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12/23/2014

Some have described the U.S. economy as the only clean shirt in the dirty clothes hamper, meaning the rest of the world is in worse shape than we are.   True!  While I wish nothing bad on the people of Russia, their current economic woes do give me some unseemly degree of satisfaction.  And,while I wish nothing bad for the people of Venezuela, I have described that country as “circling the drain.”

Wells Fargo has prepared an interesting study, which ranks the emerging markets most likely to default on their national debt, taking into consideration (1) the ratio of externally-held debt to Gross National Income, (2) the ratio of external debt to foreign exchange reserves, (3) the ratio of debt service on external debt to exports, (4) the percentage of depreciation in their currency against the dollar since September 1st, and (5) the ratio of their current account divided by GDP.  It is an impressive study, indeed!

Their conclusions are surprising.  The five nations most likely to default are Ukraine, Serbia, Turkey, Hungary, and Belarus.  I’m a little surprised by Ukraine but very surprised to see Turkey in such bad shape.  The five nations least likely to default are China, Philippines, Nigeria, Thailand, and Vietnam.  China is certainly not a surprise, but it is a little distasteful that oil-exporter Nigeria, which doesn’t even protect its school girls from thugs/terrorists, can be so strong economically.  Of course, I’m simply speechless that Vietnam now has such a good economy . . .

As the world in general and emerging markets in particular adjust for lower oil prices, it is clear to me that those investors who invest primarily for income and have a weak stomach for volatility should make sure they don’t have any global bonds or, even worse, bond funds in their portfolio.

Are you that type of investor?  Then, why are you just sitting there??  Go check your portfolio — NOW!

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