 1st to call out global stagflation, by cutting rates for the 1st time in 7 years. When Steven’s makes a “macro call”, pay attention.

Americans are winning again. The score for the US Dollar since July 14th has been an expeditious +8.8% gain. Domestically, the hurricane has passed, and God willing, this is finally a big win for Main Street America too. Unfortunately, the proverbial storms have broken the levees across the oceans. With their feet firmly planted on the streets of New York to Chicago, US traders will be back at their posts, covering shorts this morning. It’s a new month, and they need to chase performance. I hope some have the sobriety to be surveying the world all the while.

Welcome back,
KM