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Quote of the Day
“In a financial crisis, uncertainty is the enemy of confidence”
-Tim Geithner, on his lessons learned from the Asian currency crisis.
December 3rd – This Day in Stock Market History
1996 – Federal Reserve chairman Alan Greenspan hosts a private meeting with the nation’s most famous stock market forecasters. Abby Cohen, Byron Wien (chief equity strategist at Morgan Stanley), David Shulman (chief equity strategist at Soloman Brothers), Robert Shiller, and John Cambell. Greenspan wanted opinions on the stock market’s valuation.
Greenspan was beginning to become skeptical of the market’s rise, and wanted Wall Street’s opinion. Most were skeptical of the market’s valuation, although Cohen and Wien argued that the bull would likely continue. In the end, the bulls were not convincing as 2 days later Greenspan would rock the markets with his “irrational exuberance” speech.
Source: Bull: A History of the Boom and Bust, 1982-2004
Greenspan had quite a wild ride as the Federal Reserve Chairman from August 11, 1987 through January 31, 2006. Appointed just before the 1987 stock crash, which led to the great 90’s bull market, followed by the dot-com bubble.
Performance of the Dow Jones Industrial Average under Greenspan. Chart from Macrotrends
1997 – South Korea and the IMF reach a deal for a $55 billion aid package to help the country weather its fiscal problems. At the time it was the largest aid package in history. Korean stocks jump 7%, at the time the best day in exchange history.
South Korean businesses had been given funding from banks around the world with short term loan. For years, the loans were rolled over upon maturity, but as the Asian currency crisis struck, companies were finding it harder to get new loans. The South Korean Government had nationalized several companies, most notably Kia, the automotive company. But it was quickly discovering the problem was bigger than it could handle.
South Korea had openly refused aid at the beginning of November 1997, thinking that the U.S. or Japan could come to its aid. But by the end of November South Korea was appealing to the IMF for help.
The Asian currency crisis hit the entire region hard. The Kuala Lumpur stock exchange lost 75% in 1997 and take more than a decade to recover. Japan’s Nikkei 225 index would fall 40%. South Korea’s stock market would fall more than 50% in 1997, and even more in 1998:
Source: Panic, Prosperity, and Progress: Five Centuries of History and the Markets
Best December 3rd in Dow Jones Industrial Average History
1929 – Up 3.27%, 7.91 points.
Worst December 3rd in Dow Jones Industrial Average History
1987 – Down 3.92%, 72.44 points.
Read of the Day
The Economist put out a good article 10 years after the Asian currency crisis that provides more detail on the impacts to each country involved, and how each country recovered:
Ten Years On – The Asian Currency Crisis
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