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Friday, July 27, 2007

2007 = 1987?

Greg Silberman in Safe Haven yesterday uses the chartist approach to suggest an analogy with the lead-up to the 1987 crash.

I don't know. Over the late '86/early '87 period I watched my little investment soar and began to wonder how everybody could get rich at the same time. I heard reports that people were borrowing against their houses to trade, and schoolboys were making money on the market. I don't read quite that degree of crazy optimism and greed today.

Maybe the difference is reflected in the degree of monetary inflation. In the UK, the 3 years leading up to October 1987 showed an average annualized increase in M4 of 18.59%, compared with an average 12.07% annualized over the 12 quarters to March 2007. And over here at least, people are much more leery of investments and pensions than they were then.

But there's loads more debt now. It could be that a drop happens, not because of a change in investor confidence, but on account of running short of spending cash.

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