"A Funny Old World" - The EM Carry Trade Collapse 'Deja Vu, All Over Again' From Citigroup

Tyler Durden's picture

Spot the similarities.

From CitiFX Technicals: 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

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
mobius8curve's picture

History(His~story) was made to repeat:

Ecclesiastes 1:9-10  That which hath been is that which shall be; and that which hath been done is that which shall be done: and there is no new thing under the sun.  (10)  Is there a thing whereof it may be said, See, this is new? it hath been long ago, in the ages which were before us.

Ecclesiastes 3:15  That which is hath been long ago; and that which is to be hath long ago been: and God seeketh again that which is passed away.

Millivanilli's picture

My favorite quote from the bible is Ezekiel 23: 20



There she lusted after her lovers, whose genitals were like those of donkeys and whose emission was like that of horses.


El Viejo's picture

Mine is 1st Corinthians 8:2

When you think you know something, you don't know anything as you ought to know.


CvlDobd's picture

Your book rocks.


If a man happens to meet a virgin who is not pledged to be married and rapes her and they are discovered, 29 he shall pay her father fifty shekels[a] of silver. He must marry the young woman, for he has violated her. He can never divorce her as long as he lives.

Deuteronomy 22:28-29


or how about this


 “‘If a man has sexual relations with an animal, he is to be put to death, and you must kill the animal.

16 “‘If a woman approaches an animal to have sexual relations with it, kill both the woman and the animal. They are to be put to death; their blood will be on their own heads.


Leviticus 20:15-16


So don't let your wife that you found via rape go having sex with any animals after you've finished with them. You'll have to put her down. The wife that is.


Millivanilli's picture

Reminds me of the old joke


Why do Ranchers fuck cows on cliffs. 


So the cow pushes back.

maskone909's picture

"It was once said by a man who couldnt quit, Dope Man please can I have another hit?" -one of the Ice's 1:87

buzzsaw99's picture

Now the Pharisees at the federal reserve, who were lovers of money, were listening to all these things and were scoffing at Him while printing parchment IOUs in the back room.

LawsofPhysics's picture

Try again, it's much simpler as that which cannot be sustained, won't be, regardless of what any "book" tells you.

My guess is that humans will see to it that the earth is free of the curse of man soon enough.

-T. rex.

thunderchief's picture


Those that worship myths of nonsense shall forever fucketh up the land.

CvlDobd's picture

It's not nonsense. God created the sun after six days of the world orbiting um er uh ok so that's a pretty big fuck up and almost right at the get go! Anyway! Any rational person would just look over that fuck up and plow ahead with rendering to Ceaser what is Ceaser's. Ah I love religion.

Bearwagon's picture

"Verily I say unto you, There shall not be left here one stone upon another, that shall not be thrown down."

nonclaim's picture

That doesn't work because the perception of movement depends on the point of reference. If you trust your senses you are on an immovable Earth and the Sun and everything else goes around it.

Now if you imagine the reference being the Sun, then Earth goes around, sure. But it is still only imagination ...

Unless you deal with space exploration, there is no real practical purpose for living under an imaginary reference.

Trust your senses.

disabledvet's picture

From Nicholas Brady Bonds to Omar Bradley Bonds.

Dollar and gold markets are very small...no ACA, no Syria.

The only thing left to trade are treasuries.
And "the President says buy."

If treasuries soar yet again those rates will be so low it will put a bid in large cap growth.

That's an income stream "the die for."
Throw in an economic recovery worthy of the name and I would imagine a "State Governor or two might get some ideas."

buzzsaw99's picture

this time the fed can't ease anymore so they will buy facebook and twitter shares from the squid instead

tawse57's picture

Can't wait till August to October for a crash - need it NOW! NOW! We've been waiting too many years already.

MathWins's picture

Me thinks the fingers in the dyke may have finally punched one too many holes.

unplugged's picture

We (U.S.) sure can wage a good currency war - we are kicking ass!!!  Add Russia to the loser pool.  /sarc

sixsigma cygnusatratus's picture

He'll just issue an apology to the voters and resume his duties in Congress.

eclectic syncretist's picture

We'll declare the war in Afghanistan over, but if you're in the armed forces you won't be coming home.  WTF????!!!!

cowdiddly's picture

yea history repeats is this where the guy who runs bartertown half close the valve?

And, isn't Citi still owned by .gov? hmmmmmm

SDRII's picture

yingluck's election push ought to take a lesson form the Turkey rate hike

rosiescenario's picture

....and never forget Long Term Capital was managed by a slew of Nobel prize winning economists from the same ivory towers supplying our current economic Fed leadership....

Flakmeister's picture

A couple of comments on Argentina and why the wheels are coming off:


Argentina is about to become a net importer of oil....

Hard currency from oil exports has been declining and is about to vanish. The exact same thing happened leadin up to Mubarak getting overthrown...

As always, follow the oil...

Bearwagon's picture

There goes the neighbourhood ...

disabledvet's picture

Imagine Saudi Arabia as a net oil importer.
Kinder Morgan is going to start exporting "to Los Angeles."
It's cheaper and doesn't have the hassles of pipeline building.
We'll see if his is the start of a trend but if "shipping stocks" are done on actual ships this will dislocate markets.

Flakmeister's picture

Ceteris paribus, the Kingdom will become a net importer in 2035 or so...

But we know the game in it's current form ends long before then....

suteibu's picture

Another Japanese consumption tax hike (3% from 5% to 8%) coming in weeks.

JR's picture

A funny thing happened after Bretton Woods…

The Road Not Taken, from an address by noted economist Henry Hazlitt (November 19, 1978):


But let us now come to 1946… That was the year when the International Monetary Fund, which had been set up by the Bretton Woods Agreement of 1944, began to operate. The IMF had been set up ostensibly—believe it or not—to "stabilize" currencies. And this was to be done by phasing that absurd and tyrannical thing, the gold standard, out of the monetary system. Instead, the member countries pledged themselves to keep their currencies convertible at a fixed rate only into the dollar. If the dollar were kept convertible into gold, it was assumed, that would be sufficient to stabilize the whole world currency system and make the value of each national money unit dependable.

Of course none of the Fund’s general rules were expected to be obeyed too strictly. That would have interfered with the freedom of each country’s monetary authorities to manipulate their currency in the way that seemed to them most expedient at any given moment. Therefore, it was explicitly provided in the Fund’s Articles of Agreement that any country could devalue its own currency at least 10 percent in any one step, and it was explicitly stipulated that "the Fund shall raise no objection." In addition, it was understood that the Fund was to come to the rescue of any country whose currency got into trouble, even through its own inflationary policies. The stronger currencies were to support the weaker ones, thus insuring that the stronger would also be weakened.

The Results of Bretton Woods

We all know now what this finally led to. The American monetary authorities could not bring themselves to take seriously the grave responsibility they had assumed in agreeing to make the dollar the world’s anchor currency. Keeping the dollar convertible into gold, even if only at the demand of foreign central banks, seemed to them a mere technical requirement, an unnecessary annoyance and burden imposed upon them by some still persisting superstitions about gold. As the U.S. increased its paper-money issue, conversion (into gold) became increasingly inconvenient. It practically stopped de facto in 1968, and in August, 1971, it was stopped openly and officially. Since then practically every nation’s currency has become an irredeemable paper currency. Every currency fluctuates every day in terms of every other. Money values, world trade, and capital flows become more and more disorderly and unpredictable.  

And all this has happened because the world’s so-called statesmen and national monetary managers, when they met at Bretton Woods in 1944, were thinking only of their own immediate problems, and had no understanding of what the consequences of their patched-up scheme would be in the long run.

The same kind of shortsightedness has been the common characteristic of nearly all the government interventions of the last thirty years. We may select our examples almost at random.  

Take minimum wage laws…

Read more: http://www.fee.org/the_freeman/detail/the-road-not-taken#ixzz2roDVdGa1

I shall be telling this with a sigh
Somewhere ages and ages hence:
Two roads diverged in a wood, and I,
I took the one less traveled by,
And that has made all the difference. -- Robert Frost (last stanza)

Concludes Hazlitt:

“The wrong road has been the road of government economic intervention. The right road would have been to permit and encourage free markets… It works incomparably better in maximizing and properly directing incentives than any other imaginable system. Only when this truth is sufficiently recognized by the public will the free market be restored.”

The Fed = Chaos. End the Fed.

Flakmeister's picture


Repeating nonsense about the international Gold standard does not make it true....

Now if you want to argue that a gold standard would work in the scenario of a single world goverment capable of redistributing gold flows, you may be on to something...  Of course, you then realize that you no longer have an international standard...

JR's picture

Maybe Jim Willie can awaken you from your self-induced stupor:

“The central bankers and sovereign wealth fund managers are running scared. The Official Monetary & Financial Institutions Forum (OMFIF) is a forum of central banks, sovereign funds, financial policy makers, and market participants. It recently issued a report on the global monetary system, emphasizing the possibility of a major breakdown in international monetary relations as a result of the currency wars, which hinder productivity. It accepts that the present system is collapsing. It argues a formal role for gold is required to play in international finance. But they turn to the despised corrupt savage callous Intl Monetary Fund, and its broken currency vehicle, the discredited discarded SDR basket. They will be swept aside despite eyes partly open."

Says Willie: "The Competing Currency War has reached a new elevated fever pitch, with the major central banks delivering powerful damage to each other while defending themselves...

"The world is slowly coming to the realization that only a Gold Standard can cure the world of its financial cancer from metastasized paper insecurities... Gold is the ultimate currency." -- Jim Willie, Shock Year 2013 - Pitched Currency War Among Central Banks


Flakmeister's picture

A lot of hyperbolic rhetoric but nothing about addressing  the massive imbalances in commodity flows, e.g. oil...

Can you articulate a thought of your own, or are you limited to parrotting claptrap?

starman's picture

does ZH has bible studies now? geta fuckouta here!

SDRII's picture

capital flight =  the proverbial "they"


IMF Warns Russia Faces ‘Considerable’ Global Contagion Risks


Ptuin visits snap drill on way home from BRICS summit

President Putin Orders Large-Scale Military Drills on Black Sea


China leaders stashes money offshore

Offshore assets of China's elite revealed in leaked records


China lunar mission fail

Jade Rabbit moon rover may be beyond repair, state media hints


Hungary invites IMF to leave as they contemplate haircuting foreign FX loan

 Hungary asks IMF to leave the country after early payback


India sub fire


Hope fades for 18 on Indian submarine after blasts, fire


Indonesia Ore Ban in effect

Indonesia’s controversial ban on mineral ore exports comes into effect


= ?



gwar5's picture

Moar Proof that central planning still sux.

q99x2's picture

That's what they do every time. Then they try to get out with the loot before the SHTF. Look at Bernanke. Look at the man with the beard. See how the Bernanke does run.

The rest of em probably have helicoptors ready  to take them to Jamie Dimon's Island.

financialrealist's picture

too bad the only thing left central banks have to fight with are spitballs...let the dam break...ride it out.  getting bored with this shit.

flow5's picture

All these dislocations are due to the Fed's monetary policy blunders.  For example, some people think Feb 27, 2007 started across the ocean. "On Feb. 28, Bankrupt you Bernanke told the House Budget Committee he could see no single factor that caused the market's pullback a day earlier". Virtually all of these re-arrangements occurred as our FED "tightened" monetary policy.

MeelionDollerBogus's picture

Good thing we can borrow our way to prosperity & print the difference.

Grin Bagel's picture

What does EM stand for?....Please

Flakmeister's picture



Psst, in this context Emerging Markets...