October 17-23, 1921
This week, the FT coaches investors on the stock market's seasonal gloom and France reveals German attempts to game war reparations.
Quick Stats:
DJIA: 70.77 (Today: 35,295)
Shiller PE Ratio: 5.5 (Today: 38.1)
Federal Reserve Bank of NY Discount Rate: 5.0% (Today: 0.25%)
GBPUSD: $3.92 (Today: $1.37)
Price of The Wall Street Journal: $0.07 (Today: $4.00)
Market-Moving Themes:
High taxes, soft business conditions, and elevated interest rates are negatively impacting investor sentiment (equity, debt markets)
Wartime raw material shortages are easing, paving way for price stability (commodity markets)
European post-war debt payments are causing a strong dollar as gold flows to the United States (currency markets)
Executive Summary:
Markets are driven by both fundamentals and sentiment. As readers head into the heart of fall, the FT reminds readers about the impending gloom. The Dow has been mired in a range between 65 and 75 since the spring. Any perkiness in the summer was quickly sold off. Investors should brace themselves for some negative movements, but not get too defensive because the current bear market seems to have plateaued.
Historical Fact: There have been studies about market cycles and seasons. Stocks typically perform poorly in the fall (the most recent classic market shakeouts of 2011, 2015, and 2018 validate this). Sentiment is an important driver of risk assets, and, in 1921, it was rock bottom. Unbeknownst to the audience, the August low will hold.
Bankers criss-crossed the nation a few weeks ago and are eager to share their findings. East Coast blues were met with West Coast bliss. One banker didn’t realize how nice the weather is in Los Angeles. He thinks that part of the issue with ongoing market weakness has more to do with psychology than anything else. He encourages readers to get some fresh air.
France calls out Berlin for monetary fraud. The French government illustrates the complete suicide of the German mark, which has gone from record low to record low this year. The monetary games need to stop, France warns. The appraisement of the mark is no longer governed by the valuation of Germany’s creditworthiness or her resources, but by the question of her honesty in the execution of the Treaty of Versailles.
Rumors of Royal Dutch Shell exiting Mexico send shockwaves through the press. Some sources claim that Royal Dutch has sold down its Mexican subsidiary, but brokerages across London have not seen any evidence of this. Shares of Mexican oil companies get slammed. Is Royal Dutch planting these claims to get something from the Mexican government? One former Standard Oil executive turned private investor thinks so. If not, he’d happily sink his entire life savings into Mexican oil fields.
Historical Fact: Royal Dutch and the Mexican government are tussling over several issues. They will never resolve their differences, instead opting to attack each other through the press over the next couple decades, until 1938, when Mexico nationalizes all oil assets under the Pemex umbrella.
The prominent German industrialist Hugo Stinnes suggests a fringe dictatorship might seize power because the poorly drawn up armistice extracts too great a toll on the Teutonic nation. He reckons that one of the infant right wing parties could take power some day. Whatever the case, trouble is brewing.
October 22, 1921 - Financial Times
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