James Gruber's Contributions

That’s the end of QE tapering talk then? Not quite, but it should die down somewhat, give U.S. Fed Reserve conduit Jon Hilsenrath’s latest kiss-and-tell article in The Wall Street Journal.

The investor love affair with emerging markets is quickly fading. For much of the past decade, emerging markets – Asia being the largest – were the place to be, offering explosive growth compared to the meager offerings of the developed world.

Japan continues to be the world’s biggest financial story. The consensus seems to be that the country’s extraordinary economic measures are good for both itself and the world.

It seems the entire planet is bearish on China and questioning its economic data. But as most economists missed the bubbles created by China’s 2009 stimulus, they’re now missing signs of some economic resilience and a likely pick up in short-term growth as abundant liquidity starts to reach the economy.

The search for yield in an increasingly yield-less world has become the biggest financial sport in town. The logic is understandable. Thanks to our beloved central bankers, traditional investment portfolios heavily reliant on government bonds and cash are earning little, or worse when inflation is taken into account.

Follow the money. It's a old saying in investing that's never made a lot of sense as it often means following the latest fad and ultimately buying high and selling low. So I'm going to propose an amendment and urge you to "follow the smart money".

It’s a curious thing when the world’s biggest growth market, Asia, has dramatically underperformed American and European stock markets, this year and over the past 12 months.

Until recently, India saw itself as an emerging economic powerhouse, the next China so to speak. Those delusions of grandeur led to complacency and the end-result is that GDP growth has slumped to a ten-year low.

Though a gold bull, I called for a correction late last year and believe more downside is likely from here. There are three reasons to be cautious on the near-term outlook: 1) gold has historically performed weakest during the March-July months 2) sentiment towards gold has turned somewhat, yet there’s been little capitulation, particularly from the world’s central banks 3) the current correction has been relatively mild – remember that gold slid 47% during its 1970s bull market before peaking in 1980.

Make no mistake: America and China are on a collision course and the battleground is Asia. The China-Japan dispute has little to do with a small group of islands in the South China Sea. It’s about a new world power, China, wanting to assert its authority in Asia.

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.