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San Diegans Struggle to Explain Market Plunge

October 20, 1987|CHRIS KRAUL | San Diego County Business Editor

Rising interest rates, fears of a Persian Gulf war, the balance of trade imbalance and the steady decline in value of the U.S. dollar were the reasons most often cited for Monday's stock market sell-off in interviews of San Diego investors and executives.

Like investors across the nation, San Diegans were caught by surprise by Monday's 508.32 drop in the closely followed Dow Jones Industrial Average, a 22.6% decline that was the largest since the 12.8% drop on Oct. 28, 1929. The only larger percentage drop occurred Dec. 12, 1914, when the Dow plunged 24.4%.

"I don't know what to think of it," Boyd Christensen said as he glumly watched stock prices flash over Merrill Lynch's electronic ticker in the lobby of the Imperial Bank Tower. "I don't think anyone does."

Shock, incredulity and an I-told-you-so defiance were some of the sentiments expressed Monday. While some had pet theories for the market collapse, others said the market blowout defied rational explanation.

'Pure Panic'

"It's panic, pure panic," said one elderly investor who asked not to be identified. "Panic tends to feed on itself."

Some observers, such as Dick Krumvieda, manager of financial analysis for San Diego Gas & Electric Co., said it was too early to assay the meaning and impact of the crash: "With a violent reaction like this that occurs over a short period of time, it's difficult to draw specific conclusions."

Krumvieda cautioned that the market crash, as steep as it was, did not necessarily reflect deep-seated economic problems: "There is no major change in market fundamentals out there."

But others were only too eager to theorize that the Monday dive was a result of international political tensions or of President Reagan's mismanagement of domestic policies, or that the market was overpriced and long overdue for a correction. Many saw the drop as a doomsday precursor of another depression.

"The two happiest groups today are people who sold stock two weeks ago and the Kremlin," said Frank Kriz, an elderly San Jacinto investor visiting his San Diego stock brokerage. "The Kremlin sees what's happening to the capitalist system--a collapse. We're set for a depression."

Foremost in the minds of many interviewed were the rising tensions in the Persian Gulf, heightened early Monday by the U.S. Navy's attack on an Iranian oil platform. "I think the fact we edged a little closer to the precipice in the Middle East might have done it," said Robert Ward, a San Diegan interviewed in the lobby of E.F. Hutton's downtown office.

The tense situation in the Persian Gulf "has everyone thinking that the presidency is a little unstable at the moment," said John Messner, president of Meridian Capital Management, a San Diego investment firm.

Messner said Reagan's "inability to move on from the Bork nomination, to really put it behind him" and rumors that Reagan's chief of staff, Howard Baker, may leave his post have added to the perception of White House instability.

'No Longer in Control'

By and large, however, most saw the roots of the stock market collapse as economic. Ken Thygerson, president of Imperial Corp. of America, said the imbalance of trade and the growing budget deficits have made the United States a "debtor country no longer in control of its economic destiny."

Both economic problems make U.S. assets less attractive over the long haul to "reservoirs of capital in Japan and Europe," Thygerson said, because the assets lose value over time relative to foreign currencies.

"We are finding that U.S. policy makers--the Federal Reserve Bank, the U.S. Treasury Department, as well as congressional committees--don't pull the strings they used to in the world marketplace," Thygerson said, adding that as the perception of the this country's weakened clout grows, so will the exodus of foreign capital.

Irving Katz, director of research at San Diego Securities, said the stock market crash is a precursor of economic conditions eight to nine months from now. "What the market did Monday was predict a recession, possibly turning into a depression, unless the government intervenes successfully," Katz said.

Katz was not optimistic that such an intervention is forthcoming. "We have a government that just knows how to run up deficits and not cure them. That's a problem," Katz said.

San Diego investor Les Adams said rising interest rates were the main culprit in the Monday crash. Increased yields--now around 10%--on bonds have pulled him and a lot of other investors out of stocks and mutual funds over the last several weeks.

Thygerson said he expects "fixed principal" investments such as certificates of deposits sold by banks and savings and loans to draw more and more investors away from stocks.

How San Diego Stocks Fared Monday

Several San Diego stocks posted big losses Monday, along with most other issues. Following are some representative companies, their point drops at the close of the market Monday, their value at the close and the percentage of decrease:

Company Change Closing Price % Change Rohr Industries down 6 7/8 20 -25.5% SDG&E down 4 7/8 28 3/8 -14.7% Price Co. down 4 32 -11.7% Molecular Biosystems down 4 1/8 9 1/8 -31.1% PS Group down 3 3/4 27 -12.1% Henley Group down 3 23 3/8 -12.8% Fisher Scientific Group down 2 3/4 14 1/2 -15.9% Foodmaker down 2 3/4 7 -27.5% Xytronyx down 2 1/2 8 1/2 -22.7% Synbiotics down 2 6 -27.3% Mail Boxes Etc. down 2 12 -15.6% Home Federal S&L down 2 27 3/4 -7.5% Beeba's Creations down 2 11 3/4 -16.0% Burnham Pacific Prop. down 1 7/8 16 7/8 -10.6% International Robomation down 1 3/4 4 -30.4%

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