Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Coronavirus Trend Trajectory Forecast Current State - 7th Apr 20
Boris Johnson Fighting for his Life In Intensive Care - UK Coronavirus Crisis - 7th Apr 20
Precious Metals Are About To Reset Like In 2008 – Gold Bugs, Buckle Up! - 7th Apr 20
Crude Oil's 2020 Crash: See What Helped (Some) Traders Pivot Just in Time - 7th Apr 20
Was the Fed Just Nationalized? - 7th Apr 20
Gold & Silver Mines Closed as Physical Silver Becomes “Most Undervalued Asset” - 7th Apr 20
US Coronavirus Blacktop Politics - 7th Apr 20
Coronavirus is America's "Pearl Harbour" Moment, There Will be a Reckoning With China - 6th Apr 20
Coronavirus Crisis Exposes Consequences of Fed Policy: Americans Have No Savings - 6th Apr 20
The Stock Market Is Not a Magic Money Machine - 6th Apr 20
Gold Stocks Crash, V-Bounce! - 6th Apr 20
How Can Writing Business Essay Help You In Business Analytics Skills - 6th Apr 20
PAYPAL WARNING - Your Stimulus Funds Are at Risk of Being Frozen for 6 Months! - 5th Apr 20
Stocks Hanging By the Fingernails? - 5th Apr 20
US Federal Budget Deficits: To $30 Trillion and Beyond - 5th Apr 20
The Lucrative Profitability Of A Move To Negative Interest Rates - Pandemic Edition - 5th Apr 20
Visa Denials: How to avoid it and what to do if your Visa is denied? - 5th Apr 20 - Uday Tank
WARNING PAYPAL Making a Grab for US $1200 Stimulus Payments - 4th Apr 20
US COVID-19 Death Toll Higher Than China’s Now. Will Gold Rally? - 4th Apr 20
Concerned That Asia Could Blow A Hole In Future Economic Recovery - 4th Apr 20
Bracing for Europe’s Coronavirus Contractionand Debt Crisis - 4th Apr 20
Stocks: When Grass Looks Greener on the Other Side of the ... Pond - 3rd Apr 20
How the C-Factor Could Decimate 2020 Global Gold and Silver Production - 3rd Apr 20
US Between Scylla and Charybdis Covid-19 - 3rd Apr 20
Covid19 What's Your Risk of Death Analysis by Age, Gender, Comorbidities and BMI - 3rd Apr 20
US Coronavirus Infections & Deaths Trend Trajectory - How Bad Will it Get? - 2nd Apr 20
Silver Looks Bearish Short to Medium Term - 2nd Apr 20
Mickey Fulp: 'Never Let a Good Crisis Go to Waste' - 2nd Apr 20
Stock Market Selloff Structure Explained – Fibonacci On Deck - 2nd Apr 20
COVID-19 FINANCIAL LOCKDOWN: Can PAYPAL Be Trusted to Handle US $1200 Stimulus Payments? - 2nd Apr 20
Day in the Life of Coronavirus LOCKDOWN - Sheffield, UK - 2nd Apr 20
UK Coronavirus Infections and Deaths Trend Trajectory - Deviation Against Forecast - 1st Apr 20
Huge Unemployment Is Coming. Will It Push Gold Prices Up? - 1st Apr 20
Gold Powerful 2008 Lessons That Apply Today - 1st Apr 20
US Coronavirus Infections and Deaths Projections Trend Forecast - Video - 1st Apr 20
From Global Virus Acceleration to Global Debt Explosion - 1st Apr 20
UK Supermarkets Coronavirus Panic Buying Before Lock Down - Tesco Empty Shelves - 1st Apr 20
Gold From a Failed Breakout to a Failed Breakdown - 1st Apr 20
P FOR PANDEMIC - 1st Apr 20
The Past Stock Market Week Was More Important Than You May Understand - 31st Mar 20
Coronavirus - No, You Do Not Hear the Fat Lady Warming Up - 31st Mar 20
Life, Religions, Business, Globalization & Information Technology In The Post-Corona Pandemics Age - 31st Mar 20
Three Charts Every Stock Market Trader and Investor Must See - 31st Mar 20
Coronavirus Stocks Bear Market Trend Forecast - Video - 31st Mar 20
Coronavirus Dow Stocks Bear Market Into End April 2020 Trend Forecast - 31st Mar 20
Is it better to have a loan or credit card debt when applying for a mortgage? - 31st Mar 20
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Mainstream Financial Press - All The News That's Fit To Print in 2014

Politics / Mainstream Media Apr 27, 2014 - 06:06 PM GMT

By: Fred_Sheehan

Politics

The most astounding rubbish is spoken every day by central bankers and other commentators who hold a monopoly on what the public at large knows. Most of the New York Times column (below) in 1929 fits today and is worth more refection than the next hundred speeches by Federal Reserve Chairman Janet Yellen.


To fill in some background to the Times article (many of these financial mutations have parallels in 2014 - and growing more so by the day), bank customers, both individuals and corporations, instructed the banks to lend their deposits to the call loan market. It has been estimated that corporations (including U.S. Steel, General Motors, AT&T, and Standard Oil of New Jersey) had lent $5 billion to New York Stock Exchange purchases by September 1929. These parties were drawn to the call loan market as rates rose to 10%. In consequence, total securities loans rose from $12.4 billion on October 3, 1928 to $16.9 billion a year later. As a reference, GDP in the United States, not yet calculated but estimated in retrospect, reached $99 billion in 1929.

One sentence in the Times article below requires discussion: "Barring the Wall Street money rates, everything seemed to be going well up to the middle of September." This may have been true, but the call-loan market did warn of severe distortions. This is always easy to say in retrospect.

Just a word on that. Financial calamities usually happen in busy times. It's hard to know how much weight to place on specific developments. There's a je ne c'est quoi in the air, that, by its very nature, leaves people "bewildered," as the New York Times proposes below.

The "call money" distortions of today (see chart at bottom) terrifies some, but not many. Of course, the Federal Reserve (in 2014) has confiscated interest rates, which offer warnings and restrict the flow of lending into an overheated market. This is one more reason central-banking policy is an attack upon humanity.

New issues of securities averaged $5.8 billion between 1924 and 1928; issuance was $11.6 billion in 1929, a record that stood until the 1960s. Common stock issuance in 1929 was 10 times the average volume of 1924-1928. More ominously, the new issues in 1929 were dominated by investment trusts; these vehicles raised money - not to produce anything - but to buy common stocks. To add to the fire, investment trusts generally bought equity participation in companies on margin. With practically no money down, it is no wonder that new issues of common stocks in the month of September 1929 exceeded any previous year, except for 1928.

The New York Times, December 30, 1929, "Financial Markets" column: "Financial Markets: The Ending of a Remarkable Year - How it Appears in Retrospect":

The year that ends tomorrow is regarded now, and will be considered in all future financial reminiscence, with very much mingled feelings. Even the nation-wide speculating public, which has taken its losses, and at least in outward semblance, learned its lesson, will hardly end the year without a sense of bewilderment. Barring the Wall Street money rates, everything seemed to be going well up to the middle of September. Stocks should go higher when business prosperity increases in a striking way, and trade activity, even in the usually dull midsummer months, had reached a magnitude never witnessed in that season.

If prices for industrial products were not rising, profits were. The predicted increase of industrial company dividends had been realized. Few disturbing incidents had occurred in company finance, to suggest that the upward trend of earnings and dividends would not continue indefinitely. Yet this was the very moment selected by fate for a crash in Stock Exchange values quite unprecedented in history.

By people more familiar with past financial history than the outside public of 1929 has shown itself to be, it might be answered that it is precisely in such an hour of seemingly impregnable prosperity that the worst of our older financial crises have occurred. The disastrous deflation of 1920 began on the markets at a time when consuming power was apparently inexhaustible, when visible evidence appeared to be at hand that supplies were inadequate to meet demand. Long after 1907 it was angrily asserted that the October panic of that year could not have been a reasonable occurrence, considering the immense activity of trade and the very large company earnings which had prevailed in the preceding nine months.

The economic explanation of the seeming paradox, however, assigns the great increase of financial or industrial activity, just before the breakdown, as itself the cause for the collapse. On every occasion of the kind, abnormal stringency in the money market had warned, long before the 'panic month,' that credit was overstrained. When, in the face of that condition, activities of general trade or on the Stock Exchange were greatly increased and with them the demand for credit, the breaking-point was reached

Such contributory influences as withdrawal of foreign capital from Wall Street, last September and in 1907, were merely incidents. On none of these occasions did either Wall Street or the banks recognize at the time how extremely bad the situation had already grown; the most energetic effort had been directed to concealing or disguising its precarious nature. But the crash, when it came, was always violent in proportion to the extent by which previous speculation had over-stepped the mark.

In one respect the history of 1929 resembles that of 1920. The two years differ, in that the panicky collapse of nine years ago came in the immediate sequence to inflation of commodity values, whereas last Autumn's breakdown followed inflation of values only on the Stock Exchange. Otherwise the analogy is close. The preceding speculation had on both occasions been built on the basis of pure illusion; in each year the whole country seemed to be deluded into the notion that a new economic era had arrived, in which all old-fashioned economic axioms might be safely disregarded. In both 1929 and 1920 prices had been carried to previously unimagined heights. In both, it was insisted up to the last (even by serious businessmen), that they were destined to go vastly higher.

As a quite inevitable result, the forced readjustment when it came was more sweepingly violent on each occasion than financial imagination had considered possible. Last autumn's 50 percent decline in the average price of stocks surpassed all precedent; yet the average fall of 43 percent in average prices of commodities, between the middle of 1920 and the end of 1921, was almost equally unparalleled. If it seemed, last August, that the price of General Electric, for instance, could not conceivably fall 58 per cent in three months, so it was inconceivable in May of 1920 that wheat would in the next 18 months fall 70 per cent, to less than its pre-war average price. But the reckoning in both years measured with inexorable accuracy the scope of previous excesses.

Source: dshort.com

By Frederick Sheehan

See his blog at www.aucontrarian.com

Frederick Sheehan is the author of Panderer to Power: The Untold Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession (McGraw-Hill, November 2009).

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Frederick Sheehan Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules