Signia Invest Insights | October 2023
Reaching the Powell High Plains
Ronald Reagan September of this year marked the 25th anniversary of the blowup and liquidation of Long-Term Capital Management (LTCM), which in 1998 went under with total losses amounting to USD4.6bn after several of its strategies in the highly levered fund (up to 250x) came under severe pressure.
The incident which caused no external damage is a great example of the non-linear character of losses when investment strategies go awry. It is also quite remarkable how similar the market environments were then to now:
Russia was in a major (financial) crisis – having caused the implosion of LTCM in the first place; the Fed put a hold on interest rates for around three years after almost doubling them in 1994;
there was a large UAW autoworker strike in the summer of 1998; House Republicans wanted to impeach a President (Clinton at the time); the unemployment rate was near its lowest point in the cycle at just over 4% and tech stocks were all the rage.
History sometimes rhymes and repeats.
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