James Gruber's Blog

As debate about potential currency wars heats up, commentators including myself have called out the likely losers, the Japanese yen and South Korean won being high on most lists.

Recently, many stock market bulls have come out to sneer, mock and dismiss the bears. And with some justification given the significant market upswing since 2009. Sure enough though, just as the bulls started to dominate the airwaves, the market may have reached an important top.

The most interesting action of the past week hasn’t been with rising stock markets or contrived Chinese economic data (more on this later), but currency markets.

Stockbrokers are a gullible lot ... especially when it comes to China. After better economic news from China, they've been tripping over themselves to declare a bottom to the economy there and project a sustainable recovery for 2013.

I couldn't help but think of Zugzwang after the market events over the New Year. In economics as in chess, you start off with many choices and these choices narrow the further you go along and sometimes you reach a point where there are no good choices left, only bad ones.

In the face of renewed market optimism, China's continued dramatic under-performance stands out. Most investors remain clueless as to why but the likely reason is simple enough: money outflows.

South-East Asia is the new battleground for the U.S.-China rivalry and it’ll have significant implications for investors in the region. China has badly dropped the ball on the diplomatic front, overplaying its hand in Myanmar and flexing its muscles over disputed islands with Japan and the Philippines.