The Fugu Ultimatum
By John Mauldin
August 10, 2007
1186758058
China - Upping the Rhetorical Ante
Back to 1998
The End of the Quantitative World
Subprime for a Long Time
The Fugu Ultimatum
90 Years and Still Going Strong
In the early fall of 1998, I remember being on a flight to Bermuda from New York. I was upgraded and sat next to a very distinguished looking gentleman. He was going to a conference about re-insurance and I was going to speak at a large hedge fund conference. We hit it off, and began a very interesting conversation, one that still burns in my mind today. It turns out that he was vice-chairman of one of the largest insurance firms in the world, and was a real financial insider, seemingly knowing every big name on Wall Street personally. After he had a few drinks (he was clearly somewhat stressed), he began to talk about the Long Term Capital Management fund and the problems in the markets. He had had a ring side seat at the Fed-sponsored bailout proceedings.
"We came to the edge of the abyss in the financial markets this week,' he told me, "and then we looked over. The world does not understand how close we came to a total meltdown of the markets."
This week we look at the similarities and the differences between the credit crisis that is going on today and what happened in 1998, take a quick look at the threat from China to the dollar and see what exotic fish and exotic bonds have in common. There is a lot of ground to cover, so let's jump right in.
China - Upping the Rhetorical Ante
Early this week the currency markets were roiled as not one but two senior Chinese officials publicly advocated using China's large dollar reserves as a political weapon should the US attempt sanctions on Chinese goods if the renminbi is not valued higher against the dollar. The two were senior officials at Chinese think tanks. Shifts in Chinese policy are often signaled through key think tanks and academics.
He Fan, an official at the Chinese...
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