Paging Doctor Feelgood 

10/29/2009 10:06 am EST

Focus: GLOBAL

Igor Greenwald

Chief Investment Strategist, MLP Profits

The patient has reached a sensitive convalescence stage where more's expected and less forgiven.

Though the phantom limbs still ache, there's talk of tapering off painkillers to avoid addiction.

All that was fine while markets were celebrating the rapid economic recovery in Asia and South America, and slower improvements elsewhere. But lately fatigue has set in, and the stumps itch even worse since the arrival of the surgeon's bill.

One fear is of more amputations like the one that will turn ING's (NYSE: ING) global empire into a Dutch savings bank with a few remote outposts. That was the price extracted by the European Union for prior government aid. RBS (NYSE: RBS), Lloyds (NYSE: LYG), and other subsidized banks are still waiting to take their medicine. Those that may have to imitate the huge share offering by ING will likely face competition for the increasingly scarce risk-seeking dollar from similarly thirsty Irish banks. ING's shares are down 28% since Monday's shocker. RBS has shed 15% this week and is 32% below its September peak.

On the bright side, the regulatory crackdown is a welcome sign of normalcy: the Dutch government had to stick its finger into ING's dike last year because raising $11 billion on the stock market was out of the question. But that won't make the coming shareholder dilution more palatable. And it's hardly the only clue that policy support for higher asset prices is much less ardent than it was late last year.

Hong Kong finds itself caught between a wave of new dollars seeking entry into China and the torrent of Chinese wealth escaping the mainland. Authorities' recent decision to require a higher downpayment of the most expensive mortages doen't seem likely to tame a housing boom that's lifted prices 26% this year.

But it served as a fine excuse for profit-taking in one of the hottest developed markets. The Hang Seng is down nearly 6% this week.

India's Sensex index is down 7% since peaking two weeks ago, sustaining its biggest hit after the country's central bank drained some liquidity from the banking system as a prelude to rate hikes.

Last week in this space, the dollar's slump and the emerging markets rally were pegged as overdue for a correction. Well, they're overdue no longer. It's odd that hot money should flow into a currency so at risk of additional debasement if the hard times don't relent. But that's just the Fed's liquidity returning home from sunnier climes. It won't be staying long, barring a catastrophic freeze in global growth.

That's always possible, albeit unlikely. Pessimists can point to disappointing drops in US consumer confidence and the UK GDP, as well as Eastern Europe's continuing troubles. Optimists didn't seem to glean much solace from the windfall profit at BP (NYSE: BP), which benefited from cost-cutting and rising production.

Another UK commodity play doing well of late is a London-traded timber fund profiled recently by Andrew McHattie. It's an emerging-markets play on a commodity that has historically traded independently of stocks. The big discount to its net asset value has narrowed in a hurry, though.

Someday, we might be able to say the same about the Canadian infrastructure fund favored by Roger Conrad. But for now it's fallen victim to the diminished appetite for risk. The same's true of almost all emerging markets as well as Australia and Singapore, the two developed markets recommended by Carl Delfeld.

During weeks like this, such picks can look very risky indeed. But sleeping on one's dollars could prove more costly in the long run.

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