Black Monday

By SHLOMO MAITAL
Monday, Monday, can't trust that day Monday, Monday, sometimes it just turns out that way For observers of stock markets, The Mamas and the Papas' harmonious singing says it all. On Black Monday Oct. 29, 1929, the American stock market crashed, falling 13 per- cent. It did it again on Black Monday Oct. 19, 1987, falling even more - 22.6 percent, the biggest single-day drop in history. On Black Monday Jan. 21, 2008, U.S. stock markets were closed for Martin Luther King's Birthday. Good thing, too. Stock markets all over the world plummeted. The smallest decline was in Tel Aviv. The Tel Aviv Stock Exchange 25 stock index fell only 2.9 percent. Analysts attributed this to the recent strong performance of Israel's economy. In the wake of the turmoil, the shekel rose in value to a remarkable NIS 3.68 per dollar. On Monday mornin', you gave me no warning of what was to be… When U.S. stock markets opened Tuesday, Jan. 22, Federal Reserve Chair Ben Bernanke prepared a surprise. In an astonishing meeting, a week before it was scheduled, the Open Market Committee announced a sharp three-quarters-of-one-percent cut in U.S. interest rates. The move was aimed at heading off a collapse in U.S. share prices. It was only partly successful. U.S. stocks have fallen 15 percent since last October, wiping out over two trillion dollars of wealth. Abroad, stock prices continued to fall. Black Monday 1929 heralded a world depression. Some experts have begun speculating about a similar scenario this year. What is it about Mondays that causes stocks to fall? Why did they plummet this time? What are the implications for Israel? My theory is this: Stockbrokers, analysts and investors have time over the weekend to reflect about business news. When there is bad news, it is amplified when they sit in their armchairs, watching TV with their families and reflecting. When markets open on Monday, wham! They act on the mother of all their fears and sell. What was the bad news that triggered the collapse this time? Apparently, George Bush. The U.S. President announced an economic growth package on Jan. 18, in an attempt to deal with America's rapidly sinking economy. Why was this bad news? Perversely, because it confirmed what observers suspected - that America is already in recession. If it were not, observers asked, why would Bush need to announce a stimulus package? In policy, as in standup comedy, timing is everything. Bush's announcement was too little, too late. The Wall Street Journal says market volatility is at its highest level in five years. Every other day of the week is fine, yeah, But whenever Monday comes, you can find me cryin' all of the time… Israel has suffered immense collateral damage from the decline of America's share prices and the dollar and will suffer even more. As the U.S. economy weakens and share prices spiral downward, the dollar drops in value against other currencies. According to Shraga Brosh, head of Israel's Manufacturers Association, speaking at the group's annual meeting on Jan. 17, "[Israel's] industry will lose $3.5 billion and 30,000 jobs [some of them future] this year because of the shekels' appreciation against the dollar." Expensive shekels make Israel's exports costly in dollar prices and hence less competitive in world markets. The Manufacturers Association's predictions for 2008 differ sharply from those of the Bank of Israel and Ministry of Finance. Industrial output will fall by 5 percent, the Association says. Brosh believes Finance Ministry officials will do nothing about the appreciating shekel. I agree, in part because Bank of Israel Governor Stanley Fisher insists it is wrong to manipulate the shekel-dollar rate. Why, then, I wonder, do China and South Korea do it daily to their currencies - with good results? Unlike The Mamas and the Papas, Israel's exporters and industrialists do not sing in harmony with its policy makers. The consequences may be severe. Black Monday may herald a dark 2008. • The writer is academic director, TIM-Tel Aviv.