Deja Vu?

Posted by on October 18, 2014 - 1:24 pm



On October 19, 1987, the U.S. stock market crashed. While many remember that day, it was October 20th when it all came close to crashing down. Most so-called financial advisors today were either just wet behind the ears, or just a gleam in their father’s eyes back then.

Yours truly had just a few months earlier been promoted to Head of Investment Strategy for a NYSE Member Firm. While being among a handful of people who actually forecasted that crash, I don’t recall anyone other than me who said the next day that within two years the stock market would be back at new, all-time highs. That statement would have turned out incorrect if not for what took place on the Kansas Board of Trade early afternoon on the 20th.

After crashing on the 19th, the U.S. market continued lower the morning of the 20th. In fact, by early afternoon, several of the DJIA stocks had still not opened. The powers-at-be decided to halt trading in the S & P 500 pits in Chicago. There, institutions were continuously selling futures through a newly created computer program trading system that was preventing any rebound in stock prices. All sorts of rumors that many Specialists were broke or close to it, didn’t help either.

Then in just a span of minutes, several of the biggest financial institutions “coincidentally” decided to go long S & P 500 futures on the much more thinly traded contract that traded on the Kansas Board of Trade. The futures were driven up an equivalent of about 1300 DJIA points (if memory serves me correctly) and suddenly all 30 DOW stocks opened and the market managed to close up 170 points.

While yours truly profile was greatly enhanced from these events, I knew then that it was no coincidence and how close we had come to a true meltdown. Can it happen again?

I know despite all the improvements in technology, the vast majority who call themselves advisors today are still weaned on the market being a one-way street-up. The belief that the FED will always be the traffic cop and clear up any accidents, is the very fact I say never say never. 30+ years of first-hand experience tells me so.

Posted in: Matters of Finance
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