Blue Skies and Market Blues (1929 & 2000)

"Blue Skies" was the most popular song in 1929 - all across the land, but especially in Wall Street.

Irving Berlin's "Blue Skies" is one of those tunes that gets stuck in your head, playing over and over for days in the windmills of your mind. And its unmitigated optimism expressed through its lyrics is sort of catchy, too. "Blue Skies smiling at me, Nothing but blue skies do I see." Hey! It's a great world out there! Isn't it?! Those words served as a pathetically ironic counterpoint to the tragic market events of late 1929 and aftermath. Ironically, the five stanzas of unbridled confidence in the present became the overture to the woeful Great Depression years of the not too distant future.

Twilight of An Illusion -

There was no summer lull in Wall Street that year (1929). Along with the huge investment trust (forerunner to mutual funds) promotions went the greatest market ever. Every day prices rose relentlessly. Any temporary price increase respite was considered an opportunity to BUY.

August 20, 1929 was an important day for Wall Street analysts. Stocks rose briskly throughout the list, posting new highs as they went. At 2:00 P.M. the rails and utilities took fire, and dominated trading for the rest of the session. The next day the Wall Street Journal wrote: "stocks derived further powerful impetus on the upside yesterday from the establishment of simultaneous, new highs in the Dow Industrials and Rail averages on Monday's close. According to the Dow Theory, this development establishes the major upward trend. Reassurance on this score gave fresh stimulus to bullish enthusiasm, and a long list of representative stocks surged upward to new highs... the outlook for the fall months seems brighter than at any time in recent years."

STANZA I

Blue skies smilin' at me

Nothin' but blue skies do I see

Bluebirds singin' a song

Nothin' but bluebirds all day long

Delusions Sustain Illusions -

Labor Day brought the summer of 1929 to its conventional end on September 2. The next day the New York Stock Exchange had near record volume of 4,438,910 shares; call money was 9%; commercial bank paper was yielding 6.5%; and the Federal Discount rate was 6%. The market was strong with what the press called a good undertone. On this very day, September 3, 1929 - as if by common consent - the great bull-market of the 1920s came to an end. In the days that followed, stock prices see-sawed under increasing volume as professional market veterans sought to unload.

One lone voice was loudly and publicly warning of a gargantuan stock market crash. It was that of the market analyst, Roger Babson. However, the oracle of disaster was literally shouted down and scoffed by a chorus of Wall Street brokerage houses. Furthermore, the self-proclaimed market guru, Economist Irving Fisher also took issue with Babson's prediction of a market debacle. Dr. Fisher asserted "dividends were rising, that the suspicion of common stocks was receding, and the investment trusts (mutual funds) offered the investor wide and well-managed diversification." He went on to conclude: "There may be a recession in stock prices, but not anything in the nature of a crash." As an important part of the bull propaganda barrage, the Wall Street Journal printed its thought of the day (September 11, 1929). It was from the father of common sense, Mark Twain: "Don't part with your illusions; when they are all gone you may still exist, but you have ceased to live." Not surprisingly, the most oft shouted broker cliché was "nothing can arrest the upward movement."

STANZA II

Never saw the sun shinin' so bright

Never saw things goin' so right

Noticing the days hurrying hurrying by

When you're in love, my how they fly

Prelude To the Crash -

Until September or October of 1929 the decline in economic activity was very modest - which was hardly the harbinger to a severe stock market slide. Nonetheless, on Friday, October 18, 1929 the market was very weak - with sharp declines in late trading. Steel had dropped 7 points; General Electric, Westinghouse and Montgomery Ward all lost 6 (all significant percentage declines). On Saturday, October 19, 1929 trading was even worse. On extremely heavy volume the Times Industrials were down substantially - blue chips were seriously off, and speculative favorites had gone down into a nose-dive. Case Company, for example, had plummeted a full 40 points! News headlines on Sunday screamed "Stocks driven down as a wave of selling engulfs the market." Only a few weeks earlier the illustrious Irving Fisher made his most infamous announcement (he eventually blurted several financial faux pas) about the permanently high plateau and added: "I expect to see the stock market a good deal higher than it is today within a few months."

Monday, October 21,1929 was a very poor day for the bulls of Wall Street. Sales totaled 6,091,870, the third greatest volume in history. Though bad, things were still not hopeless. Toward the close of Monday's trading, the market rallied and final prices were above the lows for the session. Net losses were considerably less than Saturday's. In rationalizing the recent plunge in stock prices the inimitable Dr. Fisher said that the decline had represented only a "shaking out of the lunatic fringe."

STANZA III

Blue days, all of them gone

Nothin' but blue skies from now on

Blue skies smilin' at me

Nothin' but blue skies do I see

The Finale -

Thursday, October 24, 1929, was the first of the days which history identifies with the panic of 1929. Measured by disorder, fright, flight and confusion, it represented the first serious crack in the financial Walls of Jericho. That day 12,894,650 shares changed hands, many of them at prices which shattered the dreams and hopes of those who had owned them. But the panic did not last all day - there were brief periods of respite, when the bulls seemed to be mounting a successful counter attack. However, the growing fear grew like a pernicious cancer. In the closing hour, selling orders continued to come in from across the country - causing the market to capitulate downwards again. Still, in its own way, the recovery on Black Thursday was as remarkable as the selling that made it black. The Times Industrials were off only 12 points.

On Friday and Saturday trading continued heavy -- just under six million on Friday and two million on Saturday. Prices, on the whole, were steady for both days. The Times rationalized the grim market condition by asserting, "the financial community now felt secure in the knowledge that the most powerful banks in the country stood ready to prevent a recurrence (of panic)." As the proverb goes, "there's no rest for the wicked" - on Monday the real disaster began.

Black Monday, October 28, 1929 was a total nightmare for those hapless souls who thought they were snapping-up real bargains last Friday. It was the first day on which the process of climax and anticlimax ad infinitum began to reveal its monstrous head. It was another terrible day! Volume was huge, although below the previous Thursday. But losses were far more severe. The Times Industrials were down 49 points for the day. General Electric was off 48; Westinghouse down 34; Tel & Tel fell 34 and Steel slid 18. Indeed, the decline on this one day was greater than that of all the preceding week of panic. Once again the price ticker tape left everyone in ignorance of what was happening, save that it was bad - REAL BAD! On this day there was no recovery. Market support - organized or otherwise - could not contend with the overwhelming and pathological desire to sell (and in most cases at any price).

STANZA IV

Never saw the sun shinin' so bright

Never saw things goin' so right

Noticing the days hurrying by

When you're in love, my how they fly

The Day the Bubble Burst -

Black Tuesday, October 29, 1929, shook the world's financial pillars. It was the most devastating day in the history of the New York Stock Exchange, and it was the most financially disastrous day in the history of markets. It combined all of the bad features of all the horrible days before. Volume was immensely greater than on Black Thursday; the drop in prices was almost as great as Monday's. Uncertainty, alarm, angst and fear swept the floor of the exchange - to which nary a soul was immune.

Massive selling began as soon as the market was opened - and in huge volume. Great blocks of stock were offered for whatever they would bring. Repeatedly and in many issues there were a plethora of selling orders and no buyers at all. Once again, of course, the price ticker lagged - at the close it was two and half hours behind. By then, a whopping 16,410,030 sales had been recorded on the New York Stock Exchange. This was an all-time record volume day -- more than three times the volume of what was considered heretofore a fabulously high volume day. The Times Industrials average was down 43 points, CANCELING OUT ALL THE GAINS OF THE 12 PRECEDING WONDERFUL MONTHS OF IRRATIONAL EXUBERANCE. Contemplate the monumental, heart-wrenching significance of it: All the accumulated profits of the last 12 months were vaporized in one single day!

The worst day on Wall Street came eventually to a merciful end. Members of the New York Stock Exchange now had the behemoth task of sorting out the accounting mess left by the record day's trading. As the employees worked feverishly far into the wee hours of the next morning, one could hear the radio playing the unmistakable ironic strains of unbridled optimism... "Blue Skies..."

STANZA V

Blue days, all of them gone

Nothin' but blue skies from now on

Nothin' but blue skies from now on...