The 90th anniversary of Black Tuesday will take place on Tuesday, 29 October 2019. It is one of the worst days for the stock market, losing an outstanding sum of $14 billion or $206 billion in today’s dollars. This devasting market crash launched the Great Depression and the era of the Roaring Twenties quickly unraveled into economic oblivion. Just a few years later stocks traded at about 10% of their value that they were in 1929. A majority of Americans were simple caught off-guard and weren’t prepared for the financial dismay.
Most people point the finger at President Herbert Hoover’s mismanagement and the Federal Reserve or the Fed’s policy that lead to the Great Depression. Looking back at the Great Depression stocks weren’t selling at over inflated prices like they did in the 2001 recession when several tech stocks traded at exorbitant prices. Moreover, there wasn’t one single bubble that caused the market to fall like housing did in the Great Recession in 2007. You might think the market rose too quickly but it had a nice 7-year run starting in 1922 and gained about 140% over that period. So, why do Hoover and the Fed get the blame? A few months prior to Black Tuesday the Fed raised rates despite a slowdown in economy and poor agricultural news. This precipitous act lit the fuse to the gigantic bomb that exploded on Black Tuesday. Hoover compounded the matter signing the Hawley-Smoot Tariff which was protectionist and nationalist. The tariffs greatly raised import duties on foreign goods and were designed to create more jobs and stimulate the economy. Instead of creating jobs it completely backfired and invoked swift and harsh retaliation from other nations and drove the American economy into unyielding despair.
Lately, many economists have been warning that the current economy is slowing and the decade long boom is coming to an end. I consider myself a student of history and I’m a fan of the great Mark Twain’s quote, “History doesn’t repeat itself but it often rhymes.” We all know what goes up must come down as the market works in cycles. This economy will rhyme at some point and slide into the economic doldrums and become another footnote in history. We should learn from history and I think the greatest lesson from the Great Depression is not putting all your eggs in one basket. Many people never thought the boom would end and had all their assets tied up in property or a business instead of diversifying their investments. Not surprisingly today some are arguing the current boom is fine and will continue to go on for a long time. Please don’t be tricked and diversity your treats as the 90th anniversary of Black Tuesday offers us a great history lesson. To learn how to diversity your assets please refer to my previous post on recession planning.
Matt Maciel, MA, MBA
Maciel Wealth Management, LLC
8101 College Blvd., Suite 100
Overland Park, KS 66210