It is just fair to emphasise that on the worst day the stock market ever saw, it was still simply a market place, an arena where customer and seller could transact their business.
The brokerage community, composed as it was of execs, should have been predicted to cast a sterner, more doubtful eye on the weakening industrial conditions so falsely reflected in the market's exploding costs, but there were not many enough, in truth, who smelled danger in the spring air of 1929. Or maybe that smart ones might have read all the signs correctly at a point when the mirage of never-ending prosperity had pixilated lots of the country.
Nor should that long-ago nightmare stand as an advising against investment today. But in its harsh outlines can be read plenty of the hard lessons each financier should know by heart. The Crash, as each financial consultant and social historian who sieved the ashes was fast to let us know, was a classic case of the wish going beyond fact. First, naturally, came the Boom. After a few upset years following World War I, the state had straightened out economically and entered a period of joyous wealth. The vehicle industry, producer of the new era's most glittering symbol, was flourishing. This was good news for the huge network of sub-contractors and providers of rubber, glass, and steel, of batteries, spark plugs, brake linings, and gas. Development of office buildings, houses, and roads was skyrocketing, and this fattened the producers of lumber, cement, electric fixtures, and home appliances. Everywhere more power was required. The icebox was giving way to the electrical chiller, the washtub to the washer. And more houses had yard aerials helping them to tune in on the fantastic arena of radio. The pictures were springing into full bloom. Everywhere there had been money and progress. The stockmarket replied vigorously. Beginning 1924, prices moved continuously upward. Annually was better than the last. A powerful array of important folks was being quoted to the effect that it now looked clear the North American folk had found the secret of capitalistic infinite motion. The words sundry but the message was the same : a wise Prudence had seen fit to endow us bountifully with this world's products. All that was needed to achieve a never ending wealth was to have religion in America and keep moving. We were on the glory road. Casting back, considering the financiers, businessmen, central authority middle management, and various magicians who spokeand the remainder of us who listened, enthusiastic to believeit all appears crazy, vainglorious and unsophisticated.
But in the Twenties it was tough to be gloomy, hard even to be pragmatic.
For America was indeed growing rich, and the end seemed to be never. In 1927 it was well known that speculation in instruments was accelerating. Loans to brokers and dealers crawled upward,reaching a total of $3.7 bln, a sure indication that muchperhaps too muchtrading was being conducted on margin. The client pays only part of the acquisition cost of his instruments and borrows the balance from his broker, using the stock he buys as security for the loan. In a rising market, a consumer might put up $2,500 to buy a hundred shares at fifty, wait for a ten-point profit, sell, pay off his loan, and be $1,000 aheadtwice the profit he'd have made purchasing outright only the fifty shares his original $2,500 would command.
Difficulty looms if the stock should fall to the point at which its price threatens to be inadequate to cover the loan.
Then the broker calls for more'margin'funds to cut back the loan to a level identical to the new, lower price of the stock or, if the purchaser is not able to meet the call, sells him out. When does the total of brokers' loansmoney loaned out to them to loan to their customersget too high? The Twenties didn't know, but they weren't scared. President Coolidge didn't think them too high. Treasury Secretary Mellon did not, either. And so long as the market lifted upward, like inflated with helium, they were right. Apparently few paused to contemplate the results of a general market drop and what it'd do to the small budget stockholders. Peoples's eyes were indeed lifted to the stars, for small attention was paid to events underfoot. By early 1928, business was exhibiting signs of trouble.
Overproduction and overexpansion were accompanied by major unemployment. Time and time again, there were short but grim jolts meaning that all wasn't well, the great bull market wasn't impervious, that what went up had an excellent possibility of coming down. Still, it was also correct that the market bounced back with astonishing spirit after these shocks. Following the election of President Hoover, the upward march continued. The keener researchers were now saying forcibly and undeniably the market level was dangerously high, but their cautions were lost in the anvil chorus of optimism that still pervaded the Street and its swelling military of shoppers. Playing the market was now everyone's game. The end of 1928 and the early months of 1929 brought further shocks, but once again the market rallied, and by midsummer stocks had climbed to undreamed-of peaks, and fears receded. Brokers' loans were over the $6 bill mark and, according to one autopsy research, some three hundred million shares of stock possibly were being held on margin. Yet who can blame the person who acquired Montgomery Ward at 150 and saw it go to 450 in a year and a half for feeling that another 50 points was in prospect? It is unlucky that costs didn't keep rising.
Knowing when to sell is always tricky and in the months running up to the crash it would be extraordinarily tricky to inform a crash was just round the corner.
Now we have experience of the past we deserve to be more cautious.
For more information please visit: Making Money Trading Currency on the Forex Trend System
and The Forex Trend System
The brokerage community, composed as it was of execs, should have been predicted to cast a sterner, more doubtful eye on the weakening industrial conditions so falsely reflected in the market's exploding costs, but there were not many enough, in truth, who smelled danger in the spring air of 1929. Or maybe that smart ones might have read all the signs correctly at a point when the mirage of never-ending prosperity had pixilated lots of the country.
Nor should that long-ago nightmare stand as an advising against investment today. But in its harsh outlines can be read plenty of the hard lessons each financier should know by heart. The Crash, as each financial consultant and social historian who sieved the ashes was fast to let us know, was a classic case of the wish going beyond fact. First, naturally, came the Boom. After a few upset years following World War I, the state had straightened out economically and entered a period of joyous wealth. The vehicle industry, producer of the new era's most glittering symbol, was flourishing. This was good news for the huge network of sub-contractors and providers of rubber, glass, and steel, of batteries, spark plugs, brake linings, and gas. Development of office buildings, houses, and roads was skyrocketing, and this fattened the producers of lumber, cement, electric fixtures, and home appliances. Everywhere more power was required. The icebox was giving way to the electrical chiller, the washtub to the washer. And more houses had yard aerials helping them to tune in on the fantastic arena of radio. The pictures were springing into full bloom. Everywhere there had been money and progress. The stockmarket replied vigorously. Beginning 1924, prices moved continuously upward. Annually was better than the last. A powerful array of important folks was being quoted to the effect that it now looked clear the North American folk had found the secret of capitalistic infinite motion. The words sundry but the message was the same : a wise Prudence had seen fit to endow us bountifully with this world's products. All that was needed to achieve a never ending wealth was to have religion in America and keep moving. We were on the glory road. Casting back, considering the financiers, businessmen, central authority middle management, and various magicians who spokeand the remainder of us who listened, enthusiastic to believeit all appears crazy, vainglorious and unsophisticated.
But in the Twenties it was tough to be gloomy, hard even to be pragmatic.
For America was indeed growing rich, and the end seemed to be never. In 1927 it was well known that speculation in instruments was accelerating. Loans to brokers and dealers crawled upward,reaching a total of $3.7 bln, a sure indication that muchperhaps too muchtrading was being conducted on margin. The client pays only part of the acquisition cost of his instruments and borrows the balance from his broker, using the stock he buys as security for the loan. In a rising market, a consumer might put up $2,500 to buy a hundred shares at fifty, wait for a ten-point profit, sell, pay off his loan, and be $1,000 aheadtwice the profit he'd have made purchasing outright only the fifty shares his original $2,500 would command.
Difficulty looms if the stock should fall to the point at which its price threatens to be inadequate to cover the loan.
Then the broker calls for more'margin'funds to cut back the loan to a level identical to the new, lower price of the stock or, if the purchaser is not able to meet the call, sells him out. When does the total of brokers' loansmoney loaned out to them to loan to their customersget too high? The Twenties didn't know, but they weren't scared. President Coolidge didn't think them too high. Treasury Secretary Mellon did not, either. And so long as the market lifted upward, like inflated with helium, they were right. Apparently few paused to contemplate the results of a general market drop and what it'd do to the small budget stockholders. Peoples's eyes were indeed lifted to the stars, for small attention was paid to events underfoot. By early 1928, business was exhibiting signs of trouble.
Overproduction and overexpansion were accompanied by major unemployment. Time and time again, there were short but grim jolts meaning that all wasn't well, the great bull market wasn't impervious, that what went up had an excellent possibility of coming down. Still, it was also correct that the market bounced back with astonishing spirit after these shocks. Following the election of President Hoover, the upward march continued. The keener researchers were now saying forcibly and undeniably the market level was dangerously high, but their cautions were lost in the anvil chorus of optimism that still pervaded the Street and its swelling military of shoppers. Playing the market was now everyone's game. The end of 1928 and the early months of 1929 brought further shocks, but once again the market rallied, and by midsummer stocks had climbed to undreamed-of peaks, and fears receded. Brokers' loans were over the $6 bill mark and, according to one autopsy research, some three hundred million shares of stock possibly were being held on margin. Yet who can blame the person who acquired Montgomery Ward at 150 and saw it go to 450 in a year and a half for feeling that another 50 points was in prospect? It is unlucky that costs didn't keep rising.
Knowing when to sell is always tricky and in the months running up to the crash it would be extraordinarily tricky to inform a crash was just round the corner.
Now we have experience of the past we deserve to be more cautious.
For more information please visit: Making Money Trading Currency on the Forex Trend System
and The Forex Trend System
