Market Milestones: Sixty-five Years Since the 1942 Low

Eddy Elfenbein submits: This is a big year for stock market history buffs. In 2007, we’re celebrating the 100th anniversary of the Panic of 1907 (okay, maybe not celebrating), the 75th anniversary of the 1932 low, the 25th anniversary of the 1982 bull market and the 20th anniversary of the 1987 crash. It’s also been five years since the 2002 low and ten years since the East Asian financial crisis. All in all, happy times for the market history crowd.

Saturday marked another milestone—65 years since the 1942 low. On April 28, 1942, The Dow bottomed at 92.92.

That’s not just low. It’s low, low, loooow. The market was still reeling from Pearl Harbor, and the country was starting to realize how much work lay ahead. The only good news was Jimmy Doolittle’s daring raid over Tokyo ten days before.

But think about how investors must have felt. This was 13 years after 1929, yet the market was still just one-quarter of its peak. The Dow was even 10% below its level from January 1906, more than 36 years before! That would be like the Dow today trying to break 770.

The night, FDR gave a fireside chat detailing his economic policy for the war. This is part of what he said:

You do not have to be a professor of mathematics or economics to see that if people with plenty of cash start bidding against each other for scarce goods, the price of those goods (them) goes up.

Yesterday I submitted to the Congress of the United states a seven-point program, a program of general principles which taken together could be called the national economic policy for attaining the great objective of keeping the cost of living down. I repeat them now to you in substance:

First. we must, through heavier taxes, keep personal and corporate profits at a low reasonable rate.

Second. We must fix ceilings on prices and rents.

Third. We must stabilize wages.

Fourth. We must stabilize farm prices.

Fifth. We must put more billions into War Bonds.

Sixth. We must ration all essential commodities which are scarce.

Seventh. We must discourage installment buying, and encourage paying off debts and mortgages.

I do not think it is necessary to repeat what I said yesterday to the Congress in discussing these general principles. The important thing to remember is that earn one of these points is dependent on the others if the whole program is to work.

Some people are already taking the position that every one of the seven points is correct except the one point which steps on their own individual toes. A few seem very willing to approve self-denial -- on the part of their neighbors. The only effective course of action is a simultaneous attack on all of the factors which increase the cost of living, in one comprehensive, all-embracing program covering prices, and profits, and wages, and taxes and debts.

The blunt fact is that every single person in the United States is going to be affected by this program. Some of you will be affected more directly by one or two of these restrictive measures, but all of you will be affected indirectly by all of them. Are you a business man, or do you own stock in a business corporation? Well, your profits are going to be cut down to a reasonably low level by taxation. Your income will be subject to higher taxes. Indeed in these days, when every available dollar should go to the war effort, I do not think that any American citizen should have a net income in excess of $25,000 per year after payment of taxes.

Good golly! Can you imagine any politician giving a speech like that? In today’s terms, $25,000 is about $315,000.

I would hardly say this speech was the catalyst, but the market did indeed take off. This was probably the greatest long-term bull market in history.

Within two years, the Dow was up 50%, and it doubled by 1945. By 1955, the Dow was up fivefold, and it doubled again ten years later. The market really didn’t see any pause until 1966, when inflation started to have a major impact. Twenty four years after FDR’s speech, the Dow had advanced close to 1,000% and that’s not counting dividends.

Comments

[huangjin]

Everything in that speech is why the Depression lasted as long as it did. It wasn't too different from his peacetime policies.