Jack Crooks discusses what emerging markets are doing to fight inflation rates. In this issue of Money and Markets, Mr. Crooks takes a closer look at the sharp contrast between the Federal Reserve and central banks in these key emerging markets.
Jupiter, Fla. (PRWEB) June 29, 2008 -- Jack Crooks discusses what emerging markets are doing to fight inflation rates. Mr. Crooks takes a closer look at the sharp contrast between the Federal Reserve and central banks in these key emerging markets.
The U.S. isn't the only place that has inflation problems. Year over year consumer prices in Vietnam just surged by 26.8%. The month over month numbers jumped 2.1% or what the Federal Reserve would consider a comfortable pace for inflation in the U.S. over the course of an entire year. The biggest problem facing the Vietnamese government in Hanoi is determining how to keep rising food and energy prices from derailing their economy.
According to Crooks' research, there are over 50 different countries around the world that are currently battling double-digit rates of inflation. Like Vietnam, most of these countries are emerging markets. And all of them are at risk of going from appealing growth story to economic disappointment at the merciless hand of inflation.
Crooks is a firm believer that to project the future with any degree of accuracy, you must first look to the past. It can safely be said that current global inflation can be accredited to the surging price of crude oil. And the rising price of food is also partially responsible. These oil-led price shocks are nothing new. Indeed, they have become an consistent precursor to recession, at least in the U.S.
Below is an excerpt taken from a report over at Morgan Stanley's Global Economic Forum:
"While much of the rise in oil and energy prices could be attributed to global demand for these products, from the perspectives of individual countries, oil and food price increases are supply shocks. Early work on the relationship on oil prices and developed market GDP suggests oil shocks were the dominant determinants of U.S. recessions.
For example, Professor James Hamilton (see Hamilton (1983) 'Oil and the Macroeconomy since World War II', Journal of Political Economy, vol. 91, (April), pp. 228-48) claimed that, since 1973, every upward spike in real oil prices has been followed by a surge in the U.S. output gap. More specifically, Professor Hamilton demonstrated that an oil price shock had preceded (Granger-caused) all but one recession (in 1960) in the U.S. since WWII."
The U.S. economy, even with a fairly flexible and developed financial system, has had trouble with periods of sharply rising oil prices. Should anything different be expected from emerging economies whose capital markets aren't nearly as forgiving as those in the U.S.?
The fact that a larger portion of consumers' expenditures in emerging economies goes toward food and energy makes this type of inflation the most dangerous. And tougher for officials to balance, Crooks adds.
After witnessing how the Federal Reserve has shredded the value of the U.S. dollar and slammed stocks by ignoring inflation, emerging market central banks are stepping up to the plate:
China is already making strides with its currency. Interest rate increases highlight their efforts. India's central bank raised its benchmark rate by 50 basis points, to 8.5 percent with immediate effect, its highest since March 2002 and the second increase in June. The State Bank of Vietnam sharply raised its benchmark interest rate to 12 percent from 8.75 percent, in an aggressive effort to curb surging inflation and tighten lending. Commercial banks are now allowed to offer depositors rates of up to 18 percent. Mexico's peso strengthened to a five-year high after the central bank unexpectedly raised its benchmark interest rate a quarter percentage point to 7.75 percent. The same thing happened in Brazil. Bonds also rose as investors gained confidence that proactive monetary policy will manage to curb inflation, helping preserve the value of debt's fixed payments.
"Monetary policy has been too accommodative and must respond to the growing inflationary environment. The rising level of prices is going to require that most emerging market central banks take action. By working to strengthen the value of their currency they can hope to ease the strain of crude and food costs. The line in the sand is quite fine. That's going to make it easy to scrutinize the efforts, or lack thereof, central banks take to counter inflation," Crooks states.
To read this issue online, please visit:
http://www.moneyandmarkets.com/Issues.aspx?NewsletterEntryId=1917
About JACK CROOKS & MONEY AND MARKETS
John (Jack) Crooks is the founder and president of Black Swan Capital, an independent advisory firm specializing in foreign exchange and currency markets investing for retail and institutional clients. A seasoned financial advisory with nearly 20 years of investment experience, Mr. Crooks uses both quantitative and qualitative approaches to determine the fundamental driving force(s) behind the movement of the currency, capital, and commodities markets. He is the editor of Weiss Research's latest investment offerings, World Currency Alert and World Currency Options, which were launched in August 2007.
Mr. Crooks also founded Ross International Asset Management, a discretionary money management firm specializing in global stock, bond, and currency asset management for retail clients. Previously, he was general manager of Plexus Trading, where he specialized in currency futures and commodities trading. During his successful career, Mr. Crooks served as chief currency and futures strategist of M2 Futures Inc., an investment boutique headquartered in Chicago, as well as vice president of Global Strategic Research for an international investment boutique, where he was responsible for providing daily advice and global strategy analysis.
Prior to entering the investment arena, Mr. Crooks held various corporate finance positions. He has written extensively on the subject of global currencies and international economics and has been published in Asian Times, Futures Magazine, Barron's, Bloomberg, Dow Jones Newswire, and across many financial websites. He has also appeared on Bloomberg TV and CNBC.
Mr. Crooks holds a bachelor's degree in finance from Florida State University and a master's in business administration from the University of North Texas.
Money and Markets (www.moneyandmarkets.com) is a free daily investment newsletter from Dr. Martin Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Weiss Research, Inc. is located in Jupiter, Florida. For more information about our editors, or to set up an interview, please contact Jennifer Moran at 561-627-3300 or visit www.moneyandmarkets.com.
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