Filed under: Google (GOOG), Merrill Lynch (MER), Goldman Sachs Group (GS)
I was in high school on October 19, 1987, when the equities markets went into a death spiral — losing a stunning 22.6%. My mom asked me: “Are we going to have a Depression?” I didn’t think so. After all, by looking around, it seemed like things were fine (in the real world at least).
Well, the memories are coming back as we approach the 20th anniversary of the event. And, Barron’s [a paid publication] has an excellent piece on the topic.
Despite events such as September 11th and the Long-Term Capital meltdown, the U.S. markets have proven to be resilient since Black Monday. Although, we had a recent close-call. That is, in August, it did look like the U.S. markets were headed for a crash. Goldman Sachs (NYSE: GS), Merrill Lynch (NYSE: MER), and other top financial institutions plunged. Hedge funds went into chaos. There was a credit crunch. Buyouts came to a halt.
The good news is that it looks like the Federal Reserve has learned some important lessons and reversed the carnage.
What’s more, things are much different since Black Monday. The U.S. economy is more efficient because of technology and automation, there are many diverse industries, and the world economy is growing at a nice clip. It also helps that the U.S. continues to innovate, as seen with companies like Google Inc. (NASDAQ: GOOG).
So, might we never see another Black Monday? Actually, I still think it can happen. From time to time, markets do unwind. What if hedge funds need to dump securities because of over leverage? What if China falls into turmoil and growth slows? What if the U.S. dollar collapses? What if there is a major war in Iran? What if a small nuke blows up a part of New York City?
In other words, I think it’s important to consider “worse case” scenarios, especially as the world seems to get more and more dangerous — and that means not forgetting Black Monday.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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