Today we still wake to a world made overnight and we will continue to do so as long as there is a Wall Street
In 2017 we still wake up every morning to a world made overnight in America, especially on Wall Street, and we will pretty much continue to do so for so long as there is such a thing as “Wall St”, even if increasingly in virtual reality form.
Thirty years ago we did as well except somewhat more literally. In those days before the internet, before 24/7 real-time cable news and business channels — heck, Foxtel pay-TV was still nearly a decade away — you did mostly, actually, wakeup to what had happened on Wall Street overnight.
As I did on a certain Tuesday morning around 6am at the jangling of a phone — one of those old-fashioned, not so smart, real phones. It was my then editor Eric Beecher: “Have you been watching what’s been happening on Wall Street?”
“Actually, no, I’ve been sleeping.”
“Well,” came back, “it’s dropped 500 points.”
“Oh yeah?” I said, while thinking: editors don’t necessarily understand numbers that well; there must be a missing decimal point; he’s reading 50point something as 500.
Looked back from 2017, a 500-plus point fall in the Dow Jones index, while not exactly in the everyday, dime-a-dozen category, would not be that exceptional. But it 1987 it was not just shocking — it had literally never happened before — but indeed seemed impossible. That is to say, looked at from the perspective of not just the day before it happened, but all 10,000 or so trading days since the Great Crash of 1929, it just could not happen. Yet it had. Back on that October 20 morning, we in Australia literally woke up to not just a yawning financial abyss, but to the complete unknown and indeed unknowable so far as the beckoning, threatening, future was concerned.
One thing we did know all too clearly: our own market would go over exactly the same cliff when trading opened. All Down Under investors had an unbreakable appointment with the financial executioner.
And I had to try to make some sense of it for the similarly beckoning midmorning first edition of an afternoon newspaper, the Melbourne Herald, along with its stablemates in the other capital cities — which would all hit their streets just as the market opened.
Apart from radio and TV sound bites, afternoon papers would be essentially it for media reporting and discussion until the morning papers the next day.
The only comparator was 1929 when the Great Wall Street Crash would flow on to a decade of the Great Depression, itself only ended by the “production boom” of World War II.
That was also on a Monday in New York “Black Monday” — and also in October. But that earlier fall was just 13 per cent; 1987’s was a numbing 22.6 per cent. But ominously, the 1929 Monday Wall Street crash had been followed by a further 12 per cent on the Tuesday.
Would our Down Under market not only follow Wall Street’s Monday plunge, percentage point by percentage point, but incorporate a further expected fall coming up that Tuesday night? In a context, remember, for good or bad but so utterly different to today, of virtually no real-time media or even market interfaces? As it turned out, it would be 27 per cent; remember, in a single numbing day.
Further, back in 1987 the Dow was at 2700, now it’s nearly 10 times as high, at 23,000. To show just how shocking the fall was, in all the years since, the biggest one-day drop at the very peak, or bottom, of the GFC in 2008 was only 778 points or 7 per cent.
What delivered the greatest potency in 1987 was that what was happening was believed to be literally impossible. That “we” knew how to manage the economy and financial markets, precisely because “we” knew, and I mean knew, how they had stuffed up in 1929 and all through the 1930s.
Yet suddenly in that early Tuesday Down Under dawn we were waking up to the reality that after all “we” didn’t know.
What did come next? Everything and nothing.
The “everything” related to the “eighties entrepreneurs” — better described in my lexicon as “financial entrepreneurs”, as they manipulated money rather than real, tangible things like the Henry Fords of nation-building yesterdays: Holmes a Court, Elliott, Spalvins and most iconically of all, Alan Bond.
They would all eventually be swept into the dustbin of history. Holmes a Court alone knew instinctively and immediately that the game was over and set about on that very day liquidating all his assets and “plays”. The core would go to Bond and “WA Inc” and initiate yet more “eighties history”.
In the most dramatic individual intervention on that Down Under Tuesday, John Elliott went literally onto the floor of the exchange — back then, we still had a real floor with “chalkies” taking and writing down the quote calls — to buy across the board. This was an eerie, equally futile, replay of the buying by industrialist William Durant in New York on that 1929 Tuesday.
In 1987 Elliott was at the very peak of his power. He had just decided to forswear becoming leader of the federal parliamentary Liberal party, on his irresistible — as he and a lot of others saw it — journey to The Lodge to “save the nation” from Hawke and Keating; to instead seize control of Australia’s biggest and easily most important company BHP, to “save it” from Holmes a Court.
But he would end at the same destination as Durant a halfcentury earlier. By 1936 Durant was bankrupt; by the early 1990s Elliott’s dreams and finances were similarly shredded. But not by the crash itself, but the 20 per cent interest rates that came with the economic boom that bizarrely followed it.
The crash proved almost a one-day wonder. Within a year the market had recovered all its losses — but not the specific stocks that crashed and burned or which would stagger on until they were finally put to the sword by the high interest rates.
Unlike the GFC and 2008, far less the 1930s, the crash left no mark on the actual economy, either here or in the US or indeed anywhere. In 1986 our economy had grown by 2.9 per cent; it did so again in 1987 and then kicked up to 3.5 per cent in 1988. US growth went from 2.9 per cent to 3.1 per cent to 3.9 per cent through those years.
It would be very different in 2008. The entire world’s financial system did, really, teeter on the brink and would have gone over but for the government bailouts and interventions. The developed world suffered its worst recession since the Great Depression of the 1930s and is only now, nearly a decade later, beginning to emerge.
Yes, the world went into a much milder recession in the early 1990s (ahead of 15 years of unprecedented sustained prosperity) but it had nothing to do with the 1987 market crash.
Back then, the tentacles of the financial system locally into the real economy were almost nonexistent. The links globally were much more limited. The Australian dollar had only been floated and capital controls removed just four years earlier.
In time it would come to be seen as a “market correction” — a seemingly bizarre but accurate way to scribe the worst crash in global market history.
Looking back on 1987, there was no great lesson to be learned, except the eternal one of booms and busts; 2008 and even more its aftermath and policy reactions is, or should be far more deeply and broadly instructive.
But going back to that 6am telephone call, it really did seem to be the beginning of the end of the world as we had known it and the doorway to an unknowable future.
Black Monday’s aftermath