New Zealand's market was hit especially hard, falling about 60% from its 1987 peak, and would take several years to recover. The damage to the New Zealand economy was compounded by high exchange rates and the Reserve Bank of New Zealand's refusal to loosen monetary policy in response to the crisis, in contrast to countries such as West Germany, Japan and the United States, whose banks increased short-term liquidity to forestall recession and would experience economic growth in the following 2–3 years.
The Black Monday decline was, and currently remains, the largest one-day percentage decline in the DJIA. The final devastation was so dramatic, Executive Order 12631 was signed by US President Ronald Reagan on March 18, 1988.
The Working Group consists of:
The Secretary of the Treasury
The Chairperson of the Board of Governors of the Federal Reserve System
The Chairperson of the Securities and Exchange Commission
The Chairperson of the Commodity Futures Trading Commission
The sole purpose of the Working Group was to stabilize the financial system during times of increased volatility and market crises. Some financial writers have dubbed this Working Group the “Plunge Protection Team” or just PPT for short. How it achieves this in the markets is anybody’s guess, but it has been suggested the easiest way would be through buying stock market index futures contracts. In the last 10 years of my trading, I have no doubt that the PPT has intervened in the market many times.
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I can see those dark clouds from here...
I was 12 years old when the stock market crash of 1987 happened. My recollection of Black Monday is somewhat vague, but I distinctly remember hearing about some day traders jumping out of windows. I am not sure the legitimacy of that memory but suffice to say there were traders who lost everything, eventually trickling down to the mom and pop investors like you and me – or at the time, my parents.
A far cry from the over exuberance lifestyle that they had become so accustomed to. It wasn’t even that difficult to make money in the 80s. Everybody was doing it. Computer technology became widespread and program trading grew dramatically. As the market went higher, the suits got whiter. As the suits got whiter, the pastel palette of the t-shirts underneath them grew even more, well pastel. A speculative boom was happening, and many people were on board. What could possibly go wrong?
In late 1985 and early 1986, the United States economy shifted from a rapid recovery from the early 1980s recession to a slower expansion, resulting in a brief "soft landing" period as the economy slowed and inflation dropped. The stock market though advanced significantly, with the Dow peaking in August 1987 at 2,722 points, or 44% over the previous year's closing of 1,895 points. Quite the move.
However, the pain that was about to be unleashed began in the Far Eastern markets on the morning of October 19, 1987.
By the end of October 1987, stock markets had fallen in Hong Kong (45.5%), Australia (41.8%), Spain (31%), the United Kingdom (26.45%), the United States (22.68%) and Canada (22.5%).
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