I'm reading the FT and WSJ from 100 years ago each week leading to 1929

https://roaring20s.substack.com/p/august-8-1921

by roaring20s • 5 years ago

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roaring20s.substack.com

hogFeast6• 5 years ago

There is already a book that does this (although I would definitely recommend doing what you are doing): Russell Napier's Anatomy of the Bear.

Tangentially, it is kind of interesting that very few people in markets use this kind of historical information to learn more about markets. Russell Napier runs a library in Edinburgh that is composed solely of economic and financial history books. You can have all the technical information in the world, it won't help you avoid the impact of human psychology. I suppose this is why financial cycles happen, the old guys retire, the new guys who have only known a bull market get into it...same mistakes over and over.

To give you a concrete example, I did my thesis on US monetary policy in the 50/60s. The understanding of this period within economics is based almost entirely on the view that economists have of themselves today. If you read the minutes, you see that the Fed understood why inflation was rising in the late 60s but were unable to do anything about it. This grey area of political independence is, of course, totally forgotten today (when you have a former Fed chair as Treasury Secretary, alarm bells should be going off...but, of course, this is all long forgotten).

awinter-py• 5 years ago

ohhh good rec

ozzythecat• 5 years ago

when you have a former Fed chair as Treasury Secretary, alarm bells should be going off...but, of course, this is all long forgotten

Can you elaborate on this point? I would think a cabinet member going to the fed and not coming from the fed would be more alarming. What am I missing?

hogFeast6• 5 years ago

What is the difference? The reason why it is alarming is because there is no political separation. It doesn't really matter which way it goes.

This happened in the 70s. Nixon politicized the role with Burns (who came from the CEA), then Carter appointed Miller (who went onto become Treasury Secretary). And btw, Miller was (with hindsight) one of the worst Fed chairs of all-time.

Tbf, Volcker came from Treasury, Geithner went into Treasury (after FRBNY) but, in both cases, they operated with Presidents who respected the distinction in functions. This distinction weakened significantly under Trump, and is now non-existent.

deehouie4• 5 years ago

there are at least three books on this period,

Lefevre, E. (2004). Reminiscences of a stock operator (Vol. 175). John Wiley & Sons.

Kramer, C. (2000). " Devil Take the Hindmost: A History of Financial Speculation" by Edward Chancellor (Book Review). Finance and Development, 37(1), 53.

Mackay, C. (2012). Extraordinary popular delusions and the madness of crowds. Simon and Schuster.

hogFeast6• 5 years ago

You don't understand...there are thousands of books on this period (for some reason, only one of the books you mention are about this period...Mackay was written several decades before the 20s, Chancellor is a general history, Lefevre is interesting but not really going to give you the information you need as it is a personal story).

The book that I cite is identical to the OP. The author goes through newspapers from the period leading up to 1929 (and iirc, through to the late 30s).

JackFr2• 5 years ago

I took a fabulous course in grad school on Monetary Theory and Policy and at one point the class was discussing how laughably bad the policies of (I think) Arthur Burns were. The professor scolded us pointing out that all the stuff we were being taught had to be learned somehow and what we were describing as laughably bad was this learning.

hogFeast6• 5 years ago

Right, that is exactly the wrong thing to take from it, that is exactly the kind of misinterpretation of history that people still have (generally speaking, you cannot view history in terms of the present, economists think you can do it because economics is a science...it isn't).

The reason why Burns' policies were poor was because he wasn't making policy within a context that makes sense today. From the mid-60s onwards (before inflation took off), monetary policy was formed politically. The economy used to cycle around elections for this reason. Burns really took this to its logical conclusion...and to be totally clear, a lot of the mistakes that Burns made were made in other countries. Burns was actually fairly hawkish, compared to Miller, but the problem was (partly for reasons of political expediency) people believed that wage restraint policies would be effective.

To loop back, the lesson of the 60-70s is that monetary policy should be free of political influence. Look at what is happening now. Has the lesson been "learned"? And, more importantly, can it ever be "learned"?

john_miller• 5 years ago

Do you have a link to the fed's minutes or to your thesis?

hogFeast6• 5 years ago

You can get the Fed minutes (iirc) back to the 80s on the main website. To get earlier ones (they go back all the way iirc), you can get them from ALFRED (there is tons of interesting data on there).

riazrizvi2• 5 years ago

If one bought and held the Dow from 1921 to present, the total return would be 500,000% (5,000x)!

If we can use hindsight in our trades, I'd recommend using the numbers 60, 54, 36, 24 and 7, on last week's Powerball lottery that paid out $211mm. That's a 100,000,000x return!!

tehlike• 5 years ago

Indexing is less of a hindsight at this point.

riazrizvi2• 5 years ago

Based on the example of USA Inc? Over this time period what about Germany Inc? Or China Inc? Had Hitler used his artillery to wipe out the British Expeditionary Force retreating at Normandy, UK Inc investors would have lost their shirts.

5faulker• 5 years ago

The key here is hindsight.

tshaddox• 5 years ago

Also expected human lifespans.

eloff7• 5 years ago

That's apples to oranges. The Dow has a long history of excellent returns. Those lottery numbers do not.

carnitine10• 5 years ago

The Dow is arbitrary. It happened to do well, if you bought a Japanese index in 1929 you’d do well for 60 years and then make losses which would require another 30 years to recover from.

Spooky233• 5 years ago

If you were able to buy those numbers for the last hundred years, you’d have <$25k invested to make $200M.

It’s no more absurd than projecting stock returns over 100 years.

yreg5• 5 years ago

Sidenote: Dow Jones Industrial average is an incredibly archaic and dumb metric. It weights companies by price per share, not by market cap.

So when Apple does a 1 to 4 stock split its influence on DJI nonsensically falls by 75%.

dheera7• 5 years ago

Don't they adjust for that when splits happen?

tkojames3• 5 years ago

The s&p 500 is worse In my opinion. They make it sound like it is the top 500 public companies in the us. Which is not the case. They have group that picks them based on a bunch dumb rules. I like the total stock market index's. If you have people picking what goes into the index they why bother just buy active managed index funds.

bishoprook2• 5 years ago

Also, it's an actively managed index. Companies are added and subtracted.

perl4ever2• 5 years ago

The Dow was designed for easy calculation before computers. And it's pretty correlated to the S&P 500 anyway.

In theory, price weighting is a poor way to index, but look at it from the other side of the coin - if you choose 30 stocks, from all sectors, how likely is it that you'll get a different return from the market even if you try? Not very.

It's only relatively recently that it became popular to never split and let stock prices grow without limit, too. If the prices are mostly in a small range, then the index is similar to an equal weighted one.

ww520• 5 years ago

Dow kicks out underperformers and brings on good ones from time to time. That ensures only the good ones remain. I wonder how those changes affect performance.

ip26• 5 years ago

The note was more about how good the supposedly ‘unexciting’ rates of return actually were, not about market timing.

risk free bonds are yielding 5%

chrismarlow9• 5 years ago

The underlying factors that drive and produce the outcomes of these two systems makes me think your comparison is a false equivalence.

I guess there's an element of randomness to everything and any company could go under overnight, but in general I think you can rely on hindsight in terms of performance. The higher you get up the ladder and aggregate, the more stable I feel that is.

If you're just comparing the methodology of extrapolating expected returns from hindsight I would agree with you.

I guess what I'm saying is using hindsight to pick a direction seems logical. And doing it from a broad perspective seems more stable (using hindsight to predict if a company will go up vs using hindsight to estimate if a sector ETF will go up). However, I agree that I don't think you can estimate how much it will go in that direction.

There's probably a fallacy in my logic there somewhere. But the results in the real world are good. If those returns are all just luck, well at least I had fun and made some money.

FreeRadical• 5 years ago

This is a really interesting concept

okareaman• 5 years ago

It's a cool concept. I follow "World War I as it happened (1914)"

https://twitter.com/WarHappened

rland• 5 years ago

There's this one for World War 2 also: https://twitter.com/RealTimeWWII

roaring20s5• 5 years ago

I have a twitter here if you want to follow: https://twitter.com/Roaring20sTate

anconia2• 5 years ago

Cool! Are you planning on doing any other time periods like this?

maerF0x0• 5 years ago

If one bought and held the Dow from 1921 to present, the total return would be 500,000% (5,000x)!

One of the great challenges of human existence is we do not live 100 yrs to see those returns. Instead we're living, blind to the exact details, on the choices of those 100 yrs prior to create the X% returns of their choices _for our lives_ . One way to get people to make such choices is to create a love for whomever comes next. Children used to be a "skin in the game" sort of scenario where you didn't want to mess up the future cause you had a vested interest in it. Between selfish culture and few people having children, i'm not sure the solution .

While many say that ending aging / increasing life span to 100s or 1000s of years would be disastrous, I actually think it might fix a lot of issues as we'd have that timespan of a personal interest to optimize across.

baybal2• 5 years ago

There is 1000 year gold, but no 1000 year people

cm21872• 5 years ago

Today no one seems to care about inflation in Europe or in the US. It seems to be a subject confined to economists that every day people don’t care about, if they even understand the concept (no one under 50 has really witnessed it in their adult life). So people are all for unlimited money printing.

It is interesting to find old articles and read what people cared about at the time. Inflation was often a top concern, and politicians running their campaign on curbing it. Some old movies also refer to it (that stolen money which will melts away while you await behind bars).

Our current complacency in term of budget deficits and monetary policy will wake up that sleeping dragon.

sanp• 5 years ago

Perhaps inflation was a concern in an economic system where 1) A physical commodity (Gold) was the store of value, and 2) Debt was not easily accessible.

Neither of these are true anymore and inflation now will be a reflection of true scarcity of a good / service (e.g., housing) as opposed to the transaction costs associated with procuring it...

bequanna• 5 years ago

The familiar refrain of hubris the has preceded pretty much every crisis: “This time is different.”

leppr4• 5 years ago

Access to debt is still difficult for those that will be hurt most by inflation of consumption goods (CPI in the US).

Furthermore it's also more accessible proportionally to existing wealth, which means inflation is in effect an inequality amplifier.

carnitine10• 5 years ago

Probably because inflation has never been particularly bad post-QE. We had inflation north of 10% in the 70s, it’s averaged a couple of percent in the last two decades.

Also, despite what the Fed probably wants you to think, QE is not money printing, it is a duration swap between different forms of existing money.

bhouser• 5 years ago

Can you elaborate on what you mean by a “duration swap” and “different forms of money”?

otterley2• 5 years ago

The Federal Reserve System cares very much about inflation and reports on it in every single FOMC meeting. You can read their meeting minutes at https://www.federalreserve.gov/monetarypolicy/fomccalendars....

Spooky233• 5 years ago

Why would normal people?

Most folks are in mortgage and consumer debt and have little wealth. Higher inflation mostly impacts people with wealth.

Look at what’s happening now. Lower income folks are getting life changing payments of just a few thousand dollars in the US that is causing increase in services costs.

toastermoster2• 5 years ago

Wealthy people own assets that keep up with inflation. They may have 10% in cash which doesn’t keep up with inflation but in general most of their holdings either keep up or outperform inflation. Poor people have wages that don’t keep up with inflation unless they start job hopping. The poor are typically more affected by inflation than the rich.

toastermoster2• 5 years ago

Those who have borrowed money benefit from inflation though. If you have student loans or a mortgage, high inflation can work to effectively reduce how much you owe if salaries/wages go up with inflation.

jbay8087• 5 years ago

I've been thinking about this topic more and more, and the more I study it, the more I realize how incredibly rich of a subject it is.

For example, I used to assume that monetary inflation was instant and automatic. Double the money supply overnight, and everyone will double their prices and incomes overnight too, as though all that happened was a substitution of variables.

Later I understood that it's not that simple. First, the new money doesn't get distribution in proportion to how much people own, so savings get halved. Second, contracts denoted in dollars don't get adjusted, so debts and purchase orders get cheaper, accounts receivable become worth less, and so on.

And lastly, prices aren't updated automatically by some perfectly objective value calculation. They're held in place by a combination of supply and demand, competitive forces, price elasticity, psychology, and collective expectations.

So the inflation can apply instantly in some markets but it can also take years for those changes to propagate into various other markets.

And even once the money supply stops increasing, inflation can keep going all on its own accord, once expectations become fixed. This happened in Japan in the '60s and '70s where unions demanded 5% annual wage increases to keep up with the inflation caused by every industry getting 5% annual price increases caused by union wage increases...

Right now it seems like the new money is going straight into asset prices, and that will probably remain the case until either asset holders start selling their assets to consume an absurd amount of food and gasoline, or the high price of assets starts to weigh heavily on the cost of production.

hiram1123• 5 years ago

This happened in Japan in the '60s and '70s where unions demanded 5% annual wage increases to keep up with the inflation caused by every industry getting 5% annual price increases caused by union wage increases...

As a gov contractor, I'm seeing this first-hand. Inflation has been tame my whole career in this industry - 2% or 3% / year; therefore, contracts of fixed length have built-in rate increases of similar percentages, and raises trickle down from there.

Most companies will give you raises a bit less than what they're getting each year in increased rates themselves - it's how they increase their own growth and executive bonuses. This can go on for a long time - 5-10 years before the employee will really notice they're falling behind peers who've just been hired or general market rates if they were to jump shit.

But when real inflation is running 7%-10%, the wage disparities between new hires & contracts and existing employees & contracts become evident quickly. For example, I'm discovering that new engineers with far less experience and talent are being hired on for $20K - $40K more than I make, all else equal.

Which forces me to start looking for new employment or ask management for a raise, neither of which is desirable.

imtringued5• 5 years ago

Inflation is just the realization that your balance sheet doesn't match reality. The reason it is delayed is that people can flee into the balance sheet and refuse to interact with the real economy for years. Hyperinflation is what happens when the real economy is gone. Moderate inflation is what happens when the balance sheet is slightly off. Extremely low inflation or deflation is what happens when people pretend that there is no such thing as the real economy. Think of gold or Bitcoin. All hail the balance sheet!

The funny thing about inflation is that if it is high enough to "sting" (2-5%) then people notice the missing wealth in the real world and create it to the best of their ability.

The fact that the money isn't moving, that it isn't entering the real economy is one of the greatest mistakes made by the central bank which is prevented from doing so and the government which refuses to do it for petty ideological reasons.

ItsMonkk• 5 years ago

Right. If you double the money supply by dropping interest rates, the people with the new money are the credit worthy people who can afford to take out new debt(though mostly companies). The things that those people demand are what rises in prices. This is the Cantillion Effect, basic supply and demand flows.

Since the people who can take out new debt are wealthy, the things that the wealthy buy go up. They don't need more apples, so the demand for apples stays the same, and the prices of apples stays the same. Instead they take that debt and pour it into the market(mostly buybacks) and other savings. So we don't end up seeing consumer prices change much.

Each person is attempting to maximize their long-term utility, and so long as inflation stays in check their best option is to keep it in the market growing ever more. Money is useless if you can't eventually spend it for utility. Each billionaire/company is planning what to do with their wealth. Some will create rockets, others will fund disease research hoping to get their name into the history books. It's always and will always be about the utility.

Like the Martingale Betting System has shown, you can not remove the risk by shifting the betting sizes around. As the money supply increase more "energy" is added to the system. It becomes harder and harder to control it. As it increases, the power of each individual to effect the entire system increases. In the 1970's the richest person had $6B, now the richest person has $177B, an increase of 30 times. By 2170 the richest person could have 30x that.

If there is a reason to believe that selling their stocks will yield greater utility, then the wealthy would figure it out, and the first person who acts would win(like what happened with the banks handling Archegos), second would do worse, most would get wiped out, including all the non-wealthy. It would be like a dam collapsing all at once. Sometimes all it takes for the dam to burst is a small trickle. But all that energy was always being stored in the reservoir.

But you better believe that the Fed understands this, and is doing everything in their power to keep the system under control. The problem is though, they need for investments to be the biggest long-term utility creator, but that only increases the energy. The more they keep it going, the more unstable it becomes.

iso12102• 5 years ago

Many people under 50 don't care about inflation because they owe money, they certainly don't have money - it's all be taken by rent seekers.

Then all that nonsense about lumber earlier in the year, blaming QE for supply problems. Lumber prices now 1/3rd what they were a few months ago.

cm21872• 5 years ago

Usually people care about inflation in the context of cost of living vs their earnings, not their net assets.

Swizec• 5 years ago

(no one under 50 has really witnessed it in their adult life)

Akhem, there are places outside America. I still have the postage stamps for 100,000 monetary units from the late 1980’s and early 1990’s Yugoslavia in my mom’s basement somewhere.

My parents’ tales of ridiculous mass inflation have been etched into my brain. I was too young to remember, but the spectre loomed large. Especially in the mid 1990’s when the rest of Yugoslavia set the world record for monthly inflation that still stands today. Luckily we were our own country with our own money by then.

At one point hyperinflation reached 2% per hour.

https://en.wikipedia.org/wiki/Hyperinflation_in_Yugoslavia

I believe many parts of South America are going through high levels of inflation right now.

imtringued5• 5 years ago

Zimbabwe could have implemented a land value tax on farmland to achieve its goals to undo colonization, instead they violently drove farmers away and then they could no longer feed themselves. Zimbabwe was just another victim of Marxism, to be more precise anti colonial Marxism.

Imagine if the president of the USA decided to solve the homeless problem of the black population by pointing guns at white homeowners and forcibly dragging them out of town. It's clearly unsustainable.

There might be truly disgusting capitalists like martin shkreli on this planet but they don't attack you directly, they merely deny you your fair share of the wealth you have created.

x3sphere• 5 years ago

People don't care about inflation specifically, but they do care about how it is affecting them. For example, lots of people seem worried about getting priced out of buying a home these days, which inflation has certainly contributed to in a big way.

annoyingnoob2• 5 years ago

Its cheap credit that drives up home prices. Historically low interest rates are driving historically high home values. We are currently in some kind of home price bubble which will change when interest rates change. Zillow and recent sales say the value of my home is up 20% in 9 months.

Last year a dozen donuts at the local family run shop was $9, this year it is $12. My daughter's specialist doctor raised the cost of an office visit by 30% this year. The cost of a burrito at my favorite spot is up 25% in two years. I could go on. I care about inflation, and it is real.

anonuser123456• 5 years ago

I don't think inflation is a problem at all; the Fed clearly has tools to keep inflation low.

Now... doing so might totally ruin the economy and eat all GDP growth, but that's the next generations problem.

leppr4• 5 years ago

Well, while the printing machines were running, the zeitgeist was fully occupied with Covid-19, BLM, a short episode of anti-Asian racism toward the end, Trump's vulgar attitude, ...

Now that the harm is done and the money circulating, the media is slowly starting to shine some light on the topic.

Although that could push one toward conspiracy theories, as per Hanlon's razor we shall not attribute to malice that which can be adequately explained by stupidity. The media probably just got distracted as we all were.

perl4ever2• 5 years ago

no one under 50 has really witnessed it in their adult life

I had a car loan in the early 21st century, and the rate was about 6%. It didn't seem that bad at the time. I think I remember when the bank paid 4% on savings accounts in the 80s or 90s.

That's not to say inflation was very high in my lifetime, but it took a long time for people to get really complacent that it wasn't coming back, and super low (or negative) interest rates are quite recent.

It's only been about 40 years since 30-year mortgage rates were over 18%. Someone in their 40s may not remember it first hand, but they probably have a sense from the older generation that is a thing that happened.

hellbannedguy• 5 years ago

I am very concerned about inflation.

I wish the fed would raise interest rates.

These low rates only seem to help the wealthy, and prop up an overvalued stock market.

While the wealthy see their stocks skyrocketing, the poor and middle class just see higher living costs. I guess if you can afford a house the low interest rates are nice?

In the 90's I used to get $400 a year on my sweaty cd wad. (I can't afford to gamble with stocks.)

The other day I took out a few thousand from my cd, and was concerned about the early withdrawal which is tied to current interest accumulation. The fee was 49 cents.

Personally, I feel the reason the fed tax rate is so low is because Powell knows this stock market is truly a house of cards. Most business are way overvalued. He's scared to death it will crash on a scale that won't be as bad as '29, but the wealthy will lose most of their cash.

I have never seen a bull market go on for this long.

Almost in every other I have watched the professional stock boys wait until the last retail investor put in his last dime, and they pull all their money out.

I felt it was doing to implode a few moths ago with all the NFT's, and glamour puss celebrity SPAC's being pimped, but no.

I feel if that hastily put together, nebulous, pork filled 2700 pages, infrastructure bill, which seems like it will basically be a gift to contractors (like Ghilotti Family syndicate types). It will produce very few union blue collar jobs that will not last. If it does pass we might not see a big stock market crash for a bit longer, but it's coming.

Instead of the Infrastructure bill, I would rather see a Basic Income. Poor people who didn't work got nothing out of the pandemic money. Homeless got nothing out of the handout.

Let's do the infrastructure spending when we have a clue to where the money is going?

Ok--to those who can't afford to lose money, get your money out of those overvalued stocks.

The crash is coming.

(Sorry about the rant. I have watched the stock market decimate the little guys over the years. The wealthy slowly pull out, but the retail investor gets whacked.)

andrekandre3• 5 years ago

  > I wish the fed would raise interest rates
  ...
  > The crash is coming.

i have heard it said raising interest rates would actually be the instigator of a huge crunch/crash

reason being that for the last 10 years or so, companies all over have been soaking up "cheap" capital from what is basically basically zero interest loans

these debts are what is keeping those companies floating/alive, and if rates were increased even a bit, it could be devastating by causing a quick succession of bankruptcies (supposedly this was why trump was so angry at the fed for pondering raising the rate)

anyways, im not an expert, but it seemed plausible...

toast02• 5 years ago

no one under 50 has really witnessed it in their adult life

The inflation rates aren't too bad, but $10k can't get you a (very lowend) new car anymore, like it did when I graduated. Speaking of graduation, looking ahead to college prices for my kid, sticker prices are easily the price of a whole 4 year degree when I went for every year.

If we include my childhood, arcade games used to be a quarter; the last arcade I was in, even Pac-Man was 50 cents, let alone the dollar or two dollar games that were more modern.

dood2• 5 years ago

We've been in a deflationary cycle (driven by technology & globalisation) for decades, so inflation hasn't been so relevant.

With that cycle now concluding it's likely that inflation concerns will soon be making a major comeback, already some observable echos of the stagflationary 70's: https://www.nytimes.com/1978/06/18/archives/how-carter-can-s...

unionpivo• 5 years ago

Maybe in the west, but us from ex Yugoslavia and other comunist/socailist(the bad kind) countries, do care about inflation.

And I suspect economists are manipulating how they calculate inflation, since I am creature of habit and mostly buy and consume same things for the past 15 years.

Prices are going up significantly. Some of it might be due to global shipping increase, but over all my total spending on consumables has increased to between 15% and 20% in the past 2 years.

VinLucero2• 5 years ago

Does anyone know where I can find a digital version of historical FT / WSJ articles?

I’d love to run some NLP over that history to track sentiment over time.

roaring20s5• 5 years ago

Good idea.

The market sentiment in 1921 was very bad for stocks. In fact, a week ago in 1921, Andrew Mellon (Treasury Secretary) suggested retail investors avoid stocks. This was covered in my post last week.

Sentiment is going to flip around 1923-1924 (once we clear the 1920 top) and only strengthen into 1929.

VinLucero2• 5 years ago

@roaring20s I have read through all of your current Substack articles and would love to catch up on your own background and data sources. I think pre-computer data extraction powers the best ML insights.

I am working at a YC Fintech company exploring economic opportunity over time and think there are some deep relationships here around human psychology and markets.

deehouie4• 5 years ago

WSJ has a link to its digital archive, which only goes back to May 1996. And unfortunately it doesn't have API so getting articles out of site for NLP is a pain. Let me know if you have code for that. I'm working on something similar

otterley2• 5 years ago

ProQuest is the digital provider for Wall Street Journal historical archives. Many public libraries provide free access; often all you need is a local library card and login.

aazaa• 5 years ago

Writers at the FT ponder how to spend their day while equity and commodity markets vacillate listlessly. ...

This is what a lot of people don't get about market bottoms. Nobody cares. It's not like they hate an asset class. They just could not care less.

This is one of the reasons that buying market bottoms is so hard. There's no story. You tell somebody what you did, and they just look at you with a blank stare.

Then you get to wait while ... nothing at all happens. Good news that should turn prices around - nobody cares. Or worse, a surprise snap lower that makes you question your "value" stance.

During the transition period from bear to bull, nobody believes it's real. The bears from the previous cycle who called the top and made the right choice to sell will not believe the bull is real and so will stay on the sidelines. As the market rises, everyone - even the bulls - will expect the inevitable return to baseline. Rinse and repeat. Maybe for years. Not many people will continue to hold on during that period.

Near market tops, of course, it's exactly the opposite. You will be congratulated from here to Timbuktu and back for your "wise" investment when buying into a market shooting higher. You'll look like a star. Somebody who knows what they're doing. There will be lots of talk about new paradigms and how this time it really is different, and why.

You should be selling, but your own brain and the brains of the people around you will make you buy, buy, buy instead.

It's so predictable as to be laughable, except for the pain and chaos that happens when an especially monstrous bull goes to the slaughterhouse.

anonu4• 5 years ago

What?

Market timing has always been a thing. Whether it's a bottom or a top or a head and shoulders pattern. This is the whole point of technical analysis and there's enough people out there to care about every single thing the market does at any stage in it's cycle.

EMM_3862• 5 years ago

Whether it's a bottom or a top or a head and shoulders pattern. This is the whole point of technical analysis

I'll let you in on a little secret. Technical analysis is a lot of smoke and mirrors. I was in this industry.

You can draw all the head and shoulder patterns you want, if Elon posts a Tweet about price targets of 420.69, Apple doesn't sell enough iPhones, the company you are charting causes a major oil spill, or the weather gets warmer, those patterns vanish in an instant.

Millions of global traders do not obey lines drawn on charts. The market is too complex for that.

smabie• 5 years ago

Professionals by and large do not use traditional/manual TA. If you find some features/indicators that work, you include them in your algorithmic trading system.

There's absolutely zero legitimate reason for a human to look at charts and use TA.

hiram1123• 5 years ago

Similarly, while there is an explosion in the markets we all know the most - equities, real estate, "commodities", etc. - there are many other markets out there that are, in fact, at a bottom. And like you said, nobody is paying attention or even considers them as an investment.

So while the hordes are all trying to suck blood out of increasingly tapped investments in real estate (e.g. 8th tier mountain "resorts" in the middle of nowhere) or equities (me-too energy or tech pump & dumps), the next big thing is completely being ignored.

And in 10 years, everyone will say it was obvious that these would be the next big play. 20/20 hindsight.

jdkskskdb• 5 years ago

There are many more you say, but why don’t you list them?

xorfish2• 5 years ago

You should be selling, but your own brain and the brains of the people around you will make you buy, buy, buy instead.

This is bad advice.

There is always a reasonable chance that the next bear market is more than 4 years away and that equities are still cheaper now than they will be at the bottom of the next crash.

You have also explained quite well that you likely won't be able to hit that bottom of the next crash.

So just don't care about anything and invest every month, even if everything is "overvalued" and a "crash is imminent".

refurb• 5 years ago

Great summary. After the crash of 2008, when housing prices in places like Vegas were 50% of peak, condos in Miami went for $30k, the story was always doom and gloom.

I knew a few people who took a gamble and bought up real estate and made out like bandits. At the time people thought they were nuts.

Humans suffer a lot from recency bias - whatever has happened for the past 5 years will continue forever.

anonu4• 5 years ago

Highly suggest reading "reminiscences of a stock operator". Which I'm guessing was written about 100 years ago about punting and gambling in the stock market...

What you'll notice is "plus ça change, plus c'est la même chose"... It's all self similar. The same concepts and patterns back then are the same concepts that people chase today.

ourmandave• 5 years ago

John Tuld from Margin Call movie...

So you think we might have put a few people out of business today. That its all for naught. You've been doing that everyday for almost forty years Sam. And if this is all for naught then so is everything out there.

Its just money; its made up. Pieces of paper with pictures on it so we don't have to kill each other just to get something to eat. It's not wrong.

And it's certainly no different today than its ever been. 1637, 1797, 1819, 37, 57, 84, 1901, 07, 29, 1937, 1974, 1987-Jesus, didn't that fuck up me up good-92, 97, 2000 and whatever we want to call this.

It's all just the same thing over and over; we can't help ourselves. And you and I can't control it, or stop it, or even slow it. Or even ever-so-slightly alter it. We just react.

And we make a lot money if we get it right. And we get left by the side of the side of the road if we get it wrong.

And there have always been and there always will be the same percentage of winners and losers. Happy foxes and sad sacks. Fat cats and starving dogs in this world. Yeah, there may be more of us today than there's ever been. But the percentages-they stay exactly the same.

birdyrooster5• 5 years ago

I’m going to go ahead and sort of disagree with you there. What you are describing is a logical fallacy. By redefining winners and losers to be an arbitrary condition instead of a fixed set of attributes (homeless, hungry, lack of class mobility, poor health), you can claim some notion of relativism but it’s not helpful for understanding anything. It’s a bit of circular reasoning.

remontoire2• 5 years ago

His whole comment is a quote from the movie

che_shirecat2• 5 years ago

it's a quote from a movie. the premise being that as long as humans compete with each other for resources, there will be some they take most of the pie, and others that struggle for the remaining scraps. it's more a philosophical take on the human condition. the take is just that - winners and losers is arbitrary because humans will always view their successes and failures in direct comparison with others, regardless of whether from an absolute perspective their general condition or their share of the pie or the degree of wealth equality has improved. it's definitely helpful for understanding the human psyche. calling it circular reasoning misses the point.

antaviana• 5 years ago

What I liked best of this scene is how all this truckload of truth was delivered with the guy relaxingly devoring a piece of meat at the office.

chii3• 5 years ago

which is what makes it more poignant - it's not dramatic, but as-a-matter-of-factly.

cperciva2• 5 years ago

If one bought and held the Dow from 1921 to present, the total return would be 500,000% (5,000x)!

On the other hand, CPI has gone from 17.6 to 271.7 in the past century, so that 5000x total return is really 324x after adjusting for inflation -- also known as 6%.

Now, 6% after inflation is nothing to sneeze at; but it started at a cherry-picked low point in the market and it comes with a lot of market volatility... and it's still not dramatically better than the 4-5% which ultra-long term investors (e.g. university endowment funds) aim to receive after inflation.

pg3142• 5 years ago

That ignores dividends. That will add a couple of percentage points to the return.

If I rerun the calculation from the cherry-picked peak of about 360 in 1928, I get around 4.5% after inflation, without dividends.

IshKebab• 5 years ago

I'm pretty sure they use a price that accounts for dividends. Or they should anyway unless they're doing it wrong.

cperciva2• 5 years ago

The article says "total return", and the price index only increased by 513x (from 68.63 to 35,208). so I'm pretty sure they're including dividends.

cvrjk• 5 years ago

This is what's so surprisingly scary about time value of money to me. Many "spectacular" investments that double or triple money over a decade or 2 are simply not all that great if you just calculate the annualized return and factor in the inflation.

Back home, I've had so many agents try to sell me inferior insurance and investment opportunities dressed up as insane deals hoping I wouldn't look too much into the details. I was really lucky to come across the folks at /r/indiainvestments who frequently warn about this. But I am sure there are many others who are not aware of these things and fall for them.

sn41• 5 years ago

I suppose you have heard about the rule of 72 - it's quite useful for roughly figuring out doubling rate from compound interests, and vice versa:

https://en.wikipedia.org/wiki/Rule_of_72

I guess doubling in 10 years corresponds to annual percentage of 7.2 percent, and 20 years, 3.6 percent. Adjusting for inflation, the rate will be lower.

BTW, you may be referring to Unit-linked insurance schemes. They are neither good as insurance, nor good as investments.

TedDoesntTalk• 5 years ago

Insurance companies should not be used to invest your money. They are insurance companies. Much better choices exist for investment managers.

tedunangst2• 5 years ago

DJIA is also a pretty dumb index.

brantonb• 5 years ago

While I agree, this Planet Money episode from 2012 goes into the details of why.

The thing that jumps out to me as the dumbest is that it uses raw share price instead of market capitalization.

https://www.npr.org/sections/money/2012/02/07/146546183/why-...

narrator2• 5 years ago

On the other hand, two generations would be dead after 100 years and federal inheritance tax is 40% and has been higher and the exemption limit was only about $500,000 up till the 90s, so that return is not so great, mainly because of taxes. If you are a tax exempt foundation like an Ivy League University, it's absolutely awesome though.

exporectomy3• 5 years ago

And if you felt like passing it down your family tree, the number of people would have multiplied by an order of magnitude, diluting the share each grandchild ends up with.

alisonkisk• 5 years ago

Dead people don't need money, and an inheritance is infinity% return on 0 investment.

jsterSC• 5 years ago

You say that like it's a bad thing?

psvj• 5 years ago

CPI drastically understates inflation--- my guess is that real returns after 'real' inflation are pretty close to zero

FabHK4• 5 years ago

Sources? I could be argued that due to "hedonic" improvements CPI understates inflation (viz, the entry level Apple laptop today costs about as much as the entry level Apple laptop 20 years ago, but is vastly better).

anovikov2• 5 years ago

One could plausibly claim it over the course of a few years, but look at 20-30 year average already makes it entirely implausible. Just because of compounding, that would mean 30-year old prices being 5x mistaken, and 60-year old prices 25x mistaken.

Only reason why some people think CPI is wrong is because people psychologically tend to ignore prices on things that are going down, only mentioning those that are going up. Prices on almost all food, all clothes and most energy (surprise!) are down vs 1921 CPI-adjusted price, and prices on housing are up per unit but down per square foot.

antihipocrat• 5 years ago

It also includes some survivorship bias. The Dow only includes companies with a market cap above a threshold.

In order to get a better estimate of returns it would have to include the cost of redistribution of investments due to the changes in companies that constitute the Dow. Some of these companies that dropped out of the Dow would also have been trading near insolvency, and the losses associated with investments in them need to be accounted for.

paulpauper• 5 years ago

But it contained the great depression which probably will never happen again. Same for 2000-2010 period. It may be cherrypicking but given that bull markets are much longer than bear markets, the median return from 1940-1970 and then from1980 to 2000 and then from 2010 to now gives you a better idea of the returns going forward. The odds are you will be in one of the 8 winning decades instead of the two losing ones. In the absence of bad decades, and given how low interest rates are , how fat and strong corporate profits are, and low inflation is, real returns of 15-25 percent per year going forward would not surprise me.

lkrubner• 5 years ago

Related, because of double digit inflation during the 1970s, most people don’t realize how bad the crash was from 1966 to 1982. Going from near 1,100 to 800 sounds bad but not record breaking. But factor in the double digit inflation and it is an 80% crash, slightly worse than the 75% crash of 1929-1933. It’s that 16 year crash that lead to the famous 1982 cover story of BusinessWeek “Is this the end of equities?” Of course, after 1982 the market grew at a remarkable clip till 2001, and in 2021 it’s currently up by more than a factor of 35 over 1982.

dood2• 5 years ago

Some interesting parallels between the 1970's and the 2020's, both seeing global economic growth stagnating after a protracted boom period ending in major economic crises, inducing a kind of awkward period of digestive realignment.

It is remarkable how overlooked that era is today, despite it being a highly transformational time and economically very distinct, yet it's remembered mostly just by disco and unusually gritty movies.

Perhaps because compared to the revolutionary 60's (and later rebuilding of the 80's) it's a more confusingly anarchic time with no clear narrative to grasp a hold of to make sense of it.

More like a messy organic reorganisation as both the counter-culture and traditional culture lost coherence in the face of high unemployment & high inflation, and with society's rule book torn up but no clear path to a better one.

Maybe being a time of social fragmentation and escalating ambient mayhem from crime, hijackings, bombings etc, the best way to make sense of it is actually to watch those great auteur movies unique to the era dripping with atmosphere and mood. Less of a narrative, more a vibe.

markwkw• 5 years ago

Another bias: we cherry picked the country which became the world dominating super power. How would a similar calculation look like for countries like UK or France, which used to be close to the top in early 20th century, but did not achieve global dominance?

TrackerFF• 5 years ago

You could take a 50 year look at the Nikkei index.

https://tradingeconomics.com/japan/stock-market

I_am_tiberius• 5 years ago

I recently bough an FT subscription for one year and am really disappointing that I'm still exposed to really annoying ads. Is this normal for subscriptions in this cost range?

cptnapalm• 5 years ago

Best use of a time machine for stocks: Monster Beverage. In 20 years it increased more than 100,000%.

JohnJamesRambo• 5 years ago

This will be an interesting journey. I got a real jolt yesterday when I read about one of the top value investors (Morningstar’s International Stock Manager of the Year in the past) that jumped off a Manhattan skyscraper recently. His fund had gone from 20 billion to 1 billion AUM because everyone was leaving for bigger gains. It’s the opposite of the speculators jumping off we get in a crash and I think this means something.

https://en.wikipedia.org/wiki/Charles_de_Vaulx

JackFr2• 5 years ago

One reason I would imagine prices were so low (and soon might get so high) was that information on these companies was scattershot and very incomplete. There was no SEC. There were no legal reporting requirements and what few reporting requirements there were were mandated by the exchange.

deehouie4• 5 years ago

The view expressed in this blog and many of the comments on HN is a prime example of survivorship bias[1].

In 1921, you did not know DJI would have done so well over the next 100 yrs.

A very real counter example is the Japanese stock market. The Nikkei peaked at 39,000 in 1989. Thirty yrs later, it's only 28,000. Many blue chip stocks on Tokyo Stock Exch have never recovered their previous high.

[1] https://en.wikipedia.org/wiki/Survivorship_bias

G3rn0ti• 5 years ago

That’s interesting: Nikkei‘s bad long term performance is due to Japan‘s bad economic policies in the last three decades. Many years of quantitative easing have given rise to a high public debt, a large unemployment rate and an uncompetitive, stagflationist economy after being one of the most innovative producers (“all the cool stuff comes from Japan”).

This is what happens when a central bank keeps on preventing moderate recessions necessary for correcting a nation’s economic failures. The US and Europe should study the case of Japan very closely these days.

https://en.m.wikipedia.org/wiki/Economy_of_Japan

neffy2• 5 years ago

I suspect most countries would prefer Japan's problems to their own.

An alternative view might be that the excessive returns in the US are due to outright financial manipulation using share by backs funded by low interest rates (amongst other things) leading to an insane concentration of money in the stock market and financial sector to the detriment of large sections of US society, its basic infrastructure, and its democracy.

This is what happens when white collar crime is institutionalised.

88840-8855• 5 years ago

I wonder how much the American Trade War against Japan has contributed to Japans stagnation/"the lost decades".

If I remember correctly then Japan was about to take over the USA in terms of the GDP, but started to become strong in many key industries, and then Raegan, who was running under "Let's make America great again" slogan, initiated the anti-Japanese trade war.

And if I am not mistaken or am not simplifying too much then Trump was even hiring the same consultants from that "anti Japan" trade war to start the trade war with China.

imtringued5• 5 years ago

I know this is never going to happen: Introduce wealth taxes on bank deposits and land ownership. It would help every nation on earth to achieve prosperity. If for some strange political reason you cannot do that, then issue perpetual government bonds because that is the only thing left to do.

By the way. QE has literally no impact on an economy by definition. It's entirely psychological. I don't know why central banks keep doing it. There isn't any private demand left over for credit at current interest rates. Central bank reserves are counted as part of the money supply but their velocity is 0 for practical purposes. You can't withdraw them and you can't use them to purchase goods. The only thing they do is let banks lend out more money which counts for nothing if interest rates are too high.

This is what happens when a central bank keeps on preventing moderate recessions necessary for correcting a nation’s economic failures.

No such thing is necessary (enduring recessions for no reason). Also, USA is suffering from having the worlds reserve currency and Europe is suffering from having an incomplete euro.

downrightmike• 5 years ago

Oh, the Fed is totally looking at Japan, that is why they started "yield curve control" a little over a year ago, because inflation was clearly going to be a problem for us. Japan is the best and nearest real world model that allowed the country to survive their bad policies, which the USA has way more issues to work through. Undoing all the financial regulations and laws from the Great Depression was super fucking stupid. There would never be anything too big to fail had those remained intact.

princeb• 5 years ago

The US and Europe should study the case of Japan very closely these days.

but they do? bernanke was a scholar of japan's central bank policy.

FabHK4• 5 years ago

Would be interesting to compare a price return index with a total return index (ie including dividends) for Japan over the last half century.

ProjectArcturis• 5 years ago

The Nikkei's bad performance over 30 years is mainly due to how incredibly huge the bubble was before it burst. The real estate underlying the Imperial Palace was valued as much as the entire state of California.

The subsequent 30 years look bad, but the alternative was Great-Depression-style deflation, 25%+ unemployment, and potentially societal collapse.

Aeolun• 5 years ago

I don’t know what you consider a high unemployment rate, but Japan doesn’t have one.

It does have a rather larger number of temporary workers than was historically the case.

andrekandre3• 5 years ago

  > a large unemployment rate

what is japans current unemployment rate?

tedunangst2• 5 years ago

So if you had invested 10000 yen per month in nikkei from 1980-1990, where would you be at today?

jbay8087• 5 years ago

Compared with doing what else with your 10,000 yen per month?

zippy52• 5 years ago

I do think there is some real signal in this article in addition to the survivorship bias.

1) Noting that the stock market was boring I think is real indicator of the mass psychology of that time. There is definitely a inverse correlation between enthusiasm for markets and future returns.

2) Noting the returns of standard Oil is a reasonable take. There was a massive expansion of combustion engine production in the preceding two decades and inferring that this would be correlated with increased demand for oil based products is not hot take. Also it doesn’t take a genius to understand a oil is better business that automobiles, recurring revenue and all.

3) Tax rates have historically influenced valuations.

4) I’m not sure how to extrapolate the the German currency situation but I think looking at the relative attractiveness global markets makes sense.

xorfish2• 5 years ago

How well a sector as a whole does is practically irrelevant for what return on investment a investor gets by investing in said sector.

A sector can shrink from 63% of the total market to less than 1% and outperform the market over the time that happened. See the US railway sector from 1900 to 2020:

https://www.credit-suisse.com/media/assets/corporate/docs/ab...

tornato7• 5 years ago

Interesting that it talks about the hardships that Germany has paying war reparations. This is one of the main contributors to the rise of Nazis some years later; Germans were sick and tired of their paychecks going to pay England.

rossdavidh• 5 years ago

For those who like this sort of thing, "The Great War" on YouTube followed WW1 week by week, 100 years afterwards. No reason you couldn't do the same with 107 year delay or something. It was very well done.

tkgally• 5 years ago

In a similar vein, I recommend the 2008 book Human Smoke: The Beginnings of World War II, the End of Civilization by Nicholson Baker. He summarizes news reports and other real-time accounts from the years leading up to World War II and the Holocaust. An excerpt, from page 34:

“The New York Times reported, on page one, that the Central Union of German Citizens of the Jewish Faith, a group with sixty thousand members, had issued a statement saying that the reports of atrocities by Nazis against Jews were ‘pure invention.’ It was March 25, 1933.

“Anti-Semitism existed, and it was, the society said, a matter of grave concern, but it was a domestic affair. ‘Let us take an energetic stand against everybody attempting criminally to influence the shaping of Germany’s future through foreign newspapers.’ ”

fighterpilot2• 5 years ago

A side effect of 1929 was the popularity of the Nazis. They went from low single digit support to 35-43 range levels of support in two years, in part due to the huge unemployment and disaffection.

The ripple effects of seemingly disconnected events thoughout history never cease to amaze me. It makes me more aware how damaging seemingly once-off things can be (act of terrorism, discriminatory or unfair policies, economic hardship) due to the spiralling effect that can happen.

FabHK4• 5 years ago

Book recommendation:

Lords of Finance: The Bankers Who Broke the World by Liaquat Ahamed. It is more interesting than the title, I think. It covers WW I, great depression, and the beginning of WW II, with a focus on monetary policy (gold standard, etc.), but also gives general political and economic background.

My main take-aways:

1. Things were slower. The Governor of the Bank of England wanted to confer with his counterpart in the US. So, he'd board a boat to the US anonymously, travel there over the course of several weeks, chat with his pal for a few weeks, and travel back for a few weeks.

2. Things are hard to predict (market collapse, inflation, fascists taking over your country). In particular, by the time it becomes clear that the threat is real, it is too late to protect yourself against it.

roaring20s5• 5 years ago

Fascinating, right?

What I did not realize until going back in time was how these German reparations are dragging on and on.

Armistice is signed in 1918, and reparations are agreed upon in late 1919. In 1920, the payment plans are put forth. By 1921, it's clear Germany can't repay in full. For the next 3-4 years, the entire calamity will stumble in fits and starts. Until the US gets involved in the mid-1920s (Dawes and Young Plans).

Even then, war reparations aren't completely paid back until 2010.

It reminds me a lot of the Greek situation in the 2010s. Three bailouts, several different rounds of negotiations, etc.

jbay8087• 5 years ago

I'm not sure things have really gotten faster. The increased communication rate might be balanced out by the higher inertia of a more interconnected global economy. I feel like the ripples from 2008 are still catching up with us -- look at how interest rates have been cranked low ever since. That's thirteen years.

ruggeri• 5 years ago

I've been reading [The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes](https://www.amazon.com/Price-Peace-Democracy-Maynard-Keynes/...) which I imagine covers similar material. I like it so far.

NotSammyHagar• 5 years ago

I'd pick a different time to compare 2021 to than 1921, because I keep feeling similarities to the first 4 decades of the last century. I see echoes of the 1930s, where unfortunately the US and the rest of the world will eventually battle it out with China instead of Japan in a decade or so, while the questionable or overinflated stock market in the us feels like we are in 1928. There are a lot of reasons why a failure of our financial system isn't likely (federal deposit insurance on banks being one reason), but the increased disparity between highly paid people like many readers here who are software engineers who benefit from stock market growth while the vast majority of regular wage earners do not portends poorly for any near term unification of the us - instead I see in increasingly fractious times with actual insurrectionist behavior unlocked by Trump.

So it's 1935 in terms of war, 1928ish in the macro economy, 1858 in terms of nationalism, 1900 in terms of trusts? I console myself by thinking about my grandfather in 1935 when his family lost their farm and it was the Great Depression and he had no money and he somehow started college the next year and graduated as an engineer right into the teeth of world war II - but he made it.

Skrisiloff• 5 years ago

I did something similar with TIME magazine several years ago--Read every issue from 1923-2000. You should check out notes at this site: https://www.thetimeproject.org

Curious if you'll reach the same conclusions from WSJ/FT on the key causes of the bubble and crash.

TIME's coverage of the 20s seemed to suggest that the bubble was caused by loose monetary policy from the Federal Reserve over the course of the decade. There were a few key turning points during the decade

1) Fed lowers rates to help Calvin Coolidge get re-elected in 1924

"Easier money was the most significant development of the past week..We have more gold, less active business in many lines, and a Presidential election ahead. No good Republican would particularly enjoy seeing the brakes applied to the money market as hard as to cause a skid downhill similar to that experienced last year. As long as the Federal Reserve Board consists of political appointees, it is somewhat beside the point to declare that politics has nothing to do with business tendencies." --February 1924

2) The Fed tries to raise rates after the election in 1925 but decides not to in order to help Britain return to the gold standard

"When the New York Reserve Bank raised its rediscount rate from 3 to 3 1/2 % (TiME, Mar. 9), financial London at once showed something nearly akin to excitement...when the Wall Street money merchants snap the whip, Lombard Street must jump." --March 1925

"The rates of the Reserve Bank of New York and the Bank of England are made cooperatively in order that the British rate may always be slightly higher and thus avoid heavy gold exports to this country. New York Reserve rate is now 3 1/2%, and a rise to 4% would consequently threaten the British gold supply and the sterling gold standard. Hence, after all these alarms and excursions, the money outlook in America is still for stable and relatively low rates. This in turn facilitates stable security prices and commercial prosperity." --October 1925

3) This attempt to keep rates low to help England leads to a schism in the Federal Reserve Board in 1927. Tight money interests in Chicago break from NY loose money proponents.

"the [Chicago] Journal of Commerce charged last week, "The little New York group that dominates the Federal Reserve System came to Chicago and tried to induce the directors here [of the Chicago Federal Reserve Bank] to cut the [re-discount] rate and afford pretext to New York. The request was flatly and somewhat indignantly refused.

Continued the Journal of Commerce: “Europe and particularly England wants, and no doubt needs, a very low money market in this country so that American bank funds in large totals may be' attracted to England; and to that end our re-discount rates are to be reduced, and probably Federal Reserve securities are to be sold, and easy credit is to be manufactured." --August 1927

4) The Chicago contingent takes control of Fed policy

[One week after forcing the Federal Reserve Bank of Chicago to lower its rediscount rate] "Daniel Richard Crissinger, governor of the Federal Reserve Board, tendered his resignation. Though bankers and lawyers were still dis- puting whether or not he had been "domineering" in forcing a reduced re-discount rate on the Chicago Federal bank (TIME, Sept. 12), Mr. Crissinger said that this dispute had nothing to do with his withdrawal" --September 26

5) Speculation runs wild in 1928 even though the Fed begins to tighten. Retail investors lead the charge.

"The Chicago Federal Reserve Bank last week increased its rediscount rate from 3½ to 4%. At once the Richmond Federal Reserve Bank did likewise. It was the first time since August, 1926 that any of the 12 Federal Reserve Banks had increased their rates." -February 1928

""[At the New York Stock Exchange] Every "record" of any shape or description was broken and rebroken. The explanation is simple. The "public" had finally come in, tardily, clumsily, "at the top," as always, with the greatest reservoir of cash of all, compared to which Wall Street's organized money force is small. It astonished nobody, because 7,000 tickers are now hypnotizing greedy eyes in 40 states, leaving scarcely a middle-sized town from Maine to California where citizens may not actually see their savings bank withdrawals dance past their giddy eyes in strange, cryptic abbreviations three minutes after passing their checks to the broker." --April 1928

6) Low interest rates lead corporations to lend excess deposit money on margin. Bankers warn that this is dangerous but only act as intermediaries.

"With $500,000 surplus cash to put aside until it is needed, a corporation usually does one of two things. It may bury the money, either in gilt-edged securities, yielding from 3 to 4%, or in its bank account, where it draws 2% as a commercial deposit. Or it may ask the bank to lend the money out on call, at interest rates ranging from 5 to 10%. As the bank asks only a small commission for this service and generally assumes all the risk, the conversion of surpluses into call loans has become a popular feature of corporation financing. In the last year, the total of such loans has risen from $906,144,000 to $1,808,645,000. To the corporations, this practice seems both obvious and admirable. But to the paternal superbankers, guarding the money market, it appears highly hazardous, deeply disturbing" --August 1928

7) In 1929 the Fed begins to actively fight speculation. The all out assault eventually bursts the bubble.

"Toward Wall Street last week the Federal Reserve Board shook a threatening finger, spoke a warning word. With loans to brokers standing at $5,669,000,000, the Board felt that too much money was being absorbed by the stockmarket, that other interests were being forced to pay too much for money they borrow, that indus-try as a whole was suffering from diversion of funds to brokers and speculators. It therefore expressed the opinion that a member of the Federal Reserve Banking System is "not within its reasonable claims for rediscount facilities" when it borrows Federal Reserve money to be used in "making or maintaining speculative loans." Further, the board threatened to "restrain the use of Federal Reserve credit facilities in aid of the growth of speculative credit." Taken at face value, this statement would mean refusal of loans for speculative purposes, plus a rise in the rediscount rate, which in turn would mean a stockmarket afflicted with scarce money and falling prices." --February 1929

"For so many months so many people had saved money and borrowed money and borrowed on their borrowings to possess themselves of the little pieces of paper by virtue of which they became partners in U. S. Industry. Now they were trying to get rid of them even more frantically than they had tried to get them. Stocks bought without reference to their earnings were being sold without reference to their dividends. At around noon there came the no-bid menace. " --November 1929

j7ake• 5 years ago

If you selected 100 companies in 1929 to invest in, how many of those companies would even still exist today?

If only 5 percent or so of those companies still exist (optimistic percent), it would mean you lost most of your money in 95 percent of your original investment if you just bought and held.

I'm reading the FT and WSJ from 100 years ago each week leading to 1929

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