Is there another East Asian-style financial crisis coming?

INVESTMENT WATCH BLOG ^

[alexmark1917]

Falling oil, rising dollar and fears over US rate increase present in 1997-98 Mark Twain reputedly stated that history does not repeat but it rhymed. In an eerie parallel to 1997-98, falling commodity — especially oil — prices, a rising US dollar and potential increases in US interest rates may presage a new financial crisis.

Weak growth, high debt levels, disinflation or deflation, policy driven destructive competitive devaluations, inflated financial risk taking and mispricing compounds the problems. The impending crisis may develop as follows.

First, US equity prices come under pressure from a stronger dollar. Given 40 per cent of S&P 500 sales are international, US exporters and foreign earnings are affected.

Lower oil prices reduce earnings, cash flow and asset values of energy producers, oil service companies and equipment suppliers. Earnings and liquidity pressures decrease merger activity and stock buybacks removing a key support of share values.

Second, debt markets become stressed, as heavily indebted energy companies and emerging market borrowers become financially distressed. Investors and banks have significant exposure to oil and gas. The energy sector is about 15 per cent of the Barclays US Corporate High-Yield Bond Index — up from less than 5 per cent in 2005.

http://www.ft.com/intl/cms/s/0/39f09e54-a0b1-11e4-9aee-00144feab7de.html?siteedition=intl#axzz3SRZZzJwa

China on the verge of 1998-like Asian financial crisis?

As Chinese leaders attempt to guide their slowing economy into a soft landing, they're counting heavily on People's Bank of China Governor Zhou Xiaochuan to keep conditions stable. It's a daunting task.

Firming US growth is increasing the odds the Federal Reserve will boost interest rates soon. Europe, meanwhile, is on the precipice of renewed turmoil as Greece spars with euro-area finance ministers. Japan is limping out of recession slower than hoped (growing an annualized 2.2 per cent in the fourth quarter), raising the chances of additional Bank of Japan stimulus.

With 560 basis points worth of monetary ammunition to use before interest rates go negative, Zhou would seem wellarmed for the challenge. But what if he has fewer options than optimists think?

Comments over the weekend by Guan Tao, head of international payments at the State Administration of Foreign Exchange, suggest Zhou's ability to ease may rapidly be evaporating.

The problem? Fast-rising "uncertainty and instability" for capital shifts conditions, Guan warns, that are eerily reminiscent of the 1997-1998 Asian financial crisis.

As China's currency watchdog, SAFE normally operates under a cloud of secrecy. For Guan to speak out so publicly suggests there's good reason to be worried about the kind of sudden and massive outflows that flattened Indonesia, South Korea and Thailand nearly two decades ago.

For the last 12 years, the PBOC has faced exactly the opposite problem: what to do with all the cash flooding into the country as Tokyo, Washington and Frankfurt slashed rates. That pumped up China's money supply and required some fancy monetary footwork from Zhou, who had to introduce special securities to mop up liquidity.

http://articles.economictimes.indiatimes.com/2015-02-17/news/59232676_1_interest-rates-pboc-yuan

US oil rig count declines: Current: -24% Financial crisis: -60% Asian crisis: -75% h/t @TheBubbleBubble pic.twitter.com/VJPFppYxSw

— $hane Obata (@sobata416) February 2, 2015

China's situation "looks more and more like the Asian financial crisis", says senior Beijing official

http://www.afr.com/p/world/china_capital_flight_looks_like_kh99ArlsNC5OqLwX68jMrO

[MeneMeneTekelUpharsin]

"You can fool all the people some of the time, and some of the people all the time, but you cannot fool all the people all the time."

Abraham Lincoln

[huldah1776]

Anyone know if Canada will take a lesser hit than the US? Just have family that has the option to go there.