In nominal terms profits did not exceed the 1916 level until 1949. In real terms, it was not until December 1955 that 1916 earnings were exceeded, and thereafter there were numerous subsequent declines to pre-1916 levels. As late as January 1992, S&P Composite real earnings were below the 1916 level. Indeed, when real earnings bottomed in March 2002, they were just 4.7% above the 1916 level. (查看原文)
The key conclusion from the analysis in this book is that great equity bear markets will occur as deflation, or the real risk of deflation, develops. The book then posits that it is as these deflationary forces lift that equity markets will bottom. (查看原文)
From 63.9 on 24 August 1921, the DJIA rose almost 500% to 381.2 on 3 September 1929. From there, it plunged 89% before bottoming out at 41.22 on 8 July 1932. (查看原文)
Another technological change, growth in the use of the motor car, played a key role in keeping food prices down. In 1900, one third of crop land of the US produced fodder for horses. This was increasingly turned over to producing food rather than feed as US horse numbers dwindled. (查看原文)
The Fed’s monetary restraint was ratcheted up from 1928 onwards and the money stock at the peak of the economy in August 1929 was actually lower than it had been 16 months earlier. So the Fed’s activities cannot be said to have added to the speculative frenzy of the 1920s. (查看原文)
Total loans to brokers in 1929, from all sources, were thus the equivalent of 20% of total bank loans outstanding. The Fed had drawn up a list of 100 member banks it considered to be financing speculation and should be subjected to “direct” pressure. This could perhaps have worked to reduce the amount of bank credit being directed towards Wall Street, but it was unlikely to prevent the rush of credit from other sources. The total value of all stocks and bonds listed on the NYSE rose from $27 billion at the end of 1924 to $89 billion by the end of October 1929. During that period, loans from New York banks to brokers barely increased, and loans from outside banks were lower in October 1929 than they had been in June 1925. As Figure 39 shows, the flow of credit for stock speculation was comi... (查看原文)
The New York Fed’s discount rate rose from 3.5% in February 1928 to 6.0% by August 1929. However, as Figure 39 shows, the growth of loans to brokers accelerated during that period. The rise in the discount rate flowed into the call market and call-money rates rose from 4.24% in January 1928 to 9.23% in July 1929. There was a small panic in the stock market in March 1929 as call-money rates briefly exceeded 20%, though as rates came back down below 10% it was business as usual. Loans to brokers continued to grow and the stock market continued to rise. The apparent large rise in interest rates was too small to prevent more borrowing and speculation in an environment where excessive capital gains were assumed to be normal. By July 1929 came the first signs the rise in interest rates was affec... (查看原文)
Fed-watching had been born, and in 1928-29 it was clear the policy of the Fed was to end the speculative frenzy in Wall Street. It took over a year, but the sledgehammer needed to crack the nut of speculative activity on Wall Street significantly damaged the economy in the process. (查看原文)
Best estimates suggest that half a million Americans owned securities prior to WWI. By 1929, the number had risen to as many as 20 million. It is unlikely all these small investors were conversant in the basic principles of equity valuation. When interest in the stock market began to wane, the downside for prices was likely to be larger than in periods of less public enthusiasm. (查看原文)
From its peak on 3 September 1929, the market fell 48% by 13 November. The initial decline to around mid-October was relatively mild, but from 10 October to 13 November the Dow Jones Industrial Average fell 44%. Although the pace of the October decline was unprecedented, the scale was not exceptional (Figure 40).
While the decline in prices had been unusually rapid, there was soon evidence the recovery might also occur more quickly than usual. By 17 April 1930, the market had recovered 52% of the decline and was back where it was at the beginning of 1929. The market was now just 23% below its high of 3 September 1929. The magnitude of the decline had not been abnormal and the rebound had been more rapid than normal. While the suddenness of the decline in prices in October 1929 plays some ... (查看原文)
In terms of the course of the recession, as measured by GNP in constant dollars, only 35% of what was to be the total contraction had occurred by the end of June 1931. The real break from the normal pattern of the business cycle was the impact of the second banking crisis and growing concern about exchange rate stability, which from June 1931 to December 1932 accounted for almost two-thirds of the total economic contraction. (查看原文)
The huge monetary impact of such deposit flight and the inability, or unwillingness, of the Federal Reserve to counteract it, is the key reason why the US recession of 1930 developed into the depression of 1931-32. (查看原文)
An investor committing funds to equities on 24 February 1931, almost 16 months after the October 1929 crash, would witness a 79% drop in the DJIA in the next 17 months. (查看原文)
