great post i got from priv. message:
author not mentioned due to my respect for his privacy.
anyone else with opinions and feelings of the 1987 crash, let me know. don't be shy <gg>
i really enjoyed that post BTW.
I wanted to comment on some of your 1987 questions but not to clutter the thread.
In the three months before the October crash, interest rates went from 9% to 10.5%.
The friday before the crash, the DOW dropped over 100pts or about 4%. There was
this thing called "portfolio insurance", a term that has become reviled on the street for
the carnage that ensued. A drop in asset value could be programmed so that when
stocks dropped, your entire portfolio could be sold by computer generated orders.
The most popular trigger level was 5%.
Over the weekend preceding the crash, James Baker, secretary of state became angry
and the level of US exports going to Japan. (too few) He held a press conference
where he announced that he was going to let the US dollar freefall so that american
products could be more competitive. F<beep> idiot. Every extranational in the world
decided to pull all their money out of the US market on Monday.
It did take three years on average to get even from this drop. Those professionals that
had naked puts in their portfolio ( a very common practice), were wiped out and more
than a few committed suicide.
But that's nothing. It took 25 years to recover from the bear of '29 to '32. Shouldn't
even be called a bear; more like a ravenous rabid tyranosaur. Stocks like high flying
GE went from 396 to 8 and the best performer, AT$T (T) only lost three quarters of
it's value. There was a ten to one margin rule in effect at the time. Imagine the leverage.
You put up 10,000 and buy a stock. It doubles. You can now buy 100,000 more of
stock. It doubles again. you see were this is going and how fast it could fall apart.
1965/66 to 1982/83 was a flat period for the market. Given the inflation level of the
time, this was probably the worst years or performance ever for the market on a value
basis.
All in all, even with these horrible scenarios figured in, equities have outperformed all
other investments over time. They have to have periods like recently in order to make
that claim. |
