A lot of very bright people don't conclude that it was the culprit in 1987
It wasn't the "culprit." (There's rarely a single culprit in those types of occurances, anyway.) Quite simply, lots of panicked sellers at all levels, and technological inadequacy, contributed to the precipitous declines on those days.
As early as 1988, the Brady Commission reported that portfolio insurance related stock- and futures contract sales each totaled no more than 20% of the respective total volumes traded on those two days.
Dustin is correct: the situation was aggravated by the sales, but not caused by it.
The fact that it deflated over a two day period is simply indicative of how the market was rigged at the time.
ROFL. What then does a rapidly expanding market indicate?
Or the doldrum years immediately preceding the Eighties bull market?
How about the grinding bear of the early Seventies?
No curbs, no halts, and everyone trying to get on one side of the trades.
That, you infer, is a sign of how "rigged" the market is? The lack of artificial price discovery barriers, regulatory micromanagement, and - on two or three noteworthy days - everyone trying to squeeze out a small door at once? LOL.
Along with a FRB chairman who was asleep at the switch.
What would you have had the new Chairman do? Hike varying rates 50, 100, 200 bp upon entering the office? Raise margin requirements after being on the job for a month or two?
Let alone the small fact that the Fed's job isn't to supervise the U.S. equity markets. Believe it or not, Ray.
They pay more attention now. And keep the Plunge Protection Team ready for catastrophe.
It's unfortunate, IMO, that you're correct.
"...[comparing] trailing stops to portfolio insurance..."; To my mind, they are both automatic response mechanisms that can be self-amplifying.
It's a far, far oversimplified analogy. Among other things, portfolio insurance wasn't automatic (nor is its' cousin, program trading).
But, even more importantly, you seem to extol the virtues of an equity-market focused, vigilant Fed over the former, "asleep and the wheel" approach...and praise the virtues of equity circuit breakers (calling the market sans those fixtures "rigged")...but at the same time, rail against the "self-amplifying" effect of (trailing) stop orders.
Do you see the inherent contradiction here?
LP. |
