The Future is More of the Past

I just had my eyes opened. I just found some articles that my father had sent me in  1987. I had never gotten around to reading them at the time and felt guilty about throwing them away without looking at them.

Finally, in 2015 I unburied them and looked through them. It was very interesting and made me question even more whether I wanted to trust what advice people had to give about the stock market and the economy.

Crash of 1987

The articles talk about the stock market crash of 1987 and what were the causes and what should people do. A number of people were comparing the downturn to 1929 which in retrospect is a severely overblown reaction.

Some people felt that modern safeguards would prevent a meltdown to the 1929 levels. Between Social Security, unemployment insurance and an active Federal Reserve, many felt that they would prevent a complete 1929 style meltdown. At the time they were written, the downturn seemed to be only in the stock market and not in the general economy.

Worse than 1929?

One analyst felt that these only treated the symptoms and not the underlying causes. He felt that 1987 might be even worse than 1929. He said in both cases that excessive world wide debt and a contracting economy had been the cause of the crash.

He also said that legislators had gone overboard after the 1929 crash and there was too much New Deal social legislation and also business regulation. He felt that this was having a major drag on the economy. Sounds like the Republicans of 2015. Not much has changed.

Back to the Future

Another article said that people got too caught up in the euphoria of the stock market rise and that they didn’t pay attention to the warning signs. That sounds like what happens at any market peak to me. They said that people didn’t pay attention to low earning yields and dividends on stocks and figured that corporate earnings would increase and yields along with it.

Other problems were inflationary expectations which were much higher back then than they are now. Also there was a stalemate between Congress and the President. Perhaps not the inflation (although people keep beating that drum) it sounds a lot like today doesn’t it?

At least I didn’t read anything about people jumping out of windows in 1987 the way some did in 1929. There were a number of comments about people who had bought on margin and were facing margin calls. This was much worse in 1929 because there were fewer safeguards to keep people out of trouble back then. In 1929, everyone from tycoons to blue collar workers was buying on margin since it seemed like the joy ride would never end.