All October Crashes Occur in October!
Despite the facetious title, October does have that deserved title of King of the Crashes. Indeed if you look at the chart below of the 20 largest one day declines in the Dow Jones Industrial Average, with all those that occurred in October in red, you can see October lays claim to nearly half compared to the other 11 months.
So how about some context of where we find ourselves now…. In case you missed it last night the S&P500 hit another new record high, it’s 6th in a row making that the longest streak since 1997. It also makes this the longest bull market in 20 years. The latest set of valuation metrics paint a clear picture:
High grade corporate bond spreads have just hit their lowest since just before the GFC at just 105 bps. Everything is so completely awesome that corporate bonds yield just 105bps above US Treasuries… what could possibly go wrong…
Because it’s not like these corporates are taking on record levels of debt now is it… (yep, higher than even pre dot com bubble and much higher than pre GFC).
And all this at a time where we have a US Fed looking to unwind its QE balance sheet, North Korean tensions escalating, and THAT Chinese debt bubble making the ratings agencies increasingly nervous. The October date takes on extra significance with Rocket Man at large, as we have two events in October that Jim Rickards warns could each present the final straw. Firstly 10 October is the anniversary of the communist party in North Korea and he believes the day Kim Jong Un will test more missiles. Then on 21 October we have the next round of war games with South Korea, and Rocket Man just loves them. Rickards is convinced a war is coming before mid 2018…
Finally, for a little fun, this video is a reminder of “How to spot a financial crisis before it spots you”