Why is it always 1929 again on Wall Street?

When US stock markets dip, the pundits predict instant disaster. Is it all a myth?

Down in the basement of every daily newspaper is a yellowing pile of pre-printed sheets ready for newsagents nationwide. On each are the big, black words: ANOTHER 1929?

Down in the basement of every daily newspaper is a yellowing pile of pre-printed sheets ready for newsagents nationwide. On each are the big, black words: ANOTHER 1929?

Every time that Wall Street wobbles, out come the headlines and the hoardings, but are the fears justified? Americans have witnessed the longest and largest bull-run not just since the 1923-29 party but even since the New York Stock Exchange was actually founded to correct a financial fiasco in 1792.

Wall Street has, in fact, seen 31 bear markets, including 14 so-called panics (the Dow dropped by at least one-fifth) and four days when the doors closed. Last century, US bear markets occurred every six years on average up to 1987 when values temporarily dived 36 per cent, the last being 36 per cent in 1987. Iraq's invasion of Kuwait caused a mere correction three years later.

Nowadays, what happens in New York affects the world's markets, but its setbacks hit the City as far back as 1857 when railroads went bust.

Each had a different name - from the Knickerbocker Trust Panic of 1907 when cartels were curbed, to the Kennedy Slide of 1962 after JFK confronted the steel barons.

Though the autumn of 1929 saw the most traumatic trough, it has been made worse by many myths. For example, bankers were unable to jump from the Empire State Building even after it was constructed during the subsequent Depression. The main truth is that, despite Black Tuesday, several stocks ended 1929 higher than they started. The real fall of 89 per cent was from 1930 to 1932, probably anticipating the Depression.

Moreover, there are present parallels with the Great Crash as well as less melodramatic ones. The Roaring Twenties (and the early Sixties) saw so much invention and speculation, using cheap credit, that stocks eventually anticipated two decades of dividends with P/E ratios of 20. Yet 1929 opened with an industrial slowdown.

Another parallel is that today's technological companies had their forerunners in new-fangled businesses like Radio Corporation of America and General Motors. In 1962, IBM and Xerox slumped! Smart investors had looked for safety in 450 mutual funds, most of which were liquidated by 1938 when the Dow dropped 49 per cent. In the Sixties, a new clutch mushroomed from 150 to 350 only to be swallowed in the bear-pit in 1974 when the Dow sank by 45 per cent.

Today, there are almost 5,000 mutual funds divided into at least 30 categories with funds of funds to cut the confusion.

History has also repeated itself at the Federal Reserve where one founder, Paul Warburg, urged caution in words similar to Alan Greenspan in 1997 with his "irrational exuberance" remark.

One difference, but still disturbing, is that only 600,000 Americans actively traded on Wall Street in 1929 when less than one in 20 adults held mutual funds. Now one adult in three is into mutual funds. That is explained by an ominous statistic in Barclays Global's latest stockbroking survey - 2001will see the peak of saving as Americans born post-war near retirement.

If you still think Wall Street will power on perpetually, read The Bear Book by John Rothchild. Among his danger signals: "As of early 1998, 82 million Americans had become shareholders, mostly through mutual funds. At least half that number owned stocks for less than eight years." That was published when the Dow had not yet reached 8,000. But in the run-up to 1929, Alexander Dana Noyes issued similar warnings in The New York Times.

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Guru Careers: Software Developer / C# Developer

    £40-50K: Guru Careers: We are seeking an experienced Software / C# Developer w...

    Neil Pavier: Management Accountant

    £45,000 - £55,000: Neil Pavier: Are you looking for your next opportunity for ...

    Sheridan Maine: Commercial Accountant

    £45,000 - £55,000: Sheridan Maine: Are you a newly qualified ACA/ACCA/ACMA qua...

    Laura Norton: Project Accountant

    £50,000 - £60,000: Laura Norton: Are you looking for an opportunity within a w...

    Day In a Page

    Sun, sex and an anthropological study: One British academic's summer of hell in Magaluf

    Sun, sex and an anthropological study

    One academic’s summer of hell in Magaluf
    From Shakespeare to Rising Damp... to Vicious

    Frances de la Tour's 50-year triumph

    'Rising Damp' brought De la Tour such recognition that she could be forgiven if she'd never been able to move on. But at 70, she continues to flourish - and to beguile
    'That Whitsun, I was late getting away...'

    Ian McMillan on the Whitsun Weddings

    This weekend is Whitsun, and while the festival may no longer resonate, Larkin's best-loved poem, lives on - along with the train journey at the heart of it
    Kathryn Williams explores the works and influences of Sylvia Plath in a new light

    Songs from the bell jar

    Kathryn Williams explores the works and influences of Sylvia Plath
    How one man's day in high heels showed him that Cannes must change its 'no flats' policy

    One man's day in high heels

    ...showed him that Cannes must change its 'flats' policy
    Is a quiet crusade to reform executive pay bearing fruit?

    Is a quiet crusade to reform executive pay bearing fruit?

    Dominic Rossi of Fidelity says his pressure on business to control rewards is working. But why aren’t other fund managers helping?
    The King David Hotel gives precious work to Palestinians - unless peace talks are on

    King David Hotel: Palestinians not included

    The King David is special to Jerusalem. Nick Kochan checked in and discovered it has some special arrangements, too
    More people moving from Australia to New Zealand than in the other direction for first time in 24 years

    End of the Aussie brain drain

    More people moving from Australia to New Zealand than in the other direction for first time in 24 years
    Meditation is touted as a cure for mental instability but can it actually be bad for you?

    Can meditation be bad for you?

    Researching a mass murder, Dr Miguel Farias discovered that, far from bringing inner peace, meditation can leave devotees in pieces
    Eurovision 2015: Australians will be cheering on their first-ever entrant this Saturday

    Australia's first-ever Eurovision entrant

    Australia, a nation of kitsch-worshippers, has always loved the Eurovision Song Contest. Maggie Alderson says it'll fit in fine
    Letterman's final Late Show: Laughter, but no tears, as David takes his bow after 33 years

    Laughter, but no tears, as Letterman takes his bow after 33 years

    Veteran talkshow host steps down to plaudits from four presidents
    Ivor Novello Awards 2015: Hozier wins with anti-Catholic song 'Take Me To Church' as John Whittingdale leads praise for Black Sabbath

    Hozier's 'blasphemous' song takes Novello award

    Singer joins Ed Sheeran and Clean Bandit in celebration of the best in British and Irish music
    Tequila gold rush: The spirit has gone from a cheap shot to a multi-billion pound product

    Join the tequila gold rush

    The spirit has gone from a cheap shot to a multi-billion pound product
    12 best statement wallpapers

    12 best statement wallpapers

    Make an impact and transform a room with a conversation-starting pattern
    Paul Scholes column: Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?

    Paul Scholes column

    Does David De Gea really want to leave Manchester United to fight it out for the No 1 spot at Real Madrid?