Business: Business View - Back at work with anniversary fears.
The omens are not good. There are striking similarities between the situation now and that exactly 12 years ago when the markets went into freefall and wiped billions of pounds off shares in a single day.
In October 1987, as now, company valuations in the City and on Wall Street were starting to look distinctly peaky, there was a yawning trade deficit between the US and the rest of the world, interest rates had started to edge up, the South-east's housing market had overheated and - to cap it all - there was a right wing Prime Minister in Downing Street.
The last point is irrelevant, of course, as well as arguable. But what is not arguable is that many forecasters believe another big correction in prices is due.
It is not going to be the market-wide meltdown that we had last time. Many small and medium-sized companies are so undervalued that a big fall would throw up the mother of all buying opportunities.
What is more likely is a correction for big companies to levels that more closely approximate their true worth.
The scale of any correction has to be set in some sort of context. The FTSE 100 index has already lost a very considerable proportion of its value over the past week - some five per cent.
Next week sees the publication of US trade figures which are widely expected to reveal a massive deficit. So no surprises, particularly, since the last set of figures were already as good as indication as any that the balance of trade had shifted even further into the red.
Here, too, there will soon be an unwelcome, though inevitable, rise in interest rates by the European Central Bank.
Rates in the UK may edge up, but not by much.
The need to keep rates on hold or limit them to extremely modest increases has been reinforced by retail sales figures that point to dire times on the High Street, and the fragile nature of the manufacturing sector's recovery.
So with no real prospects of a big increase in interest rates, why hasn't the UK stock market soared ahead?
Why is it that after something of a see-saw between Easter and September the FTSE 100 index is virtually unchanged since the beginning of the year?
The reason is that the market has slavishly been following the Americans. Every time Wall Street had a hiccup, we choked.
Last week saw one of the worst in Wall Street since 1987 and in London stocks came back accordingly.
With such a large correction already in the bag, what then are the prospects of another big fall this week?
It is certainly possible and there were precious few forecasters willing to stick their heads above the parapet either way yesterday. But perhaps the prospects of a big fall are not as great as the doomsayers think.
Highlighting an anniversary, in this case the 12th of Black Monday, as a reason for an imminent meltdown seems to me to be a pretty weak argument.
There are many similarities with 12 years ago, but with a big fall behind us already surely we do not have to assume that the coincidental timing necessarily makes another shares collapse this week inevitable.
Every time Wall Street had
a hiccup, we choked
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|Publication:||The Birmingham Post (England)|
|Date:||Oct 18, 1999|
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