1997 ?!

[c1ue]

Re: 1997 ?!

F_J:

1998 exchange rates vs. $ compared with today:

Euro/$ was .84, now it is 1.36
Yen/$ started '98 at 130, ended at 111, now it is 116
Pound/$ was 0.6, now it is 2.01
C$/US$ was 1.48, now it is 0.95

US was seen as a healthy economy then, it isn't now!

[bart]

Re: 1997 ?!

F_J:

1998 exchange rates vs. $ compared with today:

Euro/$ was .84, now it is 1.36
Yen/$ started '98 at 130, ended at 111, now it is 116
Pound/$ was 0.6, now it is 2.01
C$/US$ was 1.48, now it is 0.95

US was seen as a healthy economy then, it isn't now!

Didn't you mean 1.60 for the pound?

[friendly_jacek]

Re: 1997 ?!

F_J:

1998 exchange rates vs. $ compared with today:

Euro/$ was .84, now it is 1.36
Yen/$ started '98 at 130, ended at 111, now it is 116
Pound/$ was 0.6, now it is 2.01
C$/US$ was 1.48, now it is 0.95

US was seen as a healthy economy then, it isn't now!

Did you read the whole post by jk?
The 2006-07 appears to be a mirror image of 1997-98. No one talks about healthy US economy.

[friendly_jacek]

Re: 1997 ?!

in 1998 the fed was able to put the recession off for 2 more years.
if we go into a recession 2007q4, as ej predicts, then this scenario ceases to apply.

You are absolutely correct. It is possible though that the global central banks will put off the recession for 1-2 another years, producing a parabolic rise in emerging markets equities and timing a global recession in 2009-10, consistent with HS Dent's predictions.

[zoog]

Re: 1997 ?!

You are absolutely correct. It is possible though that the global central banks will put off the recession for 1-2 another years, producing a parabolic rise in emerging markets equities and timing a global recession in 2009-10, consistent with HS Dent's predictions.

This is generally what I think will happen... for what that's worth.

[jk]

Re: 1997 ?!

http://ftalphaville.ft.com/blog/dailyview/2007/09/03

Dr Doom: watch for EM breakdown, blame the Fed and buy gold

Sep 03 11:25
by Gwen Robinson
Comment

From an intraday low at 1,370 on August 16, the S&P 500 rallied by more than 100 points to a recent high at 1,479. Coming from a deeply over-sold condition the rally was not surprising but disappointing, More…

From an intraday low at 1,370 on August 16, the S&P 500 rallied by more than 100 points to a recent high at 1,479. Coming from a deeply over-sold condition the rally was not surprising but disappointing, says Marc Faber (aka Dr Doom), in the latest issue of his gloomboomdoom.com monthly subscriber report, “for two reasons”:
Volume diminished, and on each day of this rally the number of NYSE stocks making 52-weeks new lows exceeded the number of stocks reaching 52-weeks new highs. And while the optimists remain convinced that the recent correction was just another correction in a rising trend which will give way to new highs before the end of the year, my friend Jim Walker at CLSA has a different take.
According to Jim Walker:
“In order to believe that (this is all a bad dream and easy money will return soon) you have to believe that the US subprime market will settle down and the CDO issuance that is associated with it will resume as if nothing has happened after the dust has settled. You also have to believe that structured finance products are readily modelled and are not subject to market gyrations or risk changes. You also have to believe that all the people that have already been burned (hedge fund clients, pension funds, Asian and European banks, ordinary investors and so on) will be willing to take on the next set of issues at the same price as they did before.
You have to believe all this because systems built on easy money demand more and more of it every year. If you are willing to believe all that then ‘buy the dips’ because, in my view, the person that is selling to you deserves the money more than you do”.
Faber highlights Walker’s point about the decline in asset-backed commercial paper outstanding to emphasise his view on slower credit growth. The slow-down, notes Faber, “has already been evident for some time in the case of household debt growth”, and if you combine the decelerating growth rate of credit and the fact that significant overhead supply exists for the S&P 500 between 1,500 and 1,540, “new highs will be difficult to achieve”.
But, he adds, the following should also be considered: Since October 2002, all asset prices have “inflated” in concert. “At the end of a major bubble it is common for the leadership to narrow with just one sector of the market still soaring while the rest of the market falls by the wayside. It is, therefore, conceivable that US stocks could still make a new high while most other assets would no longer appreciate.”
But the Fed is unlikely to “resist supporting the stock market at the expense of a weaker US dollar and higher inflation”, he notes.
This would mean that a new high for the stock market in dollar terms is possible. In this context we should not forget that Mr Bernanke’s main thesis – about which he has both repeatedly written and spoken – is that the Great Depression could have been avoided if the Fed had flooded the system with liquidity right away.”
Ben Bernanke, says Faber, “is also the man who suggested that if deflation became a real threat the Fed could always drop money from a helicopter onto the US”. Thus, Faber remains sceptical “that the Fed will refrain from engineering a major monetary bail-out of the system.
The problem with such policy, he warns, “is that the stress in the system is shifted from the lower quality credit market and the stock market to the US dollar, which will continue to be debased (certainly against gold)”.
Another point to consider, says Faber:
US mortgage debt as a percent of GDP is now at 70% compared to 40% at the time of the 1998 LTCM crisis…Unless the Fed is prepared to accept a vicious recession it has no other option but to bail out the system no matter how unpleasant the consequences… in the future. The problem is really that in recent years the Fed has never controlled credit growth and that the monster needs now to be fed with even more money and credit growth.
Admittedly, “easy money” may not do the trick for housing, which is likely to continue to deflate in real terms (inflation adjusted), but it is possible that amidst a deteriorating global asset bubble advance/decline line (fewer and fewer assets making new highs) the one or the other asset market will still make a new high. After all, the Shanghai stock market has so far not been affected by the mortgage related credit crisis.
Faber’s point, he says, is simply this:
“When emerging markets break down some time in the next nine months, the US stock market is likely to out-perform foreign markets.”
Since I assume that this insight will not have escaped the attention of large global money managers, they are likely to increase their exposure to US equities in future - particularly, if the US dollar weakens further. Therefore, despite being negative about the US economy and its financial market, I am reluctant to be heavily short US equities.
If it’s all a bit confusing - considering Faber’s twin views that new US stock market highs are “unlikely for the rest of the year” and his “relatively positive” view on US equities - blame the Fed, he says.
“The confusion arises because of the market manipulation by the Fed… In fact, the Fed is so driven by asset price changes that one could envision the following scenario: If by the next Fed board meeting on September 18, the S&P 500 is above 1,520, Fed fund rate cuts would unlikely be announced. Conversely, if by then the S&P 500 is around 1,400 or below, Fed fund cuts become highly likely.”
The question, says Faber, is “whether Fed fund cuts will re-ignite the bull market. In two previous instances, stocks rallied repeatedly on Fed fund cuts, but the overall trend was down.”
If I look at the investment environment I cannot get excited about participating in the ongoing battle between market fundamentals, which are, in my opinion, a disaster, and the manipulation by the Fed (and possibly at some point also by the government), which could boost US asset prices or at least prevent them from declining as much as the bears (including myself) would like them to do. In military battles, even the victors have a very high casualty rate.
Therefore, concludes Faber, “in the ongoing financial battle between the optimists, who expect a new high shortly, and the pessimists, who expect a new low before the end of October, the best course of action may be to only take small positions and to patiently await better entry points both on the long and the short side.”
However, for the optimists among his readers, Faber recommends they “buy gold and gold shares rather than the S&P 500 and other major US indices”. At the same time, he warns: “continue to avoid the financial sector, which in a credit contraction is the most vulnerable
industry. It is only a massive injection of liquidity that could reignite a further upward move in the global asset bubble, which would be nothing else than another major debasement of paper currencies”.

[c1ue]

Re: 1997 ?!

Didn't you mean 1.60 for the pound?

Oops, mental error.

You are correct, the post should have read:

1.65 US$ per pound in 1998, 2.01 US$ per pound today.

[friendly_jacek]

Re: 1997 ?!

http://ftalphaville.ft.com/blog/dailyview/2007/09/03

Dr Doom: watch for EM breakdown, blame the Fed and buy gold

I am a big fan of Mark Faber. He has been predicting a big melt down in emerging markets and other equities since 2006. It is interesting how he backpedals some now. Unfortunately, his accuracy in predicting tops is as good as Greenspans. He advised his clients to short the US equities in 1998. Ouch!

[c1ue]

Re: 1997 ?!

I do tend to agree with Faber as well.

On the other hand, I don't base any investment decisions on any single source.

It is not that I don't think there are those who accurately understand the forces going on, it is that every situation has individuals and institutions pushing for a specific outcome.

In the case of the markets - there is a vast pool of vested interests which seek to propagate the status quo.

This is one significant component of Galbraith's 'incantation'.

Given these counter forces to economic reality, it is not surprising that individual forecasts are notoriously difficult to time.

It is as if gravity were subject to local opinion; even if the law is to fall at 32 feet/second, enough opposite thinkers will reduce the acceleration until enough people have been hit by objects falling from above!

[friendly_jacek]

Re: 1997 ?!

It looks like Richard Band read this thread.
From http://www.marketwatch.com/news/stor...FAEE0069B71%7D

"Richard Band, editor of the Profitable Investing newsletter, is one of the most consistently contrarian editors I monitor. For an historical analogy to today's market, Band looks no further back to the fall of 1998, some nine years ago. That was when the global currency markets went haywire, stock markets melted down, especially in Asia (remember the term "Asian Contagion"?), and Long Term Capital Management went bankrupt and alerted the world, many for the first time, to the markets' vulnerability to the unwinding of hedge-fund leverage.
This past week, when reviewing the Federal Reserve's cutting of both the federal funds rate and the discount rate, Band wrote: "Last month, the Fed slashed the discount rate by half a point and even urged healthy institutions to take advantage of the concession. Now Ben's crew has dropped the discount rate again. It's as if Bernanke is saying to the financial markets: 'I've got a fire hose full of cash, and I'm going to keep shooting it until this conflagration (the credit panic) is thoroughly doused. Got the message?' "
"I don't know about other investors, but the message hasn't been lost on me," Band continued. "This latest Fed move, and the market reaction to it, are almost a carbon copy of what happened at the end of the 1998 Asia/Russia/Long-Term Capital Management crisis. Back then, Fed funds dropped from 5.5% to 4.75%. Then as now, the stock market exploded with a daily gain (October 9, 1998) very much like today's. And the S&P 500 went on to skyrocket 39% over the next 12 months."

[jk]

Re: 1997 ?!

i'm still thinking that 1997-98 may be a good parallel, but inside-out, upside-down and slo-mo.

here's a timiline of the "asian contagion":
http://www.washingtonpost.com/wp-srv...n/timeline.htm

Time Line
Asia's Financial Crisis 1997-1999

| 1997| 1998 | 1999 |

1997		July 2: Thai currency, the baht, is allowed to float freely; this devalues the currency more than 10 percent. 18: The U.S. Treasury and the IMF grow concerned over a wave of selling in emerging markets that sends currencies and stocks plunging from Southeast Asia to Latin America and Eastern Europe. 20: International Monetary Fund grants Philippines $1 billion emergency loan, after currency plunges when central bank allows the peso to move in a wider range against the dollar. 22: An IMF official warns Thailand to bolster its troubled economy by cutting government spending and suggests the country should consider an IMF loan. 24: Currency meltdown sweeps Asia. Within days, Malaysian Prime Minister Mahathir Mohamad accuses American trader George Soros of causing the Malaysian ringgit's fall. Soros denies the charge. August 11: Thailand is pledged $16 billion in loans in rescue package led by the IMF and Japan. 14: Indonesia loosens control on the rupiah and the currency tumbles. 28: Asian stock markets plunge: Manila down 9.3 percent; Jakarta 4.5 percent. September 4: Philippine peso falls to record low against the dollar before central bank intervenes. 4: Malaysian Prime Minister Mahathir Mohamad vows to combat "racist" foreign speculators with a $20 billion public fund to prop up the nation's sagging stock market. October 8: Indonesia considers asking IMF for an emergency bailout. 27: The Dow Jones industrial average plunges 7.2 percent. N.Y. Stock Exchange briefly suspends trading. 23 – 28: Hong Kong stock market loses nearly one-quarter of its value in four days on fears over interest rates and pressures on Hong Kong dollar; other Asian markets also plunge. November 3: Japanese brokerage firm Sanyo Securities files for bankruptcy. 8: South Korea's market falls 7 percent, the biggest one-day drop ever recorded there to date. 11: U.S. Treasury Secretary Robert Rubin urges Tokyo to shore up Japanese banking system. 16: Hokkaido Takushoku, Japan's 10th largest bank, folds due to bad loans. 20: South Korea begins talks with IMF for tens of billions in emergency aid. 24: Yamaichi Securities, one of Japan's largest brokerages, collapses; it had been reported in trouble since October. 24: South Korean stocks fall 7.2 percent on fears that the IMF may demand tough reforms. 25: Tokyo City Bank, a regional Japanese bank, closes. December 3: Seoul agrees on $55 billion international bailout package, IMF conditions. 5: Malaysia imposes tough reforms, including public spending cuts to reduce its balance of payments deficit. 17: Japan announces new reflationary measures, including cut in income tax. Stock market rallies, then weakens. 18: South Koreans elect opposition leader Kim Dae Jung as new president. IMF releases second tranche of Korean loan. 22: South Korea's currency plunges and its credit rating is lowered. 23: World Bank approves $3 billion emergency loan to South Korea. 25: IMF and lender nations move to finance $10 billion in loans to South Korea.
1998		January 12: Hong Kong-based investment bank Peregrine Investments Holdings Ltd. announces that it is filing for liquidation prompting a new plunge by Hong Kong's stock market. February 13: Indonesia's President Suharto tells President Clinton that the IMF is failing to stem his country's financial crisis and he plans new monetary regime. 16: Japan's parliament approves a $228 billion financial stabilization plan. 17: President Suharto fires independent-minded governor of Indonesia's central bank. 19: The Commerce Department says 1997 U.S. trade deficit was $113.75 billion. Economists say the turmoil in Asia will make it even worse this year. 28: China unveils plans to float a $32.5 billion domestic bond issue in an effort to recapitalize its ailing banks. April 01: Japan officially unveils its "Big Bang" – a program to deregulate its strictly controlled financial markets by 2001. 28: Japanese unemployment reaches a record 3.9 percent. May 21: Indonesia's President Suharto steps down after 32 years in power. He names Vice President B.J. Habibie as his successor. 27: Financial markets in Asia and elsewhere plunge as investors worry over the worsening crisis. Hong Kong's main index falls 5.3 percent; Indonesia's falls 3.9 percent. June 11: The Japanese yen falls to an eight-year low against the U.S. dollar, driving down the prices of stocks and currencies around the world. 15: Stock markets plummet in the United States and around the world as Asia's economic troubles deepen. 22: Hong Kong's leaders announce the territory is heading into a recession, and they unveil a stimulus package aimed at reviving the economy. July 30: Keizo Obuchi is officially voted Japan's new prime minister by parliament. He swiftly names former premier Kiichi Miyazawa as finance minister. August 11: Deepening gloom about the Japanese economy sends the yen tumbling to another eight-year low, and stock markets plunge around the world – including in the United States – in a dramatic display of "financial contagion." 27: Traders concerned about financial disarray in Russia send stock markets from Japan to Russia to the United States plummeting again. The Dow Jones industrial average drops more than 350 points. September 2: Malaysian Prime Minister Mahathir Mohamad fires his deputy, Anwar Ibrahim, one day after imposing strict new currency controls and other measures that contradict Anwar's traditional free-market remedies for the country's ailing economy. 27: Japan Leasing Corp., a major Japanese leasing company files for bankruptcy protection. The company says its debts total $16 billion, making it the largest bankruptcy filing since World War II. November 05: Japan's already-low interest rates fall below zero on certain types of borrowing.
1999		January 11: One of China's most prominent government-backed financial institutions, the Guangdong International Trust and Investment Corp., announces it will file for bankruptcy.

© Copyright 1998 The Washington Post Company

the 1997-8 crisis was triggered in the currency markets on the system periphery, and spread into global equity markets.

our current crisis is in the credit markets of "the homeland" but has infected the balance sheets of financial institutions all around the world. it caused a 10% dip in august [to the 8/16 intraday low], but has been brushed off since the fed's rate cuts [the discount rate in aug, the fed funds and discount rates in sept]. BUT THE CREDIT CRISIS IS STILL UNRESOLVED.

the thai baht was floated and devalued on 7/2/97. the indonesian rupiah didn't tumble til mid august. korean stocks went in november, and the won in december. it took time.....

the credit crisis was temporarily papered over by the ecb, boe and the fed, but the toxic waste is still sitting out there, and is still impossible to value. the likely impairment of value, if everything were held to maturity, might not be more than $300 billion. but nobody knows what exactly is how impaired, and so there are no bids. there has been news of vulture funds being established to buy mbs's and cdo's on the cheap, but i haven't seen that much purchasing has been done. [has anyone else?] the problem is that the old models don't work and now everyone knows it, but they have no new models, and so don't know how to price the paper.

meanwhile the commercial paper market has been shrunk by half, and banks are still wary of lending to each other.

as the debt becomes further impaired by the coming waves of mortgage resets and the consequent swelling of delinquencies, defaults and foreclosures, it will become harder, not easier to value the derivatives.

with banks taking back onto their own balance sheets the derivatives previously held in conduits and siv's, they will have a harder time making new loans. this comes with tighter credit standards, the withdrawal of "affordability products" in the mortgage markets, and a general credit revulsion that also affects the ability to market lbo/pe generated leveraged loans.

the vix may be pulling back from recent highs, but career-risk lies in recommending the purchase of anything that isn't crystal clear in value.

the "greed&fear" post i put up recently, in which chris woods' views were related, mentioned that the risk was all to the downside, and the risk was in the u.s. economy.

i have been impressed by both mark faber and jim rogers commenting, just before the 9/18 rate cut, that the markets [meaning the u.s. equity markets] were only down a few percent. where was the crisis justifying a rate cut? my answer: not in the equity markets. in the credit markets. who does the fed care about? the banks.

the bubble has been a credit bubble. the crisis is in the credit markets. and it is still playing out.

[FRED]

Re: 1997 ?!

i'm still thinking that 1997-98 may be a good parallel, but inside-out, upside-down and slo-mo.

here's a timiline of the "asian contagion":
http://www.washingtonpost.com/wp-srv...n/timeline.htm

the 1997-8 crisis was triggered in the currency markets on the system periphery, and spread into global equity markets.

our current crisis is in the credit markets of "the homeland" but has infected the balance sheets of financial institutions all around the world. it caused a 10% dip in august [to the 8/16 intraday low], but has been brushed off since the fed's rate cuts [the discount rate in aug, the fed funds and discount rates in sept]. BUT THE CREDIT CRISIS IS STILL UNRESOLVED.

the thai baht was floated and devalued on 7/2/97. the indonesian rupiah didn't tumble til mid august. korean stocks went in november, and the won in december. it took time.....

the credit crisis was temporarily papered over by the ecb, boe and the fed, but the toxic waste is still sitting out there, and is still impossible to value. the likely impairment of value, if everything were held to maturity, might not be more than $300 billion. but nobody knows what exactly is how impaired, and so there are no bids. there has been news of vulture funds being established to buy mbs's and cdo's on the cheap, but i haven't seen that much purchasing has been done. [has anyone else?] the problem is that the old models don't work and now everyone knows it, but they have no new models, and so don't know how to price the paper.

meanwhile the commercial paper market has been shrunk by half, and banks are still wary of lending to each other.

as the debt becomes further impaired by the coming waves of mortgage resets and the consequent swelling of delinquencies, defaults and foreclosures, it will become harder, not easier to value the derivatives.

with banks taking back onto their own balance sheets the derivatives previously held in conduits and siv's, they will have a harder time making new loans. this comes with tighter credit standards, the withdrawal of "affordability products" in the mortgage markets, and a general credit revulsion that also affects the ability to market lbo/pe generated leveraged loans.

the vix may be pulling back from recent highs, but career-risk lies in recommending the purchase of anything that isn't crystal clear in value.

the "greed&fear" post i put up recently, in which chris woods' views were related, mentioned that the risk was all to the downside, and the risk was in the u.s. economy.

i have been impressed by both mark faber and jim rogers commenting, just before the 9/18 rate cut, that the markets [meaning the u.s. equity markets] were only down a few percent. where was the crisis justifying a rate cut? my answer: not in the equity markets. in the credit markets. who does the fed care about? the banks.

the bubble has been a credit bubble. the crisis is in the credit markets. and it is still playing out.

AntiSpin: When the US sneezes, the world catches cold, as the saying goes. Will this mean that, once again, a "Black Swan" event will occur somewhere at the periphery of the US-centric global financial system as the credit cycle (bubble) ends, sending money flooding into the US as during the 1997 Asia currency crisis? Or will the US itself be the epicenter of next global crisis, that pivots on the US dollar, as we have been predicting? Will massive currency reserves built up by governments around the world, and especially in Asia, since 1998 make these nations appear to be a safer home for flight capital? Will even US capital head there?

[Jim Nickerson]

Re: 1997 ?!

AntiSpin: When the US sneezes, the world catches cold, as the saying goes. Will this mean that, once again, a "Black Swan" event will occur somewhere at the periphery of the US-centric global financial system as the credit cycle (bubble) ends, sending money flooding into the US as during the 1997 Asia currency crisis? Or will the US itself be the epicenter of next global crisis, that pivots on the US dollar, as we have been predicting? Will massive currency reserves built up by governments around the world, and especially in Asia, since 1998 make these nations appear to be a safer home for flight capital? Will even US capital head there?

It has been a bit over a year since the above comments were posted. With 54 weeks to seek clarification of what may happen, do you have an opinion in answer to any of the questions raised?

[jk]

Re: 1997 ?!

AntiSpin: When the US sneezes, the world catches cold, as the saying goes. Will this mean that, once again, a "Black Swan" event will occur somewhere at the periphery of the US-centric global financial system as the credit cycle (bubble) ends, sending money flooding into the US as during the 1997 Asia currency crisis? Or will the US itself be the epicenter of next global crisis, that pivots on the US dollar, as we have been predicting? Will massive currency reserves built up by governments around the world, and especially in Asia, since 1998 make these nations appear to be a safer home for flight capital? Will even US capital head there?

the dollar is the medium through which all the stresses express themselves. as chris woods suggested [see my recent "greed&fear" post @ http://www.itulip.com/forums/showthread.php?t=2118 ]
we will likely see a round of coordinated cb rate cuts when the next crisis-event occurs. that crisis event might be perception of a u.s. recession, or it might be a credit market event - a bankruptcy, collapse, what-have-you, leading to rate cuts or even the expectation of more rapid rate cuts and thus a drop in the dollar.

as for whether "even us capital [will] head there [asia]"- the overwhelming majority of mutual fund inflows in the last year have been to overseas funds. the u.s. is already experiencing capital flight. but i think a major sell-off in u.s. equities will cause capital to be repatriated, at least temporarily.

so putting this together, here's one plausible scenario: profit shortfalls in the coming 2 quarters lead to a big sell-off, with foreign markets [perhaps not shanghai] going down in sympathy and the dollar having a countertrend rally, while commodities [including pm's] sell-off. with the perception of recession the fed's cuts again surprise in their magnitude, and the dollar drops down through its recent lows leading other cb's to cut, OR the fed cuts come in coordination with other cbs - the ecb and boe most notably. the boj has no room to cut, of course, and the yen rallies on deleveraging and growing risk aversion. the yen's rally allows for faster yuan appreciation.

this is just econo-fiction, of course, but exposes the risk in trying to be too cute in the currency plays. the real problems will start when the rate cuts don't get the economy going very well. that's when fiscal actions will have to added to the monetary.

[bart]

Re: 1997 ?!

One can easily see the 1997 crisis on this longer term chart, one of the very few I've created based on "conventional" economics.










And the closeup is definitely showing the current stress:








http://www.nowandfutures.com/financial_crisis.html

(warning - complex economics on the top portion of the page)