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October 19, 2020 | The End is Nigh (not)

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

The American stock market sits near a record high. In the middle of a recession. And a pandemic. Which grows worse. With a crazy uncle dude as president.

How can this be? How can it last?

Nary a week passes on this pathetic site without some wuss predicting collapse. Mayhem. Apocalypse. A market crash and crumble. The virus didn’t do it (yet). So now the forecast is for social chaos and financial ruin following the November American election.

Given that this is October 19th, it’s a fine day to talk about being wiped out. Over the lifespan of this blog, lots has hit the fan. There was the 2008-9 credit crisis, which melted stocks. The 2011 US debt ceiling crisis. The 2015 oil crash crisis. The 2016 Trump election shock. And now the 2020 Covid collapse.

Along the way, every single time, people have panicked, sold into a storm, gone to cash, exaggerated current events and lost perspective. But as bad as things looked, nothing has compared (so far) with what happened on this day in 1987. Black Monday. Wall Street shed 22.6% of its value in a single trading session. Ouch. Compare that to the 12.9% drop that the virus caused one day last March, or the 12.8% plop that took place in October of 1929.

Now, I have a confession. I’ve made it before. I shall make it again. Caught in the middle of that disaster my perspective was also warped. At the time I was the business editor and daily columnist for a big Toronto newspaper. By mid-afternoon – when it was apparent to everyone that history was unfolding – the CBC sent a crew to my office to ask me what the hell was going on.

That interview still sits in the corp’s archives. And just look how sweet, innocent, wrinkle-free and hairy I was at the time…

 

What did I tell the reporter (and the audience)? That the consequences of the crash would be long-lived, leading maybe (but likely) to the collapse of an American bank or two, along with a sustained period of economic reversal. What should people do, she asked? Run, I said. Flee stocks, go invest in something safe that pays you interest. This could be bad. (By the way, five-year GICs were then yielding 9.4%, so not such a flawed idea.)

Once that interview was done and the trading day finished, I laid out pages for the paper’s morning edition that contained pictures of 1930s soup kitchen lineups on Toronto’s Yonge Street with thousands of unemployed, desperate people. It was a moment of naïve irresponsibility I regret still.

So what happened?

No big bank collapses. No depression. The next day the US Fed put out the tersest and most pointed statement ever. Thirty words that made all the difference: “The Federal Reserve, consistent with its responsibilities as the Nation’s central bank, affirmed today its readiness to serve as a source of liquidity to support the economic and financial system”. The bank bought up scads of assets, injected liquidity into the system and collapsed interest rates. Just like it’s done in 2020. The shorts were killed.

The market rebounded. By the end of the year the Dow was higher than in January. In twenty more months it was at a new record high. And with the crash came a slew of reforms, including market circuit-breakers (triggered in 2020) which would in future force investors into sober second thought in the midst of any meltdown.

There would be more crises. The 2000 dot-com, tech bloodletting was intense. Nine Eleven tested everyone. The Gulf War. And then the five end-of-world events that have occurred since this blog published its first bleating words.

Now, so much more.

Covid is getting worse thanks to Trump, the virus-deniers, anti-maskers, party-animal kiddos and a flawed, political, uncoordinated approach to public health. Europe is on the verge of a lockdown. The USA appears to be a few weeks from being officially out of control. If Biden wins, guess what? Yup. Dr. Fauci will rule.

Meanwhile there’s a whole generation of RobinHoodies flipping stocks every few minutes on their phones, pushing valuations higher, buying sexy companies and melting the markets up. Central banks? Ah, out of bullets.

In this world a market correction would not surprise. After all, the rally since the end of March has been spectacular. Historic. If you had gone shopping for equities on the afternoon of March 23rd, 2020, as in the final hours of October 19th, 1987, you’d be rolling in capital gains. But that would take courage as well as money.

Courage, by the way, comes from confidence. That flows from experience. And wrinkles sure help.

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October 19th, 2020

Posted In: The Greater Fool

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