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This Week in History
Posted by Gary Alexander
7/27/09 1:00 am


This Week (July 27-31) in Market History

Whenever the daily volatility of the market gets you down, or you look at your dwindling stock market valuations, compared with two years ago, it’s sometimes therapeutic to look back in history and see that times really were a lot worse in the past. Here are two dramatic examples from this week in history.

95 years ago, the world was lurching toward war, one month after the assassination of the Archduke Ferdinand and his wife Sophie in Sarajevo. The week began in panic and ended in a worldwide stock market closure that lasted until mid-December in the U.S. and for over four years in parts of Europe.

Here’s the daily tale of the tape:

• On Monday, July 27, 1914, stocks fell on high volume and the demand for gold soared.

• On Tuesday, July 28, Austria-Hungary attacked Serbia, and World War I officially began. Stock markets around the world collapsed (some closed), and the price of gold soared. On Wall Street, trading volume hit 1,020,000 shares, and market officials pondered closing the exchange.

• On Wednesday, July 29, politicians were trying to halt the European violence, but Austro-Hungary bombed Belgrade and Russia mobilized troops along Austria’s border. In response, three major European stock exchanges (Vienna, Rome and Berlin) closed their doors.

• On Thursday, July 30, the rush to sell stocks and buy gold escalated. Panic selling on the New York exchange reached 1.3 million shares, the highest volume since the Panic of 1907. Many blue chip stocks crashed, falling 20% to 30% that single day. GM fell from $59 to $39 (-34%). Even Bethlehem Steel, which figured to profit from making war armaments, was down 14%. That night, exchange officials met to decide whether or not to close the exchange on Friday.

• Early in the morning of Friday, July 31, the London Stock Exchange announced that it would suspend trading until further notice, the first time it had done so in its centuries-long heritage. If the New York Stock Exchange opened for trading on this final day of July, it would have been the only open stock market in the world. Since markets were now connected by undersea cables, all the world’s sellers would converge on Wall Street. In fact, the overnight sell orders “at any price” were lined up for the opening bell, so the NYSE governors decided to close for only the second time in its history. The NYSE was totally closed until the middle of December, 1914, but only a few stocks traded then. The full board only re-opened in April, 1915 – nine months later.

However, U.S. banks stayed open, and the rush to convert cash to gold wiped out many banks. From July 27 to August 7, 1914, $73 million in gold was withdrawn from New York banks alone.

On Monday, August 3, 1914, no stock markets in Europe or America were open. On that day, Germany declared war on France and invaded Belgium; very soon, Britain declared war on Germany, and Turkey signed a military pact with Germany. As the sun set on that dismal day, Sir Edward Grey, British foreign secretary, said, “The lamps are going out all over Europe; we shall not see them lit again in our lifetime.”

P.S. In our war-free hemisphere, on August 3, 1914, the first ship went through the Panama Canal, and the World Alliance for Promoting International Friendship through Churches (WAPIFC) was formed.

35 years ago, in the week beginning Monday, July 29, 1974, the U.S. was in the midst of its longest and deepest postwar recession, to that date, and President Nixon was struggling through his last days in office. On July 30, 1974, the third of three articles of impeachment was voted against President Nixon by the House Judiciary Committee. The Dow fell 54.67 points (-6.8%) in the week from July 25 to August 1. President Nixon would resign on August 8. In August, 1974, the Dow fell 10.4%, from 686 to 607. Then it fell another 10.4% in September, reaching a 14-year low on October 4. For the third quarter of 1974, the Dow declined 24.4%. From its late June highs to early October lows, the total decline was 33%.

Now, 2009 doesn’t look so bad after all, does it?

Ancient Market History

315 years ago today, on July 27, 1694, the first nationally-chartered central bank was open for business, when the Bank of England was granted a 12-year charter by an Act of Parliament.

200 years ago, on July 31, 1809: The first practical railroad track (wooden, for horse-drawn cars) was laid, in Philadelphia. The railroads become the hot stocks of the 19th Century, but only 75 years later….

85 years ago: On July 26, 1924, the first “mutual fund” was unveiled. Mutual funds were one of the many popular by-products of the first big bull market of the 1920s, when the Dow index rose by 500%.

Sources:

Eddy Elfenbein
http://www.crossingwallstreet.com/

Gary Alexander
http://blogs.navellier.com/all_cap/entry/this_week_in_history/