Differences of Tech Bust 2000 versus Credit Crisis 2007: US Dollar, Gold and Oil

``Throughout the 1980's and 1990's, all Asian asset classes had been highly correlated, highlighting Asia's status as an emerging market. However, since the late 1990's, Asian bonds, equities and currencies have "decoupled" as Asia took on the attributes of more developed markets.”-Gavekal Capital

This brings us to the last factor, the important distinction between the implosion of the Tech bubble in 2000 and today’s financial markets as shown in Figure 6, courtesy of economagic.com.

Figure 6: Economagic: Important Differences between Today and 2000: US dollar, Gold and Commodities

In figure 3, we showed that the US Technology bubble crash and the attendant economic recession dragged the Asian Markets along with it.

However, during such period, there had been some noteworthy nuances seen in the light of the trade weighted US dollar (red line), which had been in steady ascent until early 2002, while in contrast gold (green line), energy (gray line) and general commodities (blue line) were all in descent and gradually bottomed out at the twilight of the recession (shaded area) or in late 2001.

Meanwhile, today’s scenario has been in stark contrast, so far; falling equity markets and sharply rallying treasuries are seen under the backdrop of a LIFETIME low US dollar index, HIGHEST EVER oil prices and Record HIGH Gold prices as well as surging commodities. So relative to 2000, these signify signs of decoupling.

So what does this imply?

This suggests that what transpired in 2000 may not be exactly the same today.

If present price trends continue, then oil, gold and other commodities effectively “decouples” from its previous patterns. And so goes with the US dollar. Inflation and not deflation will be the cause of concern.

Of course, it may turnout that the decoupling critics could be right and recent trends could reverse, but for the present being, the burden of proof lies with these critics more than what price trends in various asset markets have been telling us.

It also implies that if the US dollar, gold and oil are responding to the anticipated changes in monetary policies, then the possible ramifications to other segments of the financial markets could be directed by similar predicate, anticipated changes in monetary policies.

It is from such grounds, we borrow the legendary oil and gas executive, T. Boone Pickens, line of forecasting, that the Phisix could backtrack to 2,800-3,000 before reaching 5,000 over the medium term, with 10,000 over the longer horizon.