Art Cashin On The 25th Anniversary Of 'Black Monday'

Tyler Durden's picture

From Art Cashin of UBS Securities

On this day (+1) in 1987 (that's 25 years ago, if you are burdened with a graduate degree), the NYSE had one of its most dramatic trading days in its 220 year history.

It suffered its largest single day percentage loss (22%) and its largest one day point loss up until that day (508 points). No one who was on the floor that day will ever forget it.

While it was an unforgettable single day, there were months of events that went intoits making.

The first two-thirds of 1987 were nothing other than spectacular on Wall Street. From New Year to shortly before Labor Day, the Dow rallied a rather stunning 43%.

Fear seemed to disappear. Junior traders laughed at their cautious elders and told each other to "buy strength" rather than sell it, as each rally leg was soon followed by another.

One thing that also helped banish fear was a new process called "portfolio insurance". It involved use of the newly expanded S&P futures. Somewhat counterintuitively, it involved selling when prices turned down.

The rally topped out about August 25th with the Dow hitting 2722. Interest rates had begun creeping up amid concerns of early signs of inflation.

Treasury Secretary Baker began a rather open debate with the Germans on the relationship of the dollar and the Dmark. Soon the weakness in the market was turning into a visible correction. By the middle of October, the Dow fell to break an uptrend line that had protected it for over 1000 points. The flurry of takeovers and leveraged buyouts that had flourished all year began to dry up.

On Wednesday, October 14th, there were widely discussed rumors of a new punitive tax on takeover profits. Selling turned a bit ugly and the Dow fell 96 points by the close (a record point drop at the time). The next day there was no bounce and the Dow fell another 58 points.

Friday, the 16th was an option expiration day. There was a very bad storm in London and that market closed, which forced more people to seek liquidity in New York. Stocks faced a steady wave of selling. As the close neared, rumors spread that the First Lady, Nancy Reagan, the President's right hand, might be admitted to the hospital with cancer. The selling intensified and the Dow closed down 108 points, on the low and a new record point drop.
The weekend was a rumormonger's delight. Nancy was admitted to the hospital.

Japan was considering a confiscatory 96% tax on real estate speculation. Germany proposed a change in taxes on some interest rates, which would make U.S. Treasuries unattractive to Germans. Rep. Gephardt was talking about a trade bill that would freeze imports. Treasury Secretary Baker went on a Sunday talk show and openly challenged the Germans on currency. There were even rumors of U.S. planes engaging Iran.

At the time, I was running the floor for PaineWebber. Monday morning I got up well before dawn and saw that Hong Kong was down about 10% and other markets were looking equally weak before their openings. I headed for the NYSE to check on our systems and staffing. I reached out asking the team to get in early.

Once I had checked out the systems and verified staffing, I went with a partner up to the Luncheon Club for a quick coffee. With markets around the globe all down about 10%, I didn’t know if we’d get to a coffee – or anything else after we opened.

We sat about two tables away from a table where NYSE Chairman John Phelan sat with several directors and some staff.

Every ten minutes or so, someone would rush up to Phelan and slip him a note or whisper in his ear. It was evident that things were deteriorating. As I headed for the floor, I went past Phelan's table, put my right arm across my chest and said – "Nos Morituri Te Salutamus Esse". It was the gladiator's salute to the Emperor – "We, who are about to die, salute you". Phelan nodded without a smile.

The opening was not an outright disaster, but that was primarily due to the fact that many stocks did not open immediately. They were delayed, with indications to warn investors of the prices that they might open at (with hopes of inviting bargain hunters). Meanwhile, in Chicago, where you could short without a plus-tick, prices headed for freefall.

Soon prices were lower in Chicago than in New York. That brought even more selling pressure to New York. Shortly after the opening, as it became clear that this would be a very special and very dangerous day, several NYSE directors met in Chairman Phelan's office. They checked around the street to  gauge any new trends in the selling pressure.

They were also on the phone with the White House via former Senator Howard Baker, who was White House Chief of Staff.

Meanwhile, back on the floor, the situation felt more unreal. Orders flowed in faster and faster and the tape ran later and later. (The tape was linear and the human eye can only recognize a certain number of symbols per second, 900 I think. To run faster than that would make the tape an unreadable blur. Traders can trade faster than the maximum reading speed – so the tape ran late.) One broker said it was like a bizarre dream sequence – nothing seemed real.

In late morning there were signs that the markets might begin to stabilize. Then the newly appointed Chairman of the SEC, David Ruder, was intercepted by reporters leaving a meeting at the Mayflower Hotel in Washington. Whatever they asked and whatever he said, it somehow was reported that the markets might have to be halted. Later, he would swear it was a typo but you can't un-ring a bell. The fear of a halt sent buyers scurrying away. Stocks went into virtual freefall.

The interaction with the futures saw prices melt away. The Dow closed down 508 points. One specialist, who made too good a market, ran out of funds and the firm was sold to Merrill Lynch that very night. At watering hole after watering hole, traders and specialists reported again and again how strained their resources were. Wall Street could not survive another day like this. Luckily, innkeepers, like Harry let them put the drinks on a tab.

What is often lost in the retelling is that the next day, Tuesday, was far more dangerous. It was the day that the wheels almost did come off the locomotive.

The Dow opened up about 200 points Tuesday to a round of cheers on the floor. But, stocks quickly turned lower. The 200 point gain was erased and the Dow went negative, accompanied by an audible gasp on the floor. Soon it was nearing -100 and trading was being halted in several of the Blue Chips that make up the Dow.

Then we learned that several key banks were shutting down the credit lines of market makers and NYSE specialists. The banks feared exposure to an apparently collapsing stock market.

NYSE Chairman Phelan reached out to the recently appointed head of the Fed, Alan Greenspan. Unfortunately, Greenspan was on a plane. Desperate, Phelan called the President of the New York Fed, Gerry Corrigan. He sensed the danger immediately and began calling the banks to reopen the credit lines. They were reluctant but Corrigan ultimately cajoled them. The credit lines were reopened and the halted stocks were reopened. Best of all, the market started to rally and closed higher on the day.

It was an incredible time and the financial system was within hours (and a few phone calls) of an absolute collapse. It was a time I'll never forget.


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fightthepower's picture

No fear in the market now!  Fuck you Bernanke!

aint no fortunate son's picture

I polished off a 1.75 liter of Jim Beam that day, just staring at CNBS.

Now I don't watch CNBS and I'm sober lol!

jeff montanye's picture

i turned $900 into $23,000 that day (and a few of the previous ones) on s&p 100 put options.  gave it back and way more over the next four years.  too soon old and too late wise.

Zer0head's picture

Black Monday at Abercrombie

The actors and models who worked on an Abercrombie & Fitch Co. (ANF) Gulfstream G550 jet had crystal-clear rules for serving Chief Executive Officer Michael Jeffries.
Clean-shaven males had to wear a uniform of Abercrombie polo shirts, boxer briefs, flip-flops and a “spritz” of the retailer’s cologne, according to an “Aircraft Standards” manual, disclosed in an age-discrimination lawsuit brought by a former pilot. Among the 40-plus pages of detailed instructions: black gloves had to be used when handling silverware and white gloves to lay the table, the song “Take Me Home” had to be played when passengers entered the cabin on return flights and Jeffries’s dogs -- identified in the document as Ruby, Trouble and Sammy -- had different seating arrangements based on which ones were traveling.

FMR Bankster's picture

Although Oct 19th was shocking I recall mid morning of the 20th as really scary. After dropping 750 Dow points the previous 4 trading days (over 30%, or 4000 Dow points today)the market was forced higher at the open on tuesday. Then mid morning (it took an hour or more to open many stocks) the market rolled over again into a sickening decline. Talk of which brokers were bankrupt was common and the closing of the exchange (maybe for months)swirled around. Then it happened, huge orders to buy hit the futures in Chicago and stopped the run in it's tracks. PPT in action. It took me a week to get back fills on market orders from Oct 19th and 20th.

Spirit Of Truth's picture

Note the pic of a burning Iranian oil rig on the left of the front page of the NY Times.  Foreshadowing?

Now consider how the 1929 and 1987 stock market crashes occurred in the latter half of October.

Interestingly, the 13-day Cuban missile crisis also occurred in this time frame 50 years ago.  Also, the 1973 Yom Kippur Arab-Israeli War and the second closest brush to worldwide nuclear war  occurred in the late-October time frame.

Is it any wonder that Halloweed ends this month, a holiday that seems to symbolize the cultural propensity for mass fear in this seasonally dangerous period?

Check out my thesis on the subject:

Let's hope the pattern doesn't repeat this year.  We are past the new moon that marks the end of Tishrei, which is a relief, but I'm still concerned by the Israeli-American air defense exercise about to kick off:

It's still possible World War Three could erupt here very unexpectedly:

I pray not and will be greatly relieved when this month is over peacefully.

Vooter's picture

Has Jeffries gotten cancer yet?

Stackers's picture

Anyone notice the other headline on that NYTimes front page ?

AlaricBalth's picture

As a result of this day, the Plunge Protection Team was born via Executive Order 12631. It's mandate was to "enhance the integrity, efficiency, orderliness, and competitiveness of [United States] financial markets and maintaining investor confidence".

And thus the seeds of government intervention in financial markets were firmly planted. They don't call it "Black Monday" for nothing!

aaxiom's picture

It was called FNN, if I recall correctly... Financial News Network.

It's where Bill Griffith, Ron Insana, Maria Bartoromo, and Michelle Caruso Cabrerra, and Sue Herera got their starts (if I recall correctly as well).

Eireann go Brach's picture

Wasn't this the day Tim Geitner also started working at the NY Fed?

AlaricBalth's picture

I recall sitting in my office at One Seaport Plaza and listening to Larry Wachtel on the box as he explained that this was not the end of the world. Suddenly the phone rang and it was my mother calling from Florida asking me if she should call her broker to sell. At that moment I knew all would be well.
Mom was always the best contrarian indicator.

JustObserving's picture

"No fear in the market now! "

What is this market that you speak of?  The Fed controls the stock and bond markets (now buying 77% of all treasury issuance).  And the Fed controls the commodity markets or gold and silver would be much higher by now in the face of infinite QE.  Markets are only an illusion since the 2008 financial crisis. Infinite printing trumps every market.

Doubleguns's picture

Some day...some day soon I fear.

PUD's picture

would be a 3000 plus point down day today...I'd saw off my left nut to see it happen by tomorrow...I have kaputs...sigh

meanwhile...polaris industries sold a record number of snowmobiles!

adr's picture

Polaris channel stuffed a record number of snowmobiles so thier directors could grant themselves some juicier stock options.

CrabGrassKila's picture

Subway Vigilante got 6 months that day as well....

And now you get 6 months for drinking a SuperSize Coke on the sidewalk......


Quinvarius's picture

Too bad they changed the rules and this is no longer possible.

youngman's picture

Two things in this article stick out...when the market went down...all the people involved asked for save us...its not our fault....babies....second....we all think it can never happen can..but we the little peole will be thrown into the fire first....with the grey market...that is where the big boys will get out before we even have a chance to...they will halt trading..but just for us...TPTB will be unloading when it reopens...the cliff price will be our price.....yes the calls to the government to HELP will be screams as we know one in NYC can ever lose money....and folks this is just the above the table crap....add in the derivitives and extrapolate that gold..or do you own a synthetic derivitive????

Agent P's picture

25 years...that's almost a quarter of a century.

Agent P, MBA


walstudio's picture

That's not *almost* a quarter of a century, that's exactly a quarter of a century, my dear MBA.

ebworthen's picture

I'll give you four nickels for a quarter; you'll have four things and I'll have one.

Pretty good deal, eh?

Lord Blankcheck's picture

The copper in those nickels is probably worth more than 25 cents.And rising

Cognitive Dissonance's picture

Scroll to the bottom left of the NY Times article and you will find a picture of two burning Iranian oil platforms burning after being shelled by the US Warship in the background.

The more things change the more they stay the same.

DeadFred's picture

Nothing in the article about the damage from the English hurricane over the weekend before making the insurance companies sell assets to get cash. As the system is manipulated into a brittle condition even a smallish insult can set off the cascade. They are creating a market now with nothing but air below it. Earthquake, storm or surface to ship missile it won't take much.

LongSoupLine's picture

Let's all celebrate the aniversary and sing a rhyme.

GoldenTool's picture

What's with the 25 years ago if you are burdened with a graduate degree.  Is it compared to 25 years in dog years if you are not...?



ebworthen's picture

If it's a graduate degree in economics you see time, space, and reality as infinitely fungible (or is it elastic?).

hedgeless_horseman's picture



As I headed for the floor, I went past Phelan's table, put my right arm across my chest and said – "Nos Morituri Te Salutamus Esse". It was the gladiator's salute to the Emperor

Après ma fraude électoral, le déluge.

janus's picture

yo tambien!

i would love to see some of the abbreviated anecdotes on this page expanded.  what a day that must have been...and all i'm seein is a terse paragraph here or there.  some of us want more details on that day.

so, please, traders (or whatever role you filled...even if you were only filling coffee mugs) who were 'there' please, do tell.



adr's picture

Nothing wrong with the market jumping 200 points or more, that is to be cheered. But the market falling, that has to be stopped at all cost. Trading can't be halted and unlimited credit must be made available to buyers to prop up the market.

That is what I took away from that.

The engine to create wealth without labor must never seize.

gjp's picture

Precisely.  And the result has been a quarter century of ever-more-egregious kleptocracy.  Black Monday indeed (as someone above has already said)

Winston Churchill's picture

Remember it well as I was in the UK then.

That Thursday night there was a Hurricane over SE England.

Yep, they do have them every fifty years or so.

The market crash was just desert after a long night.

Tango in the Blight's picture

You might want to lose the final 6 paragraphs, they're a repeat of the beginning.

Jason T's picture

I was a newspaper delivery boy then.. I can kind of remember the cover of the paper that day, but thought next to nothing of it.

Good to be a kid and not worry about this kind of stuff.  

Certainly life went on and the market recoverd.. but many probably suffered greatly and many were wiped out I am sure.  


StandardDeviant's picture

Good article, thanks.  But Art, please, don't ever "reach out" to people you work with.  At best, it sounds ridiculous; at worst, it'll get you into trouble with HR.

benbushiii's picture

The Fed also orchestrated the "Greenspan Put," which he continued to use through the rest of his tenure. His star student the Bernank enhanced the put into QE to eternity, which is basically portfolio insurance provided by the Central Bank. I guess we will see if this crushing of volatility and money printing to target asset prices higher works? How well did it work for Japan? I remember in the late 80's and early 90's the BOJ would come in at the end of the day and squeeze the shorts in the Nikkei, with it eventually being driven to over 39,000; how did that turn out? To gain some perspective as to how dramatic a fall might be, the Nikkei was close to 20,000 on that fateful Friday before the crash on Monday; and printed down to 6,000 on the opening. Of course things have changed? The Central Banks are in front of the curve and control the price charts of the indices through S&P manipulation and buying of the major names in the indices such as Apple, IBM, GE, etc. Remember, don't fight the Fed?

We also have the talking heads who have been further manipulated  to spew only positive news and provide propaganda from  the Central Banks / Fed to encourage people to invest and chase another bubble.

So  we have to ask ourselves, "is this time different?"

Everybodys All American's picture

markets were allowed to go down?

KnowIDontKnow's picture

yes that was a dark a day... but thankfully then they got the Fed on the line and partied like it was 1999, right up until 1999

Omen IV's picture

Harry's was bedlam that afternoon 3-4 TV cameras circling the rectangular bar with reporters asking for comments  - the best was:

stocks go up, stocks go down ....but the broker always makes his commission !


Zola's picture

As long as you are keen on debasing your currency to 0 , you can buy up all the assets and devalue your currency to toilet paper. There is no way to fight that. If Bernanke wanted he could have DOW @40,000 tomorrow, he would just need to print enough money and send it out to the people. The only hedge is to short this POS in physical gold. 

KnowIDontKnow's picture

Yes that's the default position around these parts.  It's hardly a contentious trade, which is a good reason to be suspicious of it.