Black Monday and Today’s Economic Downturn, How do They Compare?
My wife, Susie, and I were walking on the beach this weekend and the subject of “Black Monday” came up. All of a sudden I was thinking back to what had happened to cause such a precipitous drop in the stock market. Whatever it was I remember feeling good about the fact that we all went through, learned from it, recovered, and actually things were much better for an extended period of time because of it.
On Friday October 16, 1987, the Dow dropped over 100 points. Of course, that’s just a blink of an eye today, but at the time the Dow Jones Industrial Average was just above 2,200. The 100 point drop had people talking about the stock market everywhere we went that weekend.
I can very easily recall thinking that when Monday morning came, the market would rebound and all of the fear and doubt would disappear. I was wrong about that prediction. It seems that with all of the talk over the weekend, the fear had just been heightened. Everyone everywhere was talking about the market, and most of them very fearfully.
It seemed forever until Monday morning arrived. Looking back, the first 100 point day on Wall Street had come in August 1982. The stock market had been over 1,000 in the 1970’s but retreated and due to a long recession hadn’t been above again until ‘82. From there it more than doubled in a little over five years. Not a bad return. As stock brokers, we all had a right to be a little optimistic.
Well of course, that didn’t happen. As a matter of fact the New York Stock Exchange was open for less than an hour and WHAM! Down over 100 more points. And that was only the beginning, by the end of the day the Dow Jones Industrial Average had dropped another 500 plus points. Monday October 19, 1987, became known as “Black Monday”. Think of it, people who were fully invested in the stock market lost as much as 25% of their net worth practically overnight.
There were changes as a result of those days in October of 1987. These were changes which were designed to prevent such a thing from happening again. And now we have today’s crisis. What happened between then and now?
Back then, the stock market gradually regained its lofty closes above the 2,000 mark, although it took some time for the economy to stabilize. The new regulations seemed to bring about more confidence in the “system” from the public’s perspective, and more order in all of the financial markets. What has happened since that time until now is different.
There appears to be more greed on Wall Street for starters. Add to that the loosening of regulations, the dramatically falling value of the dollar, real estate values which plummeted over a year ago and have yet to recover, foreclosures at all time highs, a $700,000,000,000.00 bailout which was basically forced on the American public as part of a plan to clean up for the errors of corporate America’s and regulator’s failures and well what do we have?
Although the Federal Government doesn’t like to mention it, we are in a recession. I also feel that we are going to see the situation reaching more and more households. We may also see more bank failures, job losses, and more foreclosures. With more and more dollars circulating almost on a daily basis, your purchasing power is declining steadily as well.
The same two questions keep coming back to me. The first is somewhat rhetorical, and that is; haven’t you seen this coming for a long time? The second is simple, given all of these conditions, what are you doing to secure your and your family’s financial future?
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