September 19-25, 1921
This week, the Fed lowers rates to 5%, and the WSJ editors bravely declare the Dow has bottomed.
Quick Stats:
DJIA: 69.43 (Today: 34,584)
Shiller PE Ratio: 5.4 (Today: 38.3)
Federal Reserve Bank of NY Discount Rate: 5.0% (Today: 0.25%)
GBPUSD: $3.71 (Today: $1.37)
Price of The Wall Street Journal: $0.07 (Today: $4.00)
Market-Moving Themes:
Sentiment remains lukewarm towards stocks despite the perfect setup (equity, debt markets)
As wartime raw material shortages ease, relative price stability reigns (commodity markets)
German war reparations causing strong dollar (currency markets)
Executive Summary:
On September 19, the WSJ editors bravely declare that “there is a bull market impending in stocks” and the August low was the finale to the 1919-1921 bear market. This masterful front page news piece walks through how National City Bank (today known as Citigroup) and The New York Times believe the current bounce in the market is a “false boom,” yet these same characters were so wrong in November 1919 when the market turned south. Writers go on to say that the current bear established itself when things looked impossibly good. The reverse is now true today.
The broad equity and debt markets in New York and London may be dull, but there’s always a bull market somewhere. The trading action over the past month has been in Germany. On Monday, pit traders illustrate the view from the German bourse. Speculation runs rampant. Banned from owning dollars, the public want to move their wealth out of marks. To where? Stocks. Equities are going gangbusters, with coal and iron companies bid up. Areas where desks previously rested are now in storage to make room for people.
Historical Fact: In the early phase of the Weimar Republic’s inflationary saga, the equity market preserved purchasing power. As we get closer to the middle of 1922, hyperinflation will wipe out equities, debt, and currency holders leaving real estate as the sole wealth preserver. Too little or too much inflation damages any economy.
September 20, 1921 - Financial Times
The Federal Reserve of New York lowers rates from 5.5% to 5% on September 21. The rest of the Fed branches match in tandem. The powerful New York Federal Reserve President (Governor pre-1935), Benjamin Strong, delivers a terse statement to the Journal. Equities seem nonplussed and drop the next day. The aggregate yield on high quality debt rallies from 4.8% to 4.5%.
September 22, 1921 - The Wall Street Journal A special "Sequence of Crisis" report out of Amsterdam on Saturday. Such heavy hitters as Royal Dutch and Heineken were considered high-class securities only months ago. What has transpired is a terrible blow for investors and speculators alike, who had bought these shares never expecting a catastrophe. Perception is stronger than reality, and nobody cares about business improvements over the past couple months. Depression haunts the trading hours.
Although the first reparation committee convened nearly two years ago, Britain, Belgium and France still can’t agree on their share of German payment. All of these countries remain heavily indebted to the US, and quick goals of extinguishing war debts vanish with yet new meetings to solve this quarrel. The article mentions that the US is not pressing claims, and will not push any of the Allied countries into bankruptcy as long as it “receives its share of the fruits of victory.”
September 22, 1921 - The Wall Street Journal
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