Financial Instability Hypothesis, Hyman Minsky:
"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance"
the greater the weight of speculative and Ponzi finance, the greater the likelihood that the economy is a deviation amplifying system"
The Asian currency crisis occurred in the second half of 1997 when hot money flows suddenly reversed, collapsing EM currencies and financial markets. We should recall that 2019 was the best first half for U.S. stocks since 1997.
The Asian currency crisis started in Thailand:
"Huge global capital flows and prolonged ultra-low interest rate policies of advanced nations have made it harder for emerging economies to protect their financial system"
“At times, exchange rates could serve as an amplifier of shocks in capital flows instead of being a stabilizer of shock in capital flows,”
What we are witnessing right now is that ALL global risk assets are 100% correlated. To the downside.
Anyone looking for a difference from last year's selloff, this is it:
Recall IBD's warning October 9th:
"Pronounced distribution like this makes it a challenging environment to say the least for growth investors. Stocks just have a hard time making headway amid persistent institutional selling"
When stocks open strong and close weak, it's a sign of distribution
What ties all of these global asset markets together?
The Yen carry trade
Hot money visualized:
