Posted by: jhamon | February 4, 2010

Mystery Hedgie: Thailand 1997 vs. Europe PIIGS 2010

The problems in Greece which, when looking at their equity markets, appear to have spread “virally” to Portugal and Spain this week, remind us of the price action seen during the Asian currency crisis in 1997, as issues in Thailand (see 1st chart, Thai Bhat) spread to Indonesian and Malaysian currencies. The difference this time is that with the global economy still tenuous, it will be difficult for the PIIGS to “grow their way” out of the budget shortfalls.

Thai Bhat 1997

The interconnectedness of markets and communications in 2010, as well as the Euro’s (see below) status until recently as the world’s 2nd reserve currency, raises the probability, now that key levels have been broken, that equities and commodities suffer greater downside than in 1997’s episode. With the start of Chinese New Year on 2/15 (China being viewed as a possible PIIGS bailout source of funds), the potential for a large scale de-risking event grows in the near term until more concrete proposals to address the PIIGS issues are presented.

The Euro 2010

Stress test your portfolios for tail event risk, own options where sensible, and be prepared for a buying opportunity down the road after the storm subsides.

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Responses

  1. CLNE natural gas put paid off today. It sold right at the designated price after the stock dropped for the last couple sessions. Now we will need that cash to scoop up a couple calls in the tech sector.
    Looking at intel (intc) and Nam Tai (NTE)
    Is it proper to discuss specific stocks on this blog?

  2. Sure


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