The day Joe Cool and the gang melted in mar­ket in­ferno

The Weekend Australian - - FRONT PAGE - CHIP LE GRAND

It was 4am when Bruce McFar­lane, a gun stock­bro­ker known on the Mel­bourne ex­change as Joe Cool, learned his world had changed for­ever.

While most of Aus­tralia was sleep­ing, McFar­lane was wo­ken by his bed­side tele­phone. On the other end of the line was Ron De­whurst, a New York-based trader with McCaughan Dyson & Co, a brash new firm that had been rid­ing the bull run on world mar­kets.

“Some­thing big has hap­pened,’’ De­whurst told him. “You’d bet­ter get into the of­fice.’’

Across Mel­bourne, other tele­phones started ring­ing.

When Greg Burns, a se­nior part­ner at ri­val firm McIn­tosh Ham­son Hoare Govett an­swered his, he thought it was a joke.

Iain Ma­son, the head of McIn­tosh’s New York of­fice, had just told him the Dow Jones was 500 points down, at the time the big­gest sin­gle day’s loss in the his­tory of the in­dex.

Burns quickly changed and made the short drive from his Can­ter­bury home to the firm’s of­fices in Mel­bourne’s Rialto build­ing. By 6am, nearly ev­ery­one was there. “No­body re­ally knew what to do,’’ Burns says.

From the New York Stock Ex­change to the trad­ing floors of Lon­don, Mel­bourne, Syd­ney and Hong Kong, smart bro­kers could see trou­ble on the way.

For five years a pow­er­ful, joy­ful bull mar­ket had ram­paged

across the world but the pre­vi­ous week, the Dow had started to show signs of se­ri­ous stress. On Oc­to­ber 14, it shed 95.46 points. The next day it lost 58.

On Fri­day, Oc­to­ber 16, the last trad­ing day be­fore what would be­come known at Black Mon­day, con­certed sell­ing stripped a record 108 points off the world’s most in­flu­en­tial in­dex. For the men of Wall Street, with their slicked hair and sus­pendered suits, the por­tents were dark as trad­ing opened on Mon­day, Oc­to­ber 19.

“I know one of our guys was get­ting very bear­ish,’’ says Tom “Black Cat’’ Klinger, the McIn­tosh man­ag­ing di­rec­tor whose up­start firm had just floated on the stock ex­change.

“There was prob­a­bly enough of us that ex­pected some­thing.’’ No one was ex­pect­ing this. Peter Hol­lick was work­ing for McCaughan on Wall Street and bore wit­ness to the car­nage. “It was bed­lam,’’ he says. “All the lead­ers were get­ting slaugh­tered. All I can re­mem­ber is see­ing the screens down 508. You wake up the next morn­ing and go ‘what the f..k?’”

Ma­son says: “It was an ex­tra­or­di­nary day. All of a sud­den we were 100 down, 200 down, 300 down.’’

He had gone to New York three years ear­lier to give McIn­tosh a pres­ence in the world’s fi­nan­cial cap­i­tal. His days were spent jet­ting around the coun­try, talk­ing to in­sti­tu­tional in­vestors in Cal­i­for­nia, Texas and up and down the east coast. One of his clients was Ge­orge Soros.

About 3am (AEST), Ma­son started call­ing the firm’s key peo­ple in Aus­tralia — chair­man John McIn­tosh, Klinger, head of trad­ing Ian Hol­man and Burns, then in charge of in­sti­tu­tional busi­ness. “No­body could be­lieve what we were say­ing: ba­si­cally, that the mar­ket was crash­ing,’’ Ma­son says.

It was a time when most shares were still bought and sold on the stock­mar­ket floor in­stead of by com­puter. If a part of old Mel­bourne still de­ferred to the tried and true meth­ods of es­tab­lished firms such as Pot­ters or JBWere, McIn­tosh and McCaughan had cap­tured the imag­i­na­tion — and busi­ness — of the new, en­tre­pre­neur­ial breed. McIn­tosh served as the house bro­ker for John El­liott’s busi­ness em­pire and Klinger was per­son­ally close to Quin­tex ty­coon Christo­pher Skase.

On the trad­ing floor, the bro­kers were as colour­ful as some of their high-fly­ing clients: Rob­bie “the ad­mi­ral’’ Nel­son; Wayne “As­para­gus’’ Aithorne, so named be­cause he had so many tips; David “The Mouth­piece’’ Lauritz and Tony “The Burger’’ Davis, famed for pil­fer­ing other peo­ple’s trades.

On Oc­to­ber 20, Aus­tralia’s Black Tues­day, the leader of the pack was Joe Cool. “I can tell you, he was the man on the Mel­bourne floor,’’ Hol­lick says. “Peo­ple still talk in awe of what he did that day.’’

Nearly 30 years later, the im­age of Black Tues­day that sticks with McFar­lane is the pub­lic gallery that over­looked Mel­bourne’s old stock ex­change. On a nor­mal trad­ing day, there might be 30 peo­ple in the gallery. On this day there were more than 100 in­vestors crammed be­hind the glass, gripped by ris­ing panic.

“They were belt­ing on the wall and us­ing hand sig­nals to get the boys on the floor to buy and sell,’’ McFar­lane says. “There were three or four open lines back to the of­fice. It was a non-stop ne­go­ti­at­ing pe­riod. You just had to keep your cool.’’

A re­mark­able fea­ture of Black Tues­day is many peo­ple did. When the Aus­tralian mar­kets opened, the All Ordinaries In­dex dropped a record 500 points from the pre­vi­ous day’s clos­ing, wip­ing out 25 per cent of the mar­ket’s to­tal value. Yet, in­flu­en­tial bro­kers had al­ready iden­ti­fied the crash for what it was: an over­due mar­ket cor­rec­tion but not a big­ger, eco­nomic cri­sis. It was not 1929. In fact, it was a good time to buy if you knew where to look.

Saul Es­lake was McIn­tosh’s 29year-old chief econ­o­mist. On the day New York crashed, he was on hol­i­day in Europe. He re­mem­bers be­ing in Barcelona, see­ing footage of pan­icked floor traders scream­ing at other on the Spanish tele­vi­sion news. “I rang the Lon­don of­fice of McIn­tosh se­cu­ri­ties and asked them whether I still had a job,’’ he says.

Es­lake was as­sured that he did. By the time he re­turned to Aus­tralia, he was con­vinced that the 1987 crash was es­sen­tially a mar­ket event that would not have a broader im­pact on ei­ther the US or Aus­tralian economies.

“The crash in 1929 hap­pened more than a year af­ter the econ­omy in the US had peaked,’’ Es­lake ex­plains. “Hence it ex­ac­er­bated the slow­down that was al­ready in train. In 1987 the US econ­omy and the Aus­tralian econ­omy were pick­ing up. My ar­gu­ment was this was un­likely to de­rail it.’’

Although Black Tues­day ham­mered Robert Holmes a Court and set in train a se­quence of events that wiped out highly lever­aged en­trepreneurs such as Lau­rie Con­nell and Skase, it didn’t pitch Aus­tralia into re­ces­sion. That came sev­eral years later.

On the morn­ing of Oc­to­ber 20, af­ter New York had closed and be­fore the Aus­tralian mar­kets had opened, Klinger gath­ered his se­nior peo­ple and told them they were wit­ness­ing a val­u­a­tion cri­sis, not an eco­nomic cri­sis. This was the line Burns dili­gently re­peated on tele­vi­sion that morn­ing. The same mes­sage was re­layed to McIn­tosh’s client base.

“Once that got into the mar­ket place, peo­ple started to think about things dif­fer­ently,’’ Burns says. “We were the dom­i­nant stock bro­ker in the Aus­tralian mar­ket. Peo­ple lis­tened to what we said.

“All of the stocks glob­ally had got­ten so over­heated it was a bit like Paul Keat­ing; the cor­rec­tion we needed to have. The key to it was bring­ing some sort of calm and logic to the client base.’’

“We were the first in­ter­na­tional mar­ket to open af­ter New York. That puts you in a po­si­tion where you were vul­ner­a­ble be­cause the one way they could cover their bums was to sell the Aus­tralian mar­ket as ag­gres­sively as they could. Peo­ple were fol­low­ing ex­actly what hap­pened in Aus­tralia ex­tremely closely.’’

In­for­ma­tion moved com­par­a­tively slowly 30 years ago. The world wide web had not yet been in­vented, there were no ded­i­cated fi­nan­cial chan­nels on Aus­tralian tele­vi­sion. Only a few bro­kers car­ried the early, brick-like mo­bile phones. “There wasn’t the noise around that there is now,’’ Burns says. “What now takes 30 sec­onds in those days took a cou­ple of days.’’

This helped to re­duce the panic in the lo­cal mar­ket. In one way how­ever, emerg­ing tech­nol­ogy fed the sell­ing frenzy.

Only a few months be­fore the New York crash, the Stock Ex­change Au­to­mated Trad­ing Sys­tem had been in­tro­duced across Aus­tralia’s mar­kets. A prob­lem with the sys­tem was it kept push­ing sell or­ders even if there were no buy­ers. This meant the price of some shares was driven down to lev­els that no re­spon­si­ble bro­ker would have taken.

“There was def­i­nitely a glitch in the sys­tem,’’ McFar­lane says. “In­stead of stocks col­laps­ing by 30 per cent they col­lapsed 60 per cent be­cause the com­puter drove down the sell­ing price un­til it found a buyer. The hu­man fac­tor was taken away.’’

Among the worst hit was BHP, down 41 per cent, and Bo­ral, down 60 per cent.

Not long be­fore the crash, McIn­tosh’s man in Lon­don, Peter Hal­stead, bought a big line of Western Min­ing share rights for a pow­er­ful client, the Kuwait In­vest­ment Of­fice. By the end of Oc­to­ber 20, the rights were worth­less.

“It was a pretty scary time,’’ Hal­stead says. “If you think of all the crashes we have had since, they all fol­low a fairly sim­i­lar pat­tern. On the day it is shock/hor­ror. Then it grad­u­ally dawns on peo­ple. That is when the stress be­comes quite ev­i­dent in the mar­kets.’’

When trad­ing opened, McFar­lane had clear in­struc­tions. Although some clients needed to off­load stock, oth­ers were look­ing for bar­gains. As McFar­lane fed in­for­ma­tion back to the of­fice, Burns kept the lines open to the firm’s big in­sti­tu­tional clients. At McCaughan’s, a sim­i­lar ap­proach was taken. “We came out of it quite well,’’ Hol­lick says. “Ev­ery­one lost a lot of money of course, but you had to grit your teeth and get on with it. In the long term it proved a good buy­ing op­por­tu­nity.’’

By the time the mar­kets closed, the wound was ugly but the bleed­ing had stopped. The All Ords was a few points off where it had started the day. Ex­hausted bro­kers emerged from the stock ex­change like Char­lie Sheen in the film Wall Street, their eyes glazed and ties at half-mast. Joe Cool led them across the road to their reg­u­lar pub, the Fox and Hounds. On this night, there was no need for any­one to em­bel­lish what they’d seen and done.


Stock­bro­ker Bruce ‘Joe Cool’ McFar­lane in Mel­bourne yes­ter­day; traders on the Syd­ney stock ex­change floor on Oc­to­ber 20, 1987, be­low, and The Aus­tralian’s front page of that day

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