The crash of 1929
actually occurred from late September, '29 to the mid-year of 1932. In fact, the crash of October, '29 was only the first break which took the Dow Jones Industrial Average (Dow) from a high of 362 in September, '29 to
200 by December. A short rally occurred from early 1930 which took the Dow back to 300, and then the rout lasted several years eventually taking it to a low of 40. Even though the bear
market lasted for many years, the events during the three months that led to the October, '29 declines were some of the most dramatic in all Wall Street history. The speed at which prices declined and the theatrics of
the stock exchange establishment were more reminiscent of a Chaplin movie than of the world of high finance.
Since 1922 the market had staged a major bull run. By the mid-twenties
people had become accustomed to rising stock prices, with shortterm declines. The use of margin to buy stocks (paying 10% down and financing the rest with borrowed money) was spreading. By '28 the economy was booming
and the roaring twenties were in full swing. Easy money was made on Wall and main streets. As far as Cleveland and Chicago, there were new tycoons such as the Van Sweringen brothers and Sam Insull. The "Match
King" of Sweden, Ivar Kreuger was selling shares of his worldwide holdings to Americans. Kreuger's empire would eventually crash–leaving him and hundreds of others in ruins.
William
Durant (then president of GM) and the Fisher Brothers (of Fisher Body Co.) sold their interests, left Detroit, and moved to New York to speculate in the markets. These people were idolized by the average American
looking to "get ahead."
By '29, public investors had become fearless. Stock prices soared and investors went wild. By late August the DJIA along with utility and rail stocks were
breaking into all time new high ground. There were a few who warned of a crash, but their voices were drowned out by the bulls and promoters of the time.
Stocks opened September on high
ground and, in addition, benefitted from dividend increases and rights offerings. Indeed, the New York Stock Exchange itself, perhaps influenced by corporate practices, declared a dividend of a quarter membership to
each seatholder, thus creating 275 new seats and bringing the total to 1,375. Like stocks, the price of an exchange seat zoomed, hitting an alltime high of $625,000.
Prices fell on
September 4, in what the Wall Street Journal called "the first technical correction of importance." Some brokers advised switching from speculative stocks to bonds; others raised the prices of call money
(money lent on margin) and margin requirements. Then prices rallied and optimism once again soared.
The advance became spotty during the last week in September of '29 and ended abruptly at
the beginning of the new month. Then on October 3, the market collapsed in the worst sell-off to date. Many newspapers carried the story on their front pages. Margin calls went out. Financial analysts wrote that the
bull market might be coming to an end. But others repeated the nowfamiliar statements that price/earnings ratios of 20 to 1 were not unreasonable; that the investment trusts and "big boys" were waiting for the
right time to buy stocks from "suckers" who would sell in panic. It was said that bull pools were forming throughout the district; and there was no reason to consider 60% margin accounts as speculative.
Arthur Cutten, who was said to have secretly switched to the bear side of the market, took great pains to deny it. The Journal reported that "Mr. Cutten said that no relaxation of the
national prosperity was in sight..."
Prices recovered on October 4, and the upward swing resumed. The sharp decline of October 1419 did not cause a panic; it was no worse than bearish
weeks in previous years. And after all, each of these market declines had recovered. Some thought the collapse was caused by a struggle between Jessie Livermore's bear pool and Arthur Cutten's bullish group. Six million
shares were traded on Monday, October 21st while the press remained optimistic. Prices rose on Tuesday morning, but fell in the afternoon. The market opened slowly on Wednesday. Then, in midmorning, several key issues
slumped on heavy volume. The decline spread through the rest of the list. JI Case was down 46 points and Adams Express by 96. Speculative issues generally suffered huge losses, while many blue chips dropped five points
or more. Prices opened lower on Thursday morning then fell sharply and never recovered.
In past panics it was J.P. Morgan who came to the rescue. While Morgan was dead, the House of Morgan
was not. Thomas Lamont, at Morgan, organized a meeting with Albert Wiggin of Chase, William Potter of Guaranty Trust, Seward Prosser of Bankers Trust and George F. Baker, Jr. of the First National (now
Citigroup). They decided to elect Richard Whitney, Vice President of the exchange, to act as their agent on the floor. With a pool of some $20$30 million, Whitney rushed from the meeting to the exchange and went
directly to the floor to bid prices higher. He started at the U.S. Steel post. By the end of the day things seemed not as bad as the bankers "attempted" to rescue the market. Later, in the '30s, this so called
"bankers rally" would be severely criticized as many skeptics charged that the bankers attempted to rally the market in order to sell short to make profits in the following declines.
The newspapers over the weekend carried the stories, but the nation had not seen the end of the panic. Monday was bad but "Black Tuesday" followed. Volume on Tuesday, for the first half hour was
over 3 million shares, a record that would stand for more than thirtyfive years. Prices fell all day, flood after flood of sell orders, margin calls and panic dumping. Late that night it was learned that over 16 million
shares exchanged hands.
The decline in stock prices late in 1929 would only be the beginning. This was the first break as prices would eventually crash to their lows by mid 1932. The
greatest buying opportunity in history presented itself in the mid-years of the '30s. However, like most great crashes, only the most astute and wealthy had money to buy at the bottom.
For
the rest of their lives, brokers would tell stories about Black Tuesday to their juniors, in much the same fashion as old soldiers speak of battles in previous wars.
Quote of the Week: "When I have to
depend upon hope in a trade, I get out of it."—Jessie Livermore
