In an otherwise massive bull market, the collapse of Long Term Capital Management (LTCM) sent the S&P 500 spiraling -22% peak-to-trough between July 20 and October 8, 1998.
LTCM's directors included Myron Scholes and Robert Merton who had won the Nobel prize in economics the year before.
With $5 billion in client assets, the fund used leverage and derivatives to control assets valued at more than $1 trillion (not a typo).
An abrupt “flight to quality” triggered a massive selloff in emerging market (EM) assets. With EM currency and asset prices in free-fall, LTCM imploded.
Under Fed supervision, sixteen banks cobbled together a $3.6 billion bailout. Without it, there was fear LTCM’s meltdown could cause a chain reaction of catastrophic losses throughout the global financial system.
The LTCM crisis took place within the context of an extraordinary bull market. From October 1990 to March 2000, the S&P 500 was up almost 500% and the Nasdaq increased more than 1,200%.
Again we are in the midst of a massive bull market. Since March 9, 2009, the S&P 500 is up more than 425% and the Nasdaq has risen 610%.
Whether it might be an EM-triggered catastrophe or a geopolitical crisis, or...we should not disregard the possibility of a short-term bear within this bull.
Weekly Update through September, 28 2018 The S&P 500 lost -51bps, even as the Dow Jones declined -1.07%, the Russell 2000 was down -86bps, and the Nasdaq added 76bps.
As for US bonds, they added 17bps.
Globally, the MSCI World Index lost -64bps and the Barclays Global Aggregate Bond Index declined -52bps.
The Euro Stoxx 50 lost -81bps in local-currency (Euro) and -1.89% in USD. Meanwhile, the Topix gained 1.41% local-currency (Yen) and 60bps in USD.
Month-end Update through end-September 2018 In September, the S&P 500 added 57bps, the Dow Jones gained 1.97%, the Russell 2000 dropped -2.41% and the Nasdaq lost -70bps.
As for US bonds, they declined -64bps.
Globally, the MSCI World Index added 59bps and the Barclays Global Aggregate Bond Index declined -86bps.
In September, the Euro Stoxx 50 added 31bps in local-currency (Euro) and 47bps in USD. Meanwhile, the Topix gained 5.43% in local-currency (Yen) and 3.18% in USD.
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