By Morgan Housel
Three days before the stock market crash in October of 1929 business executives claimed that the economy was strong and there was no reason to worry. In one article, the New York Times reported that “bankers predict a rally… and see no cause for alarm.”
I’ve been in the Library of Congress lately reading financial newspapers from the week of the October, 1929 stock market crash that ultimately crushed the Dow Jones (DJINDICES: ^DJI ) by nearly 90%.
Last week, I showed a group of business executives three days before the crash declaring in unison that the economy was strong and there was no reason to worry.
Below are several more examples. For perspective, the market crash occurred on October 29, 1929.
October 22, 1929. The New York Times. “Bankers predict a rally. Believe reaction has gone too far and see no cause for alarm”
Inquiry among leading banking interest of the city disclosed yesterday the opinion that the current stock market reaction, while a natural and healthy development, has been carried too far. The situation, it was said, is not at all alarming, however, as powerful banking support will aid the stock market before the decline goes into extreme.
October 22, 1929. The New York Times. “Fisher Says Prices of Stocks Are Low. Sees No Cause for Slump”
Even in the present high market the price of stocks have not yet caught up with their real values, according to professor Irving Fischer, head of the department of economics at Yale University. Fisher asserted that the market has not been inflated, but has only been readjusted to the decreasing value of the dollar and the increasing pace of production and trade.
October 25, 1929. The New York Times. Market News section:
Confidence in the soundness of the stock market structure, notwithstanding the upheaval of the last few days, was voiced last night by bankers and other financial leaders. Sentiment as expressed by the heads of some of the largest banking institutions and by industrial executives as well was distinctly cheerful and the feeling was general that the worst had been seen.
Wall Street ended the day in an optimistic frame of mind. Charles Mitchell, chairman of the National City Bank, declared that fundamentals remained unimpaired after the declines of the last few days. “I am still of the opinion,” he added, “that this reaction has badly overrun itself.”
“There is no reason to feel unduly alarmed,” one leading banker declared. “We have made careful inquiry and have failed to discover that any [bank] has been seriously hurt. There is no danger of a panic because the economic position of the country remains sound.”
“Considering the record-breaking earnings in many industries, we may well remember that whenever fundamental values are lost sight of by the unthinking majority it is time for courage on the part of those investors who have a real sense of basic worth.”
October 25, 1929. The New York Times. “Brokerage Houses Are Optimistic on the Recovery of Stocks”
The most disastrous decline in the biggest and broadest stock market of history rocked the financial district yesterday. In the very midst of the collapse five of the country’s most influential bankers hurried to the office of J.P. Morgan & Co., and after a brief conference gave out word that they believe the foundations of the market smash has been caused by technical rather than fundamental considerations, and that many sound stocks are selling too low …
“There has been a little distress selling on the Stock Exchange,” Mr. Thomas Lamont said, “and we have held a meeting of the heads of several financial institutions to discuss the situation.”
[It is the consensus] of the group, he said, “that any of the quotations on the Stock Exchange do not fairly represent the situation.” By this statement Mr. Lamont said he meant that prices of many important issues had been carried down below the levels at which they might fairly be expected to sell. The situation which arose on the Stock Exchange yesterday, was described by Mr. Lamont as being due to a technical condition of the market, rather than to any fundamental cause.
October 25, 1929. The New York Times. “Treasury Officials Blame Speculation”
The Treasury made the point that, while the reports of the break drew a disastrous picture, the bulk of the losses on the stock market were “paper losses” of unrealized profit. Speculators and investors who suffered actual heavy cash losses, it was held, represented a relatively small sector of those involved in the market crash. The fact that industry and commerce were operating on an exceedingly high level, with profits of corporations showing a sharp increase as compared with last year, was pointed out as demonstrating that the basic conditions were sound.