A Whiff off Panic

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Come Monday, and it began to seem as if Granville might be right. Stock markets opened to a selling avalanche. Tokyo, which because of the time-zone difference is seven hours ahead of Western Europe and 13 hours in front of New York, felt the onslaught first. By the close of trading, the Nikkei-Dow Jones average, which represents 225 stocks on the exchange, had crashed 300 points, 4.1%, the biggest such drop on record.

Panic began rippling through world money. In Hong Kong, the widely watched Hang Seng index plunged a staggering 7.8%. By the time brokers arrived for work in London, they were facing mountains of sell orders. No sooner did trading begin at 9:30 a.m. than the exchange's ticker, traditionally a paradigm of understatement, burst forth with news of "widespread and indiscriminate price-slashing." Said a broker as the sell orders piled up and the share prices plunged: "It's like a free fall without a parachute." By the end of the morning, the Financial Times's widely quoted 30-share index was down a record-breaking 29.4 points. It seemed madness, but, says Economic Historian Charles Kindleberger, author of Manias, Panics, and Crashes: "If the ship is really sinking, it is rational for the rat to leave."

New York, the biggest stock exchange of them all, was the last to open. As soon as the 10 a.m. trading bell rang on the floor of the New York Stock Exchange, the selling pandemonium continued. The Dow Jones industrial index slumped 14 points in the first 30 minutes, and the morning edition of the New York Post proclaimed, WORLD STOCK MARKET PANIC. Said Gary Ross, research director for the Wood Gundy brokerage firm: "Our retail customers were phoning in panic-stricken."

Then just as fast as a sudden summer's storm at sea, it was over. Said New York Floor Trader Dennis Valentino: "I've never seen a turn-around like it. The market turned on a dime and went straight up." Wall Street professionals have always been skeptical of the Barnumesque Granville, and Big Money managers in charge of directing the investments for mutual funds and pension portfolios decided that they could pick up some bargains because stocks had fallen too far. The big institutions lumbered in to buy solid stocks like General Electric, which was trading at its year's low of $52 a share, Burlington Northern, available at a near giveaway morning low of $36%, and Exxon, offered at a fire sale $30 a share. Said Michael Sherman, director of stock research for the Lehman Bros. Kuhn Loeb investment banking firm: "The Granville predictions created a classic buying opportunity. Many people felt compelled to buy because they knew stocks were being sold for emotional reasons." Quipped Stock Analyst Larry Wachtel: "I sent Joe a telegram that read: 'Having wonderful time, wish you were here.' "

By day's end, the real losers were the investors who had followed Granville's advice and sold. Instead of having crashed through the floor, the Dow Jones industrials had rocketed through the ceiling, closing up 18.55 points, at 842.56, the heftiest one-day gain in six months.