Ghostwriter – Author – Journalist

Cruel October

By on October 26, 2017 in Articles with 0 Comments

October is the cruellest of months for stock markets.

Thirty years ago, there was the stock market crash of 1987, a one-day drop of 22.6 per cent on October 19. That was somewhat unique, since a recession did not accompany it; the cause was program trading – computers tricked into selling all at once.

Stock market crashes are almost always followed by a recession since their root cause is a weak economy, not a computer malfunction, says David Rosenberg, the rather astute Canadian economist at Gluskin Sheff + Associates Inc. That was certainly true of the greatest stock market crash of them all.

The Great Crash of 1929 hit on Black Thursday, October 24, 1929, followed the next week by Black Monday and Black Tuesday when prices went into freefall and kept falling. What was worth $1 at the start of 1929 was worth 20 cents in 1932. Same story in Canada and throughout the industrialized world.

That October selloff set off the Great Depression, the greatest financial crisis of the 20th century. By 1933, 30 per cent of the Canadian labour force was unemployed; it was only 27 per cent in the United States. It lasted until the Second World War, a rather gruesome way to recover.

Why bring up this gloomy history? In October of 2017, stock markets in North America celebrated 100 months of going straight up. That is the second longest stock market run since the mid-19th century when records were first kept.

No one knows when the next market selloff will come, or whether it be in October. It may even have happened by the time you read this. “Anything that can’t last forever, won’t last forever,” said David Rosenberg in a recent column.

Everyone likes to say I told you so. Reputations were made and ruined when October of 1929 hit. This time is no different.
“The stock market has been magical. It can’t last,” screamed a headline in the New York Times. That was on August 19. The article points out that low interest rates that followed the financial meltdown of 2008 mean that investors have ignored bonds, which pay interest somewhat linked to the rates set by the Bank of Canada and the U.S. Federal Reserve. Instead, they have bought stocks that pay dividends. The danger is stocks are much riskier than bonds.

Many people are predicting the end is nigh. “Things have been going up for too long,” says Lloyd Blankfein, the head of Goldman Sachs, the big American investment bank. The trouble is the economies of Canada and the United States are outperforming most expectations. Certainly true in the film and television business.

David Rosenberg says this run is about 90 per cent done in the United States and Canada. When does it stop? Well, the world was supposed to end this past September 23, and we are still here.

The wisest place to be is in diversified portfolios, such as the ones run by the Canada Pension Plan, Ontario Teachers’ Pension Plan and AFBS. The AFBS General Fund holds not only stocks, but commercial mortgages and bonds. And perhaps most important, the funds just mentioned are run by humans. The return of the active manager is a major theme in the financial media. If there is a selloff, the people who will suffer most will be those invested in exchange-traded funds (ETFs), which are run by computers, not managers.

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About the Author

About the Author: Fred has had a full career as a CBC TV host and reporter. He has written countless articles for many renowned publications such as The Economist, The Globe and Mail, BusinessWeek and many more, as well as more than 2000 obituaries. He is also a successfully published author and ghostwriter. His current projects include writing and co-authoring books, as well as lending his talents as a speaker and interviewer for webcasts. .

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