A Russian Moment?

Are we facing a Russia-moment?

On August 17, 1998 the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. By October the stock market had fallen over 20% from its high and the 10-year US Treasury market had rallied about 1 ½ percent. Market volatility rivaled that of October 1987. Economists couldn’t see a way out for Russia—and they were right. Its economy didn’t begin to recover until 2000, and didn’t get to its prior peak until 2003.

How soon we forget. A financial crisis in Europe led to a market decline here, in spite of solid domestic economic fundamentals. The US equity market recovered by year-end and we enjoyed another three years of growth. The stock market ultimately rose 30% above its previous high.

Fast forward 13 years: a significant debt restructuring is in the offing in Europe, equities have fallen off their peak, the Treasury market has rallied, and volatility is extreme. But US companies continue to exceed earnings expectations. So far this earnings season, over 90% of companies in the S&P 500 have exceeded expectations. The economy is still growing: we have 1.2 million more jobs that a year ago, consumer credit is growing, and industrial production is improving.

Yes, global growth is slowing. Yes, the markets have been volatile. But oil prices are down, inflation pressures are easing, and consumers are spending. We’re seeing evidence of financial stress, but it’s more like 1998 than 2008. The situation may not yet be in hand, but this is no time to panic.

[display_podcast] A Russian Moment?

By |2011-08-19T05:53:18+00:00August 19th, 2011|Economics, Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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