27th June 1988. What Goes up Comes Down.
The Author has constantly been bemused over years to see the Gadarene Swine rush to buy shares, not when they are ‘cheap as chips’, but when they are going through the roof.
As a result when the collapse comes, as it does too quickly, they are left nursing losses-a constant pattern since the Author began investing in the 1960’s.
The age of Margaret Thatcher was a time of great economic upheaval seen in the spectacular stock-market collapses of September 1981, two year’s after she had taken office. It was the second worse crash in history.
Today seven year’s later in 1988, Share prices slumped again, when £5.5 billion was wiped off their value after a massive £1.2 billion UK trade deficit was announced. Income tax cuts earlier in the year were blamed for fueling consumer demand thus sucking in imports (1). And this came only eight months after 19th October 1987: ‘Black Monday’, one of the worst days, of the century for shares, when £50 billion or 10% of the value of publicly quoted companies, was wiped out in London. The FTSE All Share Index dropped 34% over one month: a ‘financial hurricane’ following the previous Friday’s monumental weather Storm.
It was to see the end of the five years’ ‘bull market’ (rising) which had seen a 3½ fold rise in average share prices and blamed on rising interest rates, trade deficits. It also came after ‘Big-Bang’ new computer trading, which automatically sold stock on reaching a certain level. The City had changed for ever with a new breed of traders: lunch was now at the desk (2).
It was the 1960’s which saw a post-war trend as a Crash in May 1962 saw the FT Index drop to a 20 year low. But worse followed as it was the oil crisis which caused the FTSE All Share Index to drop 69% during 1972 and 1973 with recovery taking three years.
The Author remembers house prices rising at a time when he was purchasing. In fact prices ever since have outstripped the ability of single wage-earners to buy. In December 1973 share values fell by £2 billion when hit by Arab funds being withdrawn from banks in retaliation to America’s support for Israel.
In August 1974 the main Financial Times Index slumped below 200 points for the first time in 16 years when more than £1 billion was wiped off values. The FT dropped to a 20-year low of 149.7, gold plummeted to $11.50 to $174.50 an ounce, and sterling dropped on all exchanges, not helped by talk of wealth taxes and capital transfer taxes by the newly elected Labour Government. In January 1975 more than £1 billion was wiped off the stock market and Burmah Oil collapsed. (3).
The 1970’s and 1980’s were to see some remarkable crashes reflecting underlying economic conditions, but not associated with the fall of government. Thatcher went over Poll Tax, allied with her authoritarian style in 1990. Macmillan was to fall over sleaze, in 1963. Heath lost over his battle with miners. Conversely good economic conditions are no guarantee of being re-elected as Major saw in 1997: ‘Britain is Booming’ was the slogan.
(1) Deficits rather than capital movements, were becoming the key factors in determining interest rates and value of currency as we see today.
(2) Bulls ‘toss-up’: Bears ‘lie low’!!
(3) Burmah Oil once had Denis Thatcher on the Board, and had swallowed Castrol Oil.)
Pic: Topham Pic Lib P.285 AA Great Moments of 20thc.
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