Stock market crashes: waiting for the Big One

Reuters/Stephen HIrd

For the financial journalist, stock market crashes are what Fifa World Cups are for the football media, and US presidential elections are for the politicos.

So all last weekend my professional instincts were in overdrive after bad Friday trading on global bourses. New York indices were moving into “correction” territory, and the big question was: how would they open on Monday morning? Would correction become crash? Was this the “Big One”?

As big as 1929, maybe? The Wall Street Crash that autumn has framed the folk memory: stockbrokers taking their own lives, soup kitchen lines and dustbowl economic depression.

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But real crashes are not like that anymore, and in fact are not that common. In my four decades as a business journalist, I have witnessed, and reported on, only three market events that were worthy of the “crash” moniker.

The first remains the most dramatic and memorable. On October 19, 1987, London had been ravaged by a real hurricane, and I well recall heading to the office through streets of fallen trees and damaged buildings.

What greeted me on arrival was no less apocalyptic. “Black Monday” was in full flow, with the screens awash with red as the Footsie 100 started the downward plunge that would see it lose nearly a quarter of its value in 48 hours.

Why? There was much erudite explanation about “equity overvaluation” and “program trading” (those new-fangled computers came in for a lot of the blame).

But I remember one old market wag summing it up accurately and succinctly that evening in the pub: “More sellers than buyers”.

The 1987 crash didn’t last very long. There were no suicides that I recall, and nobody packed up the family truck to head penniless to California. The markets recovered within a few months and there was no economic recession. But it was dramatic. And you always remember the first time.

The next, by contrast, was almost slow-motion. Towards the end of 1990, what had become known as the “dotcom boom” was in full swing. Anything that could claim the remotest connection to the internet saw an immediate surge in value. Dotcom IPOs went to incredible first-day profits.

My abiding memory of those years was of watching venerable grey-haired merchant bankers listening enrapt as some college grad in pumps explained the attractions of the investment being pedalled – and shaking hands enthusiastically on a deal, any deal, as long as it was “dotcom”.

March 10, 2000 was the day the music stopped, but it was a more sedate affair than in 1987, just a long relentless decline in share prices over the next few months. “TMT stocks” (telecom, media and technology) bore the brunt of it, but there was no great recession – unless you happened to be the merchant banker, because the boy in pumps had blown all your money.

Fast forward to September 15, 2008 for what I contend is the only crash in my lifetime (so far) to come near the 1929 benchmark – the collapse of Lehman Brothers.

In those days I was hosting (with my old pal Richard Dean) a late afternoon radio show on Dubai Eye, and we were on-air as the tumultuous news came through from New York that Lehman – a colossus of blue-blood Wall Street – had filed for bankruptcy, mainly because it had written too many mortgages for “toxic” borrowers.  

I told listeners that we were witnessing “the financial equivalent of 9/11” and I’d like to think subsequent events proved me right. The global financial crisis and economic recession that ensued reordered the world of finance in the same way that the Al Qaeda attacks on the US changed geopolitics forever.

Nowhere was this truer than in the UAE, where the Dubai World crisis that followed became the most serious threat to the emirate’s economic and financial wellbeing in the 18 years I have been here.

We are still living with the fall-out of the Lehman crash, but will we look back several years hence and see the “crash” of Monday August 5, 2024 as a similarly historic day?

I honestly doubt it. Toppy valuations in US technology stocks fell victim to a “sell” mentality that was exacerbated by a technicality in the Japanese financial markets.

As for US recessionary fears, the Federal Reserve has it in its power to do something decisive about those in the coming weeks.

Nonetheless there are big pressures building in global financial markets. If – when? – they burst, I want another ringside seat.

Frank Kane is Editor-at-Large of AGBI and an award-winning business journalist. He acts as a consultant to the Ministry of Energy of Saudi Arabia and is a media adviser to First Abu Dhabi Bank of the UAE