See those gaps in Oct!! 4 months of breaking made up on Mondays reversal and then Tuesday nights European Bond rally that propelled near by Dec limit bid 3 days. P.S. Rogue. I was a local in the bond pit the day of the crash. I remember the action well. http://www.ccstrade.com/ccs/research/tools/history/chart.xsp?symbol=us1987z#
As I too was an independent local trading stock-index futures at the time. The bottomline is that if you were a portfolio manager, and you just got done clocking a super first 3 quarters of 1987 and you took a look at how much bond yields had risen over the Summer, wouldn't you want to lock-in your equity performance and do a bit of asset-allocation back into bonds and "coast" thru the 4th quarter, locking in a great bonus? The sell-off in the dollar was just an excuse, precipitated by some jawboning back and forth between our Treasury Secretary at the time, and our friends across the Atlantic. As for Portfolio Insurance, Kidder Peabody sold 32,000 S&P's on Black Monday, trying to put on the infamous Mark Rubenstein academic in theory hedge ( Leland, O'brien, Rubenstein ) that was sold to so many pension funds and institutions. Too bad that there weren't any locals in the S&P pit that morning that felt like bidding for those contracts! Can you say DISCOUNT!
Just some food for thought. This guy covered quite a bit in a recent Barron's article. Barron's - December 29, 2003 Interview A U.K. hedge-fund chief sees two possible investing scenarios, and one's downright scary By VITO J. RACANELLI An Interview With Hugh Hendry ... Q: How about some companies that you think will go down? A: The remarkable thing, in my hedge fund, there's not many people more bearish than I am, and I have no shorts. Which fills me with some discomfort. Q: How can a bear have no shorts? A: I've got put options predominantly on the S&P going out to June next year. As I said, it's a bear-market rally. My pan is the stock market. We've pretty much completed the process, the conversion process of bears into bulls. The greatest fear I have is that if I don't have shorts, you better bet no one else really has many shorts out there. Lowry Research calibrates turning points in the stock market by fleshing out the raw emotion of the marketplace. They express a panic date when 90% of the volume traded that day was associated with stocks that declined on the day. And typically, at turning points near the 1962, 1974 and 1982 bottoms, you had 16 to 17 of such panic days. The really odd thing was that, while we had the 50% drawdown in the equity market from March 2000 to earlier this year, we had one panic day. Why? We have a mature hedge fund community that is profit-incentivized to buy equities when the market is down 3%-4%, which you didn't have in previous times. Because of that, we still haven't seen the true bottom. This time around if markets slide, there's no constituency ready to buy stocks to cover shorts because hedge funds don't really have shorts now. That concerns me. That opens up the prospect of a more immediate decline in valuations. This market has not been subject to intense selling pressure. If it were to be, I fear you might get a crash-like consequence. That's why I have puts on the S&P 500. I'm long the U.S. Treasury market and long index-linked U.S. bonds. Given that everyone has been converted from bulls into bears in the bond market, you've taken a lot of risk out of it.
you are correct. it is my contention that a crash percentage wise equal to 1987 can not and will not occur again in the same time frame. none the less, we shorted dow and nas today. expecting drop soon. surfer
I think it is interesting that everyone seems to forget that the most recent market "crash" began during a presidential election year in 2000.
Whatever the reasons that built through that summer and fall (and many have been pointed out), I still blame James Baker for precipitating the Monday selloff with his comments on the dollar that weekend. I got pasted that day. Geo.
I was trading back in 87, and made my 1/2 my grad school tuition on that great day, i love puts no where near the same. . . especially now with the productivity gains, and the increase in profits after 3 years of cost cutting to get back to net income profitability. that is the reason that greenspan is avoiding raising interest rates right now to stem the slide of the dollar, the dollar will recover on its own, and that was the big mistake in the early 30s, raising interest rates too soon in response to currency issues. crashes like 87 only happen once every generation, or two. selloffs like 98, 2002, those are more frequent and what you should be alluding to . . . not the 87 type . . . my stock market forecasting model has us coming down to retrace about 1/2 of the move since the bottom in October 2002, due to the capacity excesses, and the lack of ability to grow profits due to lack of pricing power. . . and the dollar below 80 or oil above $40 would be my main guess as to a catalyst. . . making 600 % in Oct 87, making 100% total portfolio return in the summer of 98, and making another 100% total portfolio return in July 2002 biases me to the short side. . . they are quicker and more easily visible than longs. sportsguy
In 87 and in 2000 when the markets melted, we had an inverted yeild curve. Another major difference is that then the Fed wanted to devalue the dollar, not realising the effect it would have on the market, which I don't think is actually the case at present. Runningbear