I became a Stock Broker in 1972.
In the next 2 years, the market, as measured by the Dow fell over 50%. And that was mild compared to Over the Counter Market, where many issues fell 60, 70 and even 80%.
And this Bear Market wasn't a quick crash like we would latter experience in 1987.
No the Bear Market of 1973 and 1974, was deadly dull, with prices just slipping away day by day. And volume simply dried up, as the sellers, who were the only really active investors at the time, the sellers simply became exhausted.
To any modern participant in the market, this period of history, must seem strange indeed. You are probably asking: Why was this allowed to happen? Why didn't someone do something about the Bear Market?
And the answer to those, and a lot of other questions you may have, is that we viewed the Market in an entirely different way than we do today.
You see, back then the memory of the Great Crash of 1929, was still on Wall Street's mind. It was just 42 years after that Crash, and believe it or not, several of the people I worked with had been on the Street during the Crash. Wall Street people tend to live a long time.
For the Street, the Crash was part of our culture. Of course, these people knew, perhaps better than any others, the terrible tragedy of that time. The memory of men jumping out of windows to their death was very real. The lost fortunes and desperate lives were all part of the Street's tradition.
But there was something else that the history of the Crash of 29 provided then, and that the history of the Crash of 73 and 74 can provide us now.
The first lesson that the Crash of 29 taught the old-timers, and the Crash of the '70s taught my generation: is that you live through it. It may be difficult, but we will survive.
Yes, you may have to restructure your finances, especially if you are over-leveraged. Debt is a disaster during a market correction. And it provides an extremely valuable tool, for financial survival.
And if individuals have to straighten out their finances because of too much borrowing, the same is true for corporations. Debt is a killer when your cash flow declines. And a recession or depression will force companies, just like individuals, to get rid of debt just to survive. The pain can be intense, especially when you have to lay off staff, but it must be done. And you will come out stronger afterward.
In fact I think it could be argued that the Depression of the '30s and '40s and the Great Recession of the '70s helped pave the way for the prosperous decades which followed.
Certainly, the balance sheets for both Corporate America and American Citizens were among the strongest ever.
So, as much as we all dislike the thought of a market correction, it is a process that helps eliminate what economists call “mal-investments.” These are companies that are not profitable and usually are built on a foundation of debt.
But there was another, deeper reason that no one stepped in to help stop the Great Depression of 29 or the Market Correction of the '70s. And that was the deep reverence that Wall Street in general, and investors in particular, held the Free Market. With the emphasis on the adjective: Free.
The Investment Community of the last century would never have considered it a role of government to interfere with the workings of the Stock Market. In order for that market to function normally, it has to be free from interference, especially that provided by the Federal Reserve or the US Treasury.
After all, they reasoned, isn't that Communism? Isn't the promise of a Command Economy, to “shelter” shareholders from the ups and downs that you get in a capitalist system?
That at least was the argument back then. On the one side, the old Soviet Union, pointing to the stock market crash as one of the principal weaknesses of American Capitalism.
On our side, we argued that was the price of Freedom. In the long run, freedom, sometimes the source of our failures, would ultimately be the source of our success.
That at least, was the perspective of 50 years ago.
What great irony then, that I watched Wall Street rally on the news that China was injecting liquidity into their stock market.
The very thing the Street abhorred just a half-century ago.