It's fitting that as the 20th anniversary of the ferocious 1987 stock-market crash approaches, most major U.S. equity averages are at or near record levels, and many markets in the developing world at boiling points.
-- The prevailing view on Wall Street is that the monumental drop on Oct. 19, 1987, when the Dow Jones Industrial Average plunged 508 points -- 22.6% -- on then-record volume, won't be repeated. There's good reason for the widespread optimism. But, then again, Wall Street seemingly is always optimistic until something goes terribly wrong. Not that the bulls don't have some good arguments. The Dow's drop on Oct. 19, 1987, was unprecedented, and hasn't come close to being equaled since then.
A big problem with leverage is that it can force investors to sell just when markets are most depressed and opportunities are greatest. The U.S. mortgage market arguably is as attractive as it has been in several years, but a leveraged investor like Thornburg Mortgage (ticker: TMA) can't take advantage of it. It was a forced seller of mortgages in August because lenders wanted their money back.