Art Cashin On Black Monday, 'The Raven' Remixes And The Tepper Corollary
As always, some very entertaining and enlightening musings from Art Cashin, with an emphasis on Black Monday, modern-day Edgar Allan Poe remixes, and, last and certainly least, the Tepper Corollary.
A NOW TRADITIONAL ENCORE PRESENTATION
On this day in 1987, the stock market suffered its worst crash of the 20th Century, worse even than 1929. The Dow lost 22% in a single day. Each year as the anniversary of the great ’87 crash approaches, I get requests from the steadily dwindling number of ’87 veterans to repeat my follow-up poem, “The Insurer”. For survivors of October ’87, the memories are seared into our psyches not unlike veterans of some great battle. For, as in a battle, not all who participated survived (financially). It was an amazing couple of weeks in which the wheels almost did come off the locomotive. Someday, maybe I’ll write a book about it.
Anyway, below we repeat the poem. It was written in the manner of Edgar Allen Poe’s, “The Raven”, though it lacks even a scintilla of his talent and clarity…..somewhat like a stick figure rendering of the Mona Lisa. But…..you do the best you can.
While all of the references will be familiar to veterans of ’87, I have learned some folks who read these “Comments” were in Pampers at that time. So we’ll give a quick one paragraph synopsis of the background to the ’87 crash.
A Brief 1987 Recap – Even if there had been no “October Surprise”, the year 1987 would have been a remarkable one for Wall Street. The Dow started the year below 2000 and ran to 2722 by early Fall. (A gain of nearly 38%.) The rally was breaking all the old rules. A group of guys in Chicago came up with a new rule called Portfolio Insurance ( or Dynamic Hedging) which might be synopsized as buy strength/sell weakness (we’ll explain another day). The U.S. dollar was weak and the subject of controversy. There was some conflict and confrontation in Iran (U.S. bombing Iranian oil platforms). The President’s wife and right hand had gone into the hospital for a rumored cancer operation. And there was a new SEC chairman who was misquoted in the midst of the free-fall suggesting that maybe markets should close. The misquote greased the skids.
Okay, that’s enough background. Now -
Once upon a Monday dreary
Traders waited worn and weary
As they gazed upon newstickers
warning of the day in store
Foreign markets were imploding
sending senses of foreboding
With positions overloading
sellers would be bringing more
To dump upon a bloody floor
October now had past its middle
as investors faced this riddle
With their Quotrons they would fiddle
looking for The Bull of yore
Greenback's value falling quickly
trade deficit behaving sickly
And with Iran, relations prickly
raised the specter of a war
Ahead a day that promised gore
So on the open there came selling
much faster than the tape was telling
While in Chicago they were yelling
"Dynamic hedging" is no more!
Specialists were inundated
as futures prices unrelated
Kept the selling unabated
stocks once eight now sell at four
Futures dipped below the cash now
and insurers made a dash now
Trying not to be the last now
rushing for the exit door
Then news reporters often shrewder
began misquoting Chairman Ruder
A trading halt?...a new intruder
caused yet more panic on the floor
Bethesda had a guest named Nancy
an operation somewhat chancy
Helped to make the markets antsy
adding to our selling lore
Throughout the day as prices melted
brokers, dealers all got pelted
And bank accounts not safety-belted
were blown away forever more
The bell, it rang to end the sorrow
while traders ran to banks to borrow
To have an ante for tomorrow
not knowing what it held in store
Twenty three years…now since that day
yet there was a scare last May
Reminding in a flashy way
of when fear and panic swept the floor
The Dow stands full six times higher
than when it closed that day so dire
Despite two wars and terror fire
the Bull arose to run some more
This anniversary, headlines all
dwell upon that fateful fall
And ask us veterans to recall
a time that left us scared & sore
New chills we get from déjà vu
as currencies now run askew
And trading partners threaten too
as in that sad October yore.
But keep your faith that it's a new day
though there are hints that skies may turn gray
We’ll hope such clouds won't bring a blue day
let's hope the Bull returns once more!!
And, yes, there is now a Tepper corrolary. Soon there will be a Tepper lemma: in a nutshell, it will occur when it is discovered that one is preaching on TV nothing more than a better exit point for one's positions.
Just Bad Enough To Be Good – Stocks moved smartly higher in moderate volume riding the rally in the financials and oil stocks.
The financials benefitted on two fronts. First, the Citigroup report was better than many had expected. A key feature was a large surge in deposits to a new record high. Another boost for the financials came from the announcement that several banks would resume the foreclosure process. That suggested that securitized mortgages might not be the un-certifiable toxic waste dump many had feared. Also helping stocks was some bad economic data. Industrial Production fell for the first time since 2009.
Using the Tepper corollary, stocks rose under the assumption that the weak economic data would force the Fed to move closer to QE2.
The rally appeared to stall during the middle of the day and into late afternoon. Then, shortly after 2:00, the bulls attacked again. Once they moved higher than the post-opening highs, the rally kicked into overdrive. That spike took the S&P right into the resistance band at 1183/1187. They stopped twice in the final hour at 1185.50. The stall produced no significant pullback sealing the bulls’ victory.
h/t London Dude Trader