Evening star., 1939-01-01
Business and Industry Resume Recovery March 1888 Closes
Spectacular Upsurge in Stock Market Signals
Beginning of General Trade Improvement
Market Averages Near
Best Levels Since
Depression
BY ARTHUR II. NORRIS,

and ended in prosperity. 1t began
under depression conditions whose
intensity had been exceeded pre-
viously only in the panic period of
1882 and early 1888; it ended on a
prosperity note with the index of
industrial activity standing approxi-
mately per cent above normal in
December.
To fully understand the amazing
speed OF this recovery, it may be re-
called that it required period of
three years, from the fall of 1888
to the fall of 1886, for similar i'm
provement in business activity to
develop. In six short months of
1898, the Federal Reserve index of
industrial activity bounded up from
low of 76 per cent to an estimated
los per cent of normal.
This Kaleidoscope transition from
depression to prosperity had its
logical counterpart in a dynamic
upsurge in equity security prices.
BY November the DoW-Jones indus
trial average of stock prices had at
tanned level only exceeded in the
latter part of 1886 and in the first
few months of 1887 during the
l932-l937 upsWing. This, notWith-
standing the fact that earnings re-
ports being issued at the time for
the third quarter of 1888 made the
worst comparison of any three
month period of the year-vis-a-v
the corresponding quarter of 1887
Prosperity Prices.
To the conservative investor who
in the past had found it in his best
interest to carefully consider earn
ings values in relation to prices, the
relationship between stock prices
and prevailing earnings seemed ut
terly fantastic. In the latter part
of the year it might be truly said of
an average list of standard invest
ment stocks that prosperity prices
prevailed at time when only de-
preston earnings were being shown.
This apparent abnormality in the
stock market Of 1888 can perhaps
best be understood in the light of
William Peter Hamilton's observa-
market is the kind that never really
happens 1t is true that in start
ing SO soon after the depression slide
of only one years duration, in pro-
crossing so rapidly and so far in
the diScounting of future earning
power, in ignoring continuing eco
nomic deterioration around the
y ;,, III ~
New York at the very time that the
London stock market was standing
practically at its bear market low.
in failing to give reflection to the
threat of high wage rates and in
creasing tax burdens to the profits
available for investors-in all these
things the 1888 stock market was
breaking many precedents.
Resemblance to 1908.
One precedent, and perhaps the
most important, did survive. That
precedent was the lesson of past
experience that stocks purchased
under depression conditions as bad
as prevailed in the early part of
1888 could be sold in some future
period of prosperity at a satisfactory
profit. Blind faith in this simple
conception was perhaps the only tip
off in early 1888 as to what the last
six months might hold in store
In retrospect, too, the 1888 stock
market was unusually normal in
that it almost exactly duplicated the
pattern of an earlier year. that of
1908. In fact, the year 1888 in the
stock market and in the general
news, economic, and political back
grounds was so similar to the 1908
period that one is almost forced to
wonder if there really is anything
new under the sun. In reviewing the
year 1908, the Commercial & Finan-
cial Chronicle of that day draws
picture of conditions and develop
ments that almost as aptly describes
the year past as if these words had
been written today. 1t should be
interesting for the investor of 1888
under the second Roosevelt to read
of the experiences of the 1908 in
vestor under the first Roosevelt.
The Commercial and Financial
Chronicle of that period described it
as follows:
The revival of confidence during
1908 made steady headway, not
Withstanding the tremendous de-
preston in trade, the lack of en-
ployment for labor, the loss of profits
everywhere, and the unparalleled
shrinkage in the revenues of the
country's rail transportation lines.
There were many manifestations of
the Presidents activities and at
times these served for the moment
to put damper upon the growing
feeling of confidence. The remark
able special message which he sent
to Congress on January 81. embody-
ing propositions for new legislation
and attacking men of wealth. was
one of the most extraordinary docu-
ments ever sent to legislative body.
On the stock exchange the re-
vival of confidence was reflected in
a most pronounced way. AS 1907
was marked by frightful collapses in
security values, so 1908 was distin-
guished by recoveries hardly less
noteworthy in extent. The upward
movement may be said to have been
in progress all through the year,
gaining force and impetus with the
favorable court decisions that came
one after another and with the sue
Al ANCE RESTORED .y5S