October is the month stock market crashes - It is also the month that kills bear markets...
Let's dig in... 1/
Let's dig in... 1/
Most people remember 1987 as the most famous crash of all. October 18th 1987 is forever etched into all our minds... It was also a generational low.
Paul Tudor Jones famously nailed the '87 crash by overlaying 1929 - causing Twitter to use fractals very badly, all the time! (me included). The main part of the '29 crash came in October but bottomed in November.
A 50% rally followed and then the Depression set in until 1932.
A 50% rally followed and then the Depression set in until 1932.
2008 was another October crash that ended in November but the generational low came 20% lower in March 2009. Like 1929, financial crisis are the worst recessions/bear markets.
1974 - something everybody is familiar with these days, also happened in October. That was a generational low.
1997 - The Asian crisis hit all world markets and the Fed had to pivot. Another October crash and generational low.
The 1990 recession was contextually broadly similar to the current one in my view. October was a generational low.
The NKY 1990 was another doozy... that was a long way from the generational low however as leverage, deflation and demographics continued to weight on Japan.
One I remember very well was Russia in 1998. That was the biggest, fastest collapse in history. The generational low was in October...
October is always a scary month for markets, especially if we are in the midst of a recession (high probability). The typical summer fall into an October crash is playing out this time too...
Every bear market is different. This one has been the largest destruction of wealth in history in dollar terms and the second largest in GDP terms (2008 was worse).
This has come at the WORST possible time for the average Baby Boomer (something I have warned about). Pensions tend to be 60/40 style portfolios as people age. This is a decimation of pension assets (no, higher rates don't offset it)
And that has led to EXTREME sentiment. The kind of sentiment that causes generational lows.
With 76 million Boomers up shit creek without a paddle and most US politicians being Boomers too, the pressure will mount on the central bank to halt this.
They have 3 choices:
They have 3 choices:
1. Reverse QT and rate hikes and risk their biggest fear of being Arthur Burns and not their hero, Volker.
Unlikely to happen until growth utterly implodes (market is already pricing in a recession). Reverse in 2023.
Unlikely to happen until growth utterly implodes (market is already pricing in a recession). Reverse in 2023.
2. Stop QT and hikes very soon and go to data dependent. This is the easiest option and most likely path this year. Growth still implodes as damage has been done. Reverse it 2023.
3. Keep going with the tightening which will force the politicians to fiscally stimulate as unemployment rises or if real wages remain negative (See UK/Europe for details - a shit show).
In my mind, the odds of a low coming in the next week or two are decently high. The SPX weekly DeMark hits next week, near the bottom of the channel and the 50% retracement, with RECORD bearish sentiment.
Is now over 2 standard deviations over sold versus the log trend...
And it back to the lows versus the denominator of the Fed balance sheet (or liquidity)
Who knows how this will play out, but without a larger financial crisis (which doesn't seem likely as we have all the tools to stop that) it is hard to see this morph outside of a nasty recession in early 2023. Obviously, things can change...
The markets job is to look forward 6 months+.
In 6 months time, there will be more liquidity.
Meanwhile, everyone already knows about recession and earnings risks
Any marginal decrease in hawkishness is all it takes to change sentiment and force people back into the market
In 6 months time, there will be more liquidity.
Meanwhile, everyone already knows about recession and earnings risks
Any marginal decrease in hawkishness is all it takes to change sentiment and force people back into the market
Let's see...
Its crash month (and reversal month)!
Be careful out there. You don't need to try to catch a falling knife but its worth having a plan...
Its crash month (and reversal month)!
Be careful out there. You don't need to try to catch a falling knife but its worth having a plan...
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