November 01, 2008

What’s with October?

“Black October” is the term often heard these days with market moves punishing investors around the globe. And indeed this October-08 has made its mark in financial markets history. Japan’s stock market has seen the worst month ever while the overall US markets showed one of the worst monthly performances in about 20 years. To put things in perspective, I’d like to pick up on the theme of the Black October and dissect the numbers from a few angles.

On Currencies
The past three months in the currency markets have been an unprecedented roller-coaster ride. When I started working in foreign exchange in the early 90’s, it was within the first couple of years that I experienced some of the most volatile markets. For Forex history connoisseurs, the big story then was George Soros and his Quantum Fund. In September of 1992 he and his fund made a profit of $1billion in a single day. It was in those days, when the UK exited the Exchange Rate Mechanism (a pre-curser to the Euro), cut interest rates and dropped from about $2.0000 to about $1.5500 within a matter of a few months. Incidentally, the crash happened in September and October. But October 1992 also proved a major turning point for the UK. Not only did the massive sell-off come to an end, it also proved the beginning of a wonderful economic expansion as well as the beginning of the massive and long-standing rise in the UK property market. Sounds familiar? Crises can create opportunities…

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