Doing the time warp
Monday, March 19, 2007
The Contra Guys
TORONTO (GlobeinvestorGOLD) - As George Santayana said, “Those who do not learn from history are doomed to repeat it.” Now being the happy go lucky Contra Guys we are, this is not meant as a downer, simply that understanding the past, should allow for better future returns. Even if those numbers might be negative.
During the stock market gyrations of the past couple of weeks, many politicians, fund managers, analysts and countless other experts have been assuring the public that there is little danger. So we did the time warp to the first tremors leading to the stock market crash of 1929 to see what some great minds of the day were saying. While many people only hearken back to October, in March of that year, a harbinger was unfolding as the market tumbled eight percent in a day. Fear not the people were told via The New York Times where appeared, “The Federal Reserve had ‘insured the soundness of the business situation when the speculative markets went on the rocks.”
Adding credence was Charles Mitchell, the president of National City Bank, a predecessor of Citibank, ``Responsible bankers agree, that stocks should now be supported, having reached a level that makes them attractive.'' It makes one wonder what irresponsible bankers thought./ Regardless, the comfort level was reestablished and stocks renewed their ascent.
This led John Raskob, the builder of the Empire State Building to write a summer article, Everybody Ought to be Rich, for the Ladies Home Journal. He opined, “If a man saves $15 a week, and invests in good common stocks, and allows the dividends and rights to accumulate, at the end of twenty years he will have at least $80,000 and an income from investments of around $400 a month. He will be rich. And because income can do that, I am firm in my belief that anyone not only can be rich, but ought to be rich.”
At that point less than one per cent of the population actually owned stocks, a tidbit not often noted in historical annals. Somehow given the shoeshine boys and elevator jockeys offering tips, it seems like everyone and their grandma owned their private fiefdom of the great capitalistic society.
After hitting a high of 386.1 on Sept. 3, 1929, the market drifted downwards. Then, as The New York Times reported on Oct. 25, “The most disastrous decline in the biggest and broadest stock market of history rocked the financial district yesterday.” The newspaper then reported how, “…five of the country's most influential bankers hurried to the office of J. P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market to be sound, that the market smash has been caused by technical rather than fundamental considerations…” Isn’t it somewhat calming to know that even then, the debate was ensuing between technicians and fundamentalists?
On Oct. 28 the market dropped 13.5 per cent, but the Wall Street Journal had a somewhat reassuring headline, “Market Orderly in Record Drop.” The next day the Dow Jones surrendered another 11.5 per cent and the WSJ reported, “Stocks Steady After Decline.” At this point the market was down 39.6 per cent from the high.
Investor extraordinaire John Rockefeller apparently viewed this as an opportunity. He stated, “Believing that fundamental conditions of the country are sound and that there is nothing in the business situation to warrant the destruction of values that has taken place on the exchanges during the past week, my son and I have for some days been purchasing sound common stocks.”
Briefly he was correct, but in November the Dow sank further. It did not hit its bottom until July, 1932, at which point 89 per cent of its value had been wiped out.
Fortunately, for those believing in the “buy and hold” mantra, the DJIA did recover to the Sept. 3, 1929 high. However, it took until November, 1954, to do so
AI
