Sifting through the economic rubble after the PSU experts link 1929 and 1987 By RICK WOODWARD Collegian Staff Writer Because of continuing falls in stock prices on Wall Street. many economists are asking them selves: "Is this 1929 all over again?" A stock market crash in late October 1929 similar to the one experienced in the last week and a half heralded the Great Depression of the 19305. Monday's Wall Street Journal compared last week's crash to the crash of 1929 and found the "Dow's movements last week mirrored market 58 years ago." Another Journal story examined the similarities and the differences and found that the most striking differences were that in 1929 the United States had surpluses in trade and the federal budget, an advantage over today's economy. The Dow-Jones industrial average a weighted average of 30 major U.S. companies' stock prices rose about 2,000 points since 1982, but lost almost a half of that total gain in the last week and a half. There was a similar bull market in the years before the 1929 crash, said Randall Woolridge. a University finance professor. The pattern of a bull market for a few years followed by a huge crash is similar in the two cases, he said, noting that the market did not reach its lowest point of the Depression until 1932. But "that's all paper wealth." and does not mean the country will necessary go into a reces sion, said University economics professor James Herendeen. Administration officials in 1929 also called the Market closes mostly lower Wednesday NEW YORK (AP) The stock market vacillated again yester day but closed mostly lower as the dollar and bond markets re surfaced as factors influencing its course. The Dow Jones industrial aver age finished up a scant 0.33 points at 1,846.82 following a 52.56-point gain Tuesday. The value of all stocks lost $l2 billion. In a day punctuated by erratic swings, the average fell 63 points in the first half hour, then re bounded sharply, being up as high as 35 points above Tuesday's close. The dollar fell sharply in Euro pean trading hitting a seven year low against the West Ger man mark and a five-year low against the British pound. Despite the slight rise in the Dow, two stocks lost money for every one that advanced, while more than 279 million shares were traded in another abbre viated session on the New York Stock Exchange. "This is a very treacherous market," said Alfred E. Gold man, a vice president at A.G. Edwards & Sons Inc. in St. Louis. "The best thing to have is a sense of humor and cash on the side lines." Markets have been closing two hours early to allow people to catch up on paperwork. The shortened hours will continue through Friday. Although there was more panic selling yesterday, "each wave puts less pressure on the mar ket," indicating signs of a turn around, said Michael Metz, an analyst with Oppenheimer & Co. While the market tossed and turned, workers on Wall Street and in brokerage firms struggled to keep a positive outlook. "The strain is just unbelievea ble, the tension and the anxiety." Metz said. "It's really a very difficult environment.'• Talks to reduce the budget deficit resumed in Washington, Some say recession can be By CHET CURRIER AP Business Writer NEW YORK The calamitous drop in the stock market doesn't have to result in a severe recession, many analysts say. But keeping the damage contained will require wise decisions by politi cal and business leaders, and some good luck as well. In its traditional role as a forecast ing mechanism for the business and economic outlook, the market would seem to be sending a truly frightening signal. And market moves as dramat ic as the current ones can take on some characteristics of a self-fulfil ling prophecy. At the moment. however, "in speaking out, the market is not sim ply forecasting," said Albert Som mers, economist at the Conference losses suffered in the crash "paper losses," according to The New York Times. Belief that the dropping dollar and international factors "were going to come back and haunt us with higher interest rates and higher inflation" caused the initial market drop last week, and computerized program trading probably ampli fied that tendency and caused the magnitude of the drop, Herendeen said. In 1929. administration officials quoted in the Times also blamed "the unsound technical condi tion of the market" for the crash. corresponding to the blame placed on today's use of computers to predict patterns on the market, which are then used by traders in their buying and selling deci sions. Some have pointed to the fact that brokers are not free to extend credit to investors as they were in 1929 as an indication that the catastrophic results of the 1929 crash cannot be duplicated this time. However, Herendeen said he did not believe that was a correct assessment. The amount of borrowed money invested in the market is probably not significantly different from the 1929 amount, he said, because although the margins percentages of one's investment that one must "have down" for the broker are higher now, "there are all kinds of ways to get around it." One of those ways is simply to borrow the money from a bank, he said. But Woolridge said he does not believe there is as much borrowed money in the market as there was in the 19205. 'I don't think people could get the loans to lever Board, a business research organiza tion. "It is taking on some of the burden of adjustment and some of the pain. "The sustained decline in the mar ket is not just an anguished announce ment that it is unhappy with ominous conditions for which no one any long er has a painless solution. "It suggests at least one element of the solution: Increased caution. a weakening trend in consumption, a slower growth rate. a decline in im port demand. and a freeing of produc tive resources to seek export markets." Most economists agree that atti tudes and expectations not only of policymakers but also of consumers. workers and managers of businesses large or small are an important driving force behind economic trends. An example of the frenzied activity on the New York Stock Exchange The market collapse, analysts say. may already have altered those ex pectations in a constructive way. "In one sense, heightened consum er caution would be a most welcome development,•• observed David Resl er. economist at Nomura Securities International in New York. "Greater caution would lead to less spending and more consumer saving. Increased household savings would reduce America's reliance on foreign funds while simultaneously reducing imports and the trade deficit." Resler added: "It is far more desir able that this needed adjustment oc cur over a protracted period of time than to happen quickly. because con sumers lose confidence." That last caveat comes close to the crux of the problem. Even if they can be found, quick fixes for the nation's trade and budget deficits might them- themselves up ( as much as in the 1920 s )," • he said. even if they are investing money obtained from bank loans and home equity loans. Although inflation is currently about 4 percent. a level it has maintained fairly consistently for the last four years, fear that inflation would result from the U.S. international trade deficit and feder al budget deficit was one of the causes of last week's fall, said University economics professor Dean Croushore. But University finance professor James Miles said "deficits have nothing to do with this." Instead, he attributed it to the fact that Presi dent Reagan, who has opposed tax increases, has lost control of the federal government to liberal Democrats, who have talked about raising cor porate taxes and the personal taxes of people with high incomes. This tendency scares wealthy investors, Miles said, and therefore triggered the fall. Other reasons for the fall include the overvalua tion of stocks compared to bonds and the signifi cantly falling exchange rate of the dollar in the last week, Herendeen said. Herendeen said he expects the Federal Reserve Board to say the economy is stable. "The Fed is the most powerful maker of ( U.S.) economic policy," he said. But it remains to be seen whether new Fed chairman Alan Greenspan will be as credible on Wall Street as was his predecessor Paul Volcker, he said. On the brink of the Depression, officials of the Hoover administration in 1929 also said the econ omy was sound. avoided selves have recessionary conse quences for the economy. Tax increases, cuts in government spending. reduced demand for im ported goods all effectively take mon ey out of circulation. Thus, a key role falls to the Federal Reserve in its management of the nation's money supply. On Oct. 20. the day after the Dow Jones industri al average took a 508-point drop. the Fed pledged to prime the economy's pump with enough funds to keep it from sputtering. One of the challenges facing the Fed is to live up to that promise without raising fears of increased future inflation. Optimists en the economy like to point to events of 1962. when the market went through a sharp break in the springtime and more rough going in the fall. CRASH A look at then and now in print Some analysts say last week's stock market crash cannot be compared to the crash of 1929 which heralded the Great Depression. But a comparison of articles about that crash and stories printed last week in The .\eu• York Times shows startlingly similar patterns in market behav ior and the reactions of administration officials and business leaders. 1929 • - Prices of stocks crash in heavy liquidation. Total drop of billions." headline, The New York Times. Oct. 24, p.l. "The fundamental business of the coun try, that is production and distri bution of commodities, is on a sound and prosperous basis." Republican President Herbert Hoover, on Oct. 25, 1929. • •• Break was unexpected NYT, Oct. 24, p. 2. ". . . there is considerable mys tery about why such an avalanche of stock should hit the market at the same time... NYT, Oct. 24, p. 1. • The president of one of the largest groups of investment trusts . . . predicted that any peri od of depression would be of com paratively short duration, and next year many issues would sweep to new high marks." NYT, Oct. 24, p. 1. • ''The break in stock market values on the New York Stock Exchange ( Oct. 23) came as a surprise to administration offi cials who, with the stiffening of security values at the opening of the market, had believed that the recession was checked. Officials declined to comment on the situa tion except to say that there was nothing in the condition of the Federal Reserve System or in general business conditions which could be held responsible for the recent reaction." —NYT, Oct. 24, p. 2. • "Worst crash stemmed by banks . . . leaders confer, find conditions sound" NYT, Oct. 25, p. 1 headline. "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 finan cial leaders . . . the feeling was general that the worst had been seen. Wall Street ended the day in an optimistic frame of mind." NYT, Oct. 25, p. 1. • "Stocks collapse . . but rally at close cheers brokers: bankers optimistic" NYT. Oct. 30, p. 1. University portfolio loses less than 10% By TERRY MUTCHLER Collegian Staff Writer With the recent stock market turbulance, Penn State lost less than 10 percent of its $l3O million endowment, but the loss will not have any material impact on program fundings. the senior vice president of financial operations said. "I wouldn't want to express it in dollars but I would say its between five and 10 percent in market value," Steve . Garban said. "It's not going to be dramatic." he continued. "We will still be able to fund all programs." Garban said endowment money is primarily used for scholarships and student aid. Of the University's total portfolio which includes investments and endowments, Garban said, only 35 percent was invested in stocks. He stressed that the amount lost was strictly in endowments, not investments. The difference, he said, is that endowments are funds people give to the University with the stipulation that the principle not be spent. Investments. on the other hand. include all of the University's funds. such as funds from tuition and the state, he said. "We lost some." he added. "But we did position ourselves not just in stocks. Whereas we lost in stocks we had gains in bonds." Marcus Schneck from the University's Office of Public Information said University President Bryce Jordan did not —by Rick Woodward 1987 • "'Phis is purely a stock market thing. and there are no indicators of a recession out there. - Rea gan on Oct. 22. • "Fall Stuns Corporate Lead •rs" headline. NYT. Oct. 211 "Leaders of major America companies were shaken by the stock market plunge yesterday . . . (which) caught them as much by surprise as it did most inves tors.- NYT, Oct. 20. p. D 32. "Analysts scrambled for expla nations... NYT, Oct. 20. p. 1. • "Some experts see the fall as a long-needed comedown, which took the Dow to a more rational level after an unrealistically fast climb. They believe that after a rest, Wall Street will rally again. Says Robert Prechter. the Georgia-based stock guru: 'The bull market remains intact.' " Time. Oct. 26, p. 33. • "Our citizens should not pan ic. . . There is nothing in what has happened here that should result in a recession." Presi dent Reagan on Oct 20. • "These consultations ( between administration officials and chair men of the Federal Reserve Board, the Securities Exchange Commission, and the New York Stock Exchange) confirm our view that the underlying economy remains sound. We are in the strongest peacetime expansion in history. Employment is at the highest level ever. Manufacturing output is up. - White House spokesman Marlin Fitzwater in a written statement on Oct. 19. • "Wall Street rebound widens with gains for most stocks . Buyers aggressive . . . Analysts show cautious optimism" head lines. NYT. Oct. 22, p. 1. • "Stocks fall. but avert plunge" NYT, Oct. 23, p. 1. "Market is steady and tension eases" NYT. Oct. 24, p. 1. "And hope began to build that the crisis might he NYT. Oct. 24, p. 1. `When this year's all said and done, I'm not sure where we will be ... But, it won't have a material impact.' Steve Garban. senior vice president of financial operations release a statement on the issue. Jordan. who is out of town. could not be reached for comment. In its worst trading session since the crash of 1929. which led to the Great Depression, the stock market plummeted last week more than 500 points draining more than S5OO billion out of the value of stocks "And. - Garhan added. "I don't think this market's done The Dow's plunge to 1.7;8.74 left it 22.6 percent down, a one-day loss far larger than the 12.8 percent drop on Oct. 28. 1929. known as Black Monday. It also beat the Oct 29 1929 record when it fell an additional 11 7 percent. Garban said over the last five years. Penn State has gained about 22 percent each year. adding that the market is not a simple matter with which to deal. "When this year's all said and done, I'm not sure where tie will be... he said. "But. it won't have a material impact...
Significant historical Pennsylvania newspapers