Special Feature
CHART - BOOM AND BUST Above is a chart showing how various global markets have charted a path in the aftermath of these monster bouts of capital destruction.
The Friday the 13th Mini-Crash of 1989
In 1987, another historically important crash occurred that became known as “Black Monday”, where the major global markets including the US & UK fell by over 20%. Lessons from the past, however, helped in avoiding a major recession as the global central bankers of the day used serious monetary stimuli to contain most of the negative effects of an asset price shock.
Although this crash seems minor when seen today, it is important in the context of this piece to analyse it as it highlights two problems that we still need to fight against today: the excessive dependence on computer trading, particularly more so with the growth in so called “high frequency, algo” trading, and the age old human psychology element of blithely following the crowd...central bankers of the day used serious monetary stimuli to contain most of the negative effects of an asset price shock.
In this magazine edition we will conclude with the Friday the 13th mini-crash of 1989, the October 27, 1997 mini-crash, the 9/11 aftermath crash of 2001, the 2008 Great Financial Crisis crash, and finally the curious phenomenon of the 2010 flash crash.
On the morning of the superstitiously “spooky” October 13th, 1989, the market suddenly turned down on very heavy volume. At the close, the Dow showed a 6.91% loss while the S&P 500 dropped 6.12% leaving many traders scratching their heads as to just what the catalyst was.
30 | www.financial-spread-betting.com | January 2013