The only issue now is whether the new crisis will be contained to Argentina and Venezuela or whether contagion will take over and ignite a global financial crisis worse than 2008.
It has been 20 years since the last EM debt crisis and 10 years since the last global financial crisis.
This new crisis could take a year to spread, so it’s not too late for investors to take precautions, but the time to start is now.
The Fed’s path of rate hikes and balance sheet reductions since December 2015 has reinvigorated the U.S. dollar, as I explained above. A stronger dollar means weaker EM currencies in general. Again, that’s exactly what we’ve seen lately. Right now, EM currencies are in free fall against the dollar.
But here’s a curveball question for you:
Now that the Federal Reserve raised rates again last month, is the bottom in for emerging-market currencies? And is the top in for the dollar?"
- Source, Jim Rickards
