Top economist says it's ‘panic season' in markets and it's your fault for taking summer vacation. Blame the ‘harvest time' mentality
Lamont, who is a leading economist at the $150 billion quantitative hedge fund and has been a faculty member at Harvard University, Yale School of Management, University of Chicago Graduate School of Business, and Princeton University, looked back at financial history, and found a startling pattern. 'Even if systematic equities aren't your thing,' he wrote on his Acadian blog, Owenomics, 'you need to be mentally prepared for an epic financial disaster over the coming three months.'
His research draws a direct line between the timing of many of the most devastating financial crises and a centuries-old pattern: market crashes tend to cluster during the so-called 'harvest time,' spanning August to October.
The historical pattern
'For grizzled practitioners of systematic equity strategies,' Lamont writes, 'August is the cruelest month.' He cast his mind back to the 'quant quake' of August 2007, writing that analysts ever since have spent August 'compulsively checking our phones and having nightmares about screens full of glowing red numbers.'
When reached for comment by Fortune Intelligence, Lamont said he was calling from the same house in Maine where he was summering during the quant crash of 2007. Every year around this time, he added, that panic is 'certainly on my mind,' as it is for any quant equities managers who is over 50 years old.
Although overshadowed by the onset of the Great Financial Crisis in September 2008, Lamont writes that the quant crash was a classic fit, occurring during a sleepy time in markets when liquidity is thin because so many traders are away from their desks. Lamont cites modern research showing that August and September are periods of unusually low trading liquidity, as investors and market makers take summer vacations in the Northern Hemisphere. Lower market liquidity means less capacity to absorb big, sudden trades—a recipe for outsized volatility if a crisis does erupt.
Looking at the past 50 years, Lamont underscores the fact that most major U.S. market crises have struck between August and October, when thinner markets amplified shocks. Among the historic market meltdowns during these months were two in September—1998's collapse of Long-Term Capital Management and 2008's Lehman Brothers bankruptcy—and two in October—1987's Black Monday stock market crash and 1997's Asian financial crisis. But going back to the founding of the United States itself, he sees a similar pattern.
The deep roots of harvest time
Lamont wrote that America's first bubble, 'Scriptomania,' occurred in July/August 1791, and the Panics of 1857 and 1873 occurred in August and September, respectively. Then the Panic of 1907 followed in October.
The culprit is clear to Lamont: summer vacation. But, in a chicken-or-the-egg discussion, he argues that America's agricultural economy created the need for time off in the summer, as that was when harvests occurred and money needed to flow from the big East Coast cities and into the Western agricultural regions.
Lamont cited Oliver Mitchell Wentworth Sprague's diagnoses of 'panic season' in 1910's History of crises under the national banking system: 'With few exceptions all our crises, panics, and periods of less severe monetary stringency, have occurred in the autumn, when the western banks, through the sale of the cereal crops, were in a position to withdraw large sums of money from the East.' The pattern was spotted as far back as 1884 by English economist William Stanley Jevons. The creation of the U.S. Federal Reserve system itself was in part a reaction to such panics, Lamont adds, citing a 1986 American Economic Review article by Jeffrey Miron.
'If you do the rough math, there's a 10% chance of an epic disaster between August and October this year, and just a 2% chance from November through the following July,' Lamont writes, cautioning investors to 'be mentally prepared' for outsized risk in the coming quarter.
Lamont told Fortune Intelligence that he's not particularly worried about the coming panic season compared to any other. A market crash is still a 'rare event,' he said, adding that he's not aware of any particularly levered players in the market that could spark a crash. But then again, he added, he wasn't aware of any in August 2007 when the quant crash happened.
Remote harvest time?
Lamont agreed with Fortune's comparison of the harvest/panic season thesis to 'flash crashes,' which often occur overnight, after trading in America ends and before it starts in Asia. He said that's a bit of an extreme vacation of an illiquid market, 'like what would happen if everyone went asleep.' He reiterated his belief that 'weird stuff happens' in illiquid markets. Then he got philosophical about how economics require all of us to have some kind of appetite for weirdness.
What about Europe, which traditionally takes much longer vacations in August, sometimes the whole month, compared to Americans and their much more reserved time-off policy? Lamont agreed, but noted that with America as the world's global financial center, with a much larger market, the impact of thinner liquidity is felt more strongly. He noted that other academics have covered seasonalities in other countries, such as Australia, where it seems to be the opposite case, or the impact of seasonal affect disorder on trading in northern countries.
Ultimately, he told Fortune, the benefits of the current system outweigh the risks. The 'traditional, heavy-handed approach,' he said, would be to shut the market down, calling off trading in August altogether.
Lamont told Fortune of his upbringing in the two schools of economics that revolve around heavy regulation and libertarianism, with the East Coast 'saltwater' tradition he learned at MIT a major influence on him before he spent eight years on faculty at the libertarian 'freshwater' school, the University of Chicago. 'A basic principle of economics is you should let people trade,' he said, before adding that he also believes in behavioral finance, which holds that 'people mess up and markets make mistakes.' He believes that governments make mistakes, too, he added.
The whole issue may be resolved over time by the rise of remote work, he added. 'One theory would be that because nowadays we can all work remotely, vacations are less impactful on [trading] volume,' he said. Lamont said he was working remotely from his Maine house at the time, the week before his planned August vacation in the same location.
For now, he added, we are trapped in the paradox of tradition that began with our agricultural economy. People take vacation in August because that's when people take vacation. 'Especially with family gatherings,' he said, 'you want to be on vacation the same time your relatives are on vacation.' How's that for behavioral finance?
For this story, Fortune used generative AI to help with an initial draft. An editor verified the accuracy of the information before publishing.
This story was originally featured on Fortune.com
擷取數據時發生錯誤
登入存取你的投資組合
擷取數據時發生錯誤
擷取數據時發生錯誤
擷取數據時發生錯誤
擷取數據時發生錯誤
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Yahoo
26 minutes ago
- Yahoo
Ex-Intel engineer sentenced for sharing secrets with Microsoft — gets two years of probation and $34k fine for stealing 'thousands of files' that may have landed them a new job with the company
When you buy through links on our articles, Future and its syndication partners may earn a commission. An ex-Intel employee has been sentenced to two years' probation and fined $34,472 for pilfering 'thousands of files,' which were reportedly instrumental to him landing a new position at Microsoft. Oregon Live says that Varun Gupta, who had been a product marketing engineer at Intel for a decade, aided Microsoft in significant processor purchasing negotiations with Intel. A custodial sentence was offset by the fine and the judge's belief that Gupta had suffered enough due to a loss of reputation. The timeline As we mentioned in the intro, Gupta was an Intel employee for 10 years, but he departed the iconic PC chipmaker in January 2020, moving directly to Microsoft. From the source report, it seems that Gupta spent a lot of time copying files containing trade secrets shortly before leaving his employment at the Santa Clara headquartered corporation. These trade secrets were reportedly instrumental to Gupta securing his new position at Microsoft. Moreover, they were subsequently used for the benefit of Microsoft in processor purchasing negotiations with Intel. A particular PowerPoint document was referenced in the court records, indicating that the presentation slide(s) charted Intel's pricing strategy, as drafted for another major customer. The court proceedings Oregon Live reports that the prosecutor, Assistant U.S. Attorney William Narus, sought an eight-month prison term for Gupta. Narus spoke about Gupta's purposeful and repeated access to secret documents. Eight months of federal imprisonment was sought as Gupta repetitively abused his cache of secret documents, according to the prosecutor. For the defense, attorney David Angeli described Gupta's actions as a 'serious error in judgment.' Mitigating circumstances, such as Gupta's permanent loss of high-level employment opportunities in the industry, and that he had already paid $40,000 to settle a civil suit brought by Intel, were highlighted. U.S. District Judge Amy Baggio concluded the court hearing by delivering a balance between the above adversarial positions. Baggio decided that Gupta should face a two-year probationary sentence. Meanwhile, that peculiar $34,472 fine is explained as equating to the cost of eight months of federal imprisonment that Gupta avoided by a hair's breadth. Baggio reasoned that the fine helped reinforce the understanding that Gupta's actions were seen as more than a one-off indiscretion. But her position was softened by the very public besmirchment of the ex-Intel exec's character. Gupta's travels Gupta was ordered to pay the fine in full before heading back to France. The ex-tech exec and his family have started afresh in La Belle France, with eyes on a completely new career in the wine industry. According to the report, Gupta is now studying for a qualification in vineyard management, while aiming to work as a technical director in the business. Follow Tom's Hardware on Google News to get our up-to-date news, analysis, and reviews in your feeds. Make sure to click the Follow button. Solve the daily Crossword
Yahoo
32 minutes ago
- Yahoo
Idaho Gov. Brad Little orders budget cuts amid tax breaks, revenue shortfall
Idaho Gov. Brad Little on Friday signed an executive order requiring all state agencies other than public schools to cut spending, he announced in a news release. It was the first time since 2020 such cuts have been ordered, according to the Governor's Office. The order cited the need to cut spending after Idaho lawmakers reduced income and property taxes by over 20%. The Governor's Office said the state must 'make way' for the tax cuts in President Donald Trump's 'Big Beautiful Bill.' State agencies, including the Idaho State Police, Department of Correction and Department of Health and Welfare — which administers Medicaid — must reduce their general fund spending by 3% for the 2026 fiscal year, which began in July. They can consider consolidating services or agencies, eliminating vacant positions, cutting back on contract costs, and reviewing unused funds that are 'not critical' to operations, according to the order. 'Idaho will right-size government to match the means of Idahoans,' the order read. In the news release about the order, the Governor's Office celebrated Idaho's strong and rapidly growing economy. The Idaho Legislature this year made 'unprecedented' investments in school facilities, teacher pay and literacy, 'demonstrating we can have it all,' Little wrote in the order. 'We can simultaneously cut taxes while meeting the needs of a growing state.' Idaho Democrats pushed back on that framing. Senate Minority Leader Melissa Wintrow, D-Boise, in a Friday news release said 'no amount of spin can hide the truth.' 'If Idaho's fiscal health were truly as strong as Republicans claim, there would be no need to strip funding mid-year,' Wintrow said. 'Ending this wasteful scheme will not close the hundreds of millions of dollars in budget shortfalls created by Republican giveaways.' Idaho Democrats also pointed the finger at the GOP's passage of laws that cost more money, such as allowing public funding for private school tuition. Lauren Necochea, the party's chair, in another news release said the program blew 'a hole in the budget' and called the cuts 'the bill coming due for reckless Republican rule.' 'We were honest with Idahoans about where this budget was headed,' she said. 'Back in the spring, Democrats warned that Statehouse Republicans were budgeting dishonestly while the Trump regime was driving up costs and undermining our economy. The GOP ignored these warnings, and now Idaho families are paying the price.' Though it expressed appreciation for Little's exclusion of public schools from the cuts, the Idaho Education Association in a release called them 'very unfortunate and completely predictable.' 'The Idaho Legislature's massive tax cuts easily foretold this outcome, even as lawmakers dismissed the needs of basic governing and Idaho's most vulnerable residents,' President Layne McInelly wrote. 'Idaho Education Association members believe Gov. Little is right to spare Idaho's public school students and classrooms from even more fiscal austerity while lawmakers write checks to the wealthy.' In recent months, state revenues came in below forecasts set by the Legislature. Little in February told reporters he worried that lawmakers' proposals to cut taxes were beyond what the state could afford. The Legislature cut taxes by $400 million and spent another $50 million on a tax credit for private education. Those bills, which Little signed into law, reduced revenue available for the state budget by about $453 million, the Idaho Capital Sun reported. In his January State of the State address, Little called for a reduction of the fund by $100 million — less than a quarter of the Legislature's amount. 'If I would have thought we could do $450 (million), I would have proposed $450 (million),' Little said of the hundreds of millions more that lawmakers aim to return to taxpayers. On Friday, Democrats called for a special legislative session to repeal the tax credit program, often referred to as school vouchers. 'It is an essential first step toward restoring fiscal responsibility,' Wintrow said in the release. Idaho continues its 'historic' tax cuts. Here's what residents can expect What will Trump administration cuts mean for Idaho? Gov. Little predicts 'economic shock' Solve the daily Crossword
Yahoo
42 minutes ago
- Yahoo
Lockheed Secures a $720M Contract for JAGM & Hellfire Missiles
Lockheed Martin Corporation (LMT) recently secured a modification contract valued at $720.1 million to produce Joint Air-to-Ground Missiles (JAGM) and Hellfire missiles. The work related to this deal will be carried out in Ocala, FL, and is projected to be completed by Sept. 30, 2028. The award has been provided by the U.S. Army Contracting Command, Redstone Arsenal, AL. What's Favoring LMT Stock? With countries worldwide enhancing their defense capabilities, spending on advanced military arms and ammunition has been rapidly increasing. This also includes growing investments in missiles and missile systems, which are crucial for warfare missions. Lockheed, as a prominent manufacturer of missiles and missile defense systems, has thus been witnessing a steady flow of orders from the Pentagon and other U.S. allies. The latest contract win is an example of that. Notably, LMT Hellfire is a multipurpose missile capable of defeating a broad target set. On the other hand, JAGM is a next-generation missile that combines the capabilities of LMT's Hellfire and LONGBOW missiles into one system, providing multi-domain combat solutions. The aforementioned missiles' viability in the defense industry ushers in solid order flow for Lockheed, like the latest one, further reflecting the solid demand that they boast in the missile market. LMT Stock's Growth Prospects Rising military conflicts, terrorism and border disputes have led nations to increase their focus on national security, particularly on missile defense systems, backed by the rapid development of advanced missile technologies over the last decade. This is likely to have prompted Mordor Intelligence to forecast a compound annual growth rate of 5% for the missiles and missile defense systems market during the 2025-2030 time period. This should benefit Lockheed, with its Missile and Fire Control unit being a recognized developer of high-performance missiles. The unit pursues business in more than 50 countries worldwide. Some of its major programs are the Patriot Advanced Capability-3 and Terminal High Altitude Area Defense air and missile defense programs as well. Its prominent missiles include the Precision Strike Missile and the Long Range AntiShip Missile. Prospects of LMT's Peers Other defense companies that are likely to enjoy the perks of the expanding missiles and missile system market have been discussed below. Northrop Grumman Corporation (NOC): Northrop Grumman provides high-speed, long-range strike weapons like the AARGM-ER, which is a supersonic, air-launched tactical missile system. It also develops and builds advanced missile defense technology, ranging from command systems to directed energy weapons, advanced munitions and powerful sensors. RTX Corporation (RTX): It is known for its missile defense systems like the Patriot and SM-6, which are in high demand globally. RTX also provides advanced sensors and interceptors to identify, track and defeat threats as part of a layered missile defense. The Boeing Company (BA): It manufactures various missile defense systems, including the Ground-based Midcourse Defense, Aegis Ballistic Missile Defense and Avenger. Boeing-built and supported air and missile defense systems have been protecting its customers for nearly 25 years against threats ranging from intercontinental ballistic missiles to hostile aircraft. Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report The Boeing Company (BA) : Free Stock Analysis Report Lockheed Martin Corporation (LMT) : Free Stock Analysis Report Northrop Grumman Corporation (NOC) : Free Stock Analysis Report RTX Corporation (RTX) : Free Stock Analysis Report This article originally published on Zacks Investment Research ( Zacks Investment Research Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
