The best thing about veteran traders, such as Art Cashin, is that they have truly seen it all, not just one or two gyrations of the business cycle, or in most cases, half. Which is why we are delighted to share this anecdote from the grizzled UBS trader and Fermentation committee chairman, of his personal remembrances on this anniversary of the day in which the Dow Jones plunged than 22%, and has since entered popular folklore as Black Monday.
An Encore Presentation
On this day in 1987, the stock market suffered its worst crash of the 20th Century, even worse 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 what has become a 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 - “The Insurer”
Once upon a Monday dreary
Traders waited worn and weary
As they gazed upon news tickers
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
Two dozen years have since gone by *
with circuit breakers now we try
To tame computers gone awry
and restore calm upon the floor
The Dow now 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 new *
dwell upon that day we rue
They ask us veterans to review
a time that left us scared & sore
Yet chills we get from déjà vu *
fear that banks may run askew
While trading partners threaten too
as in that sad October yore.
But keep your faith 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!!
We revisit the ’87 crash each year because it was truly unique. The Dow fell over 22% in one day. That would be a single day drop of over 3000 points in today’s market. From the year’s high to the low of the 19th, the Dow fell nearly 40% in under two months. None who were there shall forget it.
A Personal Remembrance – On Black Monday, I was running the Floor for PaineWebber. I arrived early in the morning to check out the systems and the staffing. We expected a tumultuous day since the Dow had fallen 10% the week before, including an unprecedented 108 point drop at the close of Friday’s Expiration. (The largest point drop in history at the time.) With all systems checked, we headed up to the dining room of the Luncheon Club for a quick cup of coffee. The place was jammed with other nervous early arrivals. A buzz developed as word spread that several foreign markets were imploding – down 8% to 10%.
Some of the other traders would kid me about my penchant to throw in an occasional Latin phrase in stressful or strange situations. (Four years of Jesuit Latin can build odd habits.) One broker approached my table, put his right hand across his chest and said “Moritori te salutamus esse”. It was an approximation of the fabled gladiator’s salute – “We, who are about to die, salute you”. I nodded in response and we all headed for the floor to face the unknown. It is a moment in my life I shall never forget.