October 19th, 1987… remember that day? Do you remember the the day after? Monday Oct. 19th was “Black Monday” when the market dropped 508 points or just over 22%, the next day was the day that the music “almost stopped.” The next day, Tues. the 20th we opened up 200 points to a big sigh of relief, only to watch it go negative 100 points or more if I recall correctly. I do remember the horrible feeling in my stomach and how deathly quiet my office had become.
Before I go any further I want to put this in context for you, I was a young lad of 27 years old, a little over 3 years in the brokerage business and working for Merrill Lynch (I can’t believe that was 25 years ago, “I got old fast!”) . At the time, I was building client positions in 30yr “zero coupon Treasury bonds.” I started buying a month or 2 earlier when rates went above 8%-8.5%. Interest rates on the 30yr touched 10% on the previous Friday and I actually bought some at 10.25% early on Monday but was definitely beginning to question my logic as the losses from the earliest purchases were pretty significant by noontime on Monday. Then, all of a sudden, interest rates started to tick downward a little bit in the afternoon. The crash was a Godsend for this position as interest rates were back to 8% lickity split within 2 or 3 weeks as I recall. I didn’t fully understand it at the time but my regional manager said on a conference call Wednesday morning that “interest rates were down as well as GOLD.” The fact that investors had flocked to Treasuries as opposed to Gold meant that the system would survive. (It took several years for me to finally understand this, which is why you should never have a stockbroker in their “early to mid 20’s”).
As a humorous side note, I can still remember that Monday afternoon at about 2:00 (Eastern time) with 2 hours to go. I went downstairs to my car and fetched my old college hockey helmet (I played varsity hockey at UCONN back in the days of an outdoor rink). I went back upstairs to my office and sat the last 2 hours at my desk with my helmet on! My manager came out (a very nice, soft spoken laid back guy) and he said to me, “What the hell do you think you’re doing? This is no big deal, we’ve been through it before.” I looked at him and told him that NO ONE had ever been through it before because we were already down nearly 15% and even Black Friday in 1929 was less of a loss at that point. He just smiled at me and said, “You have a point there.”
I also remember that the next day (without a helmet on), I did some stock buying for clients. The tape was late and the “bid ask” quotes were somewhat unreliable. I bought 10,000 shares of GAF for a client under $20 which had traded between $45 and $50 just a week or two earlier. But here’s the catch, I did not get any confirmation of the trade until the following week! When I did, they gave me a “fill” of $21+ for an order with a limit of $20 which of course was impossible. I asked for a “time and sales” which showed GAF never traded above $20 and the client was finally filled under $19. It got even better, I put in a limit order to sell the next day at $27 and NEVER got a confirmation of the sale even though the stock closed above $27! To make a long story short, the client netted $85,000 and ended up not really knowing what he paid for the stock and NEVER knowing what the real sale price was or if it was even traded!
Now, to the “Happy Anniversary” part. Tues. October 20th was the very first day where “the government” stepped in and saved the system. (This was the beginning of the “PPT” and “president’s working group on financial markets”) The market was completely gridlocked with very few shares trading and many had not even opened from the early 200 point rise swooning 300 points to be down 100. My screen was barely blinking when all of a sudden it just started to light up flashing like a Christmas tree! As it turns out, we were saved by a $6 million trade to buy “Value Line” futures. At the time, Value Lines’ traded less volume than almost anything else. This $6 million was enough to “turn” the sentiment and save the system from collapse.
So, why even write about this? Because that was the “beginning.” It was back then that the government realized that they could “intervene” in markets that were not going in the direction that they wished. Today, $6 million wouldn’t even last 30 seconds in ANY market much less turn the tide in our equity markets. Today, ALL markets have the fingerprints, no, the FOOTPRINTS, of intervention every day, all day. So, “Happy Anniversary”, look around you, what was once used to save the world is now being over used every day, all day, in all markets and in itself ruining (ruined) the markets.