Bookend Post on the USD --- 2008 USD Bottom caused by FED extending 10 Trillion in Currency Swaps
Lines with the ECB, as the ECB was under extreme balance sheet duress and the FED became the lender
of last resort to the world.
The Bottom line is the the GFC of 2007-2009 Created the bottom in the USD index which had a 60%
Decline from the Great dotcom bubble top which in the USD index occured on July 5th 2001 @ 121.21
and declined 60% over the following 6 years, 9 months and 18 days into
the Global Financial Crisis Low of USD index of 71.33 on 04/23/2008........
looking at the research of Adam Tooze and the accompanying chart in his article the GFC did not really end but ,
in fact, changed the world into an interlocking Matrix of US Fed, ECB, and other Central bank interrelation
ships via QE and various balance sheet expansion, global ZIRP programs.... 2/3 of the developed world
entering into the "alice in wonderland world of negative yield curves." Last week, one market strategist commented that there is still $9 billion of Government securities priced with negative yields.
JP
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Though Tooze is a historian, it would be misleading to call this a history book. Ten years later, the the crisis still essentially determines how the financial system works, thanks to the political decisions and interventions by central banks in response to it. There has been no “return” to normal.
Tooze, whose previous subjects include the Nazi economy and American global power during the interwar period of the 20th century, offers a compelling account of what he argues was a North Atlantic crisis created by a global “interlocking matrix” of corporate balance. While tackling the political nature of both the crisis and the responses to it, he also unpacks the technicalities of financial underpinnings of the crisis, highlighting the importance of the the global banking system’s dependence on the US dollar.
Crashed tears apart the notion that the 2008 crisis was American, and then, separately, a few years later, there was a European sovereign debt crisis. These crises, Tooze writes, were intrinsically linked in part because European banks had heavily involved themselves in America’s financial system. And this also meant Europe was deep into the US subprime-mortgage market—nearly a third of high-risk mortgage-backed securities that weren’t backed by Fannie Mae or Freddie Mac were held by European investors. One of the surest signs of the deepening of the crisis was the desperate attempts of banks, particularly European institutions, to access dollars. Interbank lending rates sky rocketed and worsened the crisis.
(editorial note by JJP... Hence the very huge upswings in the $USD index from 71.33 up to 88.19 then a wild swing back down to 74.17 at the start of 2010, another bull surge up into Q2 of 2010 to 88.71 and another crash plunge of $USD 72.70 in Q1 of 2011...... after which we then embarked up a sustained bull market in the USD index that took us to 103.82 on Jan 23 2017.... which was a .618 retracement of the entire USD bear market from 07/02/2001 @122.21 down to the 5 wave crash low of 71.33 on 04/23/2008 . Thus now we have the Global macro understanding and underpinning that explains the technical action,If you examine the extreme low in the %B on the Monthly USD chart we see that the extreme low,which occurred at the start of 2018 is a very rare occurrence only being reached in late 2007 as we were getting to the terminal stage of the USD bear market, the time before that in Q2 of 2002,as we had solid confirmation that the huge bull advance from 1995 into the top of 2001 had yielded a major trend change from bull to bear market in the USD, and the previous severe low in the %B was a signal of the kickoff of the great asset influx into our illustrious Wild Bull Market that went into warp overdrive from 1999 into March -April of 2000.... a case can be made that this may be happening once again as with so many of the emerging market currencies and equity markets under big time stress we may be seeing a flight to safety, into the USD and also into US stocks that could having a blow off phase to it.....something similar to the massive USD rally that occurred from 1995to 2001, the assets and currencies gravitating to the USA to get into the great Nasdaq technologydotcom, and B2B euphoria.... huge PE's were even seen in fortune 500 companies that were showingrevenue growth, earnings growth and dividend growth..... stocks such as KO, PG, PFE, GE
I am going to include an article I wrote back in 2002 that discusses how money chases assets fromasset class to asset class and also from emerging markets until they go to extreme valuations , blowup, and then move from Pac Rim to The USA as my article articulates.... there is actually a possibilitythat something similar to the late 1990's experience occurs again, where pervasive USD strength,couple with emerging market currency weakness ( think Thai Bhat devaluation of 1997 kicking offa wave of emerging market currency weakness that then translated into into equity market weaknessin some emerging markets and money pouring into the USD and into our great bull market into Early 2000.
end of editorial note by JJP)
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With the wisdom of hindsight, Tooze believes the critical intervention that mitigated the crisis was not the bank bailouts or central bank asset-buying programs but rather “unprecedented transnational action by the American state” to pump dollars into banks all over the world.
Tooze certainly isn’t celebrating these measures but acknowledges that they worked in the short term. He has unflinching scorn for the collective European response to the 2012 crisis, writing that “millions have suffered for no good reason.” While millions suffered in the US as well, Tooze argues that at least in the US, a political decision was made: save Wall Street first and worry about Main Street later. In Europe, there were too many opposing ideas and leadership couldn’t decide how to act. The lack of coordinated response was a disaster. Ask any Greek or Italian today if the crisis is over, and they’d likely share Tooze’s opinion.
Reinserting the role of the dollar in this piece of financial history is not just a matter of setting the record straight, writes Tooze, but also essential if we want to adequately prepare for the consequences of Donald Trump’s “declaration of independence from an interconnected and multipolar world.” The dollar locks the global financial system together, and it took the Fed plus a shaky US political coalition—that understood the importance of the US dollar to foreign banks—to take the actions necessary in the aftermath of the crisis to alleviate it. If something were to happen again, Trump’s “America First” policy outlook doesn’t indicate a desire to take actions explicitly designed to help other countries.
The supply of US dollars funneled into the global finance system in response to the crisis partly ended up in emerging markets. In recent years, many developing countries used the low rates that followed the crisis to gorge on dollar-denominated debt. The impact of that can be seen today as the US dollar rises and investors wonder if these countries will be able to repay all the debt they’ve accrued. It’s bringing down currencies as far flung from each other as Turkey and Indonesia.
A taste-test to see if it’s your style What we have to reckon with now is that, contrary to the basic assumption of 2012-2013, the crisis was not in fact over. What we face is not repetition but mutation and metastasis. The financial and economic crisis of 2007-2012 morphed between 2013 and 2017 into a comprehensive political and geopolitical crisis of the post-cold war order. And the obvious political implication should not be dodged. Conservatism might have been disastrous as a crisis-fighting doctrine, but events since 2012 suggest that the triumph of centrist liberalism was false too. As the remarkable escalation of the debate about inequality in the United States has starkly exposed, centrist liberals struggle to give convincing answers for the long-term problems of modern capitalist democracy. The crisis added to those preexisting tensions of increasing inequality and disenfranchisement, and the dramatic crisis-fighting measures adopted since 2008, for all their short-term effectiveness, have their own, negative side effects.
One chart to impress people with what you learned from the book The US Federal Reserve’s liquidity operations feature heavily in Tooze’s narrative of the mitigation of the crisis. Ten years ago, as interbank and wholesale markets closed, there was severe pressure on dollar-funding markets. This is when the Fed made itself the lender of last resort for the world. “It was historically unprecedented, spectacular in scale, and almost entirely unheralded,” Tooze writes.
Trillions of dollars were provided through various money-market transactions. One key operation was currency swap lines, where the Fed loans dollars out to other countries’ central banks in exchange for those banks’ currency to be repaid later with interest. They were developed in the 1960s but went out of use after about a decade (though they returned briefly after the Sept. 11 terrorist attacks in 2001). Currency swap lines were revived in 2007 between the Fed and global central banks to give loans of dollars to foreign banks. These loans, though by now repaid in full, show how much extra funding was desperately needed by Europe at the time. By September 2010, total lending and repayment on the swap facilities came to $10 trillion.
35 Long Term Monthly USD/JPY chart
KEY EUR/JPY 10 year monthly chart... Risk off risk on chart.... still below the lower Bollinger band , and was repelled by the 50 week MA and is below the 200 week ma. not that technically strong for the Eur....
an overall risk off environment....
JJP
-----------------------------------------------------------------------------------------------------------------------------------------------------THE GREAT PACIFIC RIM BULL MARKET OF THE LATE 1980'S & The CRASHING AND BURNING OF JAPAN,THE SINGAPORE EQUITY MARKET AND THE SOUTH KOREAN MARKET HELPED GREASE THE PATH FORTHE TAKE OFF OF OUR MASSIVE $USD AND US STOCK MARKET BOOM FROM 1995 UNTIL 2000(July 02 2001 for the $USD)
It's interesting to see how Investment perceptions and
outlooks change over time, both in regards to a specific
stock; and entire market sectors. This extends also to
Investing in Different Parts of the World and in different
asset classes.
I was just talking with Lee- L3 about Mark Mobius's
Templeton China Fund (TCH) and I was noticing that since
1994, it's down from $20 to $7 today. I then glanced at
SGF.
The Singapore Investment Fund (SGF) also made it's all-time
high in 1994 at $26 and is currently at $4.50
It reminded me of how eager Investors were to Invest in the
Emerging Markets, especially the NIC's (Newly Industrialized
Nations) of the Pacific Rim back in the late 1980's and the
Early 1990's.
Many will remember that both Japan and the Emerging Pac-Rim
countries were thought to be driving the American business
model out of business due to lack of U S companies to
compete, in Global markets. Indeed, Harvard University,
IBM, Exxon, GE and many other companies all had programs and
seminars to study Japanese Management Skills, then thought
to be vastly superior the US models.
The Japanese Nikkei 225 average was at 7000 and change in
1982,but had climbed to 39,300 by dec 31st of 1989.
No wonder almost everyone thought that the Japanese were
going to take over the world, economically speaking.
lowrisk.com
"The Roaring 80's" by George Goodman, who writes
under the nom de plume of Adam Smith, is excellent
in capturing the dominant investment and economic -
competitiveness thinking that existed back at the cusp of
1990's.
In this 1989 book, Goodman outlines the vibrant economies
of the Pac-Rim and pointed out that the issue was
being raised, whether America would continue to
be the significant economic force it had been in the Post
World War II years.
The Trading history of the Korea Fund (KF) illustrates the
Investment boom years advancing from $4 in 1986 all the way
to $40 in 1989. Then as the speculative era in the Pac Rim
stocks unwound the price fell all the way to $6 in 1997,
and is still under $10 today.
The Japanese Bubble Burst in 1990 and the Global Flow of
Funds began to shift in the early 1990's. European and
especially the US Equity markets became increasingly
attractive on a Global relative basis.
The Emerging Market stocks hit a secondary peak in 1994, and
then really fell of of a cliff starting in 1995.
Obviously Investors had found Happier Hunting Grounds for
their Global Equity Investments; and it's no coincidence
at all that, the US StockMarket really began an
acceleration of it's Multi-Year Bull Market in 1995.
JJP |
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