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The Scariest Stock Market Stories Ever: 11 Awful Octobers


Halloween night closes the month that has traditionally given traders the chills. A remembrance.

Captains of industry from all over America will today head to Halloween parties that have historically ranged from cute (Marissa Mayer introducing her baby boy at Yahoo's year-ago bash) to creepy (a Goldman Sachs executive hosting clothing-optional affairs) to crass (employees at a 'foreclosure factory' masquerading as homeless people.)

Wall Street, where "fear" has always been 50% of the equation, is itself a perfect setting for celebrating the macabre. The "Bard of Baltimore" - not the seriously scary Edgar Allan Poe, who died in Maryland's largest city, but H.L. Mencken, who was born there - once called the cathedral of capitalism, "A thoroughfare that begins in a graveyard and ends in a river." At night, the deserted financial district resembles a ghost town, an equally accurate description of the now sadly depopulated New York Stock Exchange trading floor, long ago turned to tumbleweeds by computerized trading. (There remains a skeleton crew.)

Zombie banks; vampire squids; tombstone ads; quadruple witching; Bernie Madoff costumes; a man from The Munsters; a woman central banker named after Elvira, Mistress of the Dark; black CATs; things that go bump in the Knight - these are terrifying things, to be sure. Yet none can quite invoke the sheer horror October has often conjured up in equities. With the S&P 500 Index (INDEXSP:.INX) standing atop an all-time peak as we speak, it is easy to forget this month has hosted some of Wall Street's worst-ever bloodbaths. Fat cats have been turned into 'fraidy cats in umpteen Octobers of old, a fact that even the best witch's broom can't sweep under the carpet.

What follows are events so scary, you might want to avert your gaze. (Although, this being the Internet, I could use the eyeballs.)

Where to start? The "Panic of 1873" began literally on the first of the month, with the failure of a Philadelphia financial firm. The NYSE was shuttered for an unprecedented 10 days before the calamity's conclusion.

The year 1907 witnessed another October Panic, although -- to use two $10 words investors of the era could ill-afford -- its formal name is the Knickerbocker Crisis. Stocks plunged 50% peak-to-trough amid a banking debacle. The House of Morgan (NYSE:JPM), mercifully not haunted, saved the day and raised shareholder spirits, with James Pierpont himself emerging as the hero of the entire exorcise.

Next stop, 1929. Early in that fateful year, astrologer to the stars Evangeline Adams - whose celebrity clients included Mr. Morgan and Charlie Chaplin - took time out from her séances and Ouija boards to predict the market would continue its inexorable ascent. She was far from alone; as the iceberg approached, economist Irving Fisher said, "Stock prices have reached what looks like a permanently high plateau." And Herbert Hoover, soon to be indelibly associated with shantytowns, took the oath of office after a campaign that promised, "We shall soon, with the help of God, be in sight of the day when poverty will be banished from this nation." On the silver screen, Blue Skies and Sunny Side Up captured the mood of the country. (Ironically, the catastrophe's most memorable headline would later come from Hollywood.)

Fate, foolishly tempted, readied its revenge. A mini-crash on March 24 might, with 20/20 hindsight, have marked the true end of the Twenties. Equities eventually recovered, hitting a historic high on September 3. Then, calamity, as the newfangled consumer credit economy collapsed like a house of cards. Margin debt only exacerbated the mayhem. On October 24 ("Black Thursday") Dow Industrials (INDEXDJX:.DJI) dropped 11%, swiftly followed by a 12% mauling on "Black Monday" October 28, and - the coup de grâce - an 11% implosion on October 29 ("Black Tuesday"), when an unprecedented 16 million shares were sold as remaining holdouts capitulated. Window-jumpers up above and panicky crowds down below became leitmotifs of the age.

The Great Gatsby era was gone, replaced by soup kitchens and unemployment lines. As for equities, they would not see September 1929 peaks for another quarter-century. The aftershocks echoed worldwide; eminent English historian A.J.P. Taylor declared, "Only the Great Depression put the wind in Hitler's sails." The Roaring '20s were over, and Auden's "low, dishonest decade" had begun.

Another October horror story occurred in 1937, with stocks slumping 8% in a single session as America remained mired in its steepest-ever downturn.

Fast-forward 40 years, and we had a monster mash-up of October swoons in 1978 and 1979. In each case, government shutdowns exacerbated the angst, extending for 18 and 11 days, respectively. (And they say history never repeats.) Contemporary cover articles ghoulishly warned of the death of equities.

As it was, a new bull market arrived in 1982, along with Michael Jackson's Thriller zombies. The awesome run ended in 1987, the year America's film-goers flocked to The Witches of Eastwick.

Not even Nancy Reagan's psychic saw this one coming. Indeed that January, the Dow enjoyed its best month ever, jumping 13.8%. Alan Greenspan was appointed Fed head on August 11, just in time to see markets peak two weeks later. From there, stocks started a steady decline, including precipitous plunges on October 14 and 15. Then came Manic Monday, October 19, when the blue chips fell 508 points or 22.6%, still their steepest ever one-day drop, on record volume of 604.3 million shares. To quote Tom Woolf's novel of that year, The Bonfire of the Vanities had begun, long before Guy Fawkes and his inferno were appropriated by Occupy Wall Street.

What caused the crash? Good minds still disagree, but a witch's brew of program trading, dire trade data, and saber-rattling with Iran all arguably played their part. One element is inescapable - the event was genuinely global, with London's FTSE 100 Index (INDEXFTSE:UKX) tumbling 26.45%. In an ominous portent, a dark and stormy night descended over the British Isles only hours before.

(Best not to walk under a ladder when you read this, but this week England was hit with a tempest unlike any since, yes, October 1987.)

Equities did appear cursed that year - two months later, a stray squirrel carrying a piece of aluminum foil was electrocuted, temporarily taking the Nasdaq (INDEXNASDAQ:.IXIC) down with it. But for all the big-haired headlines blaring "Crash!" the Dow actually ended 1987 above where it began.

Dead Poets Society, Pet Sematary, A Nightmare on Elm Street 5, and Friday the 13th Part VIII. Perusing the top-10 movie titles of 1989 is enough to send a shudder up anyone's spine (Salman Rushdie also endured a year from hell; something about The Satanic Verses). So it was that a nightmare on Wall Street occurred on Friday the 13th of October that year. Blue chips cratered 190.58 points, which seems quaint now, but back then amounted to a devilish 6.91%. Blame aviation for this flash crash, as the collapse of a leveraged buyout deal for United Airlines (NYSE:UAL) sent equities, and the junk bond market, into a tailspin.

Amazon's (NASDAQ:AMZN) bestselling books of 1997 have similarly haunting titles - Cold Mountain, The Perfect Storm, Midnight in the Garden of Good and Evil, The Angel of Darkness, Into the Wild. On October 27, equities offered up something even scarier. An "Asian contagion," which started with the collapse of the Thai baht that summer, sent Hong Kong's Hang Seng Index (INDEXHANGSENG:HSI) sliding 6% in the dead of night US time.

Our own markets opened to frenetic selling, with the Dow average falling 554.26 points or 7.18% by the close of trading. The dénouement didn't occur at its usual 4 p.m. Eastern, however. For the first time ever, circuit breakers - put in place after the events of 1987 - were breached, initially at 2:36 p.m. and again at 3:30 p.m. CNN quoted one Rosana Adivinadora, an astrologist from Queens, who recoiled in horror at her local Charles Schwab (NYSE:SCHW) branch: "I came in to look at my stock prices and I said, 'Oh my God, it's a crash!'" (What is it about these soothsayers who erroneously predict only profits?)

Happily, 1997 is now ancient history, so it could never occur again. Or could it?

Meredith Whitney, who majored in history at Brown, knows all about the inauspicious past of October in equities. Indeed in 2007, she added to the month's infamous roll call. Taxi to the Dark Side was that year's best reviewed movie; her Halloween downgrade of Citigroup (NYSE:C) was the first to shed light on subprime slime and the coming housing crisis. (Wes Craven's slasher flick Freddy's Revenge did, admittedly, debut in 1985, but Freddie Krueger, not Freddie Mac (OTCBB:FMCC), was its star.)

Ms. Whitney's subsequent reputation has taken a hit, amid Cassandra warnings of a municipal bond mess that hasn't (yet) materialized, but when Michael Lewis calls you "an oracle," you were obviously a pretty big medium. Her prediction that Citi required either dividend cuts or asset sales to stem a $30 billion capital shortfall swiftly sent the stock tumbling to a four-year trough, with $15 billion in market cap vanishing like Endora on Bewitched.

Among equity analysts, being called an 'ax' has nothing to do with murderous weapons; it means you are preeminent among industry peers. On one especially scary October 31, Meredith Whitney was exactly that.

Okay, the end is nigh, for I know y'all have Miley Cyrus and Robin Thicke costumes to squeeze into before the night is out.

But before we go, two more anxious Octobers. If I may enlist a shower sequence to describe a bath, October 2008 was straight out of the Anthony Perkins scene in Psycho - death by 1,000 cuts. In a 19-day span from the fall of Lehman, the Dow dropped 2,675 points. Especially brutal sessions were endured on October 7 (5.11%), October 9 (7.33%), October 15 (7.87%), and October 22 (5.69%).

As for last October, stocks were hit with a black swan event spookier than any scarecrow. Superstorm Sandy saw the NYSE barricaded by sandbags, necessitating its first two-day weather-related shutdown since 1888, when Jack the Ripper rather than jack-o'-lanterns stalked the streets.

And with that, enjoy tonight's festivities. As Mister Market has been a money tree over these past four weeks, we are probably out of the woods as far as another October calamity is concerned. Just remember, though, that even if a stock looks like a screaming buy, this is typically no time of year to go bargain haunting. Especially if you happen to hear The Wolf of Wall Street howling at the moon.
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