2 centuries of volatility


Recent stock market volatility reminds some analysts and economic historians of the past: the distant past.

Today’s volatility is worse than the 1970s, they say. You have to go back to the 1930s to find volatility as bad as it has been since the late 1990s.

Even in the 1930s, heavy speculative trading didn’t dominate the market the way it does today, says Phil Roth, chief technical market analyst at New York brokerage firm Miller Tabak + Co. For large-scale speculative trading, he says, what the current market really resembles is the wild-west days of the latter 1800s and early 1900s.

“The market then was dominated by investment pools, big speculators with a lot of money. We have the same market now, we just call them hedge funds,” he says.

Great investors and speculators included Charles W. Morse, F. Augustus Heinze and his brother, Otto, J.P. Morgan, E.H. Harriman, as well as robber barons Jay Gould, Daniel Drew, Jim Fisk and Cornelius Vanderbilt.

They operated before there was a Securities and Exchange Commission, which wasn’t created until 1934, and before the Federal Reserve, which was founded in 1913. Financial regulations were few and lightly enforced.

“There is a similarity in what was going on then, although they didn’t trade the same volumes, obviously,” says economic historian Richard Sylla of New York University’s Stern School of Business. “It was Wall Street operators who had their friends. The idea of a pool was to get others to put money in so they could take a larger position, and then get recruits to spread misinformation.”

Robber barons used investment pools to fight for control of railroad companies, even copper mines. A failed attempt by Otto Heinze to corner the market in United Copper Co. set off the Panic of 1907, during which J.P. Morgan led a rescue of the New York financial system. One result: the Fed’s 1913 creation.

Another parallel between then and now, according to Mr. Roth: stock turnover, meaning the number of shares traded in a year as a percentage of all stock listed on the New York Stock Exchange. In the 1960s, turnover was less than 20%. In 1901 it was 392%. In 2009 it was 244%, and this year, Mr. Roth says, it is running at 180% — a sign that speculative trading is alive and well.



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