all those who traded markets back in 1987, doesn't the entire situation at the stock market looks like it was in 87? Panic, no liquidity, credit problems etc... Yesterday the Fed, in a surprise announcement in Washington, cut the so-called discount rate yesterday by 0.5 percentage point, to 5.75 percent, market wizards in Schwager's book say: " go against the Fed and central banks of other countries". I'd appreciate your opinion on the situation, even if some of you are not trading today...
Someone call me? Wake up at the back, there!
I know one thing. I unloaded most of my shares back then, including Next , which is more than double the price today.
You are right, but it's all a cycle. Now the wealth is going to be taken from the weak, by the powerful .That means that anyone who has so much wealth that he is accummulating continuously, both private individuals and banks, are looking for the assets available for a song being sold by those who must have income. Today, the UK, I hear, is in the trillion pound debt range. That is going to come home to roost. It has got out of hand and now governments do not know how to handle this situation. They just hope that it does not happen on their watch, liking passing a hot potato.
Split
Barli,
The cause of the ’87 crash had nothing to do with the weakness of the debt markets. An interesting contrast, however, is that while there was a lack of buyers in ’87 (mm’s not answering their ‘phones) stocks still retained (reduced) value. Not the case now.
So what happens next? Given my inability to make predictions – although I did point out the precarious state of the debts markets in an earlier post – I think we’ll see continued weakness.
A 50 bp cut seems like a panic measure. OK., short-term liquidity has been addressed, but only for a short-term – borrowed money has to be repaid. Further, all the worthless paper remains worthless. So has anything changed? I don’t see it.
I’d be interested in other views, here.
Grant.
The cause of the ’87 crash had nothing to do with the weakness of the debt markets. An interesting contrast, however, is that while there was a lack of buyers in ’87 (mm’s not answering their ‘phones) stocks still retained (reduced) value. Not the case now.
So what happens next? Given my inability to make predictions – although I did point out the precarious state of the debts markets in an earlier post – I think we’ll see continued weakness.
A 50 bp cut seems like a panic measure. OK., short-term liquidity has been addressed, but only for a short-term – borrowed money has to be repaid. Further, all the worthless paper remains worthless. So has anything changed? I don’t see it.
I’d be interested in other views, here.
Grant.
07 is different than 87
I was a young pup back then just getting started. I was working for a firm that is no longer. One of their brokers made a mistake that almost put them under that day. It was a real plunge of 25% not an inconsequential 1.5%. The media certainly likes to play up the story.
Trading curbs were established as circuit brakers after 87. This will likely prevent the mammoth free-fall event that the 87 crash became.
Yours in trading
G.
I was a young pup back then just getting started. I was working for a firm that is no longer. One of their brokers made a mistake that almost put them under that day. It was a real plunge of 25% not an inconsequential 1.5%. The media certainly likes to play up the story.
Trading curbs were established as circuit brakers after 87. This will likely prevent the mammoth free-fall event that the 87 crash became.
Yours in trading
G.
G,
Are circuit-breakers still used? I thought I heard reference to halts on NYSE recently but it’s unclear.
If a trading-halt kicks in at say –10% in a day, then when the sell-off reaches 8-9%, people will be panicked into pre-empting the 10% leve.
Apparently halts were designed to provide breathing space/time for reflection: “On reflection, this is a monumental fkuc and I want to dump all my remaining stocks on resumption of trading”.
Just realised. Don't need circuit-breakers - the central banks have written put options on the markets.
Grant.
Are circuit-breakers still used? I thought I heard reference to halts on NYSE recently but it’s unclear.
If a trading-halt kicks in at say –10% in a day, then when the sell-off reaches 8-9%, people will be panicked into pre-empting the 10% leve.
Apparently halts were designed to provide breathing space/time for reflection: “On reflection, this is a monumental fkuc and I want to dump all my remaining stocks on resumption of trading”.
Just realised. Don't need circuit-breakers - the central banks have written put options on the markets.
Grant.
thanks so much for the responses! I've just surfed CNN and saw what Jim Rogers had to say about recent market moves:
source: Jim Roger's on today's market
Sounds very interesting. Here in Israel , almost all Real Estate companies have lost 50% of its stock value during last month moves. This panic doesn't seem to end here.. Split you said that
source: Jim Roger's on today's market
Sounds very interesting. Here in Israel , almost all Real Estate companies have lost 50% of its stock value during last month moves. This panic doesn't seem to end here.. Split you said that
By poweful did you mean those who short the market? Cos I've already seen people lose all of their money they made going Long stocks from Jan 1-st and still hold their positions and of course losing..
No major news or events occurred prior to the Monday of the crash, the decline seeming to have come from nowhere..There were a series of volatile days that caused widespread nervousness leading up to the crash....After the crash, many blamed program trading strategies for blindly selling stocks as markets fell, exacerbating the decline, program trading ended up taking the majority of the blame in the public eye for the 1987 stock market crash.. Just prior to the crash, Alan Greenspan had said that the dollar would be devalued.....Ha I wonder why, Federal Reserve Banks controls everything it controls foreign relations. It makes or breaks governments at will. No man, and no body of men, is more entrenched in power than the arrogant credit monopoly which operates the Federal Reserve Board and the Federal Reserve Banks."
Feds .50 basis point intermeeting suggests panic at the Fed, confirming the market is weak
The last few weeks sell-off,call it correction, carnage, melt-down, call it what you will, looks far from being over.I said on one of the threads a few months back,You will not see a Santa Claus Rally phenomenon this year.
Feds .50 basis point intermeeting suggests panic at the Fed, confirming the market is weak
The last few weeks sell-off,call it correction, carnage, melt-down, call it what you will, looks far from being over.I said on one of the threads a few months back,You will not see a Santa Claus Rally phenomenon this year.
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dbphoenix
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Might be interesting to look at a chart.
Note that the "plunge" took place after we broke the trendline, and the "panic" was done in two days. And I put "panic" in quotes because we then as we are now following the same principles of support and resistance. The Dow fell to the last level where important buying took place and turned on a dime (the day closed up midway between the high and the low). It took a couple of months to test demand, but it never looked back.
Now, as then, it's important to find out whether the demand that moved us up in April is still there. If not . . .
Note that the "plunge" took place after we broke the trendline, and the "panic" was done in two days. And I put "panic" in quotes because we then as we are now following the same principles of support and resistance. The Dow fell to the last level where important buying took place and turned on a dime (the day closed up midway between the high and the low). It took a couple of months to test demand, but it never looked back.
Now, as then, it's important to find out whether the demand that moved us up in April is still there. If not . . .
Attachments
No, I was thinking more of the conservative, really, really wealthy. They accumulate shares that others are too scared to hold and they can do it because they have so much money that they do not need income. The ones who need income may not own shares, but they can cause them to fall, either by defaulting on their loans, not buying consumer items or going on holidays. The wealthy can, also, precipitate a fall, too, so as to buy at the bottom later.
Split
Laptop,
A long shot but interesting: on the Friday preceding Black Monday, in the UK we had really strong winds, especially in South East, with some damage. But wasn’t the Stock Exchange closed early or shut down due to power failures?
Split,
In your post, you suggest the poor/less well-off will reduce buying goods. This was also pointed out in the International Herald Tribune (?). Consumer-led economies, like the US, could suffer from an unforeseen consequence or ripple effect – a short-term fix for the banks but consumers’ reduction in spending. I think there are some US Consumer figures this week (Thursday or Friday). We’ll see.
Grant.
A long shot but interesting: on the Friday preceding Black Monday, in the UK we had really strong winds, especially in South East, with some damage. But wasn’t the Stock Exchange closed early or shut down due to power failures?
Split,
In your post, you suggest the poor/less well-off will reduce buying goods. This was also pointed out in the International Herald Tribune (?). Consumer-led economies, like the US, could suffer from an unforeseen consequence or ripple effect – a short-term fix for the banks but consumers’ reduction in spending. I think there are some US Consumer figures this week (Thursday or Friday). We’ll see.
Grant.
http://www.stock-market-crash.net/1987.htm
Yes, I remember now. Junk bonds and leveraged buy-outs were blamed, not the debt mountain. It is, always, something else. Traded options were all the rage in those days. I lost money, there, but, my shares stayed relatively steady. Fortunately, I am a cautious individual with leveraged stuff. I remember trying to get a price on them but np one would pick up the phone........ So much for prefering brokers over spreadbetting firms.
Split,
And wasn't there severe curtailment on the Underground stopping many from getting to work? I'm sure it closed down completely in the evening. My 30-minute journey took about three hours by bus and walking. (I may be mixed-up on my days)
Happy days.
Grant.
And wasn't there severe curtailment on the Underground stopping many from getting to work? I'm sure it closed down completely in the evening. My 30-minute journey took about three hours by bus and walking. (I may be mixed-up on my days)
Happy days.
Grant.
Split,
All the wealthy have to do is stand aside until they get their price. To imagine they are continuously buying is iMO not necessarily correct. In so far as you don't need to do anything at all ,you're not part of the pressure generally felt, you just stand aside until you get the business that you want on your terms. This may mean missing some winners ,but there will always be more along and when you take them you only do it on your terms and built into those will be Ben Grahams famous 'margin of safety' although not strictly as he meant it. Doing this on what the general market decides is favourable terms is like asking your neighbours son if he could tell you what you should buy next.
At this time my attitude is 'you' will have to make it cheaper ,the 'margin of safety ' is not yet big enough to tempt me. That doesn't mean the general market will agree with me ,but on the otherhand they won't be getting my money either.
All the wealthy have to do is stand aside until they get their price. To imagine they are continuously buying is iMO not necessarily correct. In so far as you don't need to do anything at all ,you're not part of the pressure generally felt, you just stand aside until you get the business that you want on your terms. This may mean missing some winners ,but there will always be more along and when you take them you only do it on your terms and built into those will be Ben Grahams famous 'margin of safety' although not strictly as he meant it. Doing this on what the general market decides is favourable terms is like asking your neighbours son if he could tell you what you should buy next.
At this time my attitude is 'you' will have to make it cheaper ,the 'margin of safety ' is not yet big enough to tempt me. That doesn't mean the general market will agree with me ,but on the otherhand they won't be getting my money either.
dbphoenix
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You might be interested in this:
Warren Buffett
Chairman and CEO, Berkshire Hathaway
Many institutions that publicly report precise market values for their holdings or CDOs and CMOs are in truth reporting fiction. They are marking to model rather than marking to market. The recent meltdown in much of the debt market, moreover, has transformed this process into marking to myth.
Because many of these institutions are highly leveraged, the difference between "model" and "market" could deliver a huge whack to shareholders' equity. Indeed, for a few institutions, the difference in valuations is the difference between what purports to be robust health and insolvency. For these institutions, pinning down market values would not be difficult: They should simply sell 5% of all the large positions they hold. That kind of sale would establish a true value, though one still higher, no doubt, than would be realized for 100% of an oversized and illiquid holding.
In one way, I'm sympathetic to the institutional reluctance to face the music. I'd give a lot to mark my weight to "model" rather than to "market."
A Dashing Blade
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A couple of things happened . . .
1) Wall Street took a hit the Thursday night iirc
2) The Friday was the last day of a stock exchange account period, in those days there was a LOT of punting intra-account (basically it was margin free, buy and sell within a two week period and just settle the difference).
2) BUT, the hurricane on the thursday night meant only those living in the city (very, very few in those days) no-one could get into work. I don't believe the LSE actually opened that day, but LIFFE was iirc. Bottom line, those guys (typically long) playing the account punt were f**ked and had to dump on the Monday ie the for the next account.
note : London was hit hard by the hurricane, I was in Richmond at the time, no leccy or phones till 08.00 ish, morning TV broadcasting from emergency studios, certainly no public transport.
3) Friday lunchtime Wall street tanked a couple of hundred, London closed remember.
4) Over the w/e the US administration basically said it wasn't gonna support the USD against the old DEM. This was the lead story on the Money Program that sunday. Wall Steet was clearly going to plummet even more on Monday.
5) Chase went short £1bn of UK equities first thing Monday morning.
1) Wall Street took a hit the Thursday night iirc
2) The Friday was the last day of a stock exchange account period, in those days there was a LOT of punting intra-account (basically it was margin free, buy and sell within a two week period and just settle the difference).
2) BUT, the hurricane on the thursday night meant only those living in the city (very, very few in those days) no-one could get into work. I don't believe the LSE actually opened that day, but LIFFE was iirc. Bottom line, those guys (typically long) playing the account punt were f**ked and had to dump on the Monday ie the for the next account.
note : London was hit hard by the hurricane, I was in Richmond at the time, no leccy or phones till 08.00 ish, morning TV broadcasting from emergency studios, certainly no public transport.
3) Friday lunchtime Wall street tanked a couple of hundred, London closed remember.
4) Over the w/e the US administration basically said it wasn't gonna support the USD against the old DEM. This was the lead story on the Money Program that sunday. Wall Steet was clearly going to plummet even more on Monday.
5) Chase went short £1bn of UK equities first thing Monday morning.
Drexel Burnham Lambert were the Kings of the Street, they provided Junk Bond Finance for any company that had a quote. Far Eastern markets were soaring beyond nose bleed territory and the Nikkei had hit 39,000. Every man and his grandmother was buying any penny share that he could grab hold of and everyone on the train and/or bus was reading the financial pages. The financial markets were awash with cheap money and meger mergers were the mania. The party was going to last forever........
When a couple of central banks tweaked with their interest rates punters and pundits poured scorn on them and carried on as if nothing had happened. Let the good times roll, as long as we can get more finance who gives a toss? Higher prices will eventually bale us out. And so it continued but the pace got slower and slower and the wise old hacks that had been arround for a while started cashing in their chips and buying that yellow stuff and its poor relative that everyone seems to neglect.
A couple of guys out playing tennis on a Tuesday afternoon get a message sent via a runner (very few cellphones in those days); "sorry Jack but Mary said your broker is on the phone, he mentioned something about a margin call....." End of tennis match, scurry back to the office and start selling to meet the margin call. Slowly but surely the ripple becomes a wave; more forced sellers of stocks that lack liquidity (check out Max Petroleum last Friday) and then the more liquid stocks get chucked as well. Alas, selling begets selling and it becomes a very vicious circle.
Free_to_Trade
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Eurodollar Options
(from memory so 20 years of life may cloud it a bit...)
I was trading in ED options in the pit in 1987. It was not until the next morning that the currencies or the money and capital markets really responded to the events. The bigger pit traders were just selling premium, as per usual as if it was a no brainer and there would be no follow through. ED Volatility was already in the 17% range on the close of Black Monday (a previous record).
I stayed up the whole night before and watched the Asian markets absolutely melt, but the spot rate markets didn't rally start plummeting until the Australian markets (interest rate products) fell apart.
The opening range on Tuesday was huge. And just after the opening bell, trading was quite light in the ED and ED options. Everyone was absolutely scared to death about out-trades from Black Monday. Some locals had lost millions that way, I remember a guy in the S&Ps made $650k on an outtrade. So in between the times you walked around the trading floor, you kept your jacket lapel folded back so nobody could see your acronymn and clearing number. People that morning were being forcibly removed from the floor.
It was just like the movie "Trading Places" with Mortimer screaming "TURN ON THOSE MACHINES"!
What amazed me was that after the S&Ps had dropped som 8000 points, the currencies
and Euros seemed not to move very much. The volatility spiked but actually stopped going up about the time that Leo had appeared to reassure the floor population about the financial health of the exchange.
I remember that just after numbers were released at 7:30AM, Volcker made the statement, "We will provide whatever liquidity is necessary to maintain healthy markets" or something like that. The ED market promptly jumped a whole bunch of handles as the flight to quality progressed. Trading in the bonds had stopped over at the CBOT, lock limit.
So I may be wrong, but it was mere jaw-boning on the part of the Fed chair and not actual policy change that made the ED jump up into the 93.00-93.50 range 30 minutes into the session from 90.00-90.17 on the open. Implied Vol shot into the 50%-75% range and many of the traders' models fell apart at those levels.
From my own perspective in the pit, CRT and Merrill were heavy buyers of calls on the open. I did not sell a lot of premium the previous day, but I did manage to make myself quite premium and gamma heavy, loading up on calls. But I went into the night delta nuetral. I tried to stay as neutral as possible, and once in a while I did give up the huge edge in order to do that. I also snuck in a lot of orders and had my buddies who were brokers execute them.
On Tuesday after the ED market rallied heavily, the futures bid offers were as much as 50 ticks. I gave up that edge, I looked at my position and quickly (nervously) sold that many futures. And while the premium sellers were licking their wounds and trading almost stopped, we watched the ED fall back to 91.50 or so. And then I bought back the futures, staying again as nuetral as possible.
Gradually I got out of everything I had by boxing it all up or doing conversions and reversals.
At the Merc club that afternoon we bought a few bottles of Dom and kept adjusting and getting neutral on the SIMEX.
I learned that market perceptions are way more important than market reality or intervention. That is, interventions may not work at all if they happen relatively covertly and jawboning can work better than stated Fed intervention in the money markets.
Yes I did pretty well, but I think I also aged about ten years that day.
And by the way, here in Chicago once in a while we have "I survived the crash" parties
and reunions.
---------------------
Ooops I just realized this is an indicies sub category. But I was trying to address this from a Fed policy perspective...
(from memory so 20 years of life may cloud it a bit...)
I was trading in ED options in the pit in 1987. It was not until the next morning that the currencies or the money and capital markets really responded to the events. The bigger pit traders were just selling premium, as per usual as if it was a no brainer and there would be no follow through. ED Volatility was already in the 17% range on the close of Black Monday (a previous record).
I stayed up the whole night before and watched the Asian markets absolutely melt, but the spot rate markets didn't rally start plummeting until the Australian markets (interest rate products) fell apart.
The opening range on Tuesday was huge. And just after the opening bell, trading was quite light in the ED and ED options. Everyone was absolutely scared to death about out-trades from Black Monday. Some locals had lost millions that way, I remember a guy in the S&Ps made $650k on an outtrade. So in between the times you walked around the trading floor, you kept your jacket lapel folded back so nobody could see your acronymn and clearing number. People that morning were being forcibly removed from the floor.
It was just like the movie "Trading Places" with Mortimer screaming "TURN ON THOSE MACHINES"!
What amazed me was that after the S&Ps had dropped som 8000 points, the currencies
and Euros seemed not to move very much. The volatility spiked but actually stopped going up about the time that Leo had appeared to reassure the floor population about the financial health of the exchange.
I remember that just after numbers were released at 7:30AM, Volcker made the statement, "We will provide whatever liquidity is necessary to maintain healthy markets" or something like that. The ED market promptly jumped a whole bunch of handles as the flight to quality progressed. Trading in the bonds had stopped over at the CBOT, lock limit.
So I may be wrong, but it was mere jaw-boning on the part of the Fed chair and not actual policy change that made the ED jump up into the 93.00-93.50 range 30 minutes into the session from 90.00-90.17 on the open. Implied Vol shot into the 50%-75% range and many of the traders' models fell apart at those levels.
From my own perspective in the pit, CRT and Merrill were heavy buyers of calls on the open. I did not sell a lot of premium the previous day, but I did manage to make myself quite premium and gamma heavy, loading up on calls. But I went into the night delta nuetral. I tried to stay as neutral as possible, and once in a while I did give up the huge edge in order to do that. I also snuck in a lot of orders and had my buddies who were brokers execute them.
On Tuesday after the ED market rallied heavily, the futures bid offers were as much as 50 ticks. I gave up that edge, I looked at my position and quickly (nervously) sold that many futures. And while the premium sellers were licking their wounds and trading almost stopped, we watched the ED fall back to 91.50 or so. And then I bought back the futures, staying again as nuetral as possible.
Gradually I got out of everything I had by boxing it all up or doing conversions and reversals.
At the Merc club that afternoon we bought a few bottles of Dom and kept adjusting and getting neutral on the SIMEX.
I learned that market perceptions are way more important than market reality or intervention. That is, interventions may not work at all if they happen relatively covertly and jawboning can work better than stated Fed intervention in the money markets.
Yes I did pretty well, but I think I also aged about ten years that day.
And by the way, here in Chicago once in a while we have "I survived the crash" parties
and reunions.
---------------------
Ooops I just realized this is an indicies sub category. But I was trying to address this from a Fed policy perspective...
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Free to Trade,
Interesting to hear a first–hand account from across the Atlantic.
Drexel – I had to think for a while: Ivan Boesky (?), junk bond king, dodgey syrup, most misunderstood, and fall-guy. I had a lot of respect for him. He was an innovator. Maybe therein lies the origins of CDO’s.
“many of the traders' models fell apart at those levels”. This made me laugh.
You survived (well done); what about the locals who were hit really big? What happened to them consequently?
“I...did...well, but aged ten years that day”. I’ll put this with my favourites quotes.
I was (trying) to sell equities. Didn't make much but we were filmed for tv news. What a joke.
Grant.
Interesting to hear a first–hand account from across the Atlantic.
Drexel – I had to think for a while: Ivan Boesky (?), junk bond king, dodgey syrup, most misunderstood, and fall-guy. I had a lot of respect for him. He was an innovator. Maybe therein lies the origins of CDO’s.
“many of the traders' models fell apart at those levels”. This made me laugh.
You survived (well done); what about the locals who were hit really big? What happened to them consequently?
“I...did...well, but aged ten years that day”. I’ll put this with my favourites quotes.
I was (trying) to sell equities. Didn't make much but we were filmed for tv news. What a joke.
Grant.
