October 19th, 1987… remember that day? Do you remember the the day after? Monday Oct. 19th was “Black Monday” when the market dropped 508 points or just over 22%, the next day was the day that the music “almost stopped.” The next day, Tues. the 20th we opened up 200 points to a big sigh of relief, only to watch it go negative 100 points or more if I recall correctly. I do remember the horrible feeling in my stomach and how deathly quiet my office had become.
Before I go any further I want to put this in context for you, I was a young lad of 27 years old, a little over 3 years in the brokerage business and working for Merrill Lynch (I can’t believe that was 25 years ago, “I got old fast!”) . At the time, I was building client positions in 30yr “zero coupon Treasury bonds.” I started buying a month or 2 earlier when rates went above 8%-8.5%. Interest rates on the 30yr touched 10% on the previous Friday and I actually bought some at 10.25% early on Monday but was definitely beginning to question my logic as the losses from the earliest purchases were pretty significant by noontime on Monday. Then, all of a sudden, interest rates started to tick downward a little bit in the afternoon. The crash was a Godsend for this position as interest rates were back to 8% lickity split within 2 or 3 weeks as I recall. I didn’t fully understand it at the time but my regional manager said on a conference call Wednesday morning that “interest rates were down as well as GOLD.” The fact that investors had flocked to Treasuries as opposed to Gold meant that the system would survive. (It took several years for me to finally understand this, which is why you should never have a stockbroker in their “early to mid 20′s”).
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