By Rick Glaze

Friday marked the 20th anniversary of the stock market plunge tagged “Black Monday.” I remember sitting in my office in Palo Alto talking with a client on the previous Friday and glancing over at the computer screen to notice that the Dow Jones Industrial Average was selling off more than 100 points. At that point, it felt like Black Friday.

In fact, during the few weeks before that day, the index had dropped approximately 10 percent from a frothy gain that year of more than 40 percent.

The S&P 500 stock index finished the year with a gain of more than 5 percent, even though it lost a still-standing record of 20.5 percent that Monday 20 years ago.

Alan Greenspan had just taken office as head of the Federal Reserve Bank and had begun raising interest rates in April 1987. The 30-year T-bond rose from 7 percent to 10 percent in an attempt to slow growth. Investors suffered as Greenspan did some learning on the job and they discovered the changes were a little too quick for the bond and stock markets to absorb.

Government does make these mistakes. In retrospect, Congress is largely given the blame for causing the Great Depression by enacting trade barriers and protectionist laws intended to safeguard American workers. It was a nice, warm and fuzzy idea that played well in the press until the actual consequences came to roost.

The stock market recovered all the losses from Black Monday within approximately a year and the following five years were up an average of 15.9 percent per year. The T-bond was 10 percent in 1987, but today it is 4.80 percent.

A lower level of borrowing costs helps the economy. The stock market measure of valuation known as PE, or price-earnings, ratio was 23 and now stands at 18. The higher this ratio, the pricier stocks are.

Another significant difference from 1987 is that the global economy is booming. Goods, services and information are circulating – creating markets and customers worldwide.

Yes, and the Berlin Wall was standing back then. This symbol of repression and global strangulation is long gone.

Rick Glaze is president of Glaze Capital Management Inc. of Los Altos and a general securities principal offering securities through First Allied Securities Inc., member FINRA/SIPC. For more information, e-mail Rick@Glazecapital.com.