History may not repeat…..but it sure RHYMES

Few old headlines that are very similar to recent headlines:

It’s a funny old World:

1989-1991: Housing and savings and loan crisis: Fed eases aggressively as economy enters deep recession

1992-1994: Existing financial architecture in Europe (ERM) blows apart

1995-1998: European convergence trade in both FX and Bond spreads keeps European currencies relatively stable vis a vis the USD with a good rally in 1998.By 1996 BUBA has lowered the discount rate to 2.5% while US rates remain well below the pre-crisis highs of 9.75% in 1989.

The carry trade and capital flow into emerging markets (Asia in particular) is center stage

March 1997: In a seemingly “innocuous” move the Fed “tinkers” by raising rates 25 basis points.

April 1997:Japan raises its consumption tax as USDJPY has rallied from a post Kobe Earthquake low of 79.7 to 127.50 . USDJPY collapse to 111 by June

June 1997-Jan 1998: Severe reaction in Asian currencies as “hot money flees”

August-October 1998 : Russia defaults, Long term capital folds and the Fed eases aggressively as the Equity market drops 22% (S&P)

History may not repeat…..but it sure RHYMES

Source: CitiFX

 

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