"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

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Wed, 01/29/2014 - 13:16 | 4380272 mobius8curve
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.

Wed, 01/29/2014 - 13:20 | 4380303 Millivanilli
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.


Wed, 01/29/2014 - 14:57 | 4380732 El Viejo
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.


Wed, 01/29/2014 - 13:22 | 4380304 CvlDobd
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.


Wed, 01/29/2014 - 13:23 | 4380313 Millivanilli
Millivanilli's picture

Reminds me of the old joke


Why do Ranchers fuck cows on cliffs. 


So the cow pushes back.

Wed, 01/29/2014 - 13:21 | 4380307 maskone909
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

Wed, 01/29/2014 - 13:26 | 4380312 buzzsaw99
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.

Wed, 01/29/2014 - 13:29 | 4380333 LawsofPhysics
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.

Wed, 01/29/2014 - 13:32 | 4380343 thunderchief
thunderchief's picture


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

Wed, 01/29/2014 - 13:38 | 4380363 CvlDobd
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.

Wed, 01/29/2014 - 13:54 | 4380459 Bearwagon
Bearwagon's picture

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

Wed, 01/29/2014 - 13:55 | 4380467 nonclaim
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.

Wed, 01/29/2014 - 14:06 | 4380508 disabledvet
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."

Wed, 01/29/2014 - 13:16 | 4380275 buzzsaw99
buzzsaw99's picture

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

Wed, 01/29/2014 - 13:17 | 4380289 tawse57
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.

Wed, 01/29/2014 - 13:21 | 4380306 MathWins
MathWins's picture

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

Wed, 01/29/2014 - 13:21 | 4380308 unplugged
unplugged's picture

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

Wed, 01/29/2014 - 13:24 | 4380323 dobermangang
Wed, 01/29/2014 - 13:38 | 4380356 sixsigma cygnus...
sixsigma cygnusatratus's picture

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

Wed, 01/29/2014 - 13:55 | 4380451 eclectic syncretist
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????!!!!

Wed, 01/29/2014 - 14:17 | 4380561 eclectic syncretist
eclectic syncretist's picture

Fonestar is in Philly today?!!!

Wed, 01/29/2014 - 13:28 | 4380331 cowdiddly
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

Wed, 01/29/2014 - 13:31 | 4380338 SDRII
SDRII's picture

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

Wed, 01/29/2014 - 13:33 | 4380342 rosiescenario
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....

Wed, 01/29/2014 - 13:34 | 4380345 Flakmeister
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...

Wed, 01/29/2014 - 13:58 | 4380473 Bearwagon
Bearwagon's picture

There goes the neighbourhood ...

Wed, 01/29/2014 - 14:10 | 4380525 disabledvet
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.

Wed, 01/29/2014 - 14:15 | 4380550 Flakmeister
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....

Wed, 01/29/2014 - 13:35 | 4380354 suteibu
suteibu's picture

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

Wed, 01/29/2014 - 13:41 | 4380376 JR
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.

Wed, 01/29/2014 - 14:11 | 4380521 Flakmeister
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...

Wed, 01/29/2014 - 14:25 | 4380586 JR
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


Wed, 01/29/2014 - 14:34 | 4380637 Flakmeister
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?

Wed, 01/29/2014 - 13:42 | 4380378 starman
starman's picture

does ZH has bible studies now? geta fuckouta here!

Wed, 01/29/2014 - 13:51 | 4380426 SDRII
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


= ?



Wed, 01/29/2014 - 13:58 | 4380475 gwar5
gwar5's picture

Moar Proof that central planning still sux.

Wed, 01/29/2014 - 14:23 | 4380588 q99x2
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.

Wed, 01/29/2014 - 14:33 | 4380635 financialrealist
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.

Wed, 01/29/2014 - 15:24 | 4380959 flow5
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.

Thu, 01/30/2014 - 00:48 | 4381098 MeelionDollerBogus
MeelionDollerBogus's picture

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

Wed, 01/29/2014 - 16:08 | 4381215 Grin Bagel
Grin Bagel's picture

What does EM stand for?....Please

Wed, 01/29/2014 - 16:40 | 4381425 Flakmeister
Flakmeister's picture



Psst, in this context Emerging Markets...

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