Tuesday, October 02, 2007

No Black Swans for these guys

In the previous post I argue that the 87 crash did not sneak up on the top Wall Street traders. On the contrary, they expected it and made a killing on it. Here are some quotes from Market Wizards.

Paul Tudor Jones interview with Jack D. Schwager

The week of the crash was one of the most exciting periods of my life. We had been expecting a major stock market collapse since mid-1986 and had contingency plans drawn up because of the possibility we foresaw for a financial meldown. When we cam in on Monday, October 19 (1987), we know that the market was going to crash that day.

Ed Seykota interview with Jack D. Schwager

I made money on the day of the October 1987 crash. I also made money for the month as a whole, and for the year, as well. I lost on the day after the crash, however, since I was short the interest rate markets. Most trend traders were likely either out or short stocks and stock indexes during the crash.

James B. Rogers, Jr. interview with Jack D. Schwager

I remember why I became even more bearish on the weekend before October 19. The week before, Alan Greenspan announced that the balance of trade was getting much better and things were under control. Two days later, the balance of trade figures came out, and they were the worst in history of the world. Right away I said, "This guy is either a fool or a liar. He doesn't have any idea what is going on." Then on the weekend before October 19, you Treasury Sectretary Baker telling the world we were going to stick it to the Germans by letting the dollar go, because the Germans weren't loosening monetary and fiscal policy as Baker had demanded. It looked like the trade wars of the 1930s all over again.
I was in a panic-and I was alrady short! I called Singapore that Sunday night to add to my shorts. So all those guys who came in on Monday to sell had very, very good reasons to sell, andthere were no buyers araound.


AlfaMike said...

Good points. Jim Cramer also talks about making a lot of money in the 87 crash, in his book Confessions of a Street Addict. It's a good read, you might want to check it out if you haven't yet. He's not as bombastic in his writing there as he is on his TV show.

Paul Stiles said...

I haven't read Street Addict. While I have a very different style than Jim Cramer, I have read some of his other stuff. He is a very entertaining and talented writer.