Black Monday - 20 years on

TheBramble · Oct 19, 2007

As nobody is totally sure of all the factors that precipitated 'Black Monday' then, I'm not sure we can draw too many parallels with what’s happening on it's anniversary today, but even with GOOG showing some of it's old form and rather good profits, I still wonder if 50 times earnings constitutes over-valuation in anyone else's book?

Over-valuation was the only commonly cited basis for the crash then, but I don’t see it as quite such a broad issue with stocks generally today, just a few significant candidates. Anyone have wider market views on that perspective? I tend to be fairly narrowly focussed on technology stocks once I come down from rarefied levels of X-market analysis of currencies, bonds, commodities and interest rates and may well be missing a broader stocks view.

I posted a few months back on a GOOG related thread that I fully expected a crash in GOOG if nothing else by late September (while allowing for quite the opposite and everything else in between of course) based on purely technical factors. I just wonder at the mechanics involved in keeping a 50X earnings stock at that level. If indeed it does manage to maintain that level.

Good news all over the place in the media. Hmmmmm…..there’s something, somewhere at the back of my mind about, oh, I don’t know….can’t quite put my finger on it….

Splitlink · Oct 19, 2007

TheBramble said:
As nobody is totally sure of all the factors that precipitated 'Black Monday' then, I'm not sure we can draw too many parallels with what’s happening on it's anniversary today, but even with GOOG showing some of it's old form and rather good profits, I still wonder if 50 times earnings constitutes over-valuation in anyone else's book?

Over-valuation was the only commonly cited basis for the crash then, but I don’t see it as quite such a broad issue with stocks generally today, just a few significant candidates. Anyone have wider market views on that perspective? I tend to be fairly narrowly focussed on technology stocks once I come down from rarefied levels of X-market analysis of currencies, bonds, commodities and interest rates and may well be missing a broader stocks view.

I posted a few months back on a GOOG related thread that I fully expected a crash in GOOG if nothing else by late September (while allowing for quite the opposite and everything else in between of course) based on purely technical factors. I just wonder at the mechanics involved in keeping a 50X earnings stock at that level. If indeed it does manage to maintain that level.

Good news all over the place in the media. Hmmmmm…..there’s something, somewhere at the back of my mind about, oh, I don’t know….can’t quite put my finger on it….

GOOG at 50xEarnings is outside of my orbit. This is, very much, a trading stock now and I'm not the best judge of what the trader is likely to think from one day to the next.

It's an interesting subject for the FA vs.TA debate, though, isn't it? Warren Buffet wouldn't touch it, I am sure, and I don't look at much over 17x

Split

BSD · Oct 19, 2007

TheBramble said:
but even with GOOG showing some of it's old form and rather good profits, I still wonder if 50 times earnings constitutes over-valuation in anyone else's book?

Positively Tulip Mania territory I'd say...

Markets really never have changed and never will change because humans stay comfortably predictable.

Rhody Trader · Oct 19, 2007

There's some stuff comparable between now and 20 years ago, but it's light. The Dollar was weakening, but certainly valuations were much higher and interest rates were on their way up. The Dow was up something like 40% at its best in 1987. Needless to say, we haven't seen anything like that this year.

At one point a chart was making its way around trading desks showing an analog between then and now. You can see it and a more realistic version here

Hoggums · Oct 19, 2007

Rhody Trader said:
There's some stuff comparable between now and 20 years ago, but it's light. The Dollar was weakening, but certainly valuations were much higher and interest rates were on their way up. The Dow was up something like 40% at its best in 1987. Needless to say, we haven't seen anything like that this year.

At one point a chart was making its way around trading desks showing an analog between then and now. You can see it and a more realistic version here

It's late October. The market is alway jittery in late October. 3rd week of November is usually when things start picking up again and the bull run continues into February.

mr_cassandra · Oct 21, 2007

One thing i find very different

(having been there and invested at the time). I don't see any of the euphoria anyone investing back then would have witnessed. I had relatives call from the other side of the usa to ask:
'are we the ONLY people who DON'T own stock' ? (direct quote)

A friend of mine everyone knew was in the mkt had people come up to him at his dads gas station asking for stock tips.

I see none of this today.

Same type story from 1929, they say Joe kennedy went short before the crash when his shoe shine boy started to give him stock tips.

Ditto dot com 9tulip) mania ending 2000. Back then I had people tell me all the classic lines why they would be rich from dot coms.
The old rules have changed or no longer apply.
This is a new era.
This is a new paradigm.

Again, I see none of those particular signs now.

grantx · Oct 21, 2007

Mr Cassandra,

“A friend of mine everyone knew was in the mkt had people come up to him at his dads gas station asking for stock tips. I see none of this today.”

It’s unlikely this would happen today for the simple reason stock ownership by the common man is no longer a novelty. In the UK of the ‘80’s , Thatcher’s expansion of the share-owning democracy via privatisations was the catalyst.

Regardless of any – or lack of – parallels with ’87, I reckon we’ll see a big sell-off in the UK and European equities markets – catching up with the US dive, which will resume as Europeans dump US stocks and move into bonds. We also have the increased tension in Turkey/Iraq which will not help the US nor oil flows: $100 a barrel?

Let’s see what happens in Asia overnight.

If I’m right, it will be the first time, so don’t bet your house on this.

Grant.

AlwaysBeTrading · Oct 21, 2007

Hoggums said:
It's late October. The market is alway jittery in late October. 3rd week of November is usually when things start picking up again and the bull run continues into February.

Why until February? Seems like all the tech bellweathers are heating up (cisco, intel, dell msft), almost feels like another tech boom coming. OTOH, their is another high point in the ARM conversion curve next sprng, so I could see things slowing down.

mr_cassandra · Oct 21, 2007

grantx said:
Mr Cassandra,

“A friend of mine everyone knew was in the mkt had people come up to him at his dads gas station asking for stock tips. I see none of this today.”

It’s unlikely this would happen today for the simple reason stock ownership by the common man is no longer a novelty. In the UK of the ‘80’s , Thatcher’s expansion of the share-owning democracy via privatisations was the catalyst.

Regardless of any – or lack of – parallels with ’87, I reckon we’ll see a big sell-off in the UK and European equities markets – catching up with the US dive, which will resume as Europeans dump US stocks and move into bonds. We also have the increased tension in Turkey/Iraq which will not help the US nor oil flows: $100 a barrel?

Let’s see what happens in Asia overnight.

If I’m right, it will be the first time, so don’t bet your house on this.

Grant.

I hear you but feel differently. I take my cue from the dutch tulip mania and then the countless times its recurred since, each in a new guise but always the same story.
I think there will be stock manias and bubbles as long as humans are involved. There will probably be crashes in our future without that sign, but i think that sign still has great relevance. The sign is about people, rather than the economics of any given time or country. Dot com mania in 1999-2000 was really not much different from poor people on up scrambling to buy tulips in holland.

In China as we speak today, people are charging stocks on credit cards and hocking their homes because:

I have to get in on stocks right now or risk my financial future.

AlwaysBeTrading · Oct 21, 2007

mr_cassandra said:
In China as we speak today, people are charging stocks on credit cards and hocking their homes because:

I have to get in on stocks right now or risk my financial future.

Click to expand...

I don't know how much is being charged to CCs, but their inflation is near 10%, making savings accounts fairly useless. A common chinese investor can put money in the bank to definitely see it drop in value or throw it in the red hot market and hope to cash in on the mania. Of course it will end badly (probably right after the summer olympics), but I don't think it is fair to compare China's current bubble to the dot-com bubble.

grantx · Oct 21, 2007

Mr Cassandra,

“In China as we speak today, people are charging stocks on credit cards”. I see your point, and I reckon possibly crucial to the whole debate (your geographical perspective is greater than mine). Slightly ironic – the masses of China and the popular investors of the ‘80’s in the UK . But in the 80’s China wasn’t a factor in the financial markets. Now it is, and a major one. If everything goes pear-shaped, it may be more pronounced when China starts dumping.

Grant.

mr_cassandra · Oct 21, 2007

AlwaysBeTrading said:
mr_cassandra said:

In China as we speak today, people are charging stocks on credit cards and hocking their homes because:

I don't know how much is being charged to CCs, but their inflation is near 10%, making savings accounts fairly useless. A common chinese investor can put money in the bank to definitely see it drop in value or throw it in the red hot market and hope to cash in on the mania. Of course it will end badly (probably right after the summer olympics), but I don't think it is fair to compare China's current bubble to the dot-com bubble.

Click to expand...

I think it will end in a crash in China that will affect usa/uk. Just like all the prior bubbles back to tulips, there have to be earnings in proportion to price gains.

I'm amzed how many times this repeats over the years, always to the tune of

'this time its different'

But the problem is people, and people never change.

BSD · Oct 23, 2007

The Chairman has made a nice chart offering some perspective:

This is good:

A breakdown of "Black Monday" and "Terrible Tuesday" 1987

Click the points in the charts for more info.

grantx · Oct 23, 2007

Pancake Tuesday, Ash Wednesday and Maundy Thursday are best avoided.

Grant.

fibonelli · Oct 23, 2007

grantx said:
Pancake Tuesday, Ash Wednesday and Maundy Thursday are best avoided.

Grant.

Is that because you're ashen faced and in mourning after burning your pancake on Tuesday?

grantx · Oct 23, 2007

Fibonelli,

Touche.

Grant.

BSD · Oct 24, 2007

LOL guys

Black Monday - 20 years on

TheBramble

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Splitlink

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BSD

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Rhody Trader

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Hoggums

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mr_cassandra

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grantx

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AlwaysBeTrading

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mr_cassandra

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AlwaysBeTrading

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mr_cassandra

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BSD

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