After the Shock, He's Taking Stock

By Rick Horowitz

Just call me Mr. Markets.

Since there's absolutely nothing to worry about, since we shouldn't be even the teensy-weensyest bit nervous about a trillion dollars of wealth, give or take a few billion, disappearing from the face of the earth like dirt down a storm drain, since it's all going to be just fine, I figure we might as well celebrate our great (if slightly shrunken) good fortune by trying to understand exactly what in God's name is going on around here!

Calm. Stay calm.

That's better.

I'm talking about Wall Street, naturally. Isn't it comforting to know that Monday's little picnic wasn't up there with the leading bloodbaths of the past -- the Great Crash of October, 1929, for instance, or even Black Monday of October, 1987? Of course it's comforting. The experts all say it's comforting. And they're experts, aren't they?

Me? I'm no expert. I'm what the experts call "the small investor." (Two shares. Used to be one share. Split.) Nobody sends me Mutual Fund newsletters. Nobody's got me on their Hot Tips Speed Dial. So I have to figure all this stuff out for myself. I've been watching the news shows and reading the newspapers. I may be off on a couple of the details, but I think I've got the basics. Here goes:

If I understand it correctly, this week's crisis on Wall Street really started last summer in Southeast Asia, where a bunch of tigers had been making everyone's economies run very quickly. (Which is the only sensible thing to do when you have a bunch of tigers around.)

But then some speculators who weren't afraid of tigers decided that the currency of Thailand wasn't quite as solid as it was cracked up to be. These "arbitrageurs" (from the French word "arbitrageurs") put their mouths where their money was, and before you knew it, everyone else had decided that the "baht" -- which is what the Thais call their money (don't ask) -- wasn't such a good bet after all.

So the "baht" went right into the toilet, which put pressure on the other Southeast Asian countries to mess up their own currencies. Which they did, one right after the other. In financial circles this is called, technically speaking, "keeping up with the Thais." (Or maybe "keeping down with the Thais." Whatever.)

Anyway, these other currencies, which had their own colorful names and which had been doing just fine thank-you-very-much until the arbitrageurs began bad-mouthing them, started dropping like overripe mangoes, until the only currency still standing firm was in Hong Kong.

Now, Hong Kong has been all over the news this year, of course, because this is the year Hong Kong stopped being a British something-or-other and became a Chinese something-or-other instead. There was lots of uncertainty about the change, followed by lots of pageantry, followed by even more uncertainty. This has nothing at all to do with what happened to the Hong Kong stock market last week, but it did let Peter Jennings wear a trench coat again, so we really can't ignore it.

Anyway, what happened last week was that the Hong Kong dollar finally came under attack by those friendly arbitrageurs, who needed to ruin just one more currency to complete the set. Hong Kong tried to protect itself by jacking its interest rates right through the ceiling, which was perfectly swell if you already had piles of Hong Kong dollars in your piggy bank. If you were in the real estate biz, on the other hand, trying to borrow money at those rates, you were toast. Bye-bye, Hong Kong stock prices!

Hello, Wall Street panic!

What happens in the Asian markets normally doesn't have much impact on this side of the ocean. This time, though, it was different -- I think it had something to do with El Nino. American investors were already a little nervous about all the overvalued stocks in their portfolios; when they heard about the Hong Kong plunge, they got totally twitchy. They wanted out. Five hundred-odd points later, they went home for the night.

Nothing to worry about, the experts are saying. It's just a "correction." It's all working exactly the way it's supposed to work.

Me? I hear they're trying to get rid of October.

10/28/97