Monday, August 24, 2015

Gluskin Sheff’s David Rosenberg Dusts Off The Asian Contagion Playbook

From Barron's Stocks to Watch:
 KIMIMASA MAYAMA/
European Pressphoto Agency
Gluskin Sheff’s David Rosenberg says its time to dust off the playbook from the 1987-1988 Asian Financial crisis. He explains why:
It was interesting to see CNBC run a slot on Friday comparing the current global market situation to the Asian crisis of 1997/98 — we have been drawing the comparison all year long. Every cycle has its differences and similarities, but there are commonalities here that cannot be ignored:
  • A sizeable chunk of the global economy imploding (30% back then)
  • Half the region deflated outright
  • Some of these countries had double-digit GDP declines and stock markets that melted by more than 50%
  • And yes, the global economy and financial markets were highly integrated as well
But anyone that does not believe that the U.S. economy cannot decouple does not know their history.
Throughout that near-two year ordeal in the late 1990s, the yield on the 10-year U.S. Treasury note plunged 280 basis points — the Fed had a tightening bias on the books but could never pull the trigger. Oil prices collapsed 50% and industrial commodity prices fell by 25% while the trade-weighted U.S. dollar strengthened by 10%! The VIX index (“investor fear gauge”) jumped from 18 in the months prior to the crisis to a high of nearly 46 at the peak in October 1998.
Sound familiar? So what’s the playbook? Rosenberg continues:...MORE