Spain's October Market Crash Prophecy: What Failed and What Comes Next

The anticipated October crash that never arrived

When does a bubble burst? No one knows, and those who claim otherwise are selling something. In September 2020, however, a group of investors was ready to pinpoint the date: October. The theory behind this stock market catacrack wasn't mystical intuition but a calendar-based argument. The fourth quarter is when companies and governments close their fiscal years, execute cuts they previously avoided, and renegotiate or repay maturing loans. With GDP falling between 10% and 20% in Q2 trinc by a rebound in Q3, October seemed the ideal month for everything to fall apart.

The plan offered three options: sell before October, sell after earnings reports, or hold and see what happens. Months later, the answer remains open.

Why October and not another month?

Because the final quarter's calendar concentrates the year's harshest adjustments. The reasoning rested on three pillars. First, accounting: annual targets are met through cuts in Q4, not Q1. Second, market dynamics: most corporate earnings are released in October, creating a perfect window to sell the recovery to latecomers while major players exit positions.

The third pillar was health and climate. The shift from summer to autumn multiplies colds and respiratory issues, and no one knew how society would handle an autumn with circulating bicho. This combination built the forecast: first the mirage, then the blow.

Tesla, Amazon, and Apple: A Bubble Measured in GDPs

The strongest argument didn't come from charts but from accounts. It was noted that Tesla rises some days by 10%, equivalent to $27 billion in market capitalization: several Renaults, a whole Ford, or half the Volkswagen Group at once. Similar comparisons circulated: a single Amazon session worth as much as all Inditex, or Apple exceeding Spain's GDP twice over.

Debating the exact figure misses the point. The issue is scale. When a company adds a century-old manufacturer's entire market cap in one day, the market stops valuing businesses and starts valuing narratives. And unlike dividends, narratives don't pay rent.

The Buffett Indicator Off the Charts

The second warning came via the classic route: the ratio of total market capitalization to GDP, the thermometer Warren Buffett popularized as a bubble detector. In the data reviewed, this ratio hit historic highs, with the curve literally off the chart scale. The conclusion was simple: if the stock market is worth far more than the entire economy supporting it, someone will have to settle the bill.

The common objection is that the indicator has given false signals for years and that with near-zero interest rates, valuations remain higher than reasonable. Both are true. It is also true that a signal lit for years doesn't turn itself off.

Meanwhile, the Real Economy Offered No Relief

Parallel to indices, activity data pointed in the opposite direction. Tourism faced autumn with a collapse of over 90% in bookings, and Europe entered October with curfews to contain infections. Sectors sustaining employment in Spain — hospitality, transport, leisure — lost their high season with no signs of recovery before spring.

This is the crux: if the real economy contracts while prices rise, the divergence must be paid eventually. It may be paid through a violent drop or years of sideways markets enduring inflation, but it gets paid.

Temporary Correction or Catacrack: The Unresolved Disagreement

Here consensus breaks. Some argue what peine was a simple correction within an ongoing bullish cycle with room to run, and that the system won't implode so quickly: logarithmic charts, they say, still show an uptrend.

At the other extreme, the bet is on a larger collapse. One scenario placed the Ibex below 6,000 points, likely under 5,000, with historic lows around 4,000-3,500, all before end of 2022. In between lies the liquidity thesis: as long as central banks keep the hose open, only the dollar clearly falls. US fiscal stimulus negotiations, with Trump and Pelosi failing to reach agreement, became the short-term thermometer.

Shorts, Leverage, and Bounce Tricks

Real operations revealed the fine print. A short investor detailed their account plainly: went from +60%, about €16,000, to -50%, €5,000, saved from losing everything only by closing before markets peine. Leverage turns any bounce into liquidation.

Amidst this volatility, small caps moved like penny stocks: Hawaiian Holdings surged up to 50%, nearly reaching pre-pandemic levels. The practical lesson is uncomfortable: in such a market, guessing direction isn't enough if position size kicks you out before you're right.

As this discussion closed, October hadn't ended and the Nasdaq stood firm. The prophecy hadn't failed; it had merely been postponed, which is exactly what all prophecies do when their month runs out.