The Market Crash and the Snow Blizzard 20 Yeas Ago

Picking stock is a black art, Wall Street is a mysterious place. If you are a Chinese, you better check the different Moon phases for clues and buy stocks with many numerical number "8" in stock prices for your good luck. If you are a Japanese rice trader, you better watch your dinner table candles to see if the flame pointing to the morning star or a hanging man. Oh, if you are Christian, you just sit tight, don't buy any stocks on Friday the 13th, otherwise your life saving will go up in flame in a minute or two!

So what happened last Friday, I checked my calendar for something, suddenly October 19th, 1987 jumped out right in front of my face.

That was a Monday, Black Monday as many remembered.

(Movie goers, this is a dramatization based on real figures and real historical events, I can not remember all the names, but you can make comments and I will correct them along the way)

In the morning, Wall Street got a shot on the arm, Yale University Professor Irving Fisher published a new article on the Wall Street Journal, introducing his famous economical equation of "MV=PT" and claiming "Stock prices have reached what looks like a permanently high plateau" (ye, ye, I knew it was in 1929, just for fun). All the sudden, Jim Cramer got on CNBC, saying "Credit Crunching" is getting worse. The stock market took a wrong turn, plunging down like no tomorrow. At the end of day the Dow plunged 22.6%, dropped by 508 points to 1739. Over night, Hong Kong had fallen 45.8%, Australia 41.8%, Spain 31%, the United Kingdom 26.4%, however, the Chinese market went up 700 points reached 7,000 (a joke, there was not SSE).

Greenspan, picked up his phone, asked all his buddies, "what happen?", no body dared to say anything. Only treasury secretary Snow asked back "are we going to open tomorrow?"

Greenspan paused for a moment, "This is a typical conundrum!", "Gold and Oil are quite less accommodating to our treasury note policy of raising 5x3 15 times and a deep dropping of 150 basis points. But the public is shaking and hedge funds are running their programs too quickly, we need to fix that!!! Yes, stock market will be open tomorrow!!!"

Secretary Snow, however, got a hot potato on his hands and a sleepless night as far as he could see, all the margin calls and where can I find all the green bucks. He quickly got onto the internet and ordered a bunch of coin minting equipment and color copiers from eBay, worked the whole night and got 20 billion liquidity and drove the big truck to Wall Street by himself just beating the opening bell.

To cheer his hard work, the market reacted to the big truck load of "liquidity" ($20 B, the real case was probably $2 Billion or something, can't remember) possitively. In the morning, the Dow went up 200 points, however, it stopped at noon time, it slipped back to yesterday's intraday low and the whole NYSE is stopped, as quite as you can hear a needle dropped on the floor. All the specialists glued their eyes on the monitor, nobody is buying, or selling for that matter. Greenspan was in a furious rage, he pulled "Jack" Welch, Jr (the CEO of GE) from his wife divorcing court battle, and yelled: "Can you buy a little bit of your company's stock?" Jack handed him his check book, "do whatever you wish, pal! I am busy". Greenspan smiled, after 2:30 PM, the Dow raged through 2,200, broke the multi-years high.

On the highway of I-93, the rocket scientist Mark Goodluckysberg was on his way from Chicago to Michigan City, Indiana for a plant trial of his newest patent pending invention - "A Rocket without Fuel". It's a bad time for driving because it was in the middle of worst ever snow blizzard. It's only 1:00 PM, but the sky was so dark that every body had to turn on their head lights, and drove slowly and kept a big distance from the car in front. Following him was his boss, the president of "Rocket Research Institute", keeping his big eye wide open on the road. All the sudden he noticed a violent jerk of Mark's car, then Mark's car seemed drifting aimlessly to the left and right for a while, then went across the middle of road to the opposite traffic direction, finally a big truck passed by, Mark's car did not got hit, but itself hitting a utility pole on the road side. The airbag deployed a big plume of smoke billowed from the hood. His boss quickly stopped the car and ran over and questioned "What happen?"? Mark had two big steams of tears running out of his eyes, saying with a very low shaky voice: "My broker called me, said I had a margine call, and I lost all my life saving!"

Greenspan demended, someone, somebody please give me an answer, why market was down and up again? Could it happen again?

All the Nobel Prize laureates argued: too many people exit the door too quickly at the same time; maybe the program trading is the blame; oh yes, the MERC didn't tell NYSE how bad the future was...

John Forbes Nash, the beautiful mind who just received Nobel prize for his Black Scholes equation and money making option play (worked in O'Connor Associates at the time), texted messaging to Al with his newly purchased Apple iPhone saying:

According to Normal distribution curve and the standard dev, the chance for this to happen is 1 out of 1,000,000,000 -- 14 "zeros" - years (I made it up, it's much less than this number, but much larger than anybody's imagination)!!

Al responded, "you childish, unfortunately the human behavior can not be predicted by normal distribution. Good try, John!"

According to ABC News on Oct. 19th, 2007, up to this date, nobody, I mean nobody could figure out what happened that day. Somebody saw, but many others disputed this account, a big herd of sheep running down the Wall street the prior night, a floor trader from GS had a bad nightmare and fell off his bed, he dropped face-down and yelled "Sell!". Everybody sticked their head out of the luxury apartment windows and pulled the trigger. Swimmer does have a different explaination for this event, which has a lot to do with the naked shorting, but choose not to disclose anything for now. Check with me later.

A side note, 506 points drop of Dow at 2200 level would translate to 3,200 point drop on last Friday (please check my math, this article was written between the late Sunday lunch and Mrs. Swimmer's swimming session, in a hurry, I could not find the calculator). Listen, we are not even close, okay?

Have fun, Guru Review will follow.

Swimmer

Original creation on Sunday, October 21, 2007, Copy Right Reserved.
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