Stock market collapse in October

[Bagpuss]

I made a mint on Barclays and a couple of other banks back in Feb. Plus I remember telling everyone at the time.

A few of us had already bought bank shares in January, seem to also remember you saying you were only going to risk a few hundred.

[BrilloPad]

I am thinking of buying put options : where is the best place?

[TimberWolf]

I am thinking of buying put options : here is the best place?

Where?

[BrilloPad]

Where?

Cheers : I have edited.

[PM-Junkie]

My take on things...

The more pessimistic amongst us think that risk is that this economic recovery won't continue and that things might start to drop off within the next three months. Possible, but given that central banks & governments have signaled that they are going to maintain a very expansive economic policy.... and that interest rates will remain very low for a long time (and that they are going to continue their fiscal spending), I don't thinkk the risk is very high. I think the recovery will continue, given the expansiveness in monetary and fiscal policies. The real risk, in my view, is that we could actually see some markets moving ahead too strongly (eg commodity prices). If that happens, it usually spells trouble elsewhere.

The real danger is that the medicine that has been applied will lead to prices rising in a number of areas, and that another bubble is 1-2 years away as a result. I see no activity that indicates people/banks/regulators have learned the lessons of the last two years, and I still think the financial markets are highly prone to lurch from boom to bust to boom. History shows that low interest rates lead to the next bubble - so I see all this happening again.

But I don't expect a crash in the next 6 weeks as others here seem to.

[PM-Junkie]

Oh, and my take on commodities, and the dollar & euro....which I have banged on about here in the past.

I think gold will peak at around the 1050-1100 level and some of the other precious metals like platinum could continue higher. If you take a look at the attitude of the bigger countries in OPEC, it doesn't look like they favour the price of oil going crazy again, so whilst the trend is up I don't think it will be dramatic - so the worries about high oil prices screwing the recovery may not turn out to be valid.

And my take on the dollar....I've said for months I think it is inherantly weak, and will continue a downward trend over the next 12 months. Why? Well, historically the dollar has needed higher interest rates than Europe in order to maintain value. That is no longer the case, and is likely to remain so over the next 12 mnonths or longer. Plus, historically as financial conditions become less risky people tend to diversify from the dollar, which hits its value. There are also problems with the Euro and sterling of course...I just think the dollar's problems will take the fore. And I think the markets agree....that is why we've seen gold increasing in value.

And yes, I have put my money where my mouth is.

[OwlHoot]

.. But I don't expect a crash in the next 6 weeks as others here seem to.

Not just others here:

US credit shrinks at Great Depression rate prompting fears of double-dip recession

Both bank credit and the M3 money supply in the United States have been contracting at rates comparable to the onset of the Great Depression since early summer, raising fears of a double-dip recession in 2010 and a slide into debt-deflation.

Professor Tim Congdon from International Monetary Research said US bank loans have fallen at an annual pace of almost 14pc in the three months to August (from $7,147bn to $6,886bn).

"There has been nothing like this in the USA since the 1930s," he said. "The rapid destruction of money balances is madness."

The M3 "broad" money supply, watched as an early warning signal for the economy a year or so later, has been falling at a 5pc annual rate.

Similar concerns have been raised by David Rosenberg, chief strategist at Gluskin Sheff, who said that over the four weeks up to August 24, bank credit shrank at an "epic" 9pc annual pace, the M2 money supply shrank at 12.2pc and M1 shrank at 6.5pc.

"For the first time in the post-WW2 [Second World War] era, we have deflation in credit, wages and rents and, from our lens, this is a toxic brew," he said.

[suityou01]

I tend to think of the UK economy in simple terms. Imagine a household, with borrowings up around their ears, only just managing to put food on the table, pay the credit card minimum payments and the mortgage.

Then one day they find they can't make ends meet. So borrow more money, and sit this in a bank account and drain it each month to make ends meet.

Then when that runs out the borrow more. Repeat until the banks stop lending and you can't make ends meet.

As sasguru said on here earlier, we cannot afford to run this country any more. Soon the bank will stop lending to us. And that bank is the IMF. Last year we had our triple A credit status downgraded, that was a warning shot that we have failed to heed. Only now are we talking about spending cuts.

I think the government have to get the timing of stopping QE absolutely spot on, and that is very easy to get wrong.

I strongly suspect that the next financial downturn will be soon (next 6-8 weeks or so) and that it will be triggered from deep in the heart of America, more expressly deep in the heart of the Fed.

[GreenerGrass]

I reckon oil is a safer bet than gold at the moment. It may dip in the next month or two, but in 2 years time it will top $100. Probably.

The investment banks are investing a lot in commodity trading and risk management, this is where a lot of new hiring is. They will "win" whether commodity prices go up or down.

If things get worse here the BOE will put negative rates on reserves, the next tool of QE.
I agree this country is probably doomed, but that's not to say some of the more defensive blue chip high dividend stocks, oil and BRIC funds (although volatile) won't make money in the next few years if you drip feed in.

[PM-Junkie]

I tend to think of the UK economy in simple terms....

Don't worry, that much is abundantly clear.