Everybody can take their feet up and relax. We are heading in to the dog days of summer. And even in uncertain times, we can be sure of one thing: nothing associated with a real importance is going to happen within the next four weeks.
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All the people that really matter – the ones running the large corporations, the banks or the Government – is going to be off sunning themselves by a pool somewhere. The interns left out at their desks can\’t make a difference.
Traditionally, nobody expects much business to get done in August. The people who matter are extremely busy wondering if they should snap up that villa in Tuscany advertised in the local estate agent the euro is really cheap, and how they can keep your kids amused until they can pack it well off to school.
The office is all about as busy as the “Invest in Greece” team. The only real people left would be the post boy, the trainee and interns busy updating their Instagram pages. It is impossible to imagine anything of significance happening. Indeed, we\’ve developed cliches for the unimportance of August. In journalism, it\’s known as the “silly season”. In France, it is known as the grandes vacances.
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Both suggest total confidence that we can coast through the next few weeks. Nobody will disturb us if we take some time off. Even financial columnists can without danger dust off whimsical pieces about holiday oneupmanship, or earnest but dull think-fests concerning the challenges resulting from inequality or globalization over the course of the century, secure knowing the readers, in the unlikely event there are any, will be thankful to not have to interrupt the sun\’s rays with much of hard thought.
But hang on. It turns out that is not really true. In fact, August is often the biggest month for the financial markets. Returning over time, the largest moves in stocks and the global economy came at the peak of summer. With the Shanghai market crashing a lot more than eight per cent in one day, as it did Monday with a whole series of different fissures within the global financial system poised to interrupt open, this August may be very rocky.
So hang on to your smartphone while you sit at the lake – this may be an exciting few weeks.
Look back to 2007 and you\’ll remember that the loan crunch that triggered the worldwide financial collapse started that August when BNP Paribas quietly shuttered a few hedge funds and the European Central Bank (ECB) suddenly needed to start injecting liquidity in to the markets.
The Russian economic crisis, which precipitated the final big meltdown within the financial markets before that, also erupted in an August – of 1998 – and incredibly quickly spread to Asia as well. In 1987, the Dow Jones Industrial Average reached its peak on August 25, and then started the decline that culminated within the huge crash of October that year.
Even further back, the final demise of the gold standard arrived August 1971, using the “Nixon Shock” – the choice by the then President, Richard Nixon, to sever the hyperlink between the dollar and also the precious metal. Recently, August 2011 saw the apex of the eurozone financial crisis, with bond yields soaring over the periphery and stock markets collapsing on fears from the currency falling apart – the FTSE and the Dow both saw their largest one-day falls since the Lehman Brothers\’ collapse that month as investors fled the carnage.
As it takes place, it is not just the markets. It\’s a big month for global events as well.
Such as? The First World War started in August 1914. The Second World War ended in August 1945. Russia sent its tanks into Prague in August 1968. Iraq invaded Kuwait in August 1990. And so on. Of course, that may just be a coincidence. You may earn a case for some other months being pivotal as well.
October has some form, for example – the Great Crash of 1929 came in that month, as did the rather more minor certainly one of 1987. Even so, if you had to pick just one month, then August would be the big one.
There is not exactly a shortage of potential candidates for a shock within the month ahead.
The Chinese marketplace is looking about as stable as a toddler trying to ride a bicycle. It is see-sawing wildly as speculators in the market get burnt, the government desperately tries to keep the market afloat, and it is massive economy slows down, with all that that implies for financial stability. That may be typical of a fast-growing emerging market. The main difference is that China is really huge, and so crucial to the worldwide economy, that the financial system is not likely to be able to shrug off a Chinese crash in the same way it could take a collapse in Egypt or Kenya or Vietnam as well as other developing economy.
The eurozone remains held along with sticky back plastic, and some glue the ECB president, Mario Draghi, found behind the couch in his office.
Everyone knows that there is more chance of Jeremy Corbyn quitting the Labour leadership race for any cushy directorship with JP Morgan than the latest rescue package actually working.
There are lots of wild stories about plans to have an alternative currency being quietly prepared. If you were going to try that, wouldn\’t a basic weekend in August be the best time?
Perhaps most ominously of all, we are already deep into what\’s now among the longest bull market runs ever. The FTSE and the Dow touched their lows (of three,503 and 6,547 respectively) back in March 2009.
That means we are now an epic 76 months right into a bull market. That isn\’t quite a long in history. The big daddy of bull markets was the large run-up in stock prices from 1990 to 2000, which culminated within the dotcom bubble. It lasted for 117 months. Then there was the run from 1921 to 1929, which lasted 97 months, before it all came messily unstuck.
But it is now the third longest since records were kept, having just overtaken the 1949-1956 rally of 70 months. Of course, maybe it\’s different this time. Perhaps bear markets have been abolished. On the other hand, history suggests we are overdue a crash.
And the same record books claim that if it is going to happen, it will happen in August.
No one knows which of these fissures might trigger an earthquake. With luck, not one of them will. But you wouldn\’t want to bet onto it. So be sure you pack your phone charger while you head off to the sun – and become prepared to make some calls to the office when the world does start to collapse.