An Emerging Consensus

Recently, more and more investors and journalists have begun to argue that the center of world financial gravity is shifting decisively away from the US.

There's an emerging consensus that emerging markets are the place to be for the near future, and potentially for longer.

This author points to the fact that increased accumulation of foreign reserves has put many emerging market countries in the position of being net creditors, describing emerging markets as being in a "golden age."

The Washington Post has a piece that is even more eyebrow-raising, showing how hot money is pushing further and further out along the risk curve by investing in "frontiers" around the world. For a potential target, the piece even points to the hyperinflationary disaster that is Zimbabwe, once one of Africa's most promising states before the tyrannical Robert Mugabe (pictured) single-handedly ran it into the ground.

Past performance, of course, doesn't necessarily have any bearing on what's going to happen in the future. It's worth looking at the explosive growth these markets have already experienced over the last five years, though.

All the "golden age" talk has me skeptical. Emerging markets' expansion has run in lockstep with the unprecedented credit expansion in the developed world beginning in 2001-2002, and as we know, a rising tide lifts all boats.

We have yet to see how these countries will respond to slowing growth in their primary export markets, or if they truly are as immune to the need to access credit markets as the bulls contend.

My opinion is that the emerging market talk is evidence that the longtime market advance is probably picking up speed as we enter a euphoric phase. Viable investment opportunities are saturated with capital, so creative investors are moving to places that aren't really viable, as they assume that the bull market will continue forever.

Speculators should see this as an opportunity to ride a sector that is beginning to go parabolic, and may have already begun to do so.

Long-term investors, however, should tread lightly. All of this stuff should be available in the future much more cheaply, after these countries have proven that they can thrive when credit is not so plentiful.