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mpeirce · 03-14-2020, 08:20 AM

I recall 1987. I was only out of school a few years and had a very modest 401(k).

Where I worked was a "bull pen" setup with everyone sitting in a room together to work on a specific project. I sat next to a woman who literally panicked and she sold her entire portfolio near the bottom. As the market recovered, she kept her money out of stocks and so she really did lose money from the crash.

I always remember that episode when we hit downturns of various magnitudes and I always stay the course. It made a real impression on me even though I didn't lose anything back then.

Lsbcal · 03-14-2020, 08:40 AM

Quote:

Originally Posted by ERD50

Interested, but could we make the starting point something like a year before the drop?

To me, that chart looks so much scarier than reality - 1987 (including divs) was an up year for investors. Drops from a peak really only matter if you won the lottery and put all your money in on that day. That's probably no one.

-ERD50

My thought was to compare two scary sudden market drops. In no way would I want to imply that this tells us what will come next. I'm not sure what would be gained by going into a lot more SP500 price comparison data.

Perhaps the very slow rise out of that 1987 drop might tell us something about how it takes time to rebuild confidence. The market did fully recover about 2 years out from the 1987 decline.

On a fundamental basis bonds were a fantastic value compared to stocks back in 1987. 10 year Treasuries paid 8.9% versus 0.9% now. The yield curve was steep, not inverted as it was recently. PE10 was at the 50% rank for the past 30 years whereas now it is around the 80% area. Etc, etc.

target2019 · 03-14-2020, 08:43 AM

Quote:

Originally Posted by audreyh1

I believe so. S&P500 peak was 2/19/20.

Oh yeah - he says so in the text in the graph.

Quote:

Originally Posted by Lsbcal

Yes, both the 1987 and 2020 lines begin from their market peak.

Thank you, folks.
1987 recovery peak-to-peak was about 20 months. Makes me sad.

Momcpa · 03-14-2020, 08:46 AM

Count me in as 'interested' in watching this graph as you update it.

Closet_Gamer · 03-14-2020, 08:54 AM

Yes, please do keep that updated!

Who knows how it plays out...

If this is just a demand shock with a V shaped recovery, we might even retake the highs by the end of the year.

If this leaks into the real economy in a sustained way that doesn't subside as soon as its safe to go the local bar, it clearly becomes a recession, likely global.

If people stop making housing payments and/or large corporations default on debt, we've got another financial crisis on our hands.

Fermion · 03-14-2020, 09:01 AM

I am more worried about an unemployment spike. How can business not start laying off tens of thousands of workers if travel and entertainment, sporting, remains shut down?

Vincenzo Corleone · 03-14-2020, 09:09 AM

Following.

Closet_Gamer · 03-14-2020, 09:15 AM

Quote:

Originally Posted by Fermion

I am more worried about an unemployment spike. How can business not start laying off tens of thousands of workers if travel and entertainment, sporting, remains shut down?

That for sure will happen...question is duration.

If unemployment benefits kick in -- almost certainly to be supplemented by government action -- then as soon as the virus passes, demand should quickly return and people will get rehired quickly.

If this runs past the point of unemployment and/or the government doesn't step in to support the longer downturn, then I can see this metastasizing into a prolong/much worse financial crisis.

ERD50 · 03-14-2020, 09:19 AM

Quote:

Originally Posted by target2019

Thank you, folks.
1987 recovery peak-to-peak was about 20 months. Makes me sad.

It might make you feel better to look at the bigger picture. I added a line of growth from 1985. A long term investor, making regular deposits to the portfolio would have done just fine.

I recall the news of 1987, I had been in my career about 12 years, with some money on a 401K (or whatever was available back then). I came into work, we kept making products like we did the day before, I didn't see where some number on TV was going to have that big of an effect. And as I mentioned, 1987 was an up year overall.

I do think this is different. Having people refrain from events, and gatherings, and less activity in general, and some plants shutting down will all have an economic impact. But I also think this will blow over when the effects of the virus are better understood and things hit some sort of status quo, just like the current flu.

edit/add: forgot to add the graph! Up is up, you gotta expect some bumps along the way!

-ERD50

Lsbcal · 03-14-2020, 09:38 AM

Quote:

Originally Posted by Fermion

I am more worried about an unemployment spike. How can business not start laying off tens of thousands of workers if travel and entertainment, sporting, remains shut down?

That is a concern. On just a technical basis, there is some past evidence that a rise in the unemployment rate (UER) numbers above the 12 month moving average is a very negative signal. Currently the UER is 3.5% but a rise to just 3.6% would trigger this technical signal. I know some will scoff at this but I would take a rise to 3.7% seriously. That report comes out the first Friday of the month, next is April 3rd.

I looked it up and this UER signal was fine in 1987 all the way out to October 1989. Of course, this is quite a different economy with very low absolute UER compared to 1987.

Fermion · 03-14-2020, 09:53 AM

So currently there are 5.8 million unemployed I think, according to the latest figures.

There are 15.1 million restaurant employees in the USA. I would not be shocked to see 25% of them laid off. It is a tight margin business and you can't close a restaurant for 6 weeks or have it run at 20% capacity for long with full employees.

This is just restaurants. Airlines, sporting events, even auto dealerships eventually.

My prediction if this thing doesn't somehow blow over very quickly in the next month or two is the ranks of unemployed will probably double to 12 million or so.

So something around 7.5% unemployment rate''

(offset somewhat by increased hiring by toilet paper manufacturers)

cyber888 · 03-14-2020, 11:41 AM

Nice .. adding tons when we get to that -35%

Quote:

Originally Posted by Lsbcal

I remember the October 1987 crash well. DW had come down with pneumonia and we had a 3 year old boy. It was nerve wracking.

I created this chart to show me how the current crash compares to then. The current crash was on us much more rapidly probably because the cause is very different.

This chart starts from the peak of the SP500 in August 1987. The red line is the current market as of 3/12/2020 and the time line just shows the 1987 period. The chart extends out to about 1 year from the peak.

I might update this over time and display if there is interest.

cyber888 · 03-14-2020, 11:44 AM

Quote:

Originally Posted by Fermion

I am more worried about an unemployment spike. How can business not start laying off tens of thousands of workers if travel and entertainment, sporting, remains shut down?

I've seen at least 10 comments on twitter yesterday that they already got laid off.

Norwegian airlines just laid off 50% of employees after Trump announced the travel ban.

Fermion · 03-14-2020, 11:50 AM

Quote:

Originally Posted by cyber888

I've seen at least 10 comments on twitter yesterday that they already got laid off.

Norwegian airlines just laid off 50% of employees after Trump announced the travel ban.

So can we put any kind of guesstimate to the level unemployment might reach in April?

Is the idea that it could jump from 3.7% to 5% or 6% unreasonable or maybe even low?

Long term it should all work out. People are not going to stop flying over the next decade, or stop eating out or going to Disney. It might be that the market just absorbs this as a short term phenomenon.

A great policy would be zero interest loans with no payment due until 2021 for any restaurant or travel related business that does not lay off employees during this time. I mean the money is going to go out to them anyway via unemployment and this would be a great morale booster for the industry.

Lsbcal · 03-16-2020, 06:15 PM

I updated this for today's miserable decline. I added data from the 1929 crash. For the 1929 crash things got much worse until 1932 and this only shows the data to about September 1930.