Monday, May 13, 2013

It May Have Been October 2008 When I Lost My Mind

September '08 wasn't that bad.

Sure Lehman filed for bankruptcy. And Fannie and Freddie went into receivership. Merrill came within a whisker of a net-cap violation and was forced into Bank of America's loving embrace. AIG was taken over by the U.S. Treasury, well, 79.9% of AIG was, and the country's largest S&L, Washington Mutual, went bust but it wasn't that bad.

It was October that was tough. On September 29 the DJIA set its record point loss, 777.
But then five of the biggest-ever DJIA point losses came in October:

7th  −508
9th  −678
15th -733
22nd -514
27th -554

Of course to keep the index from going to zero we had to have some up days, +936 on the 13th and +889 on the 28th are #1 and #2 for the uptick point records. But by then the damage was done. Too many nights sleeping in the office, just me and the janitors playing VaR simulations, while trying to keep an eye on Hong Kong and London  and writing stuff on the blog:

Thursday October 9, 2008, 7:14 p.m.
Scenarios: Black Friday or Black Bottom?
Earlier today I asked one of the ladies in the office if she had received her 401K statement (I don't get one) she said no, that she was dreading it. Being a kindly old gent, I pointed out that it would not include the carnage of October (20.79% in the first seven trading days, i.e. a bear market in a week-and-a-half!). When she left in tears, I reflected and thought "Hey! at least you're young!".

We've got a myriad of possibilities on where we go in the immediate term. My best guess (informed as it may be, it is a guess) is: We open down another 3% (250 DJIA points), stabilize and slowly move back from the abyss.

The abyss scenario is: we open down another 4% and lose the battle coming into the close down 6%, giving Ma and Pa investor all weekend to spin out depression nightmares in black-and-white. The Joads stop by on Saturday night and WPA photographers gather for a vigil at the NYSE Sunday evening. Monday we crash the full 1100 to trigger the exchanges circuit breaker and I start playing mournful banjo tunes.

I'm leaning toward the first script but it could be anything between the two, or something else entirely. For the record, I didn't break the young lady's heart, rather I told her in my mellifluous and naturally reassuring tones that we had a plan. She walked away and I thought "At least you're young!"

Here's a stock market oriented version of Steely Dan's "Black Friday"*, worth the watch:

Yeah, mournful tunes on the banjo is pretty much around the bend.
Some of our other posts that month:

Is The Financial Crisis Making You Psychic?
Dow, S&P 500 Futures: Lock Limit Down
How to Recognize the Symptoms of a Stroke (and what to do)
Gold Heads for Biggest Weekly Drop in Over 25 Years. And: Hitler Gets a Margin Call
Swap spreads turn negative
Doonesbury declares blogging over
Commodity traders superior to chimpanzees, research shows
I made a serious career track mistake.
Years ago a counselor pointed out that I seemed to have an affinity for animals (It's true. Kids and dogs like me. So do drunks and and folks suffering from various psychopathologies).
Had I followed up on her thinking I would now be tenured, trading outside my species and living the grant-proposal dream....
And many, many more.

On that Oct. 9 the DJIA had traded down 678 but stabilized and on Friday, although we were down 697 points at one time (8.1%) we closed down only 128, the Grapes of Wrath scenario didn't gain a foothold and on Monday we set that 936 point record for an up-move.
Good times, if you're deranged.

*The song refers to Black Friday, September 24, 1869 when an attempted corner of the gold market by James Fisk and Jay Gould was broken by the Federales.
When Black Friday comes
I'll stand down by the door
And catch the gray men
When they dive from the fourteenth floor
When Black Friday comes
I'll collect everything I'm owed
And before my friends find out
I'll be on the road
When Black Friday falls you know it's got to be
Don't let it fall on me...