U.S. stocks are headed for a dive, says Michael Gayed, chief investment strategist at money manager Pension Partners.

One problem is that financial stocks are underperforming the S&P 500, even though the yield curve is steepening, Gayed says in an exclusive interview with Newsmax TV

Banks should generally prosper in that environment, because they can borrow at short-term rates and lend or invest at long-term rates. But the higher long-term rates are "dangerous" for banks now, Gayed says.

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"It's very dangerous in the sense it can put a complete end to this housing reflation story. . . . Mortgage rates have spiked as this concern over tapering took place, and it's not clear just yet if the consumer can handle that."

Meanwhile, investors are passing over emerging market stocks in favor of developed markets, making the emerging markets an attractive buying opportunity,

"Let's talk about this idea of the law of one price," he said. "There's this idea that similar assets should be priced similarly."

So stocks in the United States should have similar valuations to those overseas. But developed markets have outperformed emerging markets this year by the highest margin since 1998 – about 30 percentage points, Gayed says.

In 1998 Russia was defaulting on its debt, only a year after the Asian financial crisis. "Now let's think about then versus now. You have the same kind of dynamic [now], same kind of massive underperformance against developed markets, but there's been no event," Gayed said.

"The market has priced in a phantom event that hasn't occurred."

Emerging market stocks are the ultimate risk-off trade, because no one is pursuing it, he says. "Nobody's in emerging markets, and yet the law of one price says that because equities have risen so much in the U.S., there's no way that emerging market equities can't then also re-price upward."

FactSet put the price-earnings ratio for the Standard & Poor's 500 Index, based on 12-month forward earnings, at 14.5 last week, The Wall Street Journal reports. Meanwhile, emerging markets have a P-E ratio of about 10, Gayed says.

"If you close that gap it's going to be a shocker," Gayed said. "Very few people are in it. It can happen very quickly, and it'll be one of those opportunities that can be a fat pitch."

As for individual emerging markets, Brazilian stocks have suffered from the country's social unrest in recent weeks, Gayed says.

"I would argue that's actually probably bullish long-term, because if you have the people actually forcing the right kind of policy, that benefits them. That's beneficial for economic growth."

Moreover, next year's World Cup will provide stimulus for the country, Gayed says.

Turning to China, it has seen improving economic reports recently, including higher imports and exports, Gayed says. "China is the mother of all of the BRICs," he said, referring to Brazil, Russia, India and China.

"So if China is doing well, then all of the exporting countries, including Brazil, will benefit, because everyone's selling commodities to China," he says.

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