As the remains of hurricane Ophelia hit the British Isles this Monday, and the City was covered alternately by dense grey clouds and an eerie red sun, my mind went back to this day 30 years ago. I’d slept badly on Thursday 15 October 1987, the gate outside our flat banging away and me too lazy to go out and sort it. Waking up early as always, I noticed the kettle wasn’t working so coffee would have to wait until I got to my office in St Katharine’s Dock. I jumped in the car and drove past Battersea Dogs Home, through Nine Elms, Vauxhall and past Lambeth Palace, along Bankside and over Tower Bridge.
As I cranked up the computers and prepared for what was a slightly tetchy market, the most extraordinary sight came into the dealing room. Our cute, young, cheeky receptionist Maria was pushing a trolley loaded with cups and a huge pot of tea. I asked what this unusual gesture was in aid of. "It’s part of the war effort, innit? If you’ve all fought your way through a hurricane to get here this is the least I can do". That’s how I found out that the worst UK storm in 300 years had felled about 15m trees. Being an inner-city resident there were no trees growing along my route to work.
The clean-up started immediately and the weekend gave many a little more time to get their houses in order. Back at work on Monday the 19th, crack of dawn again, I saw the Hong Kong stock exchange had had a bad day so far. European bourses began to react and suddenly things started falling apart. By the time the New York stock exchange got going, it was full-blown meltdown.
Every team in our derivatives broking firm was working flat out. Every asset class was affected, even those totally uncorrelated such as copper and sugar, as investors were forced to sell anything to cover losses in stocks, bonds, money markets and foreign exchange. The back office was on the phones all day long making margin calls to clients we cleared for. Circuit breakers on some stock exchanges made things worse, meaning there was no price discovery and no way to exit positions; some markets closed entirely for several days. This forced even more business our way as imperfect futures hedges were placed and options on futures bought as half-baked insurance.
In many markets, it was impossible to deal in the size one wanted or at a price that was sensible. All too many of our institutional clients had no game plan and no idea what anything was worth. Implied volatility on some options was over 75 per cent, making them too expensive to be used at all. A banker screamed at me when he found out that the bid-offer spread on the most active Eurodollar futures contract was 100 basis points – as opposed to the more usual one. Treasury bills couldn’t be had for love nor money and top-quality bonds saw some of their biggest, quickest, price gains ever.
When you pick up this week's magazine, let's see what the new moon at 20:12 GMT Thursday 19 October has in store. The charts show what you might win or lose.
