Black October

Discussion in 'Trading' started by Trendytrader, Aug 24, 2007.

  1. Doesn't history show October to be a month of market corrections?

    What's the verdict on 2007?
  2. Yes please.
  3. actually Sept. can be worse, the mkt tends to bounce into the end of Oct.
  4. bdon


    Sure when the KGB tries in a feeble attempt to crumble our economy
  5. Is is just a MYTH.

    I once tried to verify how likely is that "sell in may and go away" outperforms the market, or even avoids corrections (by using historical prices in an excel sheet since 1930), and it just didnt outperform.

    Remember the market rallied on october 2006, 2005, 2003, 2002
    Relatively flat on 2004, altough october marked the turnpoint from the previous downtrend.
  6. Thought I better dust this one off. Question is this October going to see the global credit bubble burst for good?

    Interesting article on historic boom/bust cycles.

    The rise in borrowing, and its persistence, is without historical precedent.,25197,22500431-31478,00.html

    In a speech this week Reserve Bank deputy governor Ric Battellino filled the gap with three fascinating charts that trace credit growth back to the 1860s.

    These charts raise the chilling possibility of a very unpleasant outcome from the extraordinary credit growth in Australia during the last 30 years. To see why, let's start with the first chart, on the rise in the ratio of credit to gross domestic product (for today's purposes think of credit and debt as the same thing).

    What is striking about this chart is how different the current episode is from anything that has gone before. This is an international story, not just an Australian one.

    Across the 15 industrial countries where the credit to GDP ratio has grown fastest in the last 30 years, which include Australia, the US, Britain, Japan, Germany, Canada, Denmark and New Zealand, the average ratio has risen from about 60 per cent in 1977 to about 135 per cent in 2007.

    But Australia is a stand-out, with its ratio rising from about 50 per cent to more than 150 per cent. This rise, and its persistence, is without historical precedent.

    However, if we look at the chart, there are two earlier episodes of rapid growth in the ratio of credit to GDP in the last 150 years. The first is in the 1880s and the second in the 1920s.

    They are dwarfed by the recent rise, which makes them look like small beer, but they weren't. The 1880s episode lasted almost 15 years and the rise in credit in the 1920s about five years, and both ended abruptly.

    The atmosphere in the frenetic 1880s, the era of Marvellous Melbourne, is captured in journalist and historian Michael Cannon's wonderful 1966 book The Land Boomers.

    The gold rush of the 1850s and the burst of rapid population growth from the immigration that accompanied it led to an extraordinary period of expansion, optimism and property speculation, a lot of it funded by credit.

    It all came crashing down in the depression of the 1890s, with collapsing property prices, runs on banks and building societies, mass unemployment, soup kitchens and a depression. The magazine Table Talk wrote in December 1892: "Never before in the history of the colony has a Christmas holiday been shrouded in such gloom."

    The credit expansion of the 1920s ended with the Wall Street crash of 1929 that heralded the Great Depression of the 1930s, when unemployment in Australia rose to more than 30 per cent of the workforce. Enough said.

    Now take another look at that first chart. If the two earlier episodes ended in economic depressions, what does it say about how the current one, which dwarfs the others, might end?

    You see why economic history is so fascinating. William White, a Canadian central banker who has been economic adviser to the Bank for International Settlements (the central bankers' central bank) for the last dozen years, is someone else interested in economic history.

    In the 2007 Bank for International Settlements annual report, his responsibility, he remarked on its usefulness as a guide in a fundamentally uncertain world, particularly at economic turning points, where economic forecasts usually fail.

    White noted that events such as the Great Depression of the 1930s, the Great Inflation and its aftermath in the 1970s, and the crises in Japan and Southeast Asia in the 1990s took most policy makers and commentators completely by surprise. His message is clear enough: in current economic circumstances it could happen again.

    This isn't Ric Battellino's message. He avoids any mention of how the two previous credit expansions of the 1880s and 1920s ended and is generally optimistic about the present one. In fact, for a variety of reasons, he thinks it has further to run.
  7. If you haven't done so, please take a look at the Dow Jones World Index 5 year chart.
  8. Link please ?
  9. Go back for decades and "sell in May" works quite well. It hasn't done quite as well in recent years. Whether this is a temporary (5-7 year) slump for the strategy or whether seasonality has really changed is hard to say.

    However, if you just sold the summer months (May to August) the last 2 years you'd come out pretty well.

    Oh, and October 2005 wasn't so great. It had a 5% drop, though it rallied afterwards.

  10. abxs


    (1) Stock Market Crash of 1929 - The Dow falls a total of 23% for October 28 and 29;

    (2) October 13 and 16, 1989 - The Dow plunges 190.50 points, or 6.9% on October 13

    (3) Black Monday, October 19, 1987 and October 20 - The Dow suffers the biggest percentage loss in recorded stock market history on October 19 and initially continues its plunge on the 20th.

    (4) October 27, 1997 mini-crash ("Asian flu")

    October is a treacherous month, wouldn't you say? :cool:
    #10     Sep 29, 2007