Overnight Monday, China injected liquidity into the banking system to help stem the tide on their cash crunch. India raised rates. Nothing bad happened in Argentina. Then after the close on Tuesday, Turkey raised rates from 7.75 percent to 12.0 percent to defend the lira. As a result, the Dow rallied for the first time in six days. So, the emerging markets crisis is over and everything will be fine now, right?

To review, the current thinking is that the Fed's decision to ever-so gently begin tapering the QE bond-buying program (something that is likely to continue today) is causing some problems. The vast majority of analysts expected the taper to reduce demand for bonds and in turn, cause interest rates to rise. And given that the yield on the 10-year rose from 2.485 percent in mid-October to 3.026 percent on December 31, 2013, it appeared that the markets were acting in accordance with the macro view.

Unintended Consequences

But a little something called an unintended consequence soon cropped up. With everyone on the planet expecting rates to rise - and rise for a very long time - in the U.S. the fast money hedgie-types began pulling their money out of places like Argentina, Turkey, India, and Brazil. Why take the risk in the emerging markets when the yield on U.S. debt is rising?

So, apparently money has been flowing out of Argentina, Turkey, India, et al and moving back into the U.S. in a big way. Once word got out that the big boys were pulling their money, the plan spread like wildfire and a "run" of sorts purportedly began to occur in the emerging markets. This, of course, is bad for the countries involved because when everyone under the sun is selling out of Argentina the currency heads south - in a hurry.

It's a Crisis!

If this keeps up, before too long, you've got an emerging markets crisis on your hands. And since this isn't exactly the first go-round for traders dealing with crises in the emerging markets, what do they do? Yep, that's right; they move into crisis mode by buying U.S. bonds, gold, and the U.S. dollar - aka the "safe haven" trade.

Or Is It?

Believe it or not though, the crisis-mode buying of U.S. Treasuries actually has become a problem for some of the world's biggest traders.

You see, with the Fed having announced the taper plan and the economy starting to perk up, the big boys and girls viewed shorting U.S. treasuries as a no-brainer. The more the Fed cut back on bond buying, the higher yields would go. Global Macro investing 101 stuff.

But, what happens when the yields in the U.S. start to dive due to all the crisis-mode buying in response to the so-called emerging markets crisis? Short covering, that's what.

Maybe There's No Crisis At All!

As the chart below clearly illustrates, yields rose steadily from mid-October through New Year's Eve on the expectations of further tapering.

10-Year Treasury Yields

One of the key arguments the bears have been making is that the big decline seen recently in treasury yields (the yield on the 10-year has fallen from 3.026 percent on 12/31 to 2.746 percent yesterday) can only mean that traders are seeking the safety of U.S. Treasuries.

Clearly, the chart above supports the idea that there has been crisis-buying in bonds. But what about the short-covering argument? Wouldn't that explain the decline in yields as well? And with stocks behaving themselves on Tuesday, couldn't this be what is really going on?

When questions like this crop up, investors can either guess at the answer or check the "message" from other markets. We prefer the latter.

Looking For Confirmation of a Crisis

Gold is many things to investors. But one of the base-level reasons legions of folks buy gold is the idea that if push ever came to shove, it would be an alternative currency. So, whenever the word "crisis" starts to be used regularly in the markets, the gold bugs tend to start buying in earnest.

So, let's take a peek at the chart of the GLD (SPDR Gold Shares ETF) to see if we can find any signs of panic buying.

SPDR Gold Shares (GLD)

Okay, there has been a rebound in the yellow metal so far in 2014. However, the chart doesn't exactly sport a panicked look. There is no huge spike signaling that traders are falling all over one another to get into gold. And based on the move seen over the past year, the 2014 pop is barely noticeable.

As such, one could easily argue that there's no sign of a crisis in gold.

Now let's take a look at the greenback. Like gold, when there is a crisis, traders tend to bomb into the buck.

PowerShares U.S. Dollar Index (UUP)

Hmm... Anybody see signs of a crisis on this chart? In fact, the dollar ETF (UUP) is lower than where it closed on the first trading day of 2014. So, again, not exactly the stuff that a crisis-mode trade is made of.

Crisis? What Crisis?

Let's review. Stocks have pulled back about 3.5 percent from an overbought and over-believed condition. Bond yields had declined in what may or may not be considered crisis-mode buying. Gold is up, but not much. And the U.S. dollar is doing next-to nothin'.

So... while the outflow of funds from the emerging markets could certainly pick up and a full-blown crisis could easily ensue, at the present time, the message from the charts suggest that this could be more of a "crisis lite" situation caused by short-covering in the bond market. Just a thought.

Positions in stocks mentioned: none

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