Is Your Money About to Go ...Phttt

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Bad things happen in October.” it says in Something Wicked This Way Comes and October is a month for stock market crashes in 1929, 1987 & 2008. So what are the teas leaves saying now?

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Despite lots of concerns about the economy, gold prices have rocketed - up 50% in the past year. The stock market has done well, and bitcoin - although volatiles has almost doubled in price in the past 12 months.

It’s raised concerns that there is a bubble that could soon burst

Q: How worried are people about a stock market that could soon collapse?

October can be a dangerous month in all sorts of ways. It is not quite winter but summer is far behind - so it is unpredictable and filled with the uncertainty of change.

It’s a theme some authors have used in their work. In Ray Bradbury’s The October Country (1955), Bradbury uses “October” as a metaphor for danger, death, and the uncanny — a season when things are just slightly “off,” and shadows lengthen.

In Something Wicked This Way Comes (1962) he says; “Bad things happen in October.”

Edgar Allan Poe talked of the October chill “…, as if the year were warning us of its end.”

The stock market can certainly feel that chill- as crashes often happen this month.

• October 1929 – the Wall Street Crash that triggered the Great Depression.

• October 1987 – “Black Monday,” when the Dow Jones fell over 22% in a single day.

• October 2008 – during the global financial crisis, markets plunged after the Lehman Brothers collapse.

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Some people are worried that the stock market might be about to get a bit of an October chill … so why the concern?

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Q: What investments have done best in the past year?

The FTSE 100 has broken through the 9,000-point barrier for the first time in July. It has risen 13% in a year and an almost uneblievable 36% rise since April. It had fallen in April when Trump introduced wide scale tariffs on US imports.

36% Rise Since April

GOLD +45%

Gold prices punched through $3,800 per troy ounce and has risen 45% this year - an extraordinary rise by any measure.

Other Asset Prices

+99% Bitcoin is up 99% in the past year

+45% Alphabet (Google) has risen 45% in the past year along with other tech shares

As asset prices boom you might think this was a reflection of an economy that is really strong. But that is not what we see.

Q: Is the rise justified?

The Office of Budget Responsibility, in looking at the economy says:

Challenging

"The economic and fiscal outlook has become more challenging since the Autumn Budget."

Stagnated

"Domestic output stagnated in the second half of 2024 and business and consumer

confidence have trended lower recently."

Rising Costs

"European energy prices have risen again, and government bond yields are up by around ½ a percentage point."

Uncertainty

"The outlook has also become more uncertain with two geopolitical risks highlighted in our 2022 Fiscal risks and sustainability report beginning to crystallise: upward pressure on defence spending and a tightening of global trade restrictions. And recent UK population, labour force, and output data do not provide a clear signal about domestic economic prospects."

Q: What are the other worrying signs that may point to a bubble and collapse?

Tech Bubble?

Goldman Sachs chief David Solomon had warned that a lot of capital being invested in artificial intelligence will “turn out not to deliver returns”, although he said he was still unclear whether the tech market was in a bubble. Amazon founder Jeff Bezos has argued that the surge of investment in artificial intelligence is fuelling a “good” kind of bubble,

Merry Go Round Investing?

Nvidia, the semiconductor giant which has become the world’s most valuable company on the back of the AI boom, said it would invest $100bn in OpenAI, the AI company behind ChatGPT. We should just pause for a moment to think about what $100 billion means.

Spending $100billion would buy you the entire Nike company. It is Ford and General Motors combined or the annual GDP of Poland.

It is raising eyebrows and some fears about whether or not this is part of a series of “circular” tech deals in which tech companies invests in, or lends money to, its own customers. Everything is well, until something breaks the recycling circl;e, in which case it could all collapse.

The Peculiarities of the FTSE

The FTSE is made up of companies that larhely make their money outside of the UK so although it is a British Stock Market index, it is not made up of companies that are that dependant on the UK economy.

Companies like the miners Rio Tinto and Antofagasta don't really make any money in the UK at all. The pharmaceutical company GSK makes almost all of its profit outwide the UK, as does the very British sounding Smiths Group and the insurance company Hiscox.

So the first thing to be aware of is that investing in the FTSE 100 is not about investing in companies that track the British economy.

What's Happening To The Dollar Can Be Very Important

Here is something that is confusing

The UK stock market can be effected signfiicantly because of movement in the value of the dollar, which has nothing really to do with the profits of the companies listed on the market.

At first glance - that sounds confusing - but here is why the dollar value can effect UK share prices for 2 reasons.

REASON 1: The FTSE 100 often benefits when the pound is weak against the dollar. That's because if companies are making profits in dollars, it gets translated into pounds when the company reports it profits in the UK.

As the dollar falls in value, one dollar in profit equals more pounds.

So the sterling profit can rise just because the dollar fell and might have nothing to do with the profitability of the company.

That's not what is happening right now as the dollar is strong against the pound.

REASON 2: Really weirdly the UK stock market can rise for the entirely opposite reason.

The pound is stronger against the dollar which could be a reason for American investors to be attracted to London-listed stocks.

Peter Oppenheimer, chief global equity strategist at banking giant Goldman Sachs, told The Times “Sterling has gone up against the dollar, so if you were a US investor buying UK equities and converting back into dollars, the return would be nearly 20 per cent. This is one of the reasons why you’re starting to see more interest in the UK.”

Common Warning Signs of a Financial Crash

Overvaluation / Market Bubble

Prices of stocks, housing, or assets rise far beyond their fundamental value.

Example: The dot-com bubble in 2000.

Rapid Credit Expansion & Debt Buildup

Heavy borrowing by companies, banks, or consumers that becomes unsustainable.

Speculative Frenzy

Lots of risky investing, “everyone making money,” and fear of missing out (FOMO).

Economic or Policy Shocks

A sudden interest rate hike, bank failure, or political event exposes fragility.

Loss of Confidence

Investors start selling rapidly, and panic spreads.

Liquidity Problems

Banks or funds can’t meet obligations, freezing up credit (like in 2008).

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