August 8-14, 1921

This week, the Dow languishes near multi-decade lows and blue-chip stocks trade below book value.

Quick Stats:

  • DJIA: 68.63 (Today: 35,208)

  • Shiller PE Ratio: 5.2 (Today: 38.5)

  • Federal Reserve Bank of NY Discount Rate: 5.5% (Today: 0.25%)

  • GBPUSD: $3.65 (Today: $1.39)

  • Price of The Wall Street Journal: $0.07 (Today: $4.00)

Market-Moving Themes:

  • Dog days of summer have arrived, bringing little to no movements in markets this week (equity, debt, commodity markets)

  • German reparations hang over foreign exchange (currency markets)

Executive Summary:

  • Writers at the FT ponder how to spend their day while equity and commodity markets vacillate listlessly. Random ideas captures the very moment of boredom. Even the Financial Times has temporarily shrunk: 6 pages per day this week down from the classic 12 pages. Summer has arrived.

  • Wrangling over German reparations continues. Over the past year, it has become clear to Britain and France that Germany cannot pay in full. Instead of default, talks open on August 10, 1921 regarding three core issues: German payments to British and French soldiers currently occupying German regions, in kind (steel, coal, timber) transfers in lieu of German gold marks, and assumption of war debt of smaller European countries.

    • Historical Fact: Germany operates two parallel currencies after WWI: the gold mark and paper mark. The Treaty of Versailles stipulates payment in gold marks, which is causing severe fiscal strain. The Germany of the 1920s is, of course, known as the Weimar Republic and will begin experiencing severe inflation in September that drags on for two years until financial implosion.

  • Traders in New York wonder what might turn the market. The editors of the WSJ surmise that high taxation and public spending are harming public perception of owning equities.

  • Every now and then, someone brave enough offers their opinion on unpopular common stocks. Standard Oil was split into nearly three dozen companies in 1911, and this article lists the prices of all former constituents. Despite having a rough past year, 1921 has shown signs of an oil bottom. The writer recommends astute investors purchase shares in all of them. Every single company trades below book value! PE ratios range from 3 to 5. As a reminder, risk free bonds are yielding 5%, and retail investors are being actively encouraged not to own equities.

    • Historical Fact: The apathy in the papers regarding common stocks would make the modern day investor salivate. If one bought and held the Dow from 1921 to present, the total return would be 500,000% (5,000x)! Based on ExxonMobil’s predecessor company Standard Oil of New Jersey ($0.04 split adjusted), buying and holding for 100 years would equate to an 800,000% return (8,000x)! To our readers: $100 invested in the broad market back then would be worth $500,000 today by doing absolutely nothing! How’s that for a headline in today’s meme stock world?


Reading this newsletter is free. If you enjoy it, then please share to a friend or donate via PayPal (button below). You may also follow us on Twitter.