The Big Bull Market (long)greenspun.com : LUSENET : TimeBomb 2000 (Y2000) : One Thread
[for educational use only]
Copyright 1931 by Frederick Lewis Allen
One day in February, 1928, an investor asked an astute banker about the wisdom of buying common stocks. The banker shook his head. "Stocks look dangerously high to me," he said. "This bull market has been going on for a long time, and although prices have slipped a bit recently, they might easily slip a good deal more. Business is none too good. Of course if you buy the right stock you'll probably be all right in the long run and you may even make a profit. But if I were you I'd wait awhile and see what happens.
By all the canons of conservative finance the banker was right. The enormous confidence in Coolidge Prosperity which had lifted the business man to a new preeminence in American life and had persuaded innumerable men and women to gamble their savings away in Florida real estate had also carried the prices of common stocks far upward since 1924, until they had reached what many hard-headed financiers considered alarming levels. Throughout 1927 speculation had been increasing. The amount of money loaned to brokers to carry margin accounts for traders had risen during the year from $2,818,561,000 to $3,558,355,000--a huge increase.
The speculative fever had been intensified by the action of the Federal Reserve System in lowering the rediscount rate from 4 per cent to 3 1/2 per cent in August, 1927, and purchasing Government securities in the open market. This action had been taken from the most laudable motives: several of the European nations were having difficulty in stabilizing their currencies, European exchanges were weak, and it seemed to Reserve authorities that the easing of American money rates might prevent the further accumulation of gold in the United States and thus aid in the recovery of Europe and benefit foreign trade. Furthermore, American business was beginning to lose headway; the lowering of money rates might stimulate it. But the lowering of money rates also stimulated the stock market.
While stock prices had been climbing, business activity had been undeniably subsiding. There had been such a marked recession during the later part of 1927 that by February, 1928, the director of the Charity Organization Society in New York reported that unemployment was more serious than at any time since immediately after the war. During January and February the stock market turned ragged and unsettled, and no wonder--for with prices still near record levels and the future trend of business highly dubious, it was altogether too easy to foresee a time of reckoning ahead.
The financial editor of the New York Times described the picture of current conditions presented by the mercantile agencies as one of "hesitation." The newspaper advertisements of investment services testified to the uncomfortable temper of Wall Street with headlines like "Will You 'Overstay' This Bull Market?" and "Is the Process of Deflation Under Way?" The air was fogged with uncertainty.
Anybody who had chosen this moment to predict that the bull market was on the verge of a wild advance which would make all that had gone on before seem trifling would have been quite mad--or else inspired with a genius for mass psychology. The banker who advised caution was quite right about financial conditions, and so were the forecasters. But they had not taken account of the boundless commercial romanticism of the American people, inflamed by year after plentiful year of Coolidge Prosperity. For on March 3, 1928--the very day when Harvard prophets were talking about intermediate declines and the Times was talking about hesitation--the stock market entered upon its sensational phase.
Automobiles and radios--these were the two most characteristic products of the decade of confident mass production, the brightest flowers of Cooldge Prosperity: they held a ready-made appeal to the speculative imagination.
Monday the 12th of March put the stock market on the front page once more. Radio opened at 120 1/2--and closed at 138 1/2.
Tuesday the 13th was enough to give anybody chills and fever. Radio opened at 160, a full 21 1/2 points above the closing price the night before--a staggering advance.
And so it went on, day after day and week after week. On March 16th the ticker was thirty-three minutes late and one began to hear people saying that someday there might occur a five-million share day--which seemed almost incredible. On the 20th, Radio jumped 18 points and General Motors 5.
The aviation stocks leaped upward; in a single week in May, Wright Aeronautical gained 34 3/4 points to reach 190, and Curtis gained 35 1/2 to reach 142. Several times during the spring of 1928 the New York Stock Exchange had to remain closed on Saturday to give brokers' clerks a chance to dig themselves out from under the mass of paper work in which this unprecedented trading involved them. And of course brokers' loans were increasing; the inflation of American credit was becoming steadily intensified.
The Reserve authorties were disturbed. They had raised the rediscount rate in February from 3 1/2 to 4 per cent, hoping that if a lowering of the rate in 1927 had encouraged speculation, a corresponding increase would discourage it--and instead they had witnessed a common-stock mania which ran counter to all logic and all economic theory. They raised the rate again in May to 4 1/2 per cent, but after a brief shudder the market went boiling on. They sold the government bonds they had accumulated in 1927, and the principal result of their efforts was that the Government-bond market became demoralized. Who would ever have thought the situation would thus get out of hand?
In the latter part of May, 1928, the pace of the bull market slackened. Prices fell off, gained, fell off again. The reckoning, so long expected, appeared at last to be at hand.
It came in June, after several days of declining prices.
But had the bull market collapsed? On June 13th it appeared to have regained its balance. On June 14th, the day of Hoover's nomination, it extended its recovery. The promised reckoning had been only partial. Prices still stood well above their February levels. A few thousand traders had been shaken out, a few big fortunes had been lost, a great many pretty paper profits had vanished; but the Big Bull Market was still young.
The campaign of 1928 began.
So closely had the ticker tape bound the American people to Wall Street, in fact, that even the Democrats found themselves in a difficult position. In other years they had shown a certain coolness toward the rulers of the banking and industrial world; but this would never do now. To criticize the gentlemen who occupied front seats on the prosperity band-wagon, or to suggest that the ultimate destination of the band-wagon might not be the promised land, would be suicidal. Nor could they deny that good times had arrived under a Republican administration. The best they could do was to argue by word and deed that they, too, could make America safe for dividends and rising stock prices.
As for the Republicans, they naturally proclaimed prosperity as a peculiarly Republican product, not yet quite perfected but ready for the finishing touches. Herbert Hoover himself struck the keynote for them in his acceptance speech.
"One of the oldest and perhaps the noblest of human aspirations," said the Republican candidate, "has been the abolition of poverty.... We in America today are nearer to the final triumph over poverty than ever before in the history of any land. The poorhouse is vanishing from among us. We have not yet reached the goal, but given a chance to go forward with the policies of the last eight years, we shall soon, with the help of God, be in sight of the day when poverty will be banished from this nation. There is no guaranty against poverty equal to a job for every man. That is the primary purpose of the policies we advocate."
The time was to come when Mr. Hoover would perhaps regret the cheerful confidence of that acceptance speech. It left only one loophole for subsequent escape: it stipulated that God must assist the Republican administration.
Mr. Hoover was hardly to be blamed, however, for his optimism. Was not business doing far better in the summer of 1928 than it had done during the preceding winter? Was not the Big Bull Market getting under way again after its fainting fit in June? One drank in optimism from the very air about one.
Prosperity was a sure-fire issue for a Republican in 1928.
Election Day came and Hoover swept the country.
It was a famous victory, and in celebration of it the stock market--which all through the campaign had been pushing into new high ground--went into a new frenzy. Now the bulls had a new slogan. It was "four more years of prosperity."
During that "Hoover bull market" of November, 1928, the records made earlier in the year were smashed to flinders. Had brokers once spoken with awe of the possibility of five-million-share days? Five-million-share days were now occuring with monotonous regularity; on November 23rd the volume of trading almost reached seven millions.
Had they been disturbed that Radio should sell at such an exorbitant price as 150? Late in November it was bringing 400.
Brokers' loans? Of course they were higher than ever; but this, one was confidently told, was merely a sign of prosperity--a sign that the American people were buying on the part-payment plan a partnership in the future progress of the country.
The new era had arrived, and the abolition of poverty was just around the corner.
In December the market broke again, and more sharply than in June.
(The earnings of the Radio Corporation during the first nine months of 1928 had been $7.54 per share, which on a time-honored basis of "ten-times-earnings" would have suggested the appropriateness of a price not much over 100; but the ten-times-earnings basis had long since been discarded. The market, as Max Winkler said, was discounting not only the future but the hereafter.)
But just as in June, the market righted itself at the moment when demoralization seemed to be setting in. A few uneasy weeks of ragged prices went by, and then the advance began once more.
The Federal Reserve authorties found themselves in an unhappy predicament. Speculation was clearly absorbing more and more of the surplus funds of the country. The inflation of credit was becoming more and more dangerous. The normal course for the Reserve banks at such a juncture would have been to raise the rediscount rate, thus forcing up the price of money for speculative purposes, rendering speculation less attractive, liquidating speculative loans, and reducing the volume of credit outstanding. But the Reserve banks had already raised the rate (in July ) to 5 per cent, and speculation had been affected only momentarily.
During the next month or two stocks rose and fell uncertainly, sinking dismally for a time in May , and the level of brokers' loans dipped a little, but no general liquidation took place.
When June came, the advance in prices began once more, almost as if nothing had happened.
By the summer of 1929, prices had soared far above the stormy levels of the preceding winter into the blue and cloudless empyrean. All the old markers by which the price of a promising common stock could be measured had long since been passed; if a stock once valued at 100 went to 300, what on earth was to prevent it from sailing on to 400? And why not ride with it for fifty or a hundred points, with Easy Street at the end of the journey?
By every rule of logic the situation had become more perilous than ever. If inflation [of credit] had been serious in 1927, it was far more serious in 1929, as the total of brokers' loans climbed toward six billions (it had only been three and a half billions at the end of 1927). If the price level had been extravagant in 1927 it was preposterous now; and in economics, as in physics, there is no gainsaying the ancient principal that the higher they go, the harder they fall. But the speculative memory is short. As people in the summer of 1929 looked back for precedents, they were comforted by the recollection that every crash of the past few years had been followed by a recovery, and that every recovery had ultimately brought prices to a new high point. Two steps up, one step down, two steps up again--that was how the market went. If you sold, you had only to wait for the next crash (they came every few months) and buy in again. And there was really no reason to sell at all: you were bound to win in the end if your stock was sound. The really wise man, it appeared, was he who "bought and held on."
Time and time again the economists and forecasters had cried wolf, wolf, and the wolf had made only the most fleeting of visits. Time and again the Reserve Board had expressed fear of inflation [of credit], and inflation [of credit] had failed to bring hard times. Business in danger? Why, nonsense! Factories were running at full blast and the statistical indices registered first-class industrial health. Was there a threat of overproduction? Nonsense again! Were not business concerns committed to hand-to-mouth buying, were not commodity prices holding to reasonable levels? Where were the overloaded shelves of goods, the heavy inventories, which business analysts universally accepted as storm signals? And look at the character of the stocks which were now leading the advance! At a moment when many of the high-flyers of earlier months were losing ground, the really sensational advances were being made by the shares of such solid and conservatively managed companies such as United States Steel, General Electric, and American Telephone--which were precisely those which the most cautious investor would select with an eye to the long future.
What the bull operators had long been saying must be true after all. This was a new era. Prosperity was coming into full and perfect flower.
Still there remained doubters. Yet so cogent were the arguments against them that at last the great majority of even the sober financial leaders of the country were won over in some degree. They recognized that inflation [of credit] might ultimately be a menace, but the fears of immediate and serious trouble which had gripped them during the preceding winter were being dissipated. This bull market had survived some terrific shocks; perhaps it was destined for a long life, after all.
On every side one heard the new wisdom sagely expressed. "Prosperity due for a decline?" Why, man, we've scarely started!" "Be a bull on America." "Never sell the United States short." "I tell you, some of these prices will look ridiculously low in another year or two." "Just watch that stock--it's going to five hundred." "The possibilities of that company are unlimited." "Never give up your position in a good stock."
As for the menace of speculation, one was glibly assured that--as Ex-Governor Stokes of New Jersey had proclaimed in an eloquent speech--Columbus, Washington, Franklin and Edison had all been speculators.
Already the old economic order was giving way to the new. As Dr. Charles Amos Dice, professor of the somewhat unacademic subject of business organization at Ohio State University, wrote in a book called New Levels in the Stock Market, there was taking place "a mighty revolution in industry, in trade, and in finance." The stock market was but "registering the tremendous changes that were in progress."
Mergers of industrial corporations and banks were taking place with greater frequency than ever before, prompted not merely by the desire to reduce overhead expenses and avoid the rigors of cut-throat competition, but often by sheer corporate megalomania. And every rumor of a merger or a split-up or an issue of rights was the automatic signal for a leap in the prices of the stocks affected--until it became altogether too tempting to the managers of many a concern to arrange a split-up or a merger or an issue of rights not without a canny eye to their speculative fortunes.
Meanwhile investment trusts multiplied like locusts. There were now said to be nearly five-hundred of them, with a total paid-in capital of some three billions and with holdings of stocks--many of them purchased at the current high prices--amounting to something like two billions. These trusts ranged all the way from honestly and intelligently managed companies to wildly speculative concerns launched by ignorant or venal promoters. Some of them, it has been said, were so capitalized that they could not even pay their preferred dividends out of the income from the securties which they held, but must rely almost completely upon the hope of profits. Other investment trusts, it must be admitted, served from time to time the convenient purpose of absorbing securities which the bankers who controlled them might have difficulty in selling in the open market. Reprehensible, you say? Of course; but it was so easy! One could indulge in all manner of dubious practices with an unruffled conscience so long as prices rose. The Big Bull Market covered a multitude of sins. It was a golden day for the promoter, and his name was legion.
Gradually the huge pyramid of capital rose. While supersalesmen of automobiles and radios and a hundred other gadgets were loading the ultimate consumer with new and shining wares, supersalesmen of securities were selling him shares of investment trusts which held stock in holding companies which owned the stock of banks which had affiliates which in turn controlled holding companies--and so on ad infinitum.
An ex-actress in New York fitted up her Park Avenue apartment as an office and surrounded herself with charts, graphs, and financial reports, playing the market by telephone on an increasing scale and with increasing abandon.
Even the revolting intellectuals were there: loudly as they might lament the depressing effects of standardization and mass priduction upon American life, they found themselves quite ready to reap the fruits thereof. Literary editors whose hopes were wrapped about American Cyanamid B lunched with poets who swore by Cities Service, and as they left the table, stopped for a moment in the crowd at the broker's branch office to catch the latest quotations; and the artist who had once been eloquent only about Gauguin laid aside his brushes to proclaim the merits of National Bellas Hess. The Big Bull Market had become a national mania.
In September the market reached its ultimate glittering peak.
It was six months, now, since Herbert Hoover had driven down Pennsylvania Avenue in the rain to take the oath of office as President of the United States. Hed had appointed the Wickersham Commission to investigate law enforcement in general and prohibition in particular. At the President's insistance Congress has passed the Agricultural Marketing Act; and Alexander Legge had assumed, among his other duties as chairman of the new Federal Farm Board, the task of "preventing and controlling surpluses in any agricultural commodity."
Everybody was reading All Quiet on the Western Front and singing the songs which Rudy Vallee crooned over the radio. The literary journals were making a great fuss over humanism.
Stop for a moment to glance at a few of the prices recorded on the overworked ticker on September 3, 1929, the day when the Dow-Jones averages reached their high point for the year; and compare them with the opening prices of March 3, 1928, when, as you may recall, it had seemed as if the bull market had already climbed to a perilous altitude.
One thing more: as you look at the high prices recorded on September 3, 1929, remember that on that day few people imagined that the peak had already been reached. The enormous majority fully expected the Big Bull Market to go on and on.
For the blood of the pioneers still ran in American veins; and if there was no longer something lost behind the ranges, still the habit of seeing visions persisted. What if bright hopes had been wrecked by the sordid disappoinments of 1919, the collapse of Wilsonian idealism, the spread of political cynicism, the slow decay of religious certainty, and the debunking of love? In the Big Bull Market there was compensation.
And when he looked toward the future of his country, he could vision an America set free--not from graft, nor from crime, nor from war, nor from control by Wall Street, nor from irreligion, nor from lust, for the utopias of an earlier day left him for the most part skeptical or indifferent; he visioned an America set free from poverty and toil. He saw a magical order built on the new science and the new prosperity: roads swarming with millions upon millions of automobiles, airplanes darkening the skies, lines of high-tension wire carrying from hilltop to hilltop the power to give life to a thousand labor-saving machines, skyscrapers thrusting above one-time villages, vast cities rising in great geometrical masses of stone and concrete and roaring with perfectly mechanized traffic--and smartly dressed men and women spending, spending, spending with the money they had won by being far-sighted enough to foresee, way back in 1929, what was going to happen.
Excerpts from chapter XII of Only Yesterday--An Informal History of the 1920's. Copyright 1931 by Frederick Lewis Allen. Copyright 1959 by Agnes Rogers Allen. Only Yesterday was originally published by Harper & Row, Publishers, in 1931.
-- Kevin (firstname.lastname@example.org), May 02, 1999
Thanks for the history lesson. Well worth reading.
-- Patricia (email@example.com), May 02, 1999.
We've all heard the comparisons, of course, but reading evocative impressions recorded contemporaneously, rather than analysis by an MBA at 70 years' distance, adds a decidedly eerie quality. [Theme from Twilight Zone is playing!] Thanks for finding this piece, Kevin.
-- Old Git (firstname.lastname@example.org), May 02, 1999.
Wow! a really good read. Thanks a lot Kevin. All one has to do is change the dates and its all current info. I wonder if that book has a chapter on how those who had cashed in ahead of time then jumped back in and made millions.? That is something I would like some info on. I am out of the mkt now, but hope to get back in for 10 cents on the dollar, so to speak, AFTER the dust settles a bit from y2k. Be interested if others are sharing this idea with me.
-- Taz (Tassie @aol.com), May 02, 1999.
Yes, they are, Taz :)
-- Andy (2000EOS@prodigy.net), May 02, 1999.
Kevin, thanks for the great read. Credit cycles have been occurring for centuries. This one happens to be the biggest in history. The first time I heard the "Cash Back" when you buy a new car ad I said were getting close to the end but it just kept going.
It took more than 25 years for the stock market to return to its 1929 year highs, this time it will take longer to squeeze out the excesses. I forget how many Credit Card applications were mailed out last year but I believe it was in the billions, mind boggling!
Many indices have been in a Bear market since last year. The Blue Chips will soon follow.
-- Ray (email@example.com), May 02, 1999.
I have the same thought. Get out of the market now, hope to hang onto the cash and get back in after the crash. After the dust settles with y2k, Kosovo and we get rid of Clinton. It's going to be interesting to say the least. Of course my broker thinks I'm nuts. That y2k is barely a blip on the radar. Nothing to worry about in the long term. But why risk it all now? I'll try to keep what I have now and expand it later. I generally have a high risk tolerance and invest for the long term but the y2k uncertainty is too much for me. I need to be able to sleep at night, not worry about losing what little we've managed to save towards retirement. If I'm wrong then I've lost some growth. If I'm right then I've (hopefully) preserved the capital. It's tough to watch the market soar higher every week and know I'm not making anything from it but that is easier than the worry of imminent crash.
Good luck to us all.
-- mb (firstname.lastname@example.org), May 02, 1999.
Those who forget the past are condemmed to repeat it. I wonder if there will be a Y10K in the future.........
-- Dave Walden (email@example.com), May 02, 1999.
I am an MBA student. I here of several faculty members who spend lots of time during the day participating in day trading. I hear of the profits they are making. These same faculty members state that the economy no longer operates by the same rules that it did in the past. I here of market 11k.... I would like to beleive what they say, however, I have always been a reader of history. If this article did not have a date on it, and if the names were changed, would you know what time period it was refering to? i am interested to see what others have to say regarding this article.
-- cr (firstname.lastname@example.org), May 02, 1999.
There are some differences that would give it away. For example unemployment is at a 28-year low and falling, rather than high and rising. And real GDP growth in the first quarter exceeded all expectations. And all of this is happening without inflation (currently estimated at <1% annually). Housing starts are very high.
In a nutshell, the high market valuations correspond with an economy that is very healthy by traditional measures today. Not so in 1928.
-- Flint (email@example.com), May 02, 1999.
Yes Flint, the numbers appear to be quite encouraging, however, the kinds of jobs that people are getting tend to be in the non-value added lower paying service sector. Also troubling is the fact that over 50% of the households in the united states have less than $1000 in savings and sometime last fall, it was reported that the savings rate was negative. Today, more than ever, people are in the market for the long term. This in itself is not a problem. The problem is that they have lost their fear. As far as inflation is concerned, you are right. There does not appear to be any, except for oil prices. Others have said that there are deflationary, rather than inflationary pressures in the commodities market. For everyone's sake, I hope and pray that what I have been told is correct. I look forwards to comments. Thanks.
-- cw (firstname.lastname@example.org), May 02, 1999.
The accepted catalyst for the stock market crash of 29 was the failure of an Austrian bank, KredistalBank, to meet its credit liabilities. Like other financial institutions of its time around the world, it too speculated wildly on securities in Europe and the United States. However, credit was as it is today systematic and connects all financial institutions to all others. KreditstalBank upon failure was then to cause failure of other institutions dependant upon it. This "contagion effect" brought the world financial system to its knees in very short order. We, as a global market, were about to experience this same event last fall with LTCM. Had it not been for Greenspan immediatly injecting huge liquidity into the system we surly would have replayed the scenes of 1929. Greenspan I am sure is very regretful that his hand had been forced in such a dramatic way. Now he and the world financial markets are truly in a bind. My guess is as good as yours but It wiuld seem that the decline in money supply by Greenspan is his not so subtle attempt at pushing the bond traders into doing his dirty work for him. We have witnessed long end rates rising for the past few weeks. It would seem that the rise in rates in a slow, grinding manner will be Greenspans choice of arms. It is his hope that slowly rising rates will help to slowly lower the markets from the insane to just pricey. If he pulls it off I shall tip my hat to him and have a drink to his health
-- Jus Aspectator (email@example.com), May 02, 1999.
Here's an article from today's Detroit News. Thought this might contribute to the thread:
Fed's role in economy is criticized
Manipulating vital interest rates wrong, Hillsdale prof says
Granted, he's not a "Milton Friedman" or not a professor at a major university, but the ideas expressed in the article make for interesting reading, IMO.
-- Tim (firstname.lastname@example.org), May 02, 1999.
This seems to fit with Just Aspectator's comments: This is from Dr Ed Yardeni's Econet
COMMENT: Ask any of your friends, family, or business associates what could go wrong with this bull market in stocks. Odds are they'll be annoyed that you would even express such a negative sentiment. Or else, they'll look at you totally stumped, like they are on a game show where they continue to win so long as they don't answer the question! I have to say, it is nearly a perfect picture for stock investors. Much more so than I expected earlier this year. I am raising my forecasts for both real GDP growth and earnings for the United States. I am doing so for the second and third quarters. I am not changing my outlook for the fourth quarter and the year 2000, which I continue to expect will be adversely impacted by Y2K. You can find my new forecast tables on my web site. Before Y2K hits the market, the Bond Vigilantes may be doing so already. They are not happy about signs of a global industrial recovery.
mb in NC
-- mb (email@example.com), May 02, 1999.
I have been trading call and put stock options for several years, and making my living with it. I work trading stock options on my computer every day for a couple of hours. I have trained my son to do the same, and when I go on vacation, he takes over the trading.
Because of Y2K I have changed my strategy to trading only in Put Options, which make you money when the stock goes down. I have recently made a great deal of money trading Puts with Lucent Technologies, Wallmart, Earthlink, Gateway 2000 and others by buying Put Options when the stocks are headed down. Some stocks continually go up and down and are very predictable on what direction they take. The charts tell you when to make your trades.
It's like throwing a ball up in the air, you know for a fact that it will come back down. It's the same way with stocks. When they spike up, they always come down because of profit taking. Right now I have Put positions with Catepillar, International Paper company, Apple, Ascend,Safeway, Chevron, and Hewlet Packard. All have spiked up and are headed down now. If I have made a bad decision and the stock option starts going the opposite way, I simply sell and take a small loss. The sell orders are executed within one minute!
Some people tell you that real estate is the best way to make money. Try and sell real estate in one minute, it can't be done. Trading options is the only way to make money in the stock market! When a stock moves a small amount, the option on that stock has a magnified movement! The stock owner makes a small amount, but the option trader makes a large amount!
Check out www.optionadvisor.com for a free traing course in stock options! When the market crashes due to Y2K, you can become rich! Then take your checkbook to the coin shop and buy gold to preserve your wealth!
-- freddie (firstname.lastname@example.org), May 03, 1999.
There was a recession...
...that lasted from October 1926 to November 1927, which is why business conditions were described as "none too good" at the beginning of the narrative. A recovery took place in 1928, and in 1929...
...the unemployment rate for the year was just 3.2%--lower even than our current rate of 4.2%. Also, inflation (in the newer sense of rising prices) was very tame in the mid and late 1920's. If you look at these figures...
...you'll see that consumer prices were unchanged between July 1928 and July 1929, and up only 1.2% between August 1928 and August 1929. And this was while the stock market was booming and jobs were plentiful. Here's how the narrative described the commonly held opinion in the summer of 1929:
Business in danger? Why, nonsense! Factories were running at full blast and the statistical indices registered first-class industrial health. Was there a threat of overproduction? Nonsense again! Were not business concerns committed to hand-to-mouth buying, were not commodity prices holding to reasonable levels? Where were the overloaded shelves of goods, the heavy inventories, which business analysts universally accepted as storm signals?
There is one other important fact about 1929 that was not mentioned in the chapter "The Big Bull Market". Many parts of the world, including Europe, were already in a recession by the summer of 1929, but the U.S. stock market didn't care.
-- Kevin (email@example.com), May 03, 1999.
Correction. In July 1929, prices were 1.2% higher than in July 1928. It's from June 1928 to June 1929 that there was no increase.
The quote from "The Big Bull Market" that reminds me the most of the spring of 1999 is...
And look at the character of the stocks which were now leading the advance! At a moment when many of the high-flyers of earlier months were losing ground, the really sensational advances were being made by the shares of such solid and conservatively managed companies such as United States Steel, General Electric, and American Telephone-- which were precisely those which the most cautious investor would select with an eye to the long future.
-- Kevin (firstname.lastname@example.org), May 03, 1999.
Very interesting. I began following this forum well over a year ago and utilized my keen wits and MBA to predict that the market would slide into the 6,000 range around September of 1998. I stand corrected. I still believe there will be a drop of some sort, but not of the magnitude that I was foretelling. I also thought I could work forever on the old 286, that Clint Black would be bigger that Garth Brooks and the Dallas Cowboys didn't need to draft that silly Troy Aikman. Come on everyone, follow my advice.
-- Slick (email@example.com), May 03, 1999.
The big bull market of 1999:
U.S. economy 'keeps rolling along'
WASHINGTON (AP) - The U.S. economy keeps surging, defying expectations with a brisk 4.5 per cent growth rate for the first three months of the year. Economists marvelled at the "wondrous" performance and U.S. President Bill Clinton said: "Americas economic expansion continues to grow steady and strong."
First-quarter growth in the gross domestic product, a measure of the countrys total output of goods and services, was faster than the economys 3.9 per cent growth for 1998, the Commerce Department said Friday.
It exceeded most analysts predictions by a full percentage point and continued the countrys longest period of economic expansion in peacetime history.
"This is a wondrous economy and it keeps rolling along," said Allen Sinai, chief economist at Primark Decision Economics in New York.
However, some worry that an unremitting pace may ultimately spell danger.
"This is getting to be more of a surge that may, when it stops, go out with a bang more than a whimper," said Martin Regalia, chief economist for the U.S. Chamber of Commerce.
More analysts now predict that the Federal Reserve could move to raise interest rates later this year to try to slow the economy.
Investors seemed to share the mixed feelings. After briefly pushing the Dow Jones average of industrial stocks to within 40 points of the 11,000-point mark - barely a month after passing the once- unimaginable 10,000 - they had retreated by midafternoon, pulling the Dow below Thursdays 10,878 record closing.
However, the inflation that usually triggers Fed interest rate hikes remains a no-show so far. A price measure tied to the GDP rose at an annual rate of just 1 percent from January through March, little changed from a 0.9 per cent increase in the fourth quarter of 1998.
The solid growth in the GDP during the first three months of this year came despite the fact that the U.S. trade deficit ballooned to a record level, battered by nearly two years of global economic turmoil that has pushed one-third of the world into recession.
The U.S. administration announced Friday that it will file seven new trade complaints against Europe, Canada and other countries as part of its attempt to help narrow the trade gap.
However, Clinton, who is hoping good times will help Democrats keep control of the White House in next years election, chose to emphasize the positive in commenting on the economy.
"Strong growth, high investment, low inflation and low unemployment are a winning combination and more evidence that we should stick with an economic strategy that has helped usher in a new era of prosperity for the American people," he said in a statement.
Americans more than compensated for the loss of overseas markets by increasing spending at a 6.7 per cent annual rate during the first three months of this year. Thats the largest increase since a 7.2 per cent rise in 1988.
Imports snapped up by consumers at bargain prices because of flagging overseas demand have played a major role in keeping U.S. inflation under control.
Consumer spending accounts for two-thirds of U.S. economic activity, and the recent spree has been bolstered by the lowest unemployment in nearly three decades, a soaring stock market and record highs for consumer confidence.
Consumers are feeling so secure that they are dipping heavily into savings to finance their buying binge. The GDP report showed that the personal savings rate - savings as a percentage of disposable income - dropped to a negative number of minus 0.5 per cent in the first quarter, an all-time low.
"Ive never seen such a remarkable sustained boom in consumer spending," said Norman Robertson, an economist for nearly four decades who is now retired but still advising Smithfield Trust Co. in Pittsburgh. "But it wasnt just consumer spending, housing was strong, investment was strong."
) The Canadian Press, 1999
-- Kevin (firstname.lastname@example.org), May 03, 1999.
Like you, Slick, I expected this market to tank a long time ago. I've been out for almost a year. Sure I've lost some growth, but like the gentleman above I sure have been able to sleep better at night.
Flint, inflation is only low if the CPI is your only measure. If the true measure of inflation -- the money supply -- is considered, then we're clicking along at 11% or so. The excess, of course, gets plopped into the ever-burgeoning stock market, just as in the 1920s. The CPI is kept down only because of the displacement of American products by cheap goods created at sub-standard wages abroad. Not very encouraging.
-- David Palm (email@example.com), May 04, 1999.
An interesting article about the Dow hitting 11,000 yesterday:
Dow targets next milestone after cracking 11,000
07:07 p.m May 03, 1999 Eastern
By John Hanley
NEW YORK (Reuters) - The Dow Jones Industrial Average finished its fastest 1,000-point dash on Monday and has enough energy to race to higher levels heading into the summer, according to market strategists and technical analysts.
Positive economic data, favorable U.S. interest rates, a flood of mutual fund money, and optimism toward overseas markets that has boosted cyclical shares, all contributed to the leading blue-chip index closing above 11,000 for the first time.
First-quarter earnings results, almost complete, have also come in slightly better than expected and put America's biggest corporations on track for a record eight straight years of earnings growth.
``This doesn't compare to anything else I have ever seen,'' said Thom Brown, managing director of Rutherford Brown and Catherwood in Philadelphia, who has been in the business since 1958. ``It is different this time in that the liquidity has never been so great.''
``There is this mentality out there now that you can't get any money in fixed income because interest rates are too low,'' he added. ``People are very conditioned that they can get 13-14 percent (annualized gains) in stocks...and combined with flood of day trading last few years thanks to Internet, you've got a unique situation that we have not seen before.''
It was the quickest jump from the previous 1,000-mark for the Dow -- which first breached 10,000 on March 16 and closed above that hurdle on March 29 -- and parallels the explosion in online trading from individual investors providing the cash every day to buy and sell stocks.
It also reflects the peak earnings years of baby boomers who are shoveling billions of dollars into retirement plans and mutual funds, market strategists said.
Powered by cyclical stocks like International Paper Co. and Exxon Corp., the Dow finished up 225.65 points, or 2.1 percent, at 11,014.69, bringing its year-to-date gain to 20 percent.
Ironically, the historic move -- which occurred just a few minutes before the closing bell -- came on the same day that billionaire investor Warren Buffett sounded a cautionary note on equity prices, especially high-flying Internet shares.
It also happened just before venerable Wall Street firm Goldman Sachs Group Inc. announced details of its initial public offering that values the investment bank at $29 billion -- the second-largest initial stock offering ever. Goldman's shares will start trading on Tuesday.
Market strategists shied away when asked about the stock market's activity and how it compared to cautionary comments made by Federal Reserve Chairman Alan Greenspan in 1996.
At that time, Greenspan spoke of ``irrational exuberance'' -- when the Dow started that year below half its current level -- and stocks initially skidded before resuming their uptrend.
``Certainly the fundamental underpinnings of the market are still good, so to that extent it is rational, but I don't know about the exuberance,'' said Arun Kumar, senior U.S. equities strategist at Lehman Brothers. His year-end target on the Dow is 11,500.
Even so-called technical analysts -- who make price predictions based on chart patterns, and not on fundamental analysis like earnings and interest rates -- are also bullish.
Ralph Acampora, chief technical analyst at Prudential Securities, said his next target for 1999 is 11,500, at which point he will go back to the drawing board for his next prognosis. But make no mistake, he is bullish.
``What has happened is that we have a whole new team of horses leading this thing now,'' Acampora, one of Wall Street's most influential market watchers, said in a conference call with reporters after the close of trading.
``The leaders at 10,000 are slowly fading here...so what is the market doing? In its infinite wisdom, it's shifting -- it's rotating not liquidating -- into the undervalued ones.
He added, ``It's a new bull market. It's almost hard to believe.''
Copyright 1999 Reuters Limited. All rights reserved.
-- Kevin (firstname.lastname@example.org), May 04, 1999.
I left the party early. Does this mean that my hangover won't be as bad the next day?
-- cw (email@example.com), May 05, 1999.
Part of our problem is that the people who are doing the trading, and brokering, area) young
b) trained in the 1970's and 80'(current) school system
c) SEVERELY history challenged
d) highly interested in rec.chem forums (fora?) (I've hauled 'em, and this is what they ask for or complain about a lack of here in Cleve.
e) can't believe in the possibility of their own fallibility
f) can't believe that down could be a real occurrence.
-- chuck, a Night Driver (firstname.lastname@example.org), May 05, 1999.
I agree. It seems like the old rules don't apply anymore. These people are young and they don't have any knowledge of the past.
-- cw (email@example.com), May 05, 1999.
In a nutshell, the high market valuations correspond with an economy that is very healthy by traditional measures today.
How old are these so-called "traditional measures?" And whose are they?
The market valuations are grossly exaggerated. Gen-X'ers have t-shirts and caps with "NO FEAR" emblazoned on them. Obvious. karen
-- karen (firstname.lastname@example.org), May 06, 1999.
Good answer Karen. When, not if the market crash hits, we'll be the ones that are blamed.
-- cw (email@example.com), May 06, 1999.
IBM on the stock market today had faint echoes of the Radio Corporation of America in 1928...
[for educational use only]
IBM CEO Sees Internet Blue-Sky, Stock Soars
03:15 a.m. May 14, 1999 Eastern
By Eric Auchard
NEW YORK (Reuters) - Shares of International Business Machines Corp. Thursday climbed 9 percent to record highs, after the top executive of the world's largest computer maker claimed IBM was the main beneficiary of spiraling Internet growth.
In comments to Wall Street investors late Wednesday, Louis Gerstner, IBM chairman and chief executive, said the $82 billion company generates more revenues, and decidedly more profits from the Internet, than 25 of the world's top Internet stocks combined.
Noting that $20 billion, or 25 percent of IBM's 1998 revenues came from demand for its e-business hardware, software and services, he spoke of huge pent-up corporate demand for Internet connections in 2000 and beyond.
``Mr. Gerstner slyly said that IBM shouldn't be considered an Internet company then rattled off statistics implying IBM is undervalued relative to the Yahoos and Amazons,'' Merrill Lynch analyst Steve Milunovich, said afterward in a note to clients.
Wall Street brokerages responded to his upbeat remarks, which were made at the company's spring investors briefing in New York, by boosting share price targets. Merrill Lynch estimated IBM stock could hit $270 within 12 months.
``With 25 percent of revenue from e-business, IBM is becoming a quasi- Internet company,'' Milunovich said in a research note to clients of the largest U.S. retail brokerage.
IBM stock jumped $20 to close at $245.50 in composite U.S. stock market trading, powering a rally in the Dow Jones Industrials index, which rose 106 points to 11107. Wall Street has grown used to a mix of long-term confidence mixed with short-term optimism from IBM's chairman, who is known to spend significant face-time with corporate customers but makes only rare appearances before investors.
But major IBM shareholders left Wednesday's meeting struck by the IBM chairman's consistently upbeat tone.
``Gerstner was uncharacteristically positive,'' said SoundView Technology Group analyst Gary Helmig, who boosted his 12-month share price target to $260. ``His discussion really had no storm clouds in it at all,'' he said of the meeting.
IBM stock is up 50 percent since its first-quarter earnings report three weeks ago, when IBM officials began confronting investor fears of a potential technology spending slowdown in the second half of 1999 tied to Year 2000 software repair.
At Wednesday's event, Gerstner again sought to ease concerns that corporate purchasing on new computer hardware and software could grind to a halt later this year as customers focus on fixing Year 2000 glitches in existing equipment.
He compared the Year 2000 effect to sound waves canceling each other out, noting how corporate demand for IBM's services expertise and a need for Internet-ready computer systems were overwhelming any possible softness in equipment purchases.
Computer services growth continues to increase at 20 percent per year, and 60 percent of the business spending will be for services to untangle the complexities of installing and maintaining new computer systems, Gerstner told the meeting.
``He talked about huge pent-up demand for computer applications which haven't been done in 1999 and that there's also e-commerce demand fueling IBM's growth,'' Helmig said. ``So he's looking for a very strong 2000,'' the analyst said.
IBM stock traded listlessly for much of 1999 as investors mulled the potential impact of a Year 2000-related slowdown on the computer makers diversified operations.
But IBM executives' recent confidence, reinforced by similar optimism from other technology leaders like Unisys Corp., Computer Sciences Corp. and Cisco Systems Inc., have helped dispel investor doubts.
Gerstner confronted the concerns by pointing to signs that corporate technology managers have begun caving into demands for internal projects to Internet-enable their businesses, defying forecasts of a 1999 ``lock-down'' on new purchases.
``Big Blue does not see the Y2K issue changing customers' buying patterns,'' Amit Chopra, an analyst with brokerage Credit Suisse First Boston, wrote in a note to clients.
``IBM's distinct positioning in the Web-based economy should spur revenue growth in its software, services and technology businesses,'' Chopra said. ``With the evolution of e-business, IBM's services business should continue to buck the odds and actually gain steam in the year 2000.''
Copyright 1999 Reuters Limited. All rights reserved. ---------------------------------------------------------------------
-- Kevin (firstname.lastname@example.org), May 14, 1999.
-- Kevin (email@example.com), May 14, 1999.
"CBS MarketWatch - Major Banks get SELL ratings - Y2K reasons cited"
-- Kevin (firstname.lastname@example.org), May 24, 1999.