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Earl, the point of the info is that investors (speculators) had access to
enormous amounts of leverage for the vast majority of time the market went
through its meteoric rise in the 1920's, ranging from 3% to 20% margin
rates. As the info points out, margin rates didn't hit 20% until just a few
months before the crash (sorry, I said "after" in my previous post).
Whether you choose to accept the "conventional" figure of 10% as an average
margin rate for that period is up to you.
Once again, the important point of this whole subject for all investors is
that the 1929 market was built on massive leverage. History has clearly
shown that leveraged money is the fuel for market crashes (on this point
Norman and I agree completely). Our current market, while reaching
valuations comparable to the 20's, doesn't have a fraction of the leverage
built into it. No leverage, no crash. It's that simple.
When the market "corrected" last fall to the tune of 20+%, who was it that
sold? It was hedge funds, who were heavily leveraged and had to sell to
cover margin calls. The average investor sat on his hands and was well
rewarded for his resolve.
Bruce
----- Original Message -----
From: Earl Adamy <eadamy@xxxxxxxxxx>
To: RealTraders Discussion Group <realtraders@xxxxxxxxxxxx>
Sent: Friday, October 15, 1999 6:06 AM
Subject: Re: FOMC meeting?
> The material Bruce attached was interesting and carried some eerie echoes
> including the Fed's easing of rates in 1927 to help the Europeans.
However,
> I didn't find much in the way of specific info regarding call rates except
> for two passages:
>
> a) "The practice of buying a large number of shares of stock with a very
> small amount of one's own money (as little as 3% during the 1920's) and
> borrowing the rest from the broker."
>
> b) "On Tuesday, March 26, 1929, the trend intensified and the rate on call
> money went to 20 percent."
>
> The first is pretty generic as it applies to an entire decade while the
> later is more specific as it applies to the period some months before the
> big one let loose. There is no indication regarding the length of the
period
> to which the 20% applies but I see nothing which refutes Norman's
statement.
> While I have extensive historical data, one item I do not have is call
rates
> back to the 20's ... if anyone has monthly call rates for 1929 we could
put
> this part of the discussion to be and move on to new material.
>
> Earl
>
> ----- Original Message -----
> From: BruceB <bruceb@xxxxxxxxxxxxx>
> To: <ericrogers@xxxxxxxxxxxxx>; BruceB <bruceb@xxxxxxxxxxxxx>
> Cc: <droex@xxxxxxxxxxxx>; Earl Adamy <eadamy@xxxxxxxxxx>; RealTraders
> Discussion Group <realtraders@xxxxxxxxxxxx>
> Sent: Thursday, October 14, 1999 10:05 PM
> Subject: Re: FOMC meeting?
>
>
> > Sorry Norman. After a grand total of 5 minutes of searching on the
> > internet, I found enough info to invalidate your opinion. Attached is a
> > text file containing passages from two different sites on the web
> discussing
> > the 1929 crash. The first passage makes it clear margin rates for
> investors
> > in the twenties got as low as 3%. The second passage makes clear that
the
> > broker call rate (referred to as the "Call Market") did not go to 20%
> until
> > AFTER the crash was underway.
> >
> > Now, if margin rates got as low as 3% during the twenties, and didn't
> reach
> > 20% until after the crash, is it really so hard to believe that the
market
> > spiraled upwards at an average margin rate of 10% before crashing?
>
>
>
>
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