
The Crash of ’87, from the Wall Street Players Who Lived It - thisisit
https://www.bloomberg.com/news/features/2017-10-16/black-monday-at-30-wall-street-remembers-the-1987-stock-market-crash
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nateguchi
This happened just after the Great Storm of 1987 which hit the UK on the
15th-16th October. Wikipedia has the following slightly unbelievable snippet:

"Following the storm few dealers made it to their desks and stock market
trading was suspended twice and the market closed early at 12.30pm. The
disruption meant the City was unable to respond to the late dealings at the
beginning of the Wall Street fall-out on Friday 16 October, when the Dow Jones
Industrial Average recorded its biggest-ever one-day slide at the time, a fall
of 108.36. City traders and investors spent the weekend, 17–18 October,
repairing damaged gardens in between trying to guess market reaction and
assessing the damage. 19 October, Black Monday, was memorable as being the
first business day of the London markets after the Great Storm.

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justherefortart
My fake portfolio as a kid was heavily IBM weighted. I think it was 120 or
126/share before the crash.

This is one of the reasons I got a degree in finance (and economics). I wanted
to know what to do with my money if I ever had any.

~~~
mitsubishi77
Sounds like a strange logic to me... Is that not like wanting to become a MD
just so you can "know what to do" if you ever get sick?

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mikeash
I bet a lot of doctors became doctors for exactly that reason.

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RobertoG
I bet it's even more common with psychologists.

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mikeash
I have definitely heard mental health professionals say they got into it to
better understand and deal with their own issues.

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DINKDINK
"The nascent equity options market saw assumptions based on the Black-Scholes
model overturned and replaced by a more complex world of volatility skews"

Black-Scholes is based on an assumption that stock moves are normal/Gaussian
distributed. If have a background in statistics, that should make you revolt.

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vm
Black-Scholes was prescient went it first hit the scene in the late 60s/early
70s. Ed Thorp (who independently derived the formula before B-S published it)
made tens of millions of dollars applying it through his statistical arbitrage
hedge fund. It was the most accurate predictor at the time.

It's also remarkable that four people independently derived the formula: "In
coming up with a trading strategy for warrants, Ed discovered a handy formula.
A few years later, three finance professors independently came up with their
own slight mathematical variant of the same formula. Ed Thorp, Myron Scholes,
Robert Merton, and Fischer Black all had almost the same formula, but each had
a different reason for believing it was true. Ed showed that it was a way to
make money..." Source: The Poker Face of Wall Street (Wiley 2006)

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sjg007
That and cointegration.

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danvoell
Let's say there is a big crash coming, where would you put your money for a
safe bet and for a speculative bet (and please don't say bitcoin) ? During the
crash of 87, it seems like you could still get a good fixed income yield.
Parking it today for 1.5% just doesn't seem that valuable.

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lmm
There are more people looking to invest more money today, so supply/demand
means you won't get as good a return. In '87 access to capital was more
valuable, so you could get paid more for it.

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aswanson
Thats one thing that hasnt been studied enough, I suspect. Huge amounts of
capital from 401ks alone may have more effect on the market valuations than
actual value creation. There is just so much money chasing a return,
increasing constantly.

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pm90
This might be an unpopular opinion on this forum, but one of the best ways to
reduce the money supply seems to be more taxation right? This is why I don't
get why Republicans seem so hell bent on tax cuts... we already have so much
money going around. Better take it out, fund healthcare and education and
reasonable welfare systems.

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RobertoG
If you fund healthcare and education you are putting the money out again.

-When you tax and spend, you are redistributing, but the final quantity is the same.

-When you tax but don't spend, you are reducing demand in the economy by making worse the people with money.

-When you don't tax and don't spend in public services (austerity), you are reducing demand in the economy by making worse the people without money.

That should explain the Republican position.

Anyway, there are different "kinds" of money, and only one "kind" is reduced
or created that way.

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pm90
Great comment. I guess I should have clarified my statement since I meant
redistribution, when talking about taxing and spending on
healthcare/education.

I guess the argument on the merits of redistribution is the fundamental
difference b/w democrats and republicans.

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eru
I don't think that's the fundamental difference. It's more down to different
tribal identities, and any correlation with differences in policies is
contingent.

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PatientTrader
Crashes are actually great for the middle class. The value of the dollar
increases as prices come down. Homes, land, property, etc all become cheaper
during crashes. This "bull market" is the actual "crash." All its doing is
depleting the value of your money

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Meegul
This is only partially true. It ignores the job losses that result from the
fall in capital available to firms. Additionally, anyone owning equities,
which should be most of the middle class although I'm aware this isn't the
case, will see their wealth decrease. I'd argue that the only people who
benefit from crashes are those with large amounts of cash assets, which is
generally not how you should be holding your wealth. Holding cash, after all,
is just withholding wealth from being productive.

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rwmj
> Holding cash, after all, is just withholding wealth from being productive.

Unless you're literally storing notes under your bed, your bank is lending out
your money to someone.

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RobertoG
"Unless you're literally storing notes under your bed, your bank is lending
out your money to someone."

Banks don't lend deposits. It seems that it's one of those fallacies that
never die. Maybe, because it's in the textbooks.

"[..]reserve requirement does not act as a binding constraint on banks’
ability to lend and consequently their ability to create money. The reality is
that banks first extend loans and then look for the required reserves later."

From: [http://www.investopedia.com/articles/investing/022416/why-
ba...](http://www.investopedia.com/articles/investing/022416/why-banks-dont-
need-your-money-make-loans.asp)

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misja111
From your quote: "..and then look for the required reserves later."

Banks are required to have certain reserves. It's true that they can already
lend money while they are still looking for the required money to refill their
reserve. But they will have to fill up their reserve at some point, and for
that they need money, otherwise they will have to stop lending.

So it is not a fallacy that banks are lending deposits and it's not so strange
that this is in the textbooks.

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RobertoG
Banks can get reserves three ways:

-From deposits. -In the interbank market, where banks with excess reserves lean to bank that need reserves. -From the Central Bank.

The Central Bank always lend the necessary reserves. A different issue is if
that would be a good business for the bank.

The point is that the quantity a bank can lend it's not limited by deposits as
the normal narrative imply.

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ukulele
The stories are interesting to get a sense of what things were like, but they
fall short as evidence of who knew what was going on in the moment. Holding up
a stock analyst who "saw it coming" is survivorship bias in the extreme.

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csours
The article itself calls this out:

> Most of the people willing to share their memories count themselves as
> winners who seized the moment as an opportunity not only to make money, but
> also to insert themselves in the new financial order—Paul Tudor Jones,
> Stanley Druckenmiller, Nassim Nicholas Taleb.

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technofire
Does anyone else find it surprising and remarkable that Paul Tudor Jones'
monospaced letter is perfectly flush on the left and right margins with
apparently no hyphenation nor additional inserted spaces within the lines?
Surely this did not happen by coincidence (?).

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pm215
Looking closely, it doesn't actually seem to be monospaced. For instance in
the last-but-two line the "t" in "we project" is pretty much midway between
the two letters of "it" in the line below it. The text has been justified I
think both by increases in inter-word spacing and by putting slightly more
space between letters as necessary.

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35bge57dtjku
Does that mean there's a 1/4 space button on his typewriter that he started
using towards the end of the line?

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excalibur
Very ominous Breaking News headline at the top of this article right now: "Dow
Passes 23,000 for the First Time"

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excalibur
Annnnd it's gone, but not forgotten.

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marak830
A side note, and I'm really hoping someone can explain this. What benefit does
the stock market provide to us?

I understand investing in companies, but for me, and I'll admit a completely
naive person to this whole system, it seems to have taken an 'inbest in
company with money to help them succeed', to a 'who cares let's just cut and
run to make the best profit'.

I'm perfectly willing to take a link to a great explanation at this point btw.

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liotier
> What benefit does the stock market provide to us ?

Direct benefit: liquidity - whether you need to buy or to sell, you have a
place where you'll find a counterpart quickly.

Indirect benefit: information - just watching the bets lets you have an idea
about how much people with skin in the game value things, letting you take
better decisions about resources allocation.

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marak830
Direct: I can understand.

Indirect: that seems like a losing game. Why would gambling on a companies
future ever help anyone(except the lucky?).

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technofire
> Why would gambling on a companies future ever help anyone

Most transactions in the market are not gambling. Trades happen, yes, but that
is because the prospects of companies are continually changing. When it became
apparent pretty much everyone would move to Netflix and streaming video, would
you want to continue holding Blockbuster stock? No; you would want to sell it.

People who simply "gamble" in the market lose money about as often as they
gain it, and soon stop. Hedge funds and mutual funds generally try to invest
in shares on a longer-term basis rather than continually trading them; trading
incurs transaction costs, and if an investment was correct and is generating
better-than-benchmark returns there is no reason to sell it.

The "day trading" books you might see at your local Barnes and Noble are get-
rich-quick books and are not representative of the actual professional
investment industry.

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eru
> [...] would you want to continue holding Blockbuster stock? No; you would
> want to sell it.

For every seller, there's a buyer. The market will settle on a price at which
those are evenly matched---even if that's close to zero.

You have to offer a good enough price on your Blockbuster stock to find a
buyer who thinks it's a good idea. (Unless it's someone who has to cover a
short position, those guys are basically forced to buy. But they'll still buy
from the seller with the best price.)

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duncan_bayne
I'm old. I remember one of my friends and classmates - aged 8 - losing some
money his parents had given him to learn how to buy stocks.

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aswanson
_Eurodollars are U.S. dollars deposited in commercial banks outside the United
States and futures tied to the interest rates paid on them are among the most-
traded contracts in the world._

Even back then, they had crazy derivatives.

~~~
jnordwick
Its not crazy at all. A eurodollar contract gives a purer valuation of the
dollar since it doesn't need to consider the added cost depository
requirements.

Then like now, they are only crazy if you don't understand them.

~~~
aswanson
So it's like a more speculative bet on the overseas bank being able to make
riskier loans with a higher return profile?

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cheez
Wave principle represent

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pseingatl
Paywalled. So I can't determine whether the author reports the effect of an
FBI undercover operation running out of the Chicago Board of Trade's commodity
pits. An untrained (not with respect to guns, of course) undercover agent was
trading with the FBI's practically unlimited money. His wild card futures
trading negatively affected those commodity prices, which in turn affected
stock prices, which in turn...you get the picture.

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hkmurakami
Bloomberg paywalls? (I was able to click through the headline and see the
article)

Out of curiosity what's Bloomberg's paywall trigger?

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adventured
Sometime in the last few months they've begun paywalling more and more content
on Bloomberg.com. They had been doing that with their Businessweek division
for a long time.

They have a note at the paywall cut-off that says (summarizing): sign-up for a
free Bloomberg account to get unlimited access to articles (portfolio tracker,
video content, etc).

Opening a new incognito browser seems to bypass the paywall, so I guess
they're using a basic cookie check for now (5-6 articles in N time). They're
nudging people to free accounts, so I guess they're not looking to be overly
aggressive just yet.

