Our warning in yesterday’s issue that a major correction on the principal stock markets around the world looked likely had unfortunately scarcely reached subscribers before news of the coup by the hard left in the Soviet Union broke, and the thunder of share prices crashing filled the air. The German market took the biggest tumble, but Wall Street opened 30 points down and was soon off 75 points with IBM Corp within a whisker of its 12-month low, off $4.125 at $92.375; Digital Equipment Corp was off $3.375 at $59.125. An important point about market corrections is that they are often triggered by unexpected events such as the depressing and unnerving news from Moscow but if this turns out to be the correction of which we were warning, and that won’t be clear for several days, or even weeks, then if it hadn’t been the news from Moscow, some other bearish event would have set it off. Despite the fact that in hard cash, the volume of business done by the major Western economies with the Soviet Union is not great, there is real bad news resulting from the coup, and the threat of a reinforcement of Mickey Mouse economics in the Soviet Union. The strengthening of the dollar against the Deutsche Mark – and hence against all the European currencies means that big US exporters will be hurt at a time when their home market is still very weak, while companies like IBM that do a major part of their business in Europe will suffer on currency translation when weak European currencies are translated into strong dollars at the end-of-quarter totting up. The coup exacerbates all the problems that Germany is already facing: there will be worries that troop withdrawals from the east will be slowed, and share prices had been buoyed by hopes that for former East Germany would be able to maintain substantial trade with the Soviet Union – and German banks are the most exposed as lenders to the Soviet Union. The coup creates two conditions that markets hate – uncertainty and loss of confidence, which are exacerbated by a feeling of near certainty that, coming on top of all the other negatives of reunification, the fall-out from the coup will push Germany into recession.
