1920s/1990s & 1870s and 1990s

Tom Lehman TLEHMAN at lor.net
Sun May 16 19:23:30 PDT 1999


The collapse in the 1873 led to in the following years the almost forgotten and probably the biggest outburst of labor unrest in the 19th century. It was call out the militia, time and millions of dollars in property damage was done in labor disputes across the country. Probably someone on the list is familiar with this era and the facts. I've read some of the old accounts to have some idea of the scale of the damage.

One thing that bothers me about this 401-k driven stock investment deal is that the majority of people invested still have a long time horizon before they can take advantage of their gains in retirement---and as the article from the FT said, no one ever lost their shirt taking a profit.

Your email pal,

Tom L.

Doug Henwood wrote:


> JayHecht at aol.com wrote:
>
> >Barron's has an interesting analysis of the 1872-1874 stock debacle.
> >
> >The NY banks tried to hold it together as the RR financiers went down the
> >tubes.
>
> Since Barron's is rarely worth the $3....
>
> The author, Chris Carolan, is the guy I quote in Wall Street as defining a
> bear market as a time when money returns to its rightful owners. When I
> asked him who they are, he said, "Oh, the Rockefellers."
>
> Doug
>
> ----
>
> Barron's - May 17, 1999
>
> Setting A Bull Trap
>
> Does what happened in 1874 foretell what might occur in 1999?
>
> By Christopher Carolan
>
> The great stock-market rally of late 1998-early 1999, coming so quickly on
> the heels of last year's international financial distress, has no precedent
> in the recent past. Combined with new highs in many averages, this argues
> that the bull market is back, and bigger and better than ever.
> Unfortunately, there is a historical precedent for this rally, and its
> final act wasn't pretty.
>
> Others have noted the parallels between the declines of 1873 and 1998. Both
> were preceded by bull markets marked by speculation in a new transportation
> infrastructure -- the railroads then and the Information Superhighway now.
> Each drop occurred in a climate of falling commodity prices. And in 1873 as
> well as in 1998, the financial distress was international in scope. In May
> 1873, German and Austrian markets collapsed; a few months later, the U.S.
> stock market swooned. In 1998, the woes of Asia and Russia pushed down
> American share prices in the summer and early fall.
>
> The rallies that followed each slump were impressive, but they developed
> under very different circumstances. In 1998, the Federal Reserve Board
> headed off any crash -- and refortified the bulls -- by easing interest
> rates. In 1873, there was no Fed to stem the panic. The pivotal September
> event was the bankruptcy of speculator Jay Cooke, who couldn't sell enough
> of his Northern Pacific railroad bonds in Europe to stay afloat. Last year,
> in contrast, the Long-Term Capital Management hedge fund was rescued in
> September, even though it had made some very bad bets on bonds, among other
> things.
>
> The 1873 decline ended November 7, with prices off about 30%. Then came a
> tremendous rally, similar to the one that followed the 1998 low reached
> last October. According to contemporary accounts in the New York Times,
> stocks gained 10%-12% in the first nine days of that rally. Though there
> was no Fed to cut interest rates, New York banks -- at the time easily the
> most dominant in the nation -- played much the same role. As the Times
> noted on November 26, 1873: " ...The main stimulant to the share
> speculation at the exchange is the ease in money and the restored facility
> of clearing the immense speculative transactions between the brokers
> through the banks."
>
> ----------------------------------------------------------------------
> HISTORY LESSON
>
> While stock prices rebounded nicely after international turmoil had helped
> push them down in 1873, the subsequent rally was a prelude to a
> disappointing period for Wall Street's bulls.
>
> Share Price Snapshots 1873-74
>
> Jul. 18 Nov. 7 Feb. 9 Decline Retraced
> N.Y. Central RR 104.12 78.50 105.00 -25% +103%
> Rock Island RR 111.25 84.25 108.50 -24% +90%
> Pacific Mail 38.12 26.75 43.75 -30% +150%
> St. Paul Common 53.25 22.00 48.25 -59% +84%
> Western Union 89.75 46.25 77.50 -48% +72%
> Erie RR 58.87 26.12 49.12 -56% +70%
> Union Pacific RR 28.1215.5. 35.12 -45% +155%
> Lake Shore RR 94.00 61.00 83.12 -35% +67%
> Ohio & Miss RR 40.25 21.87 34.75 -46% +70%
> North-West RR 71.00 34.25 60.75 -52% +72%
>
> Source: The New York Times
> ----------------------------------------------------------------------
>
> One month later and with the rally well under way, the Times described a
> market that had forgotten about value just weeks after the greatest crash
> in NYSE history:
>
> "Stock Exchange speculation is rampant... . We seldom expect to report what
> would be called a consistent market on Wall Street, but there is now less
> appearance of this element, and a greater disregard of relative values and
> the outside surroundings of the Exchange than in usual seasons of
> excitement. But many of the banks (some of them nearly at death's door in
> October, and owing the clearinghouse half their capital or more) are being
> drawn into the ante -- panic practices and are ... fast forgetting the
> lessons of September. They all seem willing to help "roll the ball" and to
> certify that [money] prices are cheap... ."
>
> The table shows how far some stocks slid in the 1873 crash and the extent
> of the subsequent rally. By the time the bull stopped running in early
> February 1874, the bluest chips, the New York Central and Union Pacific
> railroads, had exceeded their old highs, as many top names have done in
> this rally. Most secondary issues had regained about 70% of their losses by
> early 1874, compared with the Russell 2000's 80% recovery now. And then, as
> today, the market shot up as fast as it had plummeted.
>
> The news accounts during the post-crash rally focused on the greenback
> question. Would Congress increase the amount of greenbacks in circulation
> and ease the developing contraction? (The term "greenback" appears in the
> financial press of the day as frequently as "Greenspan" does today.) At the
> time of the high, the bulls hoped for monetary relief. By March 1874,
> market participants realized that help from Congress wouldn't be soon
> forthcoming. Stocks no longer could escape the gravitational pull of the
> contracting world economy. The market rolled over to lose about 43% in the
> next 40 months, in what became known as the depression of the 1870s. In
> essence, the bulls had blundered into a trap that would see stock prices
> trend downward for several years (see chart).
>
> Of course, there are substantial differences between then and now. The New
> York banks were no match for the world economy then, while the Fed is a
> more formidable force now. America's central bank has more tools to "roll
> the ball," to use that elegant phrase from the 19th century. Jay Cooke's
> failure caused major harm to the financial markets in 1873, while the LTCM
> bailout averted similar systemic damage in 1998. The 1873-74 rally occurred
> after a much more devastating collapse than 1998's crashless decline.
>
> Nonetheless, the message is clear: Wall Street's ability to quickly reflate
> itself with easy money is no guarantee that the bear is defeated. History
> suggests the determining factor is whether the world economy truly has
> recovered from the previous year's shocks. In 1874, it hadn't. In 1999, as
> the continuing woes of Japan and some other nations in Asia and South
> America show, the verdict still isn't in.
>
> ------------------------------------------------------------------------
> CHRISTOPHER CAROLAN publishes Spiral Calendar Research in Gainesville,
> Georgia (chris at calendarresearch.com). He won the 1998 Charles H. Dow Award,
> presented by the Market Technician's Association, Barron's and the Dow
> Jones Newswires.



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