Black Money

What is 'Black Money'

Black money is money which is earned through any illegal activity controlled by country regulations. Black money proceeds are usually received in cash from underground economic activity and, as such, is not taxed. Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering.

BREAKING DOWN 'Black Money'

Possible sources of black money include drug trafficking, weapons trading, terrorism, prostitution, selling counterfeit or stolen goods and selling pirated versions of copyrighted items such as software and musical recordings. Black Money is also the name of a television series hosted by Lowell Bergman that explores the secret world of bribery in international business.

Black

Black is a description of a positive balance on a company's financial statements. A company would be said to be "in the black" if it is profitable or, more specifically, if the company produces positive earnings after accounting for all expenses. Conversely, a company with negative earnings would be said to be "in the red."

BREAKING DOWN 'Black'

The phrase "in the black" is widely used to refer to the condition of companies that have been profitable in their last accounting period. This term is derived from the color of ink used by accountants to enter a positive figure on a company's financial statements. It is always better to be in the black as this indicates solid business performance.

Black Thursday

Black Thursday is the name given to Thursday, Oct. 24, 1929, when the Dow Jones Industrial Average plunged 11% at the open in very heavy volume, precipitating the Wall Street crash of 1929 and the subsequent Great Depression of the 1930s.

More recently, "Black Thursday" is also used to refer to the Thanksgiving holiday in the United States, as more retailers open on Thanksgiving evening in a bid to get an early start on the frenzied shopping of Black Friday.

BREAKING DOWN 'Black Thursday'

Black Thursday and the consequent market crash of 1929 triggered a complete overhaul of market regulation of the U.S. securities industry. These events led to the promulgation of the Securities Act of 1933 and the Securities Exchange Act of 1934.

The shopping version of "Black Thursday" has led to growing resistance among employees of retailers, who complain that they are forced to leave Thanksgiving family dinners early in order to report to work on time. Many retailers are opening earlier on Black Thursday with every passing year in order to counter the increasing popularity of online sales.

October Effect

The October effect is a theory that stocks tend to decline during the month of October. The October effect is considered mainly to be a psychological expectation rather than an actual phenomenon as most statistics go against the theory. Some investors may be nervous during October because the dates of some large historical market crashes occurred during this month. The events that have given October the reputation for stock losses have happened over decades, but they include the Panic of 1907, Black Tuesday (1929), Black Thursday (1929) Black Monday (1929) and Black Monday (1987). Black Monday, the great crash of 1987 that occurred on October 19 and saw the Dow plummet 22.6% in a single day, is arguably the worst single day. The other black days, of course, were part of the process that lead to the Great Depressi​on - an economic disaster that stood unrivaled until the mortgage meltdown nearly took out the whole global economy with it.

BREAKING DOWN 'October Effect'

The October effect is overrated. Despite the dark titles, this seeming concentration of days is not statistically significant. In fact, September has more historical down months than October. From a historical perspective, October has marked the end of more bear markets than it has acted as the beginning. This puts October in an interesting perspective for contrarian buying. If investors tend to see a month negatively, it will create opportunities to buy during that month. However, the end of the October effect, if it ever was a market force, is already at hand. 

The End of the October Effect

The numbers don't support the October effect. Some historical events have fallen in the month of October, but they have mostly stuck around in the collective memory because Black Monday sounds ominous. Many investors today have a better memory of the dotcom crash and the 2008-09 financial crisis, yet none of those days were given the black moniker to bear for their particular month. The Lehman's collapse happened on a Monday in September and marked a large increase in the global stakes of the financial crisis, but it didn't get reported as a new Black Monday. For whatever reason, the media no longer leads with black days and Wall Street doesn't seem eager to revive the practice either. 

Moreover, an increasingly global pool of investors don't have the same historical perspective when it comes to the calendar. The end of the October effect was inevitable, as it was mostly a gut feeling mixed with a few random chances to create a myth. In a way, this is unfortunate, as it would be wonderful for investors if financial disasters, panics and crashes chose to occur only on one month of the year. 

Black Box Model

A black box model is a computer program into which users enter information and the system utilizes pre-programmed logic to return output to the user.

BREAKING DOWN 'Black Box Model'

The "black box" portion of the system contains formulas and calculations that the user does not see nor need to know to use the system. Black box systems are often used to determine optimal trading practices. These systems generate many different types of data including buy and sell signals.