The stock market crash of October 29, 1929 is probably the scariest Halloween story you can tell a trader.
On Wednesday, UBS’s veteran trader Art Cashin recounted the tale of the infamous crash in his “Cashin’s Comments” newsletter.
He talked about how right before the crash, everyone (and most notably, “Harvard boys”) assured everyone else that there was nothing to worry about.
And then, the market completely bombed.
You can read his whole scary, Halloween-themed tale here:
On this day in 1929, there occurred what was, for more than half a century, possibly the most dramatic day in Wall Street history. The day before, a Monday, has been a disaster. (Monday’s have a lousy record but the final Monday in October is the champion stinkeroo.)
As you may recall, markets had originally been reassured by Thursday’s dramatic bids into a falling market by Richard Whitney, on behalf of the Morgan inspired bankers’ pool. And, they were further assured by calming words from “The Harvard Economic Society”. Bank on the 19th they said — “… if recession should threaten serious consequences for business (as is not indicated at present) there is little doubt that the Reserve System would take steps to ease the money market and so check the movement.” And, the day after Whitney’s efforts the Harvard boys said about the severe slump in stocks “… will prove an intermediate movement and not the precursor of a business depression…” (It would appear that the belief in a “Fed Put” may be as old as the Fed itself.)
Despite that, prices collapsed on Monday and Tuesday, the Harvard Economic Society doubted really dire consequences. As late as October in 1931, their Journal foresaw “… an end of the decline and revival for the remainder of the year.” They might have said more but on this day (-2) in 1931 the Harvard Economic Society stopped publishing their Journal — for lack of funds.
At any rate, on this Tuesday, traders were beginning to feel anxiety rather than reassurance. Monday, as noted, had seen prices melt below the levels where the bankers’ pool had bot during Thursday’s selloff. Piercing those levels had in fact brought in new nervous selling. Later testimony would assert that the bankers pool, seeing capital evaporate, had pulled back to plug future air holes. (Someone should read that record to regulators and academics who feel sell offs are a function of capital not sentiment.)
With the 1929 version of a circuit breaker having been overrun, selling became intense. Within the first half-hour volume exceeded 3 million shares. After two hours it was over 8 million. The selling was mindless. “White Sewing” which had sold at “48” weeks before and had closed at 11 3/4 Monday traded at one dollar per share. (Wall St. legend says the buyer was a page boy on the exchange floor who had put a “fun bid” in before the opening never dreaming he might actually “buy”.)
With prices in near free-fall, exchange officials called a secret meeting of the Governing Committee at noon. To preserve secrecy the meeting was held in the basement offices of the President of the Clearing House. They had invited two Morgan Bank partners to hear the views from the bankers’ pool. Unfortunately, to preserve secrecy they failed to tell security and the Morgan men were halted by a guard for over an hour. “We’re from the House of Morgan” the reply was probably “and I’m the king of bloomin’ Siam”. By the time the Morgan partners were admitted, the market had begun to rally and trading was never halted.
When the day ended, the tape was over four hours late and the volume over 16 million, a record that would stand for decades…
“Luckily for the markets, the only resemblance between yesterday’s inaction and 1929 was their position in the last week of October,” Cashin said. “There was no crash on Wall Street yesterday. For most of Tuesday, you needed a searchlight and a magnifying glass to find a downtick.”