When did you cover your short position? We actually covered our shorts and went somewhat long on the close of the day of the crash itself [October
19].
Were most of your profits in October due to your short stock index position? No, we also had an extremely profitable bond position. The day of the crash we put on the biggest bond
position we ever had. The bond market had been acting terrible all day long on October 19. During the day, I was
very concerned about the financial safety of our clients' and our own assets. We had our assets with various
commission houses on the street, and I thought those funds could be in jeopardy. It was an intolerable situation for
me.
I kept on thinking: What is the Fed reaction going to be? I thought that thev would have to add massive
amounts of liquidity to create a very rosy environment, instantaneously. However, since bonds had been acting poorly
all day, I couldn't bring myself to pull the trigger on a long bond position. During the last half hour of trading, bonds
suddenly started to turn up, and it clicked in my mind that the Fed was going to take actions that would create a
tremendous upsurge in bond prices. As soon as I saw the bond market act right for a moment, I went wild.
Do you believe that October 1987 was an early warning signal of more negative times ahead? I think the financial community, particularly Wall Street, was dealt a life-threatening blow on October 19, but
they are in shock and don't realize it. I remember the time I got run over by a boat, and my backside was chewed up
by the propeller. My first thought was, "Dammit, I just ruined my Sunday afternoon because I have to get stitched
up." Because I was in shock, I didn't even realize how badly cut up I was until I saw the faces of my friends.
Everything gets destroyed a hundred times faster than it is built up. It takes one day to tear down something
that might have taken ten years to build. If the economy starts to go with the kind of leverage that is in it, it will
deteriorate so fast that people's heads will spin. I hate to believe it, but in my gut that is what I think is going to
happen.
I know from studying history that credit eventually kills all great societies. We have essentially taken out our
American Express card and said we are going to have a great time. Reagan made sure that the economy would be
great during his term in office by borrowing our way into prosperity. We borrowed against the future, and soon we
will have to pay.
