October Crashes, Collapses and Upheavals

Left photo: Irving Weiss (with hat) and his brothers, circa 1928. Right: Irving Weiss with son, Martin, about a half century later.

History teaches us
valuable lessons, and so
did my father, Irving
Weiss. 

As a child in the second
decade of the 20th
century, he endured the
economic impacts of the
worst pandemic of
recorded history.

 

 

 

As a young man in the third decade of the century, he witnessed the Crash of ’29 and built a stellar reputation for predicting the bear market, the banking holiday and the Great Depression that followed.

And as my mentor during the second half of the century, he helped me predict the bond market crash of 1979, the stock market crash of 1987 and much more.

It comes as no surprise to me — and, I presume, to you as well — that history repeats itself: Despite differences in color and details, events tend to follow patterns that are structurally and functionally similar.

What does come as a surprise, however, is the fact that all of the shocking events I’ve mentioned so far began or peaked in the month of October.

Does that mean most Octobers bring dramatic change or that most dramatic changes happen in October? No.

But it does make me stop and ask: Is there a cycle — or combination of cycles — that, due to patterns deeply embedded in history, come together in the tenth month more often than mere chance would dictate?

Consider some of the most salient Octobers of the 20th and 21st centuries, and then make up your own mind:

October 1907 — Panic of ’07.  A major bond offering by New York City fails … the copper market collapses … Standard Oil is slammed with a massive $29 million fine for antitrust violations … and stocks plunge.

On October 22, Knickerbocker Trust, the second-largest trust company in the United States, is forced to suspend operations, triggering an especially intense wave of fear on Wall Street plus massive cash withdrawals from New York banks.

The U.S. Federal Reserve does not yet exist. But J.P. Morgan steps in to play the role of lender of last resort, injecting liquidity into financial markets by buying up bonds, orchestrating multimillion loans, and preventing a wholesale collapse in the economic system.

October 1912 — Balkan War, prelude to World War I. Exactly five years later, it’s Europe’s turn to plunge into crisis, leading to the First Balkan War.

The Ottoman Empire has been encouraging Muslim populations of Bosnia to join the Empire and move to districts of northern Macedonia to restore the number of Muslims in the region. Meanwhile, Muslim immigrants join Albanian Muslims in a series of uprisings.

Peter the First of Serbia issues a declaration in support for Serbian and Albanian Christians living under Ottoman rule, declaring that his army will “join the Holy War to free our brethren.” Soon Montenegro, Bulgaria, Serbia and Greece declare war on the Ottomans.

The events foreshadow World War I, ultimately claiming the lives of more than 16 million soldiers and civilians.

October 1918 — influenza pandemic. This is the deadliest month of the deadliest pandemic in history, with a record 195,000 Americans succumbing to influenza in just 31 days. Before it’s all over, 50 to 100 million people are killed and 500 million are infected worldwide.

October 1922 — fascism in Italy. On October 25, Benito Mussolini celebrates the close of his Fascist Party Congress in Naples. On October 27, he embarks on his historic March of the Blackshirts on Rome. On October 28, he seizes power. And on October 29, he’s named Foreign Minister, Interior Minister and Prime Minister of Italy.

October 1923 — German hyperinflation. Prices in Germany are rising at the most rapid pace of almost any month in history, driving the value of the German mark down to more than four trillion to the dollar. Making matters worse, separatists and communist movements in Germany spread to Bavaria and Saxony.

“World’s highest standard of living” billboard is backdrop for historic soup line of just a few years later.

 

 

October 1929 — Crash of ’29. This month delivers more than just the Black Thursday of October 24, when the Dow loses 11% of its value. It’s also the month of Black Monday (October 28, when the Dow falls 13%) … and of Black Tuesday of October 29 (Dow down 12%) … followed by the deepest bear market in U.S. history.

 

 

October 1936. Spanish Civil War, prelude to World War II. With Hitler’s backing, Francisco Franco is proclaimed Generalissimo of the National Army and Head of State. It is a pivotal event in the Spanish Civil War, which, in turn, is a sneak preview of World War II in Europe.

October 1938. Hitler’s first major armed expansion. German troops occupy the Sudetenland, the Czech region inhabited by 3 million ethnic Germans. By October 10, the region is fully under Nazi control.

Seven years later, the end of World War II ushers in a long era of global stability. But in 1971, Nixon abandons the gold standard and effectively devalues the U.S. dollar, setting the stage for rampant inflation in the United States and a collapse in the value of the U.S. dollar.

October 1978 — dollar panic. This month brings the panic climax of the dollar collapse. In this one single month, the U.S. dollar index loses more of its value than any month in history.

October 1979 — bond market collapse. U.S. Treasury bond prices suffer their worst collapses in history, as Fed Chairman Paul Volcker imposes Draconian measures in a desperate — but ultimately successful — attempt to kill the inflation monster that has plagued the U.S. for nearly a decade. Separately, the Soviet Union prepares to invade Afghanistan.

October 1984 and October 1986 bring two major U.S. government shutdowns under President Reagan.

October 1987 — Crash of ’87. The 19th is Black Monday — a Dow plunge of nearly 25%, its worst single-day percentage decline in history and nearly double the crash recorded on Black Monday 1929.

Among the key forgotten preludes to the stock market disaster: a 50% collapse in crude oil prices a year earlier.

October 1994 — Russian ruble collapse. In just one day, October 11, the Russian ruble falls 27% against the U.S. dollar. It reflects the Russian government’s “Shock Therapy” economic policies, spurring massive inflation, wiping out the savings of millions of citizens and catapulting Russia into a deep depression — the same kind of crisis that drives President Vladimir Putin to shocking actions more than two decades later.

October 1997 — Dow mini crash. On the 27th day of the month, the Dow suffers a 554-point plunge, wiping out more than $663 billion in market capitalization.

October 2001 — America’s longest war. When the Taliban government in Afghanistan refuses to extradite Osama bin Laden, the U.S. and the U.K. launch Operation Enduring Freedom, beginning the longest war in U.S. history, still raging today.

October 2008 — global market Armageddon. The IMF warns that the entire world’s financial system is “on the brink of systemic meltdown” as the world’s stock exchanges experience some of their worst declines in history. (See last Monday’s edition for timeline.)

The crisis is so threatening that the U.S. Federal Reserve and all major central banks around the world embark on a radical, history-smashing escapade of rampant, nearly nonstop monetary easing and money printing, the consequences of which are still unknown.

Back to the Present

Most people associate the term “Black October” with a stock market crash. But as you’ve seen from these many historical examples, the financial markets are only one of several focal points where the forces of history can strike.

Others include currency markets, key centers of geopolitical conflict, and the U.S. government itself, each playing pivotal roles in setting the course of history.

I repeat: It would be an overstatement to say that the month of October itself is the critical force behind these events. But it would also be a mistake to assume that October of 2015 has so far been uneventful. Quite to the contrary, this month has already delivered …

• Official recognition by the U.S. Federal Reserve of the grave risk of global collapses and upheavals. In fact, they specifically stated in their FOMC meeting notes released last Thursday that the risks are so great, they dare not raise interest rates from zero despite overwhelming monetary arguments to do so.
• Official IMF recognition of a global slowdown. In its latest report, the International Monetary Fund says the global economy is slowing almost across the board — in Europe, Japan and emerging markets. Moreover, the IMF argues that companies in emerging markets have overborrowed by $3 trillion, risking a new global financial crisis.
• America’s most disappointing employment report since the Great Recession.  (See “Jobs Disaster Confirms This Economy is in BIG Trouble.”)
• Russia’s air, naval and ground attacks in Syria. It’s their first-ever armed intervention outside of the former Soviet Union since their invasion of Afghanistan in 1979. Not only is this a massive escalation of a four-year Syrian civil war, but, for the first time since the Cold War, it thrusts the United States and Russia onto opposite sides of the same battlefield.
• A shocking escalation in the Afghanistan civil war. A resurgent Taliban, already controlling vast regions of the country, take Kunduz, the first major city to fall since the U.S.-led invasion of October 2001. Even if U.S. and government forces can retake and hold Kunduz, they are doing little to prevent the fall of other provincial capitals now under fierce Taliban attack.
• Leadership turmoil in the U.S. House of Representatives. While on the brink of major budgetary battles, suddenly no unifying leader steps up to assume the pivotal role of Speaker of the House.

What will happen in the remaining three weeks of October remains to be seen. But even if the stock market rallies, don’t let that cloud your judgment. Brace yourself for a series of events before year-end that could shape the course of history for years to come.

Good luck and God bless!

Martin