Oh, so that's why...

The Washington Post solemnly weighs in against emerging markets, claiming they're either really disguised commodities plays or benefit from the ridiculously cheap money policies in the US.

Therein lie the makings of future disasters, in the view of many economists, market veterans and policymakers. Having pumped large sums into emerging markets at a time of low interest rates and high prices for the commodities that many developing countries produce, investors may well bolt when conditions deteriorate, with the sudden outflow of cash devastating economies and plunging governments into default.

"I worry that there's this perfect storm coming for emerging markets," said Kristin J. Forbes, a Massachusetts Institute of Technology economics professor who served until early this year on President Bush's Council of Economic Advisers.

To hear professional investors tell it, their current bullishness is based on the vastly more prudent economic policies that emerging-market nations have adopted. They cite the higher ratings bestowed by credit agencies such as Moody's and Standard & Poor's on countries that only a few years ago were plagued by defaults and currency devaluations. For example, government bonds issued by Mexico, Russia and Poland now qualify as "investment grade."

"Those ratings have come from fundamental improvements in monetary and fiscal policy," said Dario Pedrajo, senior portfolio manager at Biscayne Americas Advisors. "Deficit spending has declined considerably in emerging-market countries."

But skeptics contend that the main reason for the boom is the paltry level of interest rates in the United States, Europe and Japan, which prompts money managers flush with cash to scour the globe for investments providing at least slightly better returns. "There's just a huge amount of money sloshing around looking for a place to go," said Desmond Lachman, an economist at the American Enterprise Institute who, as a Wall Street research analyst, was one of the first to predict doom for Argentina well before its 2001 default.

It may be true that this is a bubble; I have largely left the emerging markets thing, after a nice run-up of EWZ, AEMGX, and the Korean ETF.

But all these markets are definitely not the same, which the WaPo article blithely neglects to point out; funds investing in Thailand have been downright sucky this year, though you could have made 10% or so on them if you'd timed it right.