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Art Cashin Warns: "Beware The Ides Of September"

Tyler Durden's picture




 

While Europe is dominating headlines this week, UBS' Art Cashin suggests "mark your calendar and cross your fingers" as he notes the disproportionate prevalence of events that occur in September. Focusing on The Economist's Greg Ip's recent post on a possible seasonal pattern in banking crises, via this recent Reinhart & Rogoff extension paper by Laeven and Valencia, he notes: "The frequency with which the world goes to hell in September seems hardly random." Unfortunately the authors provide no explanation for this beyond observing, "An interesting pattern emerges: banking crises tend to start in the second half of the year, with large September and December effects." Ip and Cashin offer some thoughts on why this is so historically, and more importantly why this time is no different, as the avuncular Art concludes with: "try to enjoy your summer".

Art Cashin, UBS: Mark Your Calendar And Cross Your Fingers

Savvy Fed observer, Greg Ip, now writing and blogging at the Economist has come across a possible seasonal pattern in banking crises. Here’s a bit of what he wrote:

Most readers of this blog are familiar with the path-breaking work of Carmen Reinhart and Kenneth Rogoff on financial crises. Fewer have heard of Luc Laeven and Fabian Valencia, but they too have contributed richly to the raw material of crisis economics. Labouring away at the International Monetary Fund, they have assembled a detailed database of 147 banking crises from 1970 to 2011. They recently published a new working paper detailing some of their latest findings. There's lots of fascinating stuff in here but what leaped out at me was a chart showing the likeliest months for crises to begin.

Ip then shows a chart indicating a disproportionate number of events in September. He continues:

The frequency with which the world goes to hell in September seems hardly random. Unfortunately the authors provide no explanation for this beyond observing, "An interesting pattern emerges: banking crises tend to start in the second half of the year, with large September and December effects."

I recall reading that historically the fall was a popular time for crises because farmers needed to borrow to bring in the harvest, which strained fractional-reserve banking systems. I can't think why that pattern would persist into the post-industrial era. One theory blames the October 30th fiscal year-end of American mutual funds; managers trying to avoid losses or hold onto gains for the year were more likely to succumb to herd behavior as that date approached. But that wouldn't explain why the pattern holds in other countries which, I assume, have different year-ends. Maybe it's because policy makers and bankers don't confront their problems until they get back from vacation, the macro equivalent of doctors scheduling c-sections during office hours.

 

No matter the explanation, this gives more reason, as if you needed more, to sweat as the fall approaches. Just to elevate the anxiety further: another calendar pattern to which Mr Rogoff first alerted me is the tendency for crises to happen in election years; think Mexico, 1982 and 1994, Korea, 1998, America, 2008, Greece, 2009. The intuition behind this was that crises are the result of imbalances that accumulate over a long time. Politicians have a strong incentive to delay dealing with them until after an election, and often, as was the case with Greece, to actually hide the truth until the polls close. This means imbalances often reach their breaking point right around the election. This has been a busy year for elections: we've already had Russia, France (we're still waiting for the true state of France's fiscal affairs), and Greece, twice. Mexico's is just a few weeks away, and of course, America's fiscal problems come to a (contrived) head mere weeks after November's election. That's also roughly around when China has its version of elections, i.e. the long-orchestrated change in the Communist Party's leadership.

Try to enjoy your summer.

 

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Tue, 06/26/2012 - 10:04 | 2561346 ebworthen
ebworthen's picture

Always remember, short banks early September.

And buy some Silver.

Tue, 06/26/2012 - 10:13 | 2561378 Tirpitz
Tirpitz's picture

According to the latest rounds of stress tests, all surviving banks are healthy and can withstand a rough patch.

And if not, another round will make them appear so.

Tue, 06/26/2012 - 10:15 | 2561392 krispkritter
krispkritter's picture

'another round will make them appear so.' 

You buyin'? Or should we hit up Frau Merkel?

Tue, 06/26/2012 - 10:17 | 2561405 Tirpitz
Tirpitz's picture

Buying puts only, as far as banks are concerned. Puts and ropes.

Tue, 06/26/2012 - 10:19 | 2561409 Divided States ...
Divided States of America's picture

Look what happened in September 2008, an election year, right after the Olympics had just ended and maybe, just maybe, Art is right

Tue, 06/26/2012 - 11:07 | 2561601 Nobody For President
Nobody For President's picture

What happened in September 2008?

Tue, 06/26/2012 - 11:22 | 2561692 Chain Gun Smoke
Chain Gun Smoke's picture

lol, you're kidding right?

RIGHT????

GTFO

Tue, 06/26/2012 - 12:06 | 2561896 zaphod
zaphod's picture

Basically the end of the article is suggesting that the FED really is independent, to the extremem point that the FED engineers the timing of blowups to elections in order to "fire" polititions the FED does not like (i.e. all of them).

If true, then it will be interesting to see if the FED supports or rejects Obama. If QEx then support, if no QEx then reject.

Either way the bankers profit and the people lose.

Tue, 06/26/2012 - 15:42 | 2562621 Carl Spackler
Carl Spackler's picture

The exact timing can be left up to Nostradamus, those self-proclaimed readers of the Zodiac, or the Mayans.

I do know this, however.  The U.S. Treasury will be up against the debt ceiling in early September, so I predict that Washington DC battle will be the "straw that breaks the camel's (e.g., market's) back."

Of course, U.S. equities may not have much of a spine left, since Bernanke has poisoned the remaining parts of the body.

 

Tue, 06/26/2012 - 14:19 | 2562335 kekekekekekeke
kekekekekekeke's picture

Bristol Palin announced she was 5 months pregnant http://en.wikipedia.org/wiki/September_2008

Tue, 06/26/2012 - 10:34 | 2561455 Stock Tips Inve...
Stock Tips Investment's picture

The problem is that every week the situation in Europe deteriorates more. This for banks is extremely critical because they are highly leveraged businesses. A reduction in government spending in Europe or further decline in economic activity in these countries, may cause a deterioration in the quality of the loans. A small decline in their portfolios of loans, causing a great loss in its worth. It is very likely to "continue to appear" new problems in the economies of Europe, which can further complicate any rescue plan.

Tue, 06/26/2012 - 10:43 | 2561492 El Oregonian
El Oregonian's picture

They say "Sep-TIMBER!!!!

Tue, 06/26/2012 - 10:16 | 2561384 vast-dom
vast-dom's picture

 Now review the CONSUMER CONFIDENCE chart from the other posting = SEPTEMBER is generally lowest confidence month from that bit of data....CUE THE THEREMIN for bad vibes upcoming.

Tue, 06/26/2012 - 10:32 | 2561447 distopiandreamboy
distopiandreamboy's picture

September is when people realize they'll be living off their credit cards for the holidays.

Tue, 06/26/2012 - 11:14 | 2561646 JimBowie1958
JimBowie1958's picture

Could it have anything to do with ending the fiscal year?

October starts the new fiscal year, so maybe a lot of this is people having the doldrums after finishing their books for the year?

Tue, 06/26/2012 - 10:52 | 2561526 jose.six.pack
jose.six.pack's picture

+1 for the Theremin

Tue, 06/26/2012 - 12:19 | 2561962 Stormy Weather
Stormy Weather's picture

A short explanation for France : in September people (well, the middle class) have spent all their money in holidays, and have to pay at least the first 1/3rd of their yearly taxes which amount from about a half to two monthly salaries. On top of that, school/uni starts, and it costs. Hence, no money, at all, to consume.

Tue, 06/26/2012 - 10:12 | 2561347 Cognitive Dissonance
Cognitive Dissonance's picture

Mid life year crisis?

Only half kidding here. The third quarter is when it's hard to ignore anymore certain trends that started late the year before or the beginning of the current year. Suddenly you wake up and realize things aren't quite right. Irrational exuberence wears off and the cold sweats come rushing in.

Tue, 06/26/2012 - 10:23 | 2561419 Gene Parmesan
Gene Parmesan's picture

Yep. Lots of vacation time being burned in the summer months. Plenty of businesses seemingly on auto-pilot. September is the return to reality. The kids are back in school, 2 quarters on the books and the 3rd is coming into clear focus.

Tue, 06/26/2012 - 10:09 | 2561349 Abraxas
Abraxas's picture

"Try to enjoy the summer" amid all the bad news. It's gonna be hard to do that?

Tue, 06/26/2012 - 10:19 | 2561407 Dr. Engali
Dr. Engali's picture

I'm having a great summer. I am visiting various rivers and lakes scuba diving looking for all this gold and silver the Hedgers have lost in poor unfortunate boating accidents.

Tue, 06/26/2012 - 10:23 | 2561417 Cognitive Dissonance
Cognitive Dissonance's picture

Caution. Down there be dragons doubloons.

http://en.wikipedia.org/wiki/Doubloon

Tue, 06/26/2012 - 10:26 | 2561425 krispkritter
krispkritter's picture

While you're at it, hit a couple of the links that Choombama favors and pick up some of those golf balls with the Presidential Seal in the water traps. Then send him his balls back, he's gonna need them come November.

Tue, 06/26/2012 - 10:25 | 2561422 JohnG
JohnG's picture

If you drink more and take lots of Xanax, it helps.....

Tue, 06/26/2012 - 10:42 | 2561489 Stock Tips Inve...
Stock Tips Investment's picture

I think that instead of enjoying the summer, we have to do is a contingency plan for each of us. That is, a plan to help us overcome the crisis if it is worse in Europe. If this happens, the more likely the U.S. economy and around the world are affected. I personally am doing my plan and I'm looking (although this seems very hard) and could benefit from the crisis. I have a portfolio of stocks that I think could make profitable if the market is clearly down. I think the most important thing now is to be ready in case the crisis worsens.

Tue, 06/26/2012 - 11:07 | 2561609 BBullionaire
BBullionaire's picture

What summer? it's done nothing but rain in the UK since April.

Tue, 06/26/2012 - 10:03 | 2561353 KNiCKER
KNiCKER's picture

Old news: Banking crisis started when Glass Steagal was killed... We now see the symptoms

Tue, 06/26/2012 - 10:39 | 2561475 Nothing To See Here
Nothing To See Here's picture

Someone drank the Barney Frank cool-aid until vomit ensues

Tue, 06/26/2012 - 10:03 | 2561355 bigwavedave
bigwavedave's picture

He needs to Fart and Cashout

Tue, 06/26/2012 - 10:05 | 2561359 virgilcaine
virgilcaine's picture

Hog hunting season begins.

Tue, 06/26/2012 - 10:10 | 2561374 krispkritter
krispkritter's picture

Let us know when Bankster Season starts...

Tue, 06/26/2012 - 10:15 | 2561389 Tirpitz
Tirpitz's picture

Driving them out of their golden palaces with clubs and dogs.

Tue, 06/26/2012 - 10:07 | 2561366 Conman
Conman's picture

Shocking... politicians kicking the can while appeasing their constituents no matter what the future cost? It never happens!

Tue, 06/26/2012 - 10:08 | 2561370 Dr. Engali
Dr. Engali's picture

The big policy crisis we have before the upcoming election is attacking Iran now or waiting until after the election. I wonder what kind of false flag we will get for an October surprise.

Tue, 06/26/2012 - 10:13 | 2561377 krispkritter
krispkritter's picture

 <-- EU/Euro Implosion

 <-- War in/with Iran/Syria/Pakistan/Turkey/Put your country's name here

 

Tue, 06/26/2012 - 10:09 | 2561372 Snakeeyes
Snakeeyes's picture

Interesting read. Let's see how the housing market does in September. There is already a big seasonal factor. This is why I am forecasting a return to housing malaisse at the end of the summer.

http://confoundedinterest.wordpress.com/2012/06/26/case-shiller-house-pr...

Tue, 06/26/2012 - 10:17 | 2561400 HurricaneSeason
HurricaneSeason's picture

Isn't September the time when congress needs to raise the debt ceiling by $2 trillion?  Then they'll need to cut $200 billion a year off the budget.  They want to delay the $100 billion they're already supposed to cut off the budget until March instead of January. The can gets kicked weeks or months these days. That should make for a lively congressional and presidential debate and display the fools in their glory. I see gasoline around $5 or $6 a gallon soon. It doesn't matter if they can keep the interest rates negative if they're going to often increase the account balance by 10% or more. Geithner says we don't want to hear the true bailout number that is needed. That sounds like a lot more than single digit trillions.

Tue, 06/26/2012 - 10:46 | 2561506 Stock Tips Inve...
Stock Tips Investment's picture

I agree. If not exactly be the month in September. But for the rest of the year, the crisis could worsen significantly. From this point of view, what we do is a contingency plan for each of us. That is, a plan to help us overcome the crisis if it is worse in Europe. If this happens, the more likely the U.S. economy and around the world are affected. I personally am doing my plan and I'm looking (although this seems very hard) and could benefit from the crisis. I have a portfolio of stocks that I think could make profitable if the market is clearly down. I think the most important thing now is to be ready in case the crisis worsens.

Tue, 06/26/2012 - 11:17 | 2561667 HurricaneSeason
HurricaneSeason's picture

I usually bet on black or even at the roulette wheel, I'm just glad the casino has cameras or I would never win. I prefer blackjack.  Even Gerald Celente lost a million or more on MF Global.

Tue, 06/26/2012 - 10:17 | 2561402 KandiRaverHipster
KandiRaverHipster's picture

cue Nassim Taleb's response

Tue, 06/26/2012 - 10:27 | 2561428 RobotTrader
RobotTrader's picture

Heh, first whiff of trouble and investors start piling into U.S. Dollars and General Jim's CIGA's are getting fudge-packed Jerry Sandusky style.

 

Man, those guys never get a break.  Constant assaults by the PigMen.

Yet XRT is only $7 off lifetime highs.  Cruel world.

Tue, 06/26/2012 - 10:28 | 2561432 somethingisrotten
somethingisrotten's picture

SPAM

Tue, 06/26/2012 - 10:34 | 2561453 tocointhephrase
tocointhephrase's picture

Scum too!

Tue, 06/26/2012 - 10:58 | 2561556 CCanuck
CCanuck's picture

Robo..why do you need to use the sexual assault of children as an analogy, are you a fuck'n degenerate pedophile, does the idea appeal to you?

You are a sad sac-of-shit, get some help you tool!

No offence to any useful tools out there.

Tue, 06/26/2012 - 10:27 | 2561431 Abner Doon
Abner Doon's picture
What are the chances that two blog posts concerning Warren Buffett, Wells Fargo, Bank of America, the Federal Reserve and Insider Trading be completly ignored by all for profit press since 8:37pm, June 23, 2012?

http://hartzman.blogspot.com/2012/06/what-are-chances-that-two-blog-posts.html

 

Tue, 06/26/2012 - 10:35 | 2561458 phat ho
phat ho's picture

Ides (Roman) Bitches!

Tue, 06/26/2012 - 10:36 | 2561461 tawse57
tawse57's picture

Someone needs to remind this guy that all last Summer we were being warned about a crash coming in September and October by the so-called 'experts' but the markets went south in August and from then on they just kept climbing through to now.

The mugs, myself included, who believed, and waited, for the 'big' Spetember and October corrections lost a load of cash by standing on the sidelines.

Best not to listen to 'experts'.

Tue, 06/26/2012 - 10:39 | 2561479 Eddy Vluggen
Eddy Vluggen's picture

Simple explanation; the arrival of winter, and the turning of the weather. We're still animals, and summer poses little threat. Hence, we see less threats than we do during a threathening time.

..the things kids have to 'research' these days..

Tue, 06/26/2012 - 10:42 | 2561491 bugs_
bugs_'s picture

debt ceiling debate - will be mean and nasty - if they can't steal more from unborn generations of slaves there will be hell to pay

Tue, 06/26/2012 - 10:44 | 2561493 Northeaster
Northeaster's picture

I don't know how I stumbled across this post which I thought was a great post since reading yesterday's:

http://www.zerohedge.com/news/verge-historic-inversion-shadow-banking

Since I had no idea what the heck "shadow banking" is, this post I think helped me understand what it is and how it works (or doesn't) to a small degree:

http://news.goldseek.com/GoldSeek/1339766400.php

The post has nothing to do with gold, but all to do with credit and the hypothesis that The Fed/Treasury are the only players capable of "stealth bailouts" at taxpayers expense of course. If readers have better insights, please post as I found the data between the two posts fascinating.

Maybe ties this altogether for a "September Surprise"? I don't know, but I hope there are more than a few experts here lurking that can chime in.

Tue, 06/26/2012 - 10:45 | 2561499 francis_sawyer
francis_sawyer's picture

September when bankers return from their 2 months of vacationing in the Hamptons & are suddenly panicked because they going to have to counterfeit some fresh new printed money to rape & pillage for another year...

Tue, 06/26/2012 - 10:56 | 2561547 phat ho
phat ho's picture

"All is for the best in the best of all possible worlds," Pangloss; 'Voltaire' 

 

In other words, we're screwed..... :-)

 

Tue, 06/26/2012 - 11:04 | 2561580 LouisDega
LouisDega's picture

Dislexic senile Shakespeare bitchezzz

Tue, 06/26/2012 - 11:06 | 2561600 midgetrannyporn
midgetrannyporn's picture

september is the buffett put expiry. either those who bought them are sum dum fuks with their money or else selling is imminent.

Tue, 06/26/2012 - 12:01 | 2561869 XtraBullish
XtraBullish's picture

The most dangerous month of the year to invest your money is SEPTEMBER - the other dangerous months are October, November, December, January, February, March, April, May, June, July, and August.

Tue, 06/26/2012 - 12:05 | 2561893 orangedrinkandchips
orangedrinkandchips's picture

It's QUARTER END....SEPT....QUARTER END. CLEAN HOUSE.'FESS UP.....

 

simple shit really

Tue, 06/26/2012 - 12:25 | 2561994 dcb
dcb's picture

Ok, I think an over valued market has to come down, but to be a trader, the s and p 500 still hasn't broken last weeks low, and today we are on the real support line that should have been tested as we came off 6/15. 12 instead of ramping up (if we had real markets)

Tue, 06/26/2012 - 12:58 | 2562103 Equites
Equites's picture

Perhaps after the elections something will change \sarc

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