Emerging-market bonds, and particularly those issued in local currencies (e.g., denominated in Brazilian real instead of U.S. dollar) have had stellar returns in 2009. I ran a few calculations in Morningstar EnCorr and quickly found out that these bonds have a reasonable diversification power, particularly if you are bullish on the market's credit risk appetite and bearish on the dollar.  

However, I bet you would not have expected that emerging-market bonds have moved a lot in sync with U.S. high-yield bonds:

   More 

The weak employment report is terrible news. Further weakness on the job market is the last thing we need. A journalist just asked me, "Is unemployment not a lagging indicator? If so, why worry?"

Yes, employment is a lagging indicator. Firms do not hire new workers unless they have a reasonable certainty that there will be demand for their products; otherwise it is not worth going through the cost of selecting and training new personnel.

However, weakness on the job market will make even more people worry about their jobs; this will induce more households to save more money in case they lose their jobs as well.   More 

Jason Zweig of The Wall Street Journal quoted me saying that when the dollar weakened over the past 20 or 30 years, both U.S. and non-U.S. stocks rallied in dollar terms.

U.S. stocks probably rallied because U.S. companies with subsidiaries abroad could translate their sales denominated in yen and other currencies into a larger number of dollars given the exchange devaluation. Moreover, again due to the devaluation, U.S. exporters would be more competitive in foreign markets. Non-U.S. companies trying to export into the United States would be at a disadvantage, and therefore, U.S. companies would be able to book higher profits from fatter domestic margins.

I do not think there is anything controversial in what I just said because it is straight from any international trade textbook. 

Non-U.S. equities and bonds have good returns for U.S. investors when the dollar loses strength because their returns are denominated in other currencies and, therefore, become larger if the dollar gets weaker. Again, nothing controversial.

When I looked at the comments to the article by WSJ.com readers, however, I noticed that many were very concerned about the "debasing of the currency" and the fact that a weakening dollar shows that the United States is losing ground in the international context. I have some comments myselft about this.   More 

A brief addendum to my previous pieces on inflation and quantitative easing.

The latest Financial Highlight from the Federal Reserve Bank of Atlanta decomposes the Fed's purchases of Treasury securities by maturity. Half of these Treasury purchases have maturity between four and 10 years. Treasury purchases are a hefty part of the Fed balance sheet.

Therefore, if the Fed does nothing and just lets these bonds expire, it will drain liquidity from the system and consequently limit the monetary base in four to 10 years, which is when I thought that higher-than-average inflation would be a realistic scenario.   More 

Robert Dieli recalls Bugs Bunny asking "What's Up, Doc?" He points out that some macroeconomic indicators (including his proprietary index) suggest that the recession might be about over but that it is "still way too soon to tell" what's up with the economy.

Bloomberg reports that Abby Joseph Cohen of Goldman Sachs disagrees. She expects the recession to be ending "right now" and points out that "the companies that are still in business are showing that they have pretty good margins."

I am not sure about the margins yet, and perhaps the valuation decrease in the past few days may be interpreted as saying that I am not alone.   More