The Rice Thresher (Houston, Tex.), Vol. 75, No. 9, Ed. 1 Friday, October 23, 1987 Page: 3 of 24
twenty four pages : ill. ; page 19 x 15 in.View a full description of this newspaper.
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"HRESHER Opinion Friday. October 23,1987 3
Market plunge doesn't signal alarm, just caution
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'Black Monday," Oct. 19,1987: the Dow
Jones industrial average (DIJA) of thirty blue-
chip stocks dropped S08.32 points in one ses-
sion, and the press made much of the fact that
this represented a decrease of 22 percent—
nearly double the drop that began the Great De-
pression. The question buzzing around campus
all week has been: "Why did this happen, and
what does it mean to me?"
First the why. Secretary of the Treasury
James Baker's announcement that he would like
to see a weaker dollar, coupled with concerns
over Federal Reserve's policy on interest rates,
led the market to a record drop of 108 points at
Friday's close. Wednesday, Thursday and Fri-
day was the first time since 1984 that the market
suffered three consecutive days of losses.
But the average investor had little say in the
matter Friday or Monday, because the major
movers in the stock market are the institutions
(e.g. MBank, Interfirst Houston, Portfolio
Managers). And when they trade stocks, they do
it in large quantities.
To protect their vast holdings, they have
computerized open sell orders in at what they
consider a "basement" price for each stock. As
an example, MBank might see IBM as attractive
at $150/share. But if the price drops to $145,
they will want to sell 10 percent of their hold-
ings. If it hits $140, they sell another percent.
And so on.
The computers take care of the open orders.
But when the market hit the "critical" point on
Monday, the system went awry. So many sell
orders were being filled at once that the stock
prices dropped to the next "sell" level almost
immediately. This cascading effect led IBM to
seeeeeeeeeeeeeeeeeeeeoeeeee*
Editorial Staff
Editor-in-Chief Michael J. Raphael
News Editor Michele Wucker
Fine Arts Editor Jen Cooper
Sports Editors Keith Couch, Joel Sendek
Production Manager Mary Elliott
Feature Editor Lisa Gray
Backpage Eds... Jenny Berry, Lizzette Palmer
Photo Editor Dennis Kelley
Senior Editor Spencer Greene
Typesetters Linda Bums, Allison Krauth
Assistant News Editor Ann Bajaj
Assistant Fine Arts Editor John Monlag
Assistant Production Manager Gavin Clarkson
Beyond the Hedges Mary Ashkar
Graphic Artist Steve Lait
News Staff Dan Blanton, Claire Qosmirwi
Leigh Anne Duck, Katy Foibleman, Suzy Fcinbcrg
Katie Fleming, Shelley Fuld, Paul Hain, Samantha Hendren
Jim Low, Doug Park, Elae ferachio, Jael Potnac
David Stivers, Judd Valino, Sub Yam
Fine Arts Staff Paul Angles, Sam Collins
Spencer Greene, David Nathan, Karen Nickel
Eric Salituro, Louis Spiegler
Sports Staff Sarah Baflyn, David Cumberland
Wes Gere, Brian Holmes, Jim Humes, Tony Mason
Steve Nations, Robert Nevill, Dave Offer,
Barbara Paskey, Anthony Wills
Photography Staff R. Qaussen, Lawrence Cowsar
Michael Gladu, Ajay Kwatra, Car la Mendiola
Lisa Opper, Harold Turner, James Yao
Production Staff Anne Bullen, Suzy Feinberg
Wendy Erisman, Wynn Martin, Shauna Peters
Bob Rhode; Craig Romero, Amy Sayle, Sanjay Vyas
Columnist David Schnur
Courier Anne Chang
Deep plunge D. Jones
Business Staff
Business Manager ...Carlos E. Soltero
Advertising Manager Lee Finch
Asst. BusinessfManager Mike Alexander
Ads Production Beth Jennings
Staff Assistant Stuart Morestead
Circulation Christine Gibson
The Rice Thresher, the official student newspaper it Rice University
since 1916, is published etch Friday during the school year, except
during examination periods and holidays, by the students of Rice
University. Editorial and business offices are located on the second floor
of the Ley addition to the Rice Memorial Center, P.O. Box 1892,
Houston, Texas 772Sl.Telephone(713)527-4801or527-4802. Adver-
tising information available upon request. Mail subscription rate per
semester $15.00 domestic, J30.00 international (via i^ciaas mail)). >
The opinions expressed herein are not necessarily those of anyone
except tie writer. Obviously. No sweat here, my savings is in a CD.
©1987, The Rice Thresher. All rights reserved,
eeeoeeeeeeeeeeeeeeeeeeeeeee*
GUEST COLUMN
by Brian Spector
be bid down to nearly $ 100 per share and led the
market to post an all-time record loss.
Monday's volume nearly doubled the record
set Friday, and the "tape" (the prices the brokers
see on their Quotron screens) was running over
two hours behind. This meant that if you wanted
to sell IBM, the price quoted you over the phone
was two hours old, and the price at which your
order got filled at was probably substantially
less. This delay, coupled with broker's warnings
to ride this storm out, kept panic sales to a mini-
mum. But enough selling was done by the
computer arbitrage programs to force the DJIA
down sharply.
But Monday's activity should not be misin-
terpreted as the start of another depression,
because the differences between 1929 and 1987
are important.
First, the crash of 1929 reflected the "paper"
nature of equity finance at that time. To aid
investors, margins of up to 90% were permitted
by lending institutions. This meant you could
buy $1000 worth of stock for $ 100 do wn. A rush
on the banks at that time forced them to call in
margin loans. And when stockholders tried to
sell off their stock to pay the banks, the bottom
dropped out of the market, and the economy was
thrust into a depression.
Nothing of that sort could ever happen today.
To protect against "paper" equity, we have a
reserve requirement (a percentage of net worth
that must be held in cash by each bank); the
FDIC, which insures all deposits up to
$200,000; and a margin limit of 50%. All of
which add up to no depression ahead.
Some critics have said that Monday's drop
represented the beginning of a "bear" market
(bear meaning a sluggish, hibernating market
Doonesbury
where prices are stable or even declining). I do
not believe this to be true. Forecasts for GNP
and interest rates have not changed because of
Monday's crash, and most stocks are highly un-
dervalued.
IBM is worth more than the $103 per share it
commanded Monday at the market's close,
simply because it is the same company it was
two weeks ago when it was worth 50 percent
more. People (and more importantly institu-
tions) will realize this, and the market will cor-
rect itself.
We should see a return to the bull market and
a DJIA of 2100-2200 within two weeks. Fore-
casters predict moderately strong economic
growth until the second quarter of 1989, with
little inflation and reasonable to slightly high
interest rates.
Bottom line: your savings are safe, your
parent's mortgage will not be affected, and
seniors, your employability is not in jeopardy.
The only guideline to follow in the coming
months is to keep your money out of the market
for a while.
If you must invest, choose blue-chips (IBM,
GE, DEC, General Mills, Coca-Cola, etc.) and
be brave. Their real value will be based on
earnings, return on equity and profits—not
market price. The stock market should return to
normal soon, but no assurances can be given.
Investors have been shown what can happen if
the bull runs too wild, and moderate growth
should return.
Brian Spector, a Will Rice college senior, is
an assistant to an institutional broker with
Drexel Burnham Lambert Inc.
Houston no place for music
continued from page 2
music. So...
What is promoted by the small papers and
college radio should be an unbiased reflection of
what the Houston music scene really is, not a
personal opinion of "hip." Anyone reading this
who agrees, please make your opinions known,
or Houston will remain a new music graveyard.
Real Fiction
John Adair, Sid '89,
Kevin MacDonald, Lovett '89
Holly Taylor, Lovett '89
Religious intolerence
To the Editor:
Todd Reichmann's letter regarding his con-
cern about Christian intolerance (October 9)
only demonstrates his own intolerance.
His allegations that Christian organizations
on campus intrude upon the rights of other
individuals who do not hold such beliefs are
erroneous. Because of his own intolerance, Mr.
Reichmann seems to advocate the denial of the
rights of religion and free speech to those who
"annoyingly" differ from him in opinion.
The Christian organizations on campus are
only exercising their right to express their be-
liefs on certain issues. One does have the right to
disagree with such beliefs; one does not, how-
ever, have the right to supress these beliefs.
If one finds Maranatha's Forerunner dog-
matic, offensive, and self-righteous, then one
simply can ignore it and not read it.
One cannot demand silence from any organi-
zation just because its beliefs and practices are
annoying. There must be clear evidence that
one's right to "life, liberty, and the pursuit of
happiness" has been deprived by a clear, pres-
ent, and imminent danger.
David Kiang
Weiss College '89
BY GARRY TRUDEAU
tg>Y LAST MEEK, NO ONE IN
THE EXTENDED BUSH CLAN
WAS ON SPEAKJNG T6RMS.
FIRST, GEORGES STEPMOTHER
IN-LAW MADE A POLITICAL CON-
TRIBUTION TO JACK KEMP'S
PRESIDENTIAL CAMPAIGN..
THEN HIS SECOND COUSINS, TED
ANDBOOTSY, DEFECTEP TO THE
ALHAIG JUGGERNAUT. BUT TO
GEORGE, THE LAST STRAW MAS..
THE CALCULATED SLIGHT
FROM HIS LONG-LOST
EVIL TWIN, SKJPPY.'
PETE
PUPONT!
HE'S MY
MAN'
iV
THE BUSH CLAN GATHERED FOR
AN EMERGENCY POW WOW.
ANDTHATS NOTALL.
SOMEONE YOU HAVEN'T
SEEN IN A LONGTIME
HAS JUST TURNED UP
IN THE DU PONT CAMP.'
GEORGE, I'M HAVING
A HARD TIME KEEP-
ING MY SIDE OF THE
FAMILY IN LINE.
THERB'S A 3IT SIGH.
OF A 9TAMPEVE
TOK5MP.
YOUHAVE
TO TALK TO
HIM, GEORGE.
SHOW HIM
YOUR RE-
SUME. \
NOT... NOT
MY EVIL
TWIN,
SKIPPY?
i COUSIN LOUIS IS WAVERING
\ GEORGE. HE MIGHT COME
/ OUT FOR POLS
ksf
&
{((fs-S
{Uncle uonel is dispatched i
TO TRY 70 REASON WTTH SKIPPY, I
GEORGE BUSH'S EVIL TWIN. |
SKIPPY, AT LEAST TALK TO
I GEORGE! HE'S AN AGOOMMO-
ir^^DATING MAN/
TrC) /
(M
I KNOW. TOO ACCOMMODATING.
THAT'S WHY I'M SUPPORTING
PETE DU PONT! HE'S NUTS, BUT
AT LEAST YOU KNOUJ WHERE
HE STANDS...UNCLE
UONEL, WHY ARE
YOU STARING
AT MB?
Y
OH. SORRY, SON. rfc JUST
THAT IT'S BEEN YEARS
S/NCEI'VE SEEN YOU,
AND I'D FORGOTTEN
HOW MUCH YOU RE-
SEMBLE GEORGE-
ITS UNCANNY!
&
SO WHAT ARE
YOU DOING THESE I'M A
DAYS, SKIPPY? FACELESS
I BUREAUCRAT.
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Raphael, Michael J. The Rice Thresher (Houston, Tex.), Vol. 75, No. 9, Ed. 1 Friday, October 23, 1987, newspaper, October 23, 1987; Houston, Texas. (https://texashistory.unt.edu/ark:/67531/metapth245675/m1/3/: accessed May 21, 2024), University of North Texas Libraries, The Portal to Texas History, https://texashistory.unt.edu; crediting Rice University Woodson Research Center.