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#USStocks1989: Crisis, crisis, crisis ## Strong economy and soft landing In 1989, the high growth rate of the entire 1980s was basically in place, and GDP growt

2026-07-26·x-repost-20260726-164504
#USStocks1989: Crisis, crisis, crisis ## Strong economy and soft landing In 1989, the high growth rate of the entire 1980s was basically in place, and GDP growth began to slow down, from 4% to 5% to 2% to 3%.

However, the unemployment rate is still at a low level at this time, and due to previous interest rate increases, the inflation level is controlled below 5%. There was a possibility of a "soft landing" for the economy, and starting in June 1989, the Federal Reserve began to cut interest rates. In January 1989, Bush Sr.

was sworn in as President of the United States. As Reagan's vice president, he publicly announced that he would continue the series of policies of the Reagan administration. When the Reagan administration first came to power, it was determined to reduce the fiscal deficit.

However, it was its massive tax cuts and the "Star Wars" plan that caused the fiscal deficit to remain at around 3% of GNP, reaching a peak of US$220 billion in 1986. Although it fell back to US$150 billion later, By the time Reagan left office, the deficit accumulated during his term had reached the level of $1.34 trillion. During his tenure, the U.S.

trade deficit also reached a peak of $150 billion. Although it narrowed to around US$1,200 after 1988, US industrial goods have since lost their international competitiveness.

Starting from the stock market crash in 1987, the Dow Jones Industrial Average has risen for two consecutive years, and its level has basically returned to the high point before the stock market crash. However, the PE only increased from 12 times to 15 times.

In other words, The main driving force for the increase comes from the rising performance of listed companies. ## Another plunge: Black Friday Friday, October 13, 1989, was originally a normal trading day, but One hour before the market closed in the afternoon, the Dow suddenly plummeted 191 points, a drop of 6.9% (touching the circuit breaker line).

Selling orders flooded in, making it almost impossible for the exchange to close on time. In about half an hour of panic selling, Wall Street stocks lost about $250 billion in total market value. The market generally believes that the immediate trigger point for this plunge is The collapse of a huge leveraged buyout deal for United Airlines (UAL).

The deal, valued at US$6.75 billion, was expected to become one of the largest leveraged buyouts in history. However, the deal collapsed at the last minute due to problems with financing (some reports said the flight attendants union refused to accept the terms, others said the lead bank failed to raise enough funds).

This triggered a deep panic in the market about whether the junk bond market and the leveraged buyout frenzy that prevailed throughout the 1980s could be sustained, leading to panic selling of related stocks and bonds.

This introduced another bubble in the late 1980s: Although the PE of the Dow was not high, the fixed-income asset bubble: the junk bond savings and loan institution bubble, and the real estate bubble were high enough to trigger a crisis. ## Implied crisis 1: Real estate bubble The first is the real estate bubble.

The 1980s happened to be the period when the children of the post-war baby boomers came of age and started families, which brought huge housing demand.

Just like the children of the baby boomers who were born in the 1980s after the founding of the People's Republic of China, started families and started businesses after 2010, which brought huge demand for real estate.

From 1983 to 1988, the average growth rate of housing prices in the United States was as high as 13.9%, and housing prices doubled in five years. At the same time, the supply began to far exceed the demand, and the housing vacancy rate once reached about 20%.

Especially due to the business boom in the 1980s, commercial real estate began to be constructed on a large scale. Throughout the mid-to-late 1980s, the annual increase in area actually exceeded the annual demand by about double. The 1986 tax reform eliminated the tax benefits for real estate investment.

In the same year, international oil prices plummeted, severely damaging the economies of energy-dependent regions such as Texas and becoming the trigger for housing prices to peak. Starting in 1988, house prices and rents began to fall, By 1992, house prices fell by about 25%.

## Implied Crisis 2: Junk Bond Bubble Since Paul Volcker successfully suppressed the long-troubled inflation problem in 1982, interest rates entered a long-term downward path, and the entire U.S. bond market followed a long bull market.

Although the interest rate level of 5%-7% is still relatively high from our current perspective, in view of the double-digit inflation that year, such financing costs were cheap enough. In the 1980s, the U.S.

economy was performing well, and the cash flow levels of all major industries were quite high, which was relatively cheap when compared to the stock market. This gave rise to the model of issuing junk bonds to acquire the equity of listed companies. Beginning in 1988, the merger and acquisition market bubble burst.

The price of junk bonds fell to 66% of their face value, and the junk bond bubble burst completely.

## Implied crisis 3: Savings and loan crisis In the context of financial easing throughout the 1980s, the business scope of all credit financial institutions was relaxed, the scope of assets was relaxed, the scope of liabilities was relaxed, and interest competition was fierce.

The main business of S&L (Savings and Loans Financial Institutions) is concentrated in the real estate market. In addition to real estate market loans, its other main assets are invested in commercial real estate and junk bonds. It is equivalent to the concentration of bubbles in the real estate market and the bond market.

Once the two markets are shaken, S&L (savings and loan financial institutions) will be the epicenter. Commercial banks were also deeply involved. As the real estate bubble burst, commercial real estate loan default rates surged. Among banks' non-performing assets, the proportion of real estate-related assets soared from 31.29% in 1989 to 43.41% in 1990.

A large number of banks failed in areas where real estate overheating was most severe. Between 1988 and 1992, nearly 600 banks failed in Texas alone. The entire banking industry suffered its worst losses since the Great Depression in 1990-1991.

However, because commercial banking businesses are more diversified and supervision is stricter, capital reserves are richer and no systemic financial risks have emerged. However, bank stocks generally fell, At one time, Wells Fargo's PE fell below 5 times, and PB fell below 1 times, and finally became Buffett's bag. Buffett never wastes a crisis.

Full text

#USStocks1989: Crisis, crisis, crisis ## Strong economy and soft landing In 1989, the high growth rate of the entire 1980s was basically in place, and GDP growt

#USStocks1989: Crisis, crisis, crisis ## Strong economy and soft landing In 1989, the high growth rate of the entire 1980s was basically in place, and GDP growth began to slow down, from 4% to 5% to 2% to 3%. However, the unemployment rate is still at a low le

#USStocks1989: Crisis, crisis, crisis ## Strong economy and soft landing In 1989, the high growth rate of the entire 1980s was basically in place, and GDP growth began to slow down, from 4% to 5% to 2% to 3%. However, the unemployment rate is still at a low level at this time, and due to previous interest rate increases, the inflation level is controlled below 5%. There was a possibility of a "soft landing" for the economy, and starting in June 1989, the Federal Reserve began to cut interest rates. In January 1989, Bush Sr. was sworn in as President of the United States. As Reagan's vice president, he publicly announced that he would continue the series of policies of the Reagan administration. When the Reagan administration first came to power, it was determined to reduce the fiscal deficit. However, it was its massive tax cuts and the "Star Wars" plan that caused the fiscal deficit to remain at around 3% of GNP, reaching a peak of US$220 billion in 1986. Although it fell back to US$150 billion later, By the time Reagan left office, the deficit accumulated during his term had reached the level of $1.34 trillion. During his tenure, the U.S. trade deficit also reached a peak of $150 billion. Although it narrowed to around US$1,200 after 1988, US industrial goods have since lost their international competitiveness. Starting from the stock market crash in 1987, the Dow Jones Industrial Average has risen for two consecutive years, and its level has basically returned to the high point before the stock market crash. However, the PE only increased from 12 times to 15 times. In other words, The main driving force for the increase comes from the rising performance of listed companies. ## Another plunge: Black Friday Friday, October 13, 1989, was originally a normal trading day, but One hour before the market closed in the afternoon, the Dow suddenly plummeted 191 points, a drop of 6.9% (touching the circuit breaker line). Selling orders flooded in, making it almost impossible for the exchange to close on time. In about half an hour of panic selling, Wall Street stocks lost about $250 billion in total market value. The market generally believes that the immediate trigger point for this plunge is The collapse of a huge leveraged buyout deal for United Airlines (UAL). The deal, valued at US$6.75 billion, was expected to become one of the largest leveraged buyouts in history. However, the deal collapsed at the last minute due to problems with financing (some reports said the flight attendants union refused to accept the terms, others said the lead bank failed to raise enough funds). This triggered a deep panic in the market about whether the junk bond market and the leveraged buyout frenzy that prevailed throughout the 1980s could be sustained, leading to panic selling of related stocks and bonds. This introduced another bubble in the late 1980s: Although the PE of the Dow was not high, the fixed-income asset bubble: the junk bond savings and loan institution bubble, and the real estate bubble were high enough to trigger a crisis. ## Implied crisis 1: Real estate bubble The first is the real estate bubble. The 1980s happened to be the period when the children of the post-war baby boomers came of age and started families, which brought huge housing demand. Just like the children of the baby boomers who were born in the 1980s after the founding of the People's Republic of China, started families and started businesses after 2010, which brought huge demand for real estate. From 1983 to 1988, the average growth rate of housing prices in the United States was as high as 13.9%, and housing prices doubled in five years. At the same time, the supply began to far exceed the demand, and the housing vacancy rate once reached about 20%. Especially due to the business boom in the 1980s, commercial real estate began to be constructed on a large scale. Throughout the mid-to-late 1980s, the annual increase in area actually exceeded the annual demand by about double. The 1986 tax reform eliminated the tax benefits for real estate investment. In the same year, international oil prices plummeted, severely damaging the economies of energy-dependent regions such as Texas and becoming the trigger for housing prices to peak. Starting in 1988, house prices and rents began to fall, By 1992, house prices fell by about 25%. ## Implied Crisis 2: Junk Bond Bubble Since Paul Volcker successfully suppressed the long-troubled inflation problem in 1982, interest rates entered a long-term downward path, and the entire U.S. bond market followed a long bull market. Although the interest rate level of 5%-7% is still relatively high from our current perspective, in view of the double-digit inflation that year, such financing costs were cheap enough. In the 1980s, the U.S. economy was performing well, and the cash flow levels of all major industries were quite high, which was relatively cheap when compared to the stock market. This gave rise to the model of issuing junk bonds to acquire the equity of listed companies. Beginning in 1988, the merger and acquisition market bubble burst. The price of junk bonds fell to 66% of their face value, and the junk bond bubble burst completely. ## Implied crisis 3: Savings and loan crisis In the context of financial easing throughout the 1980s, the business scope of all credit financial institutions was relaxed, the scope of assets was relaxed, the scope of liabilities was relaxed, and interest competition was fierce. The main business of S&L (Savings and Loans Financial Institutions) is concentrated in the real estate market. In addition to real estate market loans, its other main assets are invested in commercial real estate and junk bonds. It is equivalent to the concentration of bubbles in the real estate market and the bond market. Once the two markets are shaken, S&L (savings and loan financial institutions) will be the epicenter. Commercial banks were also deeply involved. As the real estate bubble burst, commercial real estate loan default rates surged. Among banks' non-performing assets, the proportion of real estate-related assets soared from 31.29% in 1989 to 43.41% in 1990. A large number of banks failed in areas where real estate overheating was most severe. Between 1988 and 1992, nearly 600 banks failed in Texas alone. The entire banking industry suffered its worst losses since the Great Depression in 1990-1991. However, because commercial banking businesses are more diversified and supervision is stricter, capital reserves are richer and no systemic financial risks have emerged. However, bank stocks generally fell, At one time, Wells Fargo's PE fell below 5 times, and PB fell below 1 times, and finally became Buffett's bag. Buffett never wastes a crisis.

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