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Call This A Crash ? – Remember 1974

The present sharp falls in world stock markets don’t even count as a minor bump, never mind a crash, compared to the collapse of 1973-74, when The London Stock Market lost 73% of its value in less than two years. From a peak of over 700 it fell to well under 200, with genuine fears that it was going to break the 100 barrier.

The fact that it did not, was due entirely to the actions of one company, Britains largest manufacturing company, Imperial Chemical Industries which then bestrode the world like a colossus and had a huge pension fund. Without warning ICI pension fund started buying shares, ( if I remember correctly in December 1974) and did so on such a scale that on its own it turned the index, which began to recover and in 1975 rose by a huge 150%.

But it was a close run thing. A huge boom in UK property prices had come apart leading to the collapse or near collapse of many secondary banks, forcing the government, not for the last time, to step in and start bailing out  banks to save the banking system.

In the USA things were not much better. Between the 11th January 1973 and the 6th December 1974, the DOW lost 45% of its value in the worlds 7th worst bear market. The US economy slowed from growth of 7.2% to a fall of 2.1% and inflation more than tripled, reaching 12.3% in 1974.

In the UK it took more than 13 years for UK stocks to return to their pre 1973 levels and then they were hit by the original Black Monday. In real terms the recovery took 19 years.

So if the present “crisis” is to become a true bear market,which requires a fall of 20% in stock markets, it has a long way to go and shares have much, much further to fall.

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