Friday, October 10, 2008
cheery weekend thoughts
Describing a world in which wholesale money markets were now refusing to lend to banks, even overnight, the UK authorities warned that the world was on the edge of a collapse of the financial system.
we got a relieving rally late today, bringing the s&p from an afternoon low of 840 all the way up to 900 and turning another massive loss into a small loss. but the phenomenon of weekends in a crash is something to fear, and i just wonder what may greet us following a short break.
the worst day of the 1987 crash came on monday october 19, down (-20.47%) in the s&p; the following monday october 26 was further down (-8.28%).
the mondays in the 1929 autumn rout were similarly destructive -- monday october 21 kicked off the rout at (-3.72%); monday october 28, (-13.48%), was the biggest down day of the event; monday november 4, (-5.78%); monday november 11 (-6.81%).
this time through the meatgrinder monday october 6 was (-5.09%) in the SPY; the previous monday, september 29, was the (-7.84%) shot heard round the world; monday september 15 brought the (-4.76%) move that heralded a new intensity and volatility with the downfall of lehman. these were most of the largest drops in the recent cascade.
i've recently been rereading j.k. galbraith's classic chronicle "the great crash", and he noted particularly the difficulty crashing markets have with periods of reflection. the dynamic seems very much to be this: go home, think about it for a while, decide that you're well and truly scared and come back monday selling. thinking, it seems, is antithetical to holding in a crash. perhaps that's not such a profound insight.
this particular monday will offer the strange backdrop of a bond market, bank and government holiday as well. i've no good idea how it might affect the stock market or liquidity generally -- indeed, i wouldn't be wholly surprised if they decided to belatedly call monday a holiday for the NYSE as well.
we'll see, i suppose. personally i suspect we'll be riding the lightning for some short while yet.