By guest contributor Harry Cator, Executive Chairman, DMP Asset Management
Starting in the funds management industry in August 1987, I have had the “fortune” to experience first-hand, perhaps too many crises. Some epic, others significant, plenty just side shows. Listing these provides some context.
October 1987 – The Crash (Epic)
The largest one-day fall in living memory in the US equity market, -20.5%. It just so happened that the night before, London was hit by a hurricane. This knocked out all means of transport, so I walked into work. I was the only one in the office in the era long before mobile communications. Nature forewarned of the impending doom. Portfolio insurance was all the rage at the time – it did not work. It required the counterparty to a) pick up the phone and b) still be in business the day after. Most counterparties failed on both counts. My favourite piece of research in my career to date is a single line from Shearson Lehmann. “Please ignore all research prior to 19th October 1987.” In terms of this COVID-19 correction, compared to 1987 we are close to the bottom.
14th December 1989 – (Epic) The beginning of the end of the great Japanese domination of world financial markets.
Japanese banks ruled the financial waves. Property prices in Tokyo were so sky-high that the Emperor’s Palace was worth more than the state of California and the Australian Embassy land value had the ability to reduce Australian government debt by a large quantum. The Japanese equity market PE was over 60X, more was spent on corporate entertainment than corporate dividends in 1989 and the US dollar warrant bond market was where everyone got sucked in. In November 1988 my then boss went to zero in Japanese equities, at the time accounting for 48% of global equity markets by value. He lost his job in November 1989 post a rally in the Japanese market of some 30%. The poor relative performance could not be tolerated. Japan today is 65% below the level it reached on 14th December 1989. So much for long-term investing.
1989-1991 – Australia’s last recession and near-death experience of Westpac and ANZ banks (Epic). (CBA yet to be listed!).
Commercial property prices nosedived. 101 Collins Street, Melbourne went bust, allowing my company to move into level 25 on a 7-year rent free period and all fit out paid for. The then head of Pacific Dunlop had a whole floor of the same building to himself. The administrator simply needed the space filled. From Level 25 you could look across Melbourne at sunset and see straight through most office towers – all empty! Recent anecdotal evidence suggests that major retailers could well go into administration – more CBD real estate looking for tenants.
15th September 1992 – (Significant)
George Soros forced the British pound out of the Exchange Rate Mechanism (ERM). As the currency breaches the lower currency exchange limit mandated by the ERM. Soros effectively took on the Bank of England and won!