Timely history

Black Tuesday, October, 1929, was the day people recognized that everyone else realized the market was a Poni scheme. Below is a fascinating history of the seemingly small events that created the great collapse. The collapse, ultimately, was waiting for someone to must pull out one of the cards holding the house of cards together. There were many fundamental causes, but this appears to be the catalyst. Two powerful stresses were over-leverage and ballon loans.

There was rampant posturing and hyping that created the pressure upon the market. Once it appeared, just appeared in discussions, that one segment was rife with theft, the dam burst. Of course, it may be said that the collapse was planned by those who understood the game.

...For example, consider the market Crash of 1929... the event that sparked the Great Depression.

What was the 860 milligram detonator there? Yes, speculation was running wild at the time. And yes, corruption and manipulation were at an all time high. And, yes, the Feds did little to stop the deflation that was happening.

But all of those elements were just building blocks. If they had never been ignited, the bomb never would have exploded.

What lit the fuse?

Utilities.

On October 16, 1929, the Massachusetts Public Utilities Commission voted to not allow the Edison Electric Illuminating Company of Boston to split its stocks.

At the time, shares were selling for a whopping $440... an astronomical number in those days. (That translates to $5,547 in 2010 dollars). When the decision to stop the stock split went public, the Commission reported that the stocks were extremely over-valued and represented a serious investment risk.

This conclusion was actually wrong... but truth and reality are poor excuses for fear and greed when it comes to stocks and trading.

In New York, then Mayor Franklin D. Roosevelt, ordered New York's Commission to investigate. In an October 19, 1929 issue of the Times, the Commission reported, "this inquiry is likely to have far-reaching effects and may lead to similar action in other States."

Professor Bonbright, the Roosevelt appointed Chair of the Committee, declared that utilities and the regulatory system that controlled prices was "a viscous system".

The utility market panicked. Within a week other utility Commissions around the country were evaluating the stocks of issuing similar statements about utility companies gouging stock holder and electric customers alike.

The impact was almost immediate.

On October 29, 1929 - also known as "Black Tuesday", the Times carried an article decrying the corrupt utility companies. That morning, as the news rolled out, investor confidence in utilities plunged, sparking a sell-off.

The next day, the Times headline ran, "Stocks Collapse in 16,410,030 Share Day"

The Times article described the scenes...

"It came with a speed and ferocity that left men dazed. The bottom simply fell out of the market..... The streets were crammed with a mixed crowd — agonized little speculators,... sold-out traders,... inquisitive individuals and tourists seeking ... a closer view of the national catastrophe..... Where was it going to end?"

In an extensive article on the Great Depression, Harold Bierman, Jr., a professor or economics at Cornell University, stated the following. It clearly illustrates that tiny sparks create massive explosions...

"It is possible that.... the overpriced public utilities hit by the Massachusetts Public Utility Commission decision and statements and the vulnerable margin investors, triggered the October selling panic and the consequences that followed."

Here's the amazing kicker of the whole thing...

During the enormous sell-off of that black day, Edison Electric went down with the rest of the herd. But, within less than a year, their shares were trading strong once again. One of the few that did.

By 1936, shares were almost back to early 1929 levels and the company was doing extremely well in the tough economic times.

What we see here is that the very thing that sparked precipitated the crash, rebounded quickly. Those that bought during the down time made a killing...