July 14, 1997.
Dressed in a roomy shirt and thin cotton pants, Seok-won opened the fridge, took out a round ice cube, and dropped it into an old-fashioned glass.
He then selected his favorite bottle of Johnny Walker Pure Malt 15-Year-Old from the display, poured it into the glass, and checked the Rolex on his wrist. It was just past 9 PM.
With an old-fashioned glass in one hand, Seok-won left the kitchen and walked across the spacious living room toward the trading room he had set up on the other side.
"Hmm."
Sitting down in the plush chair, he took a sip of the aged whiskey, letting the flavor spread throughout his mouth.
Seok-won set the glass down and stared at one of the many monitors installed on his desk.
[HSI: 11,781.88 (2,379.03 –16.8%)]
After two consecutive days of massive sell-offs exceeding 30 billion Hong Kong dollars, led by hedge funds like Quantum Fund, the Hong Kong stock market, which had been teetering on the edge, finally crumbled again following another drastic intervention by the Hong Kong government on Friday.
They had raised the short-term interest rates from 10% to 12%, and banks were prohibited from lending Hong Kong dollars to speculative forex traders.
In addition, as anxious investors and citizens rushed to sell Hong Kong dollars and buy US dollars, the government took emergency measures to temporarily halt withdrawals of US dollars from local banks.
"As a result, the overnight interbank lending rate shot up from 6% to 300%, and the one-month rate skyrocketed to 47.5%. If the stock market hadn't collapsed, that would've been more surprising."
A 300% overnight interbank rate—something that was unimaginable under normal circumstances.
This extreme action sent the market into a complete panic and shock, leading to a historic plunge of -16.8%, the largest single-day drop in Hong Kong stock market history since the Great Depression.
Seok-won shifted his gaze to the futures chart of the New York Stock Exchange on the next monitor and muttered,
"The problem is that the shock isn't confined to Hong Kong. It's spreading like a domino effect."
Unlike Thailand, Malaysia, or the Philippines, which had already collapsed, Hong Kong was Asia's financial hub and the gathering point for global capital, so it was only natural for the shockwave to affect the entire world.
Already, the London stock market, which had opened before New York, was down by more than 3%.
Just then, the phone rang, and Seok-won took his mobile phone from his pocket, answering the call.
["Did you see the Dow futures?"]
He heard Landon's slightly excited voice and leaned back as he held the phone to his ear.
"It's bearish as expected, but the key is the main market, right?"
["You're right. But with London crumbling like that, it seems New York won't escape the fallout from Hong Kong's stock market crash."]
"I think so."
After a brief pause, Landon asked curiously,
["How much do you expect the Dow Jones index to drop in this shock?"]
Seok-won stared at the Dow futures chart on the monitor, thought for a moment, then replied calmly.
"Today, the drop could exceed 500 points."
["...!?"]
Hearing this, Landon gasped and asked incredulously,
["Five hundred points, you said?"]
On the other end of the phone, Landon sounded flustered, his voice betraying his panic.
["A drop of 500 points in a single day hasn't happened even during the Great Depression. Do you really think it's going to happen?"]
Seok-won took a moment before replying calmly.
"As I mentioned before, with the dot-com boom pushing stock prices to all-time highs, investors' anxiety is just as intense. Even a small shock will make them react very sensitively."
["Even so, 500 points seems too much."]
Landon seemed to be struggling to grasp the idea, as if it was beyond the realm of possibility.
"If the only bad news was the crash of the Hong Kong stock market, then yes, I'd agree. But just a few days ago, the Chairman of the Federal Reserve openly warned investors that the U.S. stock market was showing signs of overheating," Seok-won said, sipping his whiskey as he continued.
"Moreover, last week's housing starts for June came in higher than expected, stoking fears of inflation and potential interest rate hikes. The market is uneasy, and to put it simply, it's like the dry twigs and leaves are ready to catch fire at the slightest spark."
["Hmm. After hearing that, it does seem like the timing is really off."]
Seok-won shrugged his shoulders and added, "From our position with the short position in the futures, the more the Dow drops, the better for us."
["Haha, that's true."]
After a few more sips, Seok-won set his half-finished glass of whiskey down and said, "Even if there's a significant crash, the U.S. economy is still strong, and the dot-com boom is far from over. It won't stay down for long—it'll quickly find a bottom and rebound."
["Then we should clear our positions before that happens."]
"That's the plan. As the panic lingers, we'll start liquidating quickly on the second day of the crash when the fear is still strong in the market."
["Understood."]
"And don't forget to use this crash to accumulate Qualcomm shares at a bargain," Seok-won added.
["Got it. I'll take care of it."]
After giving a few more instructions, Seok-won hung up the phone and set it down on the desk. He then turned his attention to the Dow, S&P 500, and Nasdaq futures charts, which were still showing weakness.
"The hedge funds' attacks on Hong Kong have quickened, causing the flow to diverge. It might drop even further than we expected… I'm curious to see how this plays out."
***
The New York Times Square, where the Lehman Brothers trading floor was located, was heavy with tension as the opening bell neared.
The shockwave from the Hong Kong market crash had already rocked London and was now threatening to hit New York.
Just months ago, Rackman had finally shed his junior trader title. Sitting in his chair, he licked his parched lips.
He then turned to Dietz, sitting next to him, and whispered in a low voice, "Looks like it's going to be hard to avoid a drop today, huh?"
Dietz, wearing a striped tie, nodded stiffly with a serious expression.
"Considering what happened in London, it seems inevitable."
The European markets, which had opened hours earlier, had plunged more than 3% under the shockwave of the Hong Kong crash, marking a disastrous Black Monday.
The New York stock market wasn't immune either, with futures showing declines across the three major indices, clearly affected by the fallout.
Rackman, who had significantly increased his positions just the previous week, scowled and muttered under his breath.
"Why do they have to drag us into this mess? They should be fighting it out among themselves."
"It's only natural to be affected—both the mutual funds invested in Hong Kong and the hedge funds attacking it are based on Wall Street," Dietz replied.
"Yeah... I know, but it's still frustrating," Rackman grumbled, letting out a frustrated sigh.
He glanced at one of the monitors displaying futures indices and asked, "How much do you think it'll drop?"
"How should I know?" Dietz shrugged. "But one thing's for sure: due to the weak June housing starts and the Fed Chairman's warning about market overheating, there's going to be a strong selling wave as investors look to lock in profits before the market declines further."
"Yeah, that makes sense," Rackman nodded reluctantly, agreeing with Dietz's assessment.
He then scrolled through his holdings on the monitor, his face tense with indecision as he muttered, "I'm underwater as soon as I bought in… Should I cut my losses now?"
Unable to come to a decision, he turned to Dietz again.
"What are you going to do?"
Dietz, who had been quietly annoyed by Rackman's persistent questioning, let out a small sigh before responding.
"I've set all my positions to sell at the opening price."
"What? Already?"
"The mood is awful. It's clear the market's going to drop, so it's a shame, but we should sell while we're still in profit, even if it's just a little."
"Hmm... It's tough today, but won't you regret it if you cut your losses and the market rebounds right after?"
Unlike Rackman, who couldn't shake off his hesitation, Dietz had already taken a more detached approach, as if he had let go of any greed.
"Well, then there's nothing to be done. But I think it's better than riding out the crash without any protection."
When Rackman heard that Dietz was going to exit all his positions, he became even more uncertain about what to do.
Seeing this, Dietz was about to offer advice not to let greed amplify his losses but paused for a moment, deciding against it. After all, no one knew for sure how the indices would move, and trading outcomes were the responsibility of the individual, not to be decided based on others' opinions.
While he hesitated, unable to make a decision, the clock struck 9:30, and with the opening bell, the New York stock market began trading.
[DJI: 7,911.08 (▼ 52.45)]
[NASDAQ: 1,640.33 (▼ 10.59)]
Despite the tension, as the market opened, the index, which had been falling steeply, quickly reversed course and began to recover, reducing its losses. Rackman, his face relaxing, spoke up.
"Well, this might turn out to be just a slight dip after all."
Contrary to expectations, Dietz watched as heavy selling poured in, but the buying pressure was strong enough to absorb it all, and he raised an eyebrow in response.
"Maybe I acted too hastily..."
A brief moment of regret passed through him as he wondered if he'd made the wrong call.
"Wouldn't it be better to pick up the stocks I sold earlier?"
Rackman, now relieved, asked, sounding more concerned for Dietz.
Dietz, watching the steadily rising indices, hesitated, unsure of what to do.
Just as he was about to commit and repurchase the stocks he had sold, someone suddenly screamed in shock.
"What the hell! A massive wave of sell orders just came in!"
"Huh?"
"Why is this happening?!"
"Oh no!"
Dietz's finger hovered over the buy button as he glanced at the monitor.
And there, to his shock, an enormous sell-off appeared on the screen, flooding the trading window like a massive tsunami overtaking the shore.
"My God…"
"What the hell is going on?"
Both Dietz and Rackman were left speechless, unable to say a word as they stared in shock at the sudden change in the market.
In the meantime, the Dow Jones index plummeted more than 100 points in the blink of an eye, and the Nasdaq followed suit, its fall intensifying.
Rackman, snapping out of his daze, hurried to cut his losses, but the stock prices were dropping faster than he could place his orders.
No matter how many times he clicked, his trades weren't being executed, and the losses were piling up like an avalanche. Rackman's face turned as pale as a ghost.
Meanwhile, Dietz, who had narrowly escaped the disaster, felt a cold shiver run down his spine and let out a sigh of relief.
However, only a very few, like Dietz, were fortunate enough to escape the nightmare.
On the trading floor, many traders stood frozen in front of the large market board, now drenched in red, as if it had become a sea of blood.
Some grabbed their hair in despair, others stared vacantly at the index, which continued its downward spiral, overwhelmed by the growing losses.
Rackman, too, kept pressing sell orders in vain, cursing under his breath.
"Damn it! How much further is this going to drop?!"