Art Cashin Compares This Week's Action To The Days Before Black Friday

Tyler Durden's picture

Yesterday's ominous selloff (today's very temporary EURUSD, and 100% cross-asset correlation, bounce notwithstanding: after all the data just got even worse courtesy of the Philly Fed, meaning much more pain for the S&P before QE 3 comes) got you a little jittery, with Flash Crashy overtones? You are not alone. Market veteran Art Cashin recounts that yesterday's market action was not so much reminiscent of 2010, or even the 2008 uber-volatile market, but really 1987.

Some Echoes of 2008 (And One, Faint, Slightly Scarier Echo) – (For those of you who listen to me throughout the day on the UBS squawkbox this may be a little “old news” – but hang in there.)

The stock market got hammered by a one-two punch yesterday. Actually, it was more like a one-two-three punch.

Early on, stock futures were in the hole as the Euro sagged on the breakup of the emergency Greek rescue meeting late Tuesday and signs of new unrest in the Athens streets.

Then, into that weakened and nervous environment, strode a series of lousy economic stats in the U.S. At 8:30, the CPI was a notch high which might be a hindrance to further Fed easing. Worse, and far more shocking, the NY (Empire) Fed Index imploded to -7.8% from +12. It had been expected to come in at +12. The plunge sent the already weak equity futures reeling.

At 9:15, Industrial Production came in weaker than estimates and Capacity Utilization actually fell, reinforcing the suggestion that the economy was stalling.

The Dow opened down about 100 points and the bulls immediately began to circle the wagons. They trimmed the losses slightly but were unable to mount a credible rally. Then, around 11:30, things began to unravel with a vengeance. There were confusing (and occasionally conflicting) headlines about the actions and intentions of the Greek PM, Mr. Papandreou. Had he been asked to resign? Did he say he would? Did he say he wouldn’t? Would there be a “unity government?” As a backdrop to all this, TV screens filled up with the likes of smoke canisters, riot batons and rock throwing mobs in Athens.

What really broke the back of the Euro and the markets (we think) were reports of a “leaked” EU email about the breakup of Tuesday’s rescue mission. It was said to have a very pessimistic tone and cast doubt on an effective ultimate rescue. As stocks and oil and grains got pounded, some folks heard echoes of 2008. Some TV pundits saw similarities to Lehman in September. Most traders, however, saw things more analogous to March and Bear Stearns. The rumormongers had begun to shift the discussion from European banks to the unknown counterparties on European Credit Default Swaps.

That universe is potentially enormous, populated as Captain Renault might say – by the usual suspects. That clearly runs the risk of some 2008 potential.

By the closing bell, the ugliness had not lifted. The breadth was negative and outright atrocious. It was a “90% down day” and, we think, the third or fourth in this selloff. It not only erased all of the gains of the prior two days, it took us to new lows for this down leg.

At the post close seminar of the Friends of Fermentation, the chatter about the echoes of 2008 grew a bit louder and more animated. A few of the geriatric veterans were a bit more somber and reflective.

They recalled another volatile expiration week that followed a growingly aggressive selloff from a high only weeks before. That was not 2008. It was 1987. But that’s so unlikely, right? Pass the peanuts, please!

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eureka's picture

From Art's mouth to God's ear.

anynonmous's picture

ah yes Black Friday and the crash of 87 and everyone's favorite pundit of the day Louis Rukeyser with his pals Marty Zweig and Allen Sinai

Black Friday edition of Wall Street Week in its entirety

SwingForce's picture

WOW! His face was really green on my TV that night, don't adjust that set! Oh yeah, get that Kojak Lollypop ready, because who loves you, baby! Nice post, thanx for the mammories[sp] but wasn't Black Friday on a Monday that year?.

anynonmous's picture

Marty and Sinai were pretty prescient that night follow the links for Black Monday and beyond and you'll get to see your buddy Cavuto and even a cameo by a youthful Kudlow

and in this report a week later what in hindsight is perhaps  the birth of the current generation of  banksters as the push for deregulation goes full speed ahead (including a cameo by the Late Bill Seidman)

S-hai High's picture

Awesome! Thanks for posting...

Rukeyser: “These computers are used by large institutional investors, whose money managers are paid huge sums of money, to make no-brain decisions that are made for them by computers. Aren’t these guys overpaid?”


qussl3's picture

Cant happen, circuit breakers.


qussl3's picture

The chaos will be everywhere else tho, gonna be fucking funny when stawks dont trade for a week then open down 30%.

SheepDog-One's picture

Yep, I'm guessing what we'll see next wont be some smooth comfortable patch job, but a sudden chaos event.

tiger7905's picture

Jim Sinclair seems to be echoing the same thoughts...

Dr. Engali's picture

They didn't think it could happen in 1987 either. Remember portfolio insurance? Everybody had it. There is always something that can trash the system. Flash crash, a robot blows up, who knows. They said the Titanic was unsinkable. We all know what happened there.

mr. mirbach's picture

Even with circuit breakers a 30% one day drop is possible.

qussl3's picture

You'd think they'll be able to switch all algos to buy in the half hour breaks no?

Ergo's picture

and the "plunge protection" team

but who knows what game theory can do to the robots.  untested waters now.

Hugh G Rection's picture

2k shaving in one week, then QE3

baby_BLYTHE's picture

except it won't be called QE3.

It will be called "Cupcakes" according to Jim Rogers

SheepDog-One's picture

Great, plunge the markets down (I dont believe they can) and then 'QE3'....go for it Ben I really want to see my gold at $2,000 overnite.

Cognitive Dissonance's picture

I was only 3 months in 'da bidness' when the '87 crash happened. What a rookie hazing that was. What doesn't kill ya........

SwingForce's picture

Ha ha, my boss walks out of the men's room with his necktie thrown up around his shoulder, his eyes were all red and watery. I went inside there was vomit everywhere, what a day! Bobby P. got all my guys out, what can I say. Here check the reprints from this book, great pics of Boesky & Guiliani too: 

PPT was born 10/20/1987 XMI Futures on CBOT saved the world! C2XMZ if I remember correctly... and Oh yeah, Larry Wachtel said on the speakerbox, "Things must be getting bad, I just PUKED!" Smithtown did too, ha ha. (This was a Monday, not a Friday).

alex_g's picture

I was 7 months into Goldman when the '87 crash hit...surreal market action...feels nothing like it.  Rates are half, PE's are lower, this is a different issue.  Worldwide debt exposure is off the charts compared to '87, and that, this time, is the catalyst.

Cassandra Syndrome's picture

A 2,500+ drop in the Dow? There wasn't a PPT back in 1987, but certainly possible over the course of a week, in the absence of the Fed.

The Axe's picture

Actually I had a drink with Art at Ben and Bensons that Friday before the crash..actually 4 drinks...I think he has a point....ha ha  I was the AXE in Genetech symbol GENE   and the stock was in a crossed market on Monday for 5 was the wild west baby.....sweet

tom a taxpayer's picture

Was it the practice to flee Wall Street for mid-town steakhouse on Friday? Did you all take the subway, bus, taxi, or ? to 52nd street? 

P.S. I hope someday I can have a drink with Art.

kito's picture

1987 was the start of the bull market, glad to see you are so optimistic tyler. but i think you are rushing it just a bit.

baby_BLYTHE's picture

By "Bull Market", are you reffering to the millions of manufacturing jobs we lost to China during that period of time?

kito's picture

talking strictly stock index numbers, not trying to get philosophical

baby_BLYTHE's picture

stock index numbers meaningless in real terms.

Greenspan slit the curreny's throat during this time.

kito's picture

well if they are meaningless on the way up, surely they would be meaningless on the way down. and if that were the case, why such attention to it?

unununium's picture

Funny man, you make me wanna roll my IRA over to you at Edward Jones so you can fix my asset allocation for me.

gerd's picture

try again dum dum.  bull started in early 80s.

didn't really get going until we were able to fashion GDP out of debt.  Can't do that anymore and that's the difference.

kito's picture

if you spelled "dumb dumb" correctly you might have some credibility

SheepDog-One's picture

No he's right and you're wrong, go buy some Dum Dum suckers and see for yourself.

kito's picture

oh the pops, staple food of all white trash households

The Profit Prophet's picture

A fool and their money are soon parted....say goodbye to your paper wealth Shill Boy.

T.E.I.N. everyone.

Vic Vinegar's picture

You may not like it but paper wealth is going to be around for quite a while.

francis_sawyer's picture

It's what "Kazoo" used to call Fred Flintstone... But since Fred isn't around...

Dr. Engali's picture

Back then we were just starting to lever up as a country. That is no longer an option. We are in debt destruction mode now. The Dow will go to 4000

BoeingSpaceliner797's picture

The bull market to which you are referring is generally considered to have begun in 1982, not 1987.

SwingForce's picture

A Lesson from 1987: Who did the traders screw? They screwed each other!  It wasn't the little guy holding the bag, it was the brokerage firms- EFHutton? Drexel-Burnham? Kidder-Peabody? A large swift move lower shakes out the little guys' stops, have we learnt nuthin' from history? There will never be a TARP II, so Jamie & Lloyd better be careful this time.

On the other hand, God Bless Art and his trader's gut, there aren't too many like him around anymore- I'm thinking of Larry Wachtel as another example.

Arius's picture

so Jamie & Lloyd "better be careful this time."

They got their loot already...did you see their compensation for last year??? they know what is coming...but, hey thanks for the warning...

Alcoholic Native American's picture

BULLSHIT, markets only crash when bailout legislation doesn't go through, and then like TARP it's voted on again the next day.





SheepDog-One's picture

Agreed. The markets are now just pure garbage, completely irrelevant to anything real world and stinking.

Arius's picture

where is hammy when you need him???

any bulls out there?

they need volunteers to hold the bag...

r101958's picture

Bernank might call it a 'perception tool'.

Steaming_Wookie_Doo's picture

When it comes to Bernanke, it's a perception stool.

Beatscape's picture

Market breadth yesterday was the worst since 2008.  Advice from a guy with pointy ears: You do not want to be long equities right now.  I am 100% short.

Liquid Courage's picture

Likewise. Could be a major change in trend occurring: from Bull (fully rigged) to Bear (need justification for further rigging). If so, a strategic change from BTFD to STFB is in order. Care to compute the probability - based on your cold calculus -  that such a trend change has indeed occurred, Mr. Spock?

Beatscape's picture

Precisely.  A shift in market momentum does indeed seem to be occurring now.  One indicator that gives us evidence is the slow stochastics of the S&P 500. Every time this oscillator came down to 20, it was a BTFD moment.  But on this swoon, slow stochastics has dropped below 20, which hasn't happened in over 2 years. Further, it has been languishing under 20 since June 3--about 2 weeks, which hasn't occurred since 2008.  This is the start of the decline the bears have been looking for.

Liquid Courage's picture

Well, it feels that way to me as well, but better to leave feelings out of it, right? You express a 100% probability ... astounding! And encouraging, as I've actually been Selling The F'n Bounces since about March, even turned my nose up at some modest profits & am looking forward to getting some $ back at this point. At this point, I'm at least 100% certain this dip is of a higher degree than the last few. Thanks for the slo stoch numbers that confirm that feeling.

BTW, I used to do the Mr. Spock schtick back in the days on another board, in another galaxy far, far away. Can't believe how time flies, and how many suckers ... I mean "investors" can fall for the same crap time and again. Fear, Greed::Rinse, Repeat