NEW YORK — Late in the afternoon of Oct. 19, with the stock market cataclysm raging about him, Stanley Druckenmiller began to have trouble remembering telephone numbers.
It was a fitting end to the long day. For more than six hours the portfolio manager for Dreyfus Corp. had watched the torrential selling throughout the financial markets stretch out of recognizable shape the numerals and mathematics he had spent his professional life comprehending.
Things moved faster and farther than anyone on Wall Street had ever seen. Just as you absorbed the shock of seeing the Dow Jones industrial average down 300 points, it was already down 400, then 508.
"I must be more shook than I thought," he said to himself, struggling to recall the numbers of brokers and stock analysts he customarily called three or four times a day.
Even today, two months after the greatest crash in Wall Street history, the financial markets are still shaking. The stock market has yet to regain composure after the one-day loss of 508 points, or 22.6%, in the Dow Jones average.
Market shifts are sometimes subtle, but to traders, investors and executives, Oct. 19 marked a transition to a bear market as dramatic as anyone could imagine. Stocks have continued to slump and Wall Street has embarked on a round of painful layoffs, thousands of workers at a time.
It is tempting to regard the debacle of Oct. 19 as a one-day event. That would be misleading. For the crash, which struck not only the stock market but related futures and options markets, could not have happened without the wave of euphoric speculative buying preceding it all year, capping a historic bull market that began in August, 1982.
Many Tiny Panics
What appeared to be a solitary headlong panic Oct. 19 was a composite of millions of tiny panics--split-second decisions made by millions of traders and investors provoked to dump their shares at any price by the sight of something fearsome building in the markets or unfolding that day.
For some it was the realization early on the morning of Black Monday that a great speculative bubble had been punctured. Some feared the spread of panic would destroy their own wealth unless they reached the exits first. Still others, horrified by mechanical breakdowns appearing in exchanges flooded by orders, feared the very system would not survive the day.
On normal days even heavy selling eventually attracts buyers who believe prices have fallen to bargain levels. That is an equilibrium-producing condition so reliable it is the closest thing to a rule of the market.
But as one prominent trader put it some weeks later: "There were no rules that day."
In the crash's aftermath, presidential commissions, congressional committees and industry groups have begun to examine the market's mechanisms in a search for villains. Some blame futures markets, where stock traders spent billions trying to lay off the risk of making investments, only to discover that in a crash there is no safe harbor.
Others blame the "specialists" on the New York Stock Exchange, a group of brokers who supervise the trading in each of the 1,500 NYSE stocks. Burdened with the duty of acting as the buyers of last resort, the specialists, the accusers say, failed to buy aggressively enough shares to keep prices from plunging.
But as interviews with dozens of traders, investors and financial managers show, the root of the crash is not the market's machinery. On the Big Board, 604.3 million shares traded, nearly twice the previous one-day record and three times the average of even a heavy day. And when investors dump more than 600 million shares in a day, nothing known to man can prop prices up.
The root of the crash is in the explosive speculation of the previous year.
Twice over the weekend of Oct. 17 Bill King heard his boss's voice over the telephone in his Morristown, N.J., home. Jack Conlon, the head of equity sales at the New York office of Nikko Securities, was concerned at the nervousness gnawing away at his head stock trader after the frightfully unsettled market of Oct. 16, when the Dow dropped 108 points and a record 338.5 million shares traded.
Enjoy the weekend, Conlon counseled, make sure you take it easy. We'll attack the market on Monday morning.
In truth, on his way home to New Jersey Friday night King had already begun to lose conviction that Friday had ended the market's giddy slide. Friday had the hallmark of a historic breakpoint: The Dow industrials had dropped as much as 138 points before a weak 30-point rally in the closing minutes. King was preoccupied with the chance he was facing "the once-in-a-lifetime occurence that every trader fears . . . that something's going on that could bury you."