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My Gut Feeling for Today, October 19, 2012

I have decided keep today’s My Gut Feeling unprotected in remembrance of the 1987 Stock Market Crash. On Monday it will be back to password protected status available only to subscribers of Wall Street All-Stars

Twenty five years ago today I was riding up the elevator in the Morgan Stanley (MS) offices in the Ote Center building in Otemachi, Tokyo where I worked. Actually, it was October 20 as Tokyo is ahead of New York in terms of world time by about half a day. I was only in the business for a few years at the time but had an important role in building the Morgan Stanley business in the Far East. Some investment bankers I was riding along with remarked that the market was down 500 points. I thought nothing about it because a 500 point decline for the Nikkei 225 (NKY) at the time was not a big deal. By the time I made my way to the trading floor, I became painfully aware that it was the Dow Jones Industrial Average (DJI)  that declined 508 points on what we now refer to as Black Monday. That began a very long day and lesson in this business that was learned by many over the ensuing days and weeks. Of course, we are now all better off, yet at the time you thought the world was ending.

There were many other “world ending” events that took place in the financial markets over the next twenty five years: 1989 UAL Friday the 13th mini-crash; Invasion of Kuwait in August 1990; Orange County default in 1994; Long Term Capital failure in 1998 (I was involved in that one when working for Merrill Lynch, now part of Band of America (BAC) ); the 9/11 bombings; and, of course the American Debt Crisis. None of those events resulted in the end of the world.  Each were followed eventually by markets, as defined by the S&P 500 (SPX) or DJI, rising to all-time highs, except the America Debt Crisis. However, not enough time has elapsed for that to yet occur. It will. Maybe in 2013 or 2014, but it will.

Beware of the talking heads and writers who are members of the Doomsday Club. Take Joseph Granville for example. Apparently he predicted the 1987 stock market crash. He scored points for that. Unfortunately, he is more of a showman than an analyst. Over the following twenty five years, his predictive powers were less prescient as he seems to predict from the bearish side of the plate rather than both sides. He predicted that the Dow Jones would drop 4,000 points to 8,000 this year. Swing and a miss. What I am saying is to listen to all sides of the argument, not just the perma-bulls or perma-bears.

So will another stock market crash happen? Yes. When? I have no idea. Sometimes crashes are one day events. Sometimes they are multiple day events of the kind I have listed above. What we do know is that civilization does not end when crashes occur. Crashes are merely corrective events that come in compressed period of time. Embrace them and learn from them but don’t live in fear of them.

Predictions anyone?

Disclosure: At the time of this commentary Scott Rothbort, his family and/or clients of LakeView Asset Management, LLC had no positions in stocks mentioned — although positions can change at any time.

Scott Rothbort is also the publisher of the LakeView Restaurant & Food Chain Report, a newsletter focusing in on food, restaurant and agricultural stocks. You can subscribe at www.restaurantstox.com 

Chat with Scott all day in “The Finance Professor’s Classroom” with your Platinum subscription to Wall Street All-Stars.

You can email Scott at scottallstars@gmail.com 

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