These pages often remind folks of Wall Street excesses and foolishness. During the early to mid-1980s there was a great deal of complacency that surrounded the billions of dollars that were being invested in syndicated limited partnerships of the day. As thousands of investors were persuaded by stockbrokers and investment advisers to invest in everything from real estate to leasing, in reality it was nothing but a series of untried and untested ideas that the general investing public got trapped into.
During the last half of the 1980s, the junk bond craze of Drexel Brunham Lambert’s Michael Milken was another source of criticism that left my palates feeling quite uneasy. In fact, while Milken went to jail, Drexel crashed and burned as result of the crookedness and outright fraud that took place within the business. Even such giant insurance companies like The Home, were caught with their pants down, taking a bath that eventually saw them sold to a foreign insurance company.
The giant Japanese real estate and stock bull markets that ended in the early 1990s were yet other bubbles that a few folks steeped in market history saw with clarity. Unlike many who believed that the Japanese economic system was the envy of the world, a handful of market professionals with long-term experience and keen eyes saw that it was nothing more than a giant Ponzi scheme waiting to be pricked. Those who believed that the rest of the world should be structured more like the Japanese economic system, are little heard from today. As the giant Japanese real estate market came unglued and its stock market crashed from 40,000 to 8,500, humbleness set in among Japanese politicians and business leaders that resulted in the sale of many Japanese interests to foreigners and a continued restatement of bad loans within their banking system.
The Japanese stock market has technically been in a bear (down) market since 1989.
Then, a few years later the bubbles in Korea and Indonesia burst, leaving many out in the cold. In fact, in Indonesia the leadership fell, while the International Monetary Fund poured billions of dollars in to keep the “contagion” from spreading. The crash in Southeast Asia even helped to take down a bunch of Nobel Prize winning “experts” at the U.S. hedge fund known as Long Term Capital.
Then of course, we had our own Dotcom Bubble at the beginning of this century and recently the real estate crash starting in 2008.
What is common about all of the above is the ease with which it appeared that one could make money, the enormous number of general and professional investors that got involved and the outright arrogance that both promoters and investors had during the process of selling and buying those investments, respectively.
What’s next? Watch China closely. It’s been on a tear for a long time and its banking system looks a lot like Japan’s in 1989.
Quote of the week: “The more extensive a man’s knowledge of what has been done, the greater will be his power of knowing what to do.” — Benjamin Disraeli
Bart Ward is the chief executive officer of Ward & Co. Ltd., an Anoka-based registered investment adviser – specializing in the management of stock and bond portfolios in companies which are listed on the NYSE.