30th Anniversary: Forget the Lessons of Black Monday at Your Peril
The thirtieth anniversary of Black Monday in 1987 raises questions about whether the events leading up to the crash could unfold once again in the current environment.
The Reagan Administration did not expect foreigners to view their fiscal policy conduct as profligate, while the decision to replace former Fed Chairman Volcker in July 1987 enhanced this unflattering impression.
Rapidly eroding US equity valuations, both absolute and versus bonds, were largely ignored in 1987, even after the sacking of former Fed Chairman Volcker.
Former Fed Chairman Greenspan was forced to raise interest rates during the 1988 Presidential Election campaign, an outcome President Reagan desperately sought to avoid.
There are many similarities between the present environment and 1987 that investors should not ignore lightly, but equity valuations are currently higher, partly reflecting lower inflationary expectations as well as complacency.
Significant equity shrinkage was a major reason propelling equity prices higher in 1987, but buybacks are less of an important factor in the current bull market.
In contrast to 1987, huge US political dysfunctionality raises the risk of any significant future market fallout imparting serious damage on the real economy.
DeSaque Macro Research Limited was formed by Said DeSaque in April 2012 with the intention of delivering independent global macro investment insights and new thematic long-term ideas to investors, along with an agnostic opinion of the markets.
Said DeSaque has over 29 years of experience working as a professional economist in financial services, primarily based in London. His working role has involved extensive travel around the world, bringing him into contact with investors of different cultural backgrounds and investment requirements. Prior to establishing DeSaque Macro Research, Said held positions as Senior Economist and Investment Strategist at US banks Robert W Baird and William Blair. He began his career as a graduate at PaineWebber in 1986, where he became Head of the London Economics Department in 1996. This role allowed him to engage with senior investment professionals, alongside regulators and provided a unique perspective of market intelligence at work.
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