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08/03/2007

August 1982, Part I

We are approaching the 25th anniversary of an historic market
event the Dow Jones hitting a level it hasn’t seen since 776
on Aug. 12, 1982.

So, seeing as I remember this period personally because I was
beginning to explore opportunities to get a position on Wall
Street, from my post as a Bob Cratchit-type at an insurance
brokerage firm in Manhattan, I thought I’d explore the market
environment in the days prior to hitting the low, and then next
week, the days after we hit bottom. What were the experts
saying, for example. Are there lessons to be learned?

But first, the numbers.

Fri. July 30, 1982 Dow Jones Industrial Average closed at 808.

Aug. 2 822
Aug. 3 816
Aug. 4 803
Aug. 5 795
Aug. 6 784

Aug. 9 ..780
Aug. 10 779
Aug. 11 777
Aug. 12 776*
Aug. 13 788

Aug. 16 792
Aug. 17 831
Aug. 18 829
Aug. 19 838
Aug. 20 869

Aug. 23 .891
Aug. 31 .901
Sept. 30 .896
Oct. 11 1012
Oct. 29 ..991
Nov. 30 1039
Dec. 31 1046

As for the U.S. economy, the recession that began in the summer
of 1981 would run its course by Nov. 1982, with inflation, as
measured by the consumer price index, down to 3.9% for the
year, the smallest increase since 1972. GDP declined 1.8%, its
largest decrease since 1946. Unemployment rose to 10.8% by
December. More than 30 banks failed (including Penn Square in
Oklahoma City on July 5 a victim of excessive loans to
depressed energy companies in the Southwest), and high interest
rates crippled new housing starts. Earlier, Jan. 8, AT&T agreed
to divest itself of its 22 Bell Telephone operating systems.

But there were positive signs. Boeing introduced a new jet, the
767, said to be 35% more fuel efficient than older aircraft. IBM
introduced the 3084 computer, twice as powerful as its
predecessor. And a large solar plant was built in the Mojave
Desert.

Sound familiar? Boeing just introduced the Dreamliner and I
recently wrote of a huge new solar panel plant in the Mojave.

The key 10-year Treasury was at 14.70% on 6/25/82, but was
falling to 13.57% by 8/13/82 on the heels of some Fed rate cuts.
More on this next week.

Following are excerpts of reports from the New York Times’
business reporters during this period.

Aug. 6 reported by Vartanig G. Vartan

“Stock prices continued to retreat yesterday as investors
registered deep concern over the direction of interest rates .

“The Dow Jones industrial average fell 7.61 points, to 795.85,
bringing its three-day decline to 26.26 points. With the market
slide gaining momentum, there was increased caution and
apprehension among managers of the vast sums of pension and
profit-sharing funds. ‘One big worry of money managers
revolves around the economic recovery,’ said Robert Grossman
of Cantor, Fitzgerald & Company, an investment banking firm.
‘In 16 years in this business, I’ve never seen so many people
holding onto cash.’”

Big Board volume was 54.7 million shares. Compare that to
today, when volume has recently been exceeding 4 billion shares
on the NYSE. Volume would explode, however, by October.

“ ‘I detect increasing pessimism among people who are normally
optimistic,’ stated Theodore H. Halligan, an institutional
salesman with Piper, Jaffray & Hopwood Inc. ‘What are they
worried about? The budget deficit, a lack of conviction that
interest rates will stay down, a possible new crisis in the banking
system. Now there is an added stress. The corporate investment
committees that hire money managers are putting pressure on
them to perform. Jobs are no longer safe. So we’re seeing more
funds being switched out of stocks and into bonds.’”

The S&P 500 closed Aug. 5 at 105.16, its lowest mark since May
1980. The Nasdaq fell to 165.15, its lowest level since July
1980.

“In commenting on the failure of the Dow Jones to sink to a two-
year low like other leading indicators, Arnold Kaufman, editor of
Standard & Poor’s Outlook, said: ‘In periods of uncertainty,
investors often favor the big-capitalization blue chips such as
those found in the Dow. However, if the Dow had broken
through its June 18 low, it could have touched off much heavier
selling by technically oriented investors.’”

Aug. 7 Vartanig G. Vartan

“The Dow Jones industrial average plunged 11.51 points
yesterday to a 27-month low. ‘Today’s drop in the Dow
confirms that we’re in a bear market,’ said Edward P. Nicoski,
technical analyst for Piper, Jaffray & Hopwood Inc. in
Minneapolis, ‘and it looks like we’re going lower.’”

The Dow was at its lowest level since 759.13 on April 21, 1980.

“ ‘You finally saw weakness penetrating today to such recent
market leaders as General Electric, IBM and other blue-chip
components of the Dow,’ said Ralph Acampora of Kidder,
Peabody & Company. ‘I think you could see the industrial
average go to 750 or 760 in the next week or two.’

“ ‘I suspect that Monday and Tuesday could be volatile and
violent sessions,’ said Newton D. Zinder of E.F. Hutton &
Company. ‘You could get a rally next week, since the market is
oversold on a technical basis. However, I don’t think the Dow
will make its ultimate low for this bear-market cycle until
September or October, possibly bottoming between 720 and
760.’”

There was another issue at this time; the proposed acquisition of
Cities Service Company (Citgo) by Gulf Oil. Late on Fri., Aug.
6, Gulf announced it was calling off its $5 billion tender offer.
The Federal Trade Commission had issued an antitrust challenge
when the deal was first proposed. Other takeover targets, such as
Kerr-McGee and Superior Oil, fell in sympathy.

A small bank also failed, the Mount Pleasant Bank of Iowa,
which touched off selling in big-city banks whose shares recently
reflected the collapse of the above-mentioned Penn Square.

Home computer companies faced a price war, as well.
Remember Commodore International?

Aug. 10 Alexander R. Hammer

“The stock market continued to decline yesterday, mostly in
reaction to the news that the Gulf Oil Corporation had terminated
its $5 billion offer to acquire the Cities Service Company.”

Shares in Cities Service dropped 7 1/8 to 30 1/8 on turnover of
2.8 million shares. Gulf Oil fell to 25.

“Michael Metz, a vice president of Oppenheimer & Company,
described yesterday’s sell-off on the Big Board as a ‘mini-panic.’
He attributed it mainly to arbitragers, who speculate on mergers.
‘They were forced to liquidate some of their other stocks,’ he
said, ‘because of the decline in the value of the stock of Cities
Service in their possession.’

“Many professional traders were also heavily committed to the
success of the Cities Service merger, Mr. Metz said, and when it
collapsed late Friday ‘they began liquidating some of their
positions in their other holdings.’

“Market analysts said the selling pressure on Cities Service
yesterday was lessened somewhat by the company’s
announcement on Sunday that it would buy up to 20 million
shares of its own stock and would pursue an ‘orderly liquidation’
of the company if it failed to find an ‘appropriate’ merger
partner. [That would prove to be Occidental Petroluem.]

“ ‘The market’s decline today also points out investors’ concern
about the ability of the economy to stage a recovery in the
second half of this year,’ commented Leonard Siegel of
Josephthal & Company. Their doubts are based on continued
high interest rates, illiquidity in the banking system and the
growing number of business failures, he said.”

Aug. 12 Vartanig G. Vartan

“Extending one of its sharpest declines in recent years, the stock
market yesterday continued to retreat on modest trading volume.
Analysts attributed the setback to the same set of worries – a
slack economy, disappointing corporate profits and fears of huge
budget deficits – that have prevailed recently.

“In its seventh setback in a row, the Dow Jones industrial
average slipped 2.09 points, to 777.21

“ ‘The market acts like more bad news is coming,’ stated
William M. LeFevre, of Purcell, Graham & Company.”

Volume contracted to 49 million shares.

Aug. 13 Alexander R. Hammer

“Stock prices posted their eighth consecutive decline yesterday
as investors’ concern over the depressed economy and huge
Federal budget deficits continued to weaken prices.

“The Dow Jones industrial average, which was up almost 4
points at noon on bargain-hunting, closed off 0.29 points, to
776.92.”

“ ‘Ronald Koenig, managing director of Ladenburg & Thalman
& Company, said that the market appeared to be entering the last
and most damaging phase of its recent sell-off. He predicted that
the average ‘could drop to as low as the 730-740 level before any
meaningful recovery takes place.’

“Analysts said that another market depressant yesterday was the
news that Lombard-Wall Inc., a government securities trading
house, had filed for protection under the bankruptcy law. One of
Lombard-Wall’s creditors is the Chase Manhattan Bank, whose
stock tumbled 2 5/8 points, to 32 .”

Well, we had hit our bottom, 776, and we haven’t seen it since.
Of course at this point we better not revisit that level!

And look at all those old Wall Street names, including some
individuals, such as Metz and Acampora, who are still very much
in the picture today.

Next week what turned it around?

Source for the Dow Jones data: “The Dow Jones Averages:
1885-1995,” edited by Phyllis S. Pierce.

Additional source: “The Encyclopedia of American Facts and
Dates,” edited by Gorton Carruth.

Brian Trumbore









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-08/03/2007-      
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Wall Street History

08/03/2007

August 1982, Part I

We are approaching the 25th anniversary of an historic market
event the Dow Jones hitting a level it hasn’t seen since 776
on Aug. 12, 1982.

So, seeing as I remember this period personally because I was
beginning to explore opportunities to get a position on Wall
Street, from my post as a Bob Cratchit-type at an insurance
brokerage firm in Manhattan, I thought I’d explore the market
environment in the days prior to hitting the low, and then next
week, the days after we hit bottom. What were the experts
saying, for example. Are there lessons to be learned?

But first, the numbers.

Fri. July 30, 1982 Dow Jones Industrial Average closed at 808.

Aug. 2 822
Aug. 3 816
Aug. 4 803
Aug. 5 795
Aug. 6 784

Aug. 9 ..780
Aug. 10 779
Aug. 11 777
Aug. 12 776*
Aug. 13 788

Aug. 16 792
Aug. 17 831
Aug. 18 829
Aug. 19 838
Aug. 20 869

Aug. 23 .891
Aug. 31 .901
Sept. 30 .896
Oct. 11 1012
Oct. 29 ..991
Nov. 30 1039
Dec. 31 1046

As for the U.S. economy, the recession that began in the summer
of 1981 would run its course by Nov. 1982, with inflation, as
measured by the consumer price index, down to 3.9% for the
year, the smallest increase since 1972. GDP declined 1.8%, its
largest decrease since 1946. Unemployment rose to 10.8% by
December. More than 30 banks failed (including Penn Square in
Oklahoma City on July 5 a victim of excessive loans to
depressed energy companies in the Southwest), and high interest
rates crippled new housing starts. Earlier, Jan. 8, AT&T agreed
to divest itself of its 22 Bell Telephone operating systems.

But there were positive signs. Boeing introduced a new jet, the
767, said to be 35% more fuel efficient than older aircraft. IBM
introduced the 3084 computer, twice as powerful as its
predecessor. And a large solar plant was built in the Mojave
Desert.

Sound familiar? Boeing just introduced the Dreamliner and I
recently wrote of a huge new solar panel plant in the Mojave.

The key 10-year Treasury was at 14.70% on 6/25/82, but was
falling to 13.57% by 8/13/82 on the heels of some Fed rate cuts.
More on this next week.

Following are excerpts of reports from the New York Times’
business reporters during this period.

Aug. 6 reported by Vartanig G. Vartan

“Stock prices continued to retreat yesterday as investors
registered deep concern over the direction of interest rates .

“The Dow Jones industrial average fell 7.61 points, to 795.85,
bringing its three-day decline to 26.26 points. With the market
slide gaining momentum, there was increased caution and
apprehension among managers of the vast sums of pension and
profit-sharing funds. ‘One big worry of money managers
revolves around the economic recovery,’ said Robert Grossman
of Cantor, Fitzgerald & Company, an investment banking firm.
‘In 16 years in this business, I’ve never seen so many people
holding onto cash.’”

Big Board volume was 54.7 million shares. Compare that to
today, when volume has recently been exceeding 4 billion shares
on the NYSE. Volume would explode, however, by October.

“ ‘I detect increasing pessimism among people who are normally
optimistic,’ stated Theodore H. Halligan, an institutional
salesman with Piper, Jaffray & Hopwood Inc. ‘What are they
worried about? The budget deficit, a lack of conviction that
interest rates will stay down, a possible new crisis in the banking
system. Now there is an added stress. The corporate investment
committees that hire money managers are putting pressure on
them to perform. Jobs are no longer safe. So we’re seeing more
funds being switched out of stocks and into bonds.’”

The S&P 500 closed Aug. 5 at 105.16, its lowest mark since May
1980. The Nasdaq fell to 165.15, its lowest level since July
1980.

“In commenting on the failure of the Dow Jones to sink to a two-
year low like other leading indicators, Arnold Kaufman, editor of
Standard & Poor’s Outlook, said: ‘In periods of uncertainty,
investors often favor the big-capitalization blue chips such as
those found in the Dow. However, if the Dow had broken
through its June 18 low, it could have touched off much heavier
selling by technically oriented investors.’”

Aug. 7 Vartanig G. Vartan

“The Dow Jones industrial average plunged 11.51 points
yesterday to a 27-month low. ‘Today’s drop in the Dow
confirms that we’re in a bear market,’ said Edward P. Nicoski,
technical analyst for Piper, Jaffray & Hopwood Inc. in
Minneapolis, ‘and it looks like we’re going lower.’”

The Dow was at its lowest level since 759.13 on April 21, 1980.

“ ‘You finally saw weakness penetrating today to such recent
market leaders as General Electric, IBM and other blue-chip
components of the Dow,’ said Ralph Acampora of Kidder,
Peabody & Company. ‘I think you could see the industrial
average go to 750 or 760 in the next week or two.’

“ ‘I suspect that Monday and Tuesday could be volatile and
violent sessions,’ said Newton D. Zinder of E.F. Hutton &
Company. ‘You could get a rally next week, since the market is
oversold on a technical basis. However, I don’t think the Dow
will make its ultimate low for this bear-market cycle until
September or October, possibly bottoming between 720 and
760.’”

There was another issue at this time; the proposed acquisition of
Cities Service Company (Citgo) by Gulf Oil. Late on Fri., Aug.
6, Gulf announced it was calling off its $5 billion tender offer.
The Federal Trade Commission had issued an antitrust challenge
when the deal was first proposed. Other takeover targets, such as
Kerr-McGee and Superior Oil, fell in sympathy.

A small bank also failed, the Mount Pleasant Bank of Iowa,
which touched off selling in big-city banks whose shares recently
reflected the collapse of the above-mentioned Penn Square.

Home computer companies faced a price war, as well.
Remember Commodore International?

Aug. 10 Alexander R. Hammer

“The stock market continued to decline yesterday, mostly in
reaction to the news that the Gulf Oil Corporation had terminated
its $5 billion offer to acquire the Cities Service Company.”

Shares in Cities Service dropped 7 1/8 to 30 1/8 on turnover of
2.8 million shares. Gulf Oil fell to 25.

“Michael Metz, a vice president of Oppenheimer & Company,
described yesterday’s sell-off on the Big Board as a ‘mini-panic.’
He attributed it mainly to arbitragers, who speculate on mergers.
‘They were forced to liquidate some of their other stocks,’ he
said, ‘because of the decline in the value of the stock of Cities
Service in their possession.’

“Many professional traders were also heavily committed to the
success of the Cities Service merger, Mr. Metz said, and when it
collapsed late Friday ‘they began liquidating some of their
positions in their other holdings.’

“Market analysts said the selling pressure on Cities Service
yesterday was lessened somewhat by the company’s
announcement on Sunday that it would buy up to 20 million
shares of its own stock and would pursue an ‘orderly liquidation’
of the company if it failed to find an ‘appropriate’ merger
partner. [That would prove to be Occidental Petroluem.]

“ ‘The market’s decline today also points out investors’ concern
about the ability of the economy to stage a recovery in the
second half of this year,’ commented Leonard Siegel of
Josephthal & Company. Their doubts are based on continued
high interest rates, illiquidity in the banking system and the
growing number of business failures, he said.”

Aug. 12 Vartanig G. Vartan

“Extending one of its sharpest declines in recent years, the stock
market yesterday continued to retreat on modest trading volume.
Analysts attributed the setback to the same set of worries – a
slack economy, disappointing corporate profits and fears of huge
budget deficits – that have prevailed recently.

“In its seventh setback in a row, the Dow Jones industrial
average slipped 2.09 points, to 777.21

“ ‘The market acts like more bad news is coming,’ stated
William M. LeFevre, of Purcell, Graham & Company.”

Volume contracted to 49 million shares.

Aug. 13 Alexander R. Hammer

“Stock prices posted their eighth consecutive decline yesterday
as investors’ concern over the depressed economy and huge
Federal budget deficits continued to weaken prices.

“The Dow Jones industrial average, which was up almost 4
points at noon on bargain-hunting, closed off 0.29 points, to
776.92.”

“ ‘Ronald Koenig, managing director of Ladenburg & Thalman
& Company, said that the market appeared to be entering the last
and most damaging phase of its recent sell-off. He predicted that
the average ‘could drop to as low as the 730-740 level before any
meaningful recovery takes place.’

“Analysts said that another market depressant yesterday was the
news that Lombard-Wall Inc., a government securities trading
house, had filed for protection under the bankruptcy law. One of
Lombard-Wall’s creditors is the Chase Manhattan Bank, whose
stock tumbled 2 5/8 points, to 32 .”

Well, we had hit our bottom, 776, and we haven’t seen it since.
Of course at this point we better not revisit that level!

And look at all those old Wall Street names, including some
individuals, such as Metz and Acampora, who are still very much
in the picture today.

Next week what turned it around?

Source for the Dow Jones data: “The Dow Jones Averages:
1885-1995,” edited by Phyllis S. Pierce.

Additional source: “The Encyclopedia of American Facts and
Dates,” edited by Gorton Carruth.

Brian Trumbore