Editorial The crash that wasn’t

The next trading session (presumably after a weekend of quiet reflection) the markets gained back a large portion of those losses. As a result, no one seemed too concerned. It’s business as usual. Stocks go down, stocks go up. What else is new? Some even find it reassuring that the stock markets are sufficiently strong to shrug off such shuddering jolts to the system.

But things have changed. Individual investors are more wary than ever and the system itself has become suspect in many investors’ eyes. The crash of 1987 was bad enough, but now it seems that these huge swings have become a way of life. It might be a prosperous system, and it might still be a bull market, but it has fundamentally changed.

Those in the Western World who have been watching free enterprise gain support in controlled economies cannot afford to be quite so smug. Newfound capitalists behind the iron curtain may have second thoughts about the road they’ve chosen. They might begin to question whether the current economic upheaval they are suffering through is not temporary but an inherent characteristic of a free market system.

And if business is continuing on the Toronto and New York stock exchanges, it’s not business as usual. This kind of volatility is not the sign of a fundamentally sound market. It is one thing for junior mining stocks to suffer such price swings. They traditionally are short on tangible assets and long on potential. Their hallmark is volatility, and investors who don’t like volatility are free to take their money elsewhere.

But when the market as a whole experiences such dramatic price swings, watch out.

For one thing, those huge pension funds are not playing with Monopoly money. Those are the hard-earned savings of average individuals from all walks of life. That is what most people are relying on to support them when their income earning days end. How can pension fund managers, in good conscience, continue to invest in equities when their value can be cut drastically overnight, regardless of how well diversified the portfolio may be?

The volatility of stocks markets may be welcome in some corners. After all, it does present the opportunity for great profits if one knows how to play it.

But as the blue-chip market becomes higher risk, the more entrenched becomes the view that it is controlled by computers and Bay Street yuppies. Neither group has much regard for other people’s money.

And the retail market will suffer, too. Again, there will be some who like the price swings, but most investors are investing real money. It took retail investors two years to get their feet wet again after the October, 1987, crash. They might just dismiss the whole idea now. After all, any responsible broker will probably be steering clients into those bland but safe bond markets or even advising investors to stay in cash.

Increased volatility may attract those who like the thrill of gambling, but for those who want to invest their money wisely and for the over-all viability of a free and open market, Friday the Thirteenth does not bode well.

What crash? Well, it might not have been a crash that was heard, but then again it could be the first rumbling of a much more disastrous earthquake.

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