Make predictions and stock up on popcorn!
In 1987, Oliver Stone filmed Wall Street movie starring Michael Douglas and Charlie Shinn. The film is compelling because the director's father, Louis Stone, was a successful stockbroker. It is no coincidence that the main characters are in the business of pure fraud (insider information). This is exactly how things were in the 80's on Wall Street. Just look at the famous "garbage" scam by Michael Milken! The whole decade was a period of horrific stock market fraud.
Stone's "Wall Street" came out two months after Black MondayThe film is about the director, although it was conceived much earlier, in 1985, when the director's father died. The film is dedicated to him. It is interesting that the Dow Jones fever began in 1986, when filming was underway. "Black Monday" was called October 19, 1987, when there was a catastrophic fall of the industrial Dow Jones index by 508 points (22.61%).
This crisis is still of interest. First, its causes are largely unknown. No researcher has ever been able to get to the bottom of the X-factor that caused the vast majority of investors to sell their securities on this particular day. No major news or events, significant statements or actions preceded the fall. Black Monday was so unexpected that it called into question the prevailing tenets of economic theory at the time, particularly the theory of rational human behavior. Belief in market equilibrium and the efficiency of the free market was undermined.
Secondly, for the first time in history, the stage was set program trading. A number of analysts directly blamed the software for what happened. It is no secret that many large investors had (just as today) put into computers the condition of automatic purchase or sale of large blocks of shares in accordance with expected trends.
A well-known economist defended the trade programs Richard Roll. Studies have shown that other stock markets that did not use trading programs fell in 1987. And with even greater losses than the U.S. stock market.
In Roll's view, the international scale of the crisis cannot be explained by program trading alone. Trading programs were prevalent mainly in the U.S., and the crisis began in Hong Kong, spread to Europe, and only then came to America.
Officially, the origins of the crisis recognized the lack of consistency in monetary policy of the G7 countries: The U.S. to support the dollar and fight inflation, conducted too rapid changes in monetary policy, without coordinating them with partner countries.
Nevertheless, after this collapse, certain changes were made to the exchange computer systems. The New York Stock Exchange made an agreement with the Chicago Mercantile Exchange to stop trading if the Dow Jones index fell more than 250 points in an hour on both sites, and more than 400 points in two hours.
The current financial crisis (which is not over at all) has also been caused by too much sophistication of trading instruments and programs. But of course, no financier or economist will ever admit that he has long ceased to understand what is going on in the market.
What does this have to do with the movie I mentioned at the beginning? Of course it does! In April of this year. "Wall Street 2.". The con man Geko returns. And I make a prediction for spring-summer 2010: a sharp collapse NASDAQ Index.
Why not the Dow Jones? In the 1980s we were still living in an industrial economy, but now we have a post-industrial society, and the music is being set by high-tech companies like Intel, Microsoft, or Apple. I'll be sure to share my thoughts on why their stocks will fall in my next articles.