Art Cashin On Black Monday, 'The Raven' Remixes And The Tepper Corollary

via zero hedge – on a long enough timeline, the survival rate for everyone drops to zero by Tyler Durden on 10/19/10

As always, some very entertaining and enlightening musings from Art Cashin, with an emphasis on Black Monday, modern-day Edgar Allan Poe remixes, and, last and certainly least, the Tepper Corollary.

“THE INSURER”

A NOW TRADITIONAL ENCORE PRESENTATION

On this day in 1987, the stock market suffered its worst crash of the 20th Century, worse even than 1929. The Dow lost 22% in a single day. Each year as the anniversary of the great ’87 crash approaches, I get requests from the steadily dwindling number of ’87 veterans to repeat my follow-up poem, “The Insurer”. For survivors of October ’87, the memories are seared into our psyches not unlike veterans of some great battle. For, as in a battle, not all who participated survived (financially). It was an amazing couple of weeks in which the wheels almost did come off the locomotive. Someday, maybe I’ll write a book about it.

Anyway, below we repeat the poem. It was written in the manner of Edgar Allen Poe’s, “The Raven”, though it lacks even a scintilla of his talent and clarity…..somewhat like a stick figure rendering of the Mona Lisa. But…..you do the best you can.

While all of the references will be familiar to veterans of ’87, I have learned some folks who read these “Comments” were in Pampers at that time. So we’ll give a quick one paragraph synopsis of the background to the ’87 crash.

A Brief 1987 Recap – Even if there had been no “October Surprise”, the year 1987 would have been a remarkable one for Wall Street. The Dow started the year below 2000 and ran to 2722 by early Fall. (A gain of nearly 38%.) The rally was breaking all the old rules. A group of guys in Chicago came up with a new rule called Portfolio Insurance ( or Dynamic Hedging) which might be synopsized as buy strength/sell weakness (we’ll explain another day). The U.S. dollar was weak and the subject of controversy. There was some conflict and confrontation in Iran (U.S. bombing Iranian oil platforms). The President’s wife and right hand had gone into the hospital for a rumored cancer operation. And there was a new SEC chairman who was misquoted in the midst of the free-fall suggesting that maybe markets should close. The misquote greased the skids.

Okay, that’s enough background. Now –

The Insurer

Once upon a Monday dreary Traders waited worn and weary As they gazed upon newstickers warning of the day in store

Foreign markets were imploding sending senses of foreboding With positions overloading sellers would be bringing more To dump upon a bloody floor

October now had past its middle as investors faced this riddle With their Quotrons they would fiddle looking for The Bull of yore

Greenback’s value falling quickly trade deficit behaving sickly And with Iran, relations prickly raised the specter of a war Ahead a day that promised gore

So on the open there came selling much faster than the tape was telling While in Chicago they were yelling “Dynamic hedging” is no more!

Specialists were inundated as futures prices unrelated Kept the selling unabated stocks once eight now sell at four

Futures dipped below the cash now and insurers made a dash now Trying not to be the last now rushing for the exit door

Then news reporters often shrewder began misquoting Chairman Ruder A trading halt?…a new intruder caused yet more panic on the floor

Bethesda had a guest named Nancy an operation somewhat chancy Helped to make the markets antsy adding to our selling lore

Throughout the day as prices melted brokers, dealers all got pelted And bank accounts not safety-belted were blown away forever more

The bell, it rang to end the sorrow while traders ran to banks to borrow To have an ante for tomorrow not knowing what it held in store

Twenty three years…now since that day yet there was a scare last May Reminding in a flashy way of when fear and panic swept the floor

The Dow stands full six times higher than when it closed that day so dire Despite two wars and terror fire the Bull arose to run some more

This anniversary, headlines all dwell upon that fateful fall And ask us veterans to recall a time that left us scared & sore

New chills we get from déjà vu as currencies now run askew And trading partners threaten too as in that sad October yore.

But keep your faith that it’s a new day though there are hints that skies may turn gray We’ll hope such clouds won’t bring a blue day let’s hope the Bull returns once more!!

And, yes, there is now a Tepper corrolary. Soon there will be a Tepper lemma: in a nutshell, it will occur when it is discovered that one is preaching on TV nothing more than a better exit point for one’s positions.

Just Bad Enough To Be Good – Stocks moved smartly higher in moderate volume riding the rally in the financials and oil stocks. The financials benefitted on two fronts. First, the Citigroup report was better than many had expected. A key feature was a large surge in deposits to a new record high. Another boost for the financials came from the announcement that several banks would resume the foreclosure process. That suggested that securitized mortgages might not be the un-certifiable toxic waste dump many had feared. Also helping stocks was some bad economic data. Industrial Production fell for the first time since 2009. Using the Tepper corollary, stocks rose under the assumption that the weak economic data would force the Fed to move closer to QE2. The rally appeared to stall during the middle of the day and into late afternoon. Then, shortly after 2:00, the bulls attacked again. Once they moved higher than the post-opening highs, the rally kicked into overdrive. That spike took the S&P right into the resistance band at 1183/1187. They stopped twice in the final hour at 1185.50. The stall produced no significant pullback sealing the bulls’ victory.

h/t London Dude Trader