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The Biggest Bull Market in History Comes to an End To understand the forces that shaped the development of SSFs, it is best to have an overview of U.S. stock market history from the early 1920s to the present day. The history of stock market trends in the United States is at one and the same time a colorful one as well as a volatile one. The market, as measured by the Dow Jones Industrial Average (DJIA), rallied from its January 1921 low of 63.9 to its January 1929 high of 386.1, fostering a massive speculative bubble that ended in the crash of 1929. Although a number of cogent reasons were advanced as causes of the crash, one of the most significant was that stock speculators were permitted to trade stocks on 10 percent margin. In other words, they could buy $1,000 worth of stock for only $100, which understandably fueled the fires of excessive speculation. The resultant speculative bubble led to a collapse of stocks that ultimately brought a low in the 40.5 area in January of 1932. Stocks then languished during the Great Depression. By the early 1950s, stocks began a trend up as the United States lifted itself out of depression, and investors regained confidence in the economy. Stocks continued to rally until the early 1970s, making a low in 1972 from which a lengthy rally developed until the July 1987 top in the 2,740 area. Stocks had come a long way. Speculative activity increased substantially, leading to the "crash of 1987." But the market wouldn't rest on its laurels too long following the 1987 decline. By January of 1988, volatility in stocks had increased again. The biggest bull market in history was well under way. From the 1987 low of approximately 1,706, stocks moved higher to reach an all-time high in January 2000 at the "unbelievable" 11,750 level. The bull market had exceeded even the most optimistic forecasts of respected market prognosticators. But every silver lining has its dark cloud: the bull market was not without its problems. "Irrational exuberance," as it was called by Federal Reserve Chairman Alan Greenspan, fueled stocks ever higher from mid-1998 through the 2000 top. Worthless stocks surged. Initial public offerings (IPOs) often increased in value by over 100 percent the same day they were issued. Investors clamored for new technology stocks that would satisfy their speculative hunger. In efforts to calm the speculative fires, the Federal Open Market Committee (FOMC) boosted interest rates by Vi percent in May 2000. Stocks shrugged off the bold action, continuing their speculative bubble. Finally, the money game reached its peak. Stocks began to decline. Shares that had risen on mere air—buoyed by promoters, touted by brokerage houses, and bought on the expectation of earnings five years into the future—lost their divinelike status. Shares of companies that were either worthless or less than worthless (i.e., showing large deficits) declined from their absurd prices of over $100 per share to lows in the $2 to $5 per share range or, in some cases, the companies entirely folded their operations by the summer of 2002. The bull market was finally over. Some degree of rational behavior had returned on the heels of sobering reality. Some of the largest corporations in America had fallen to their lowest share prices in decades. United Airlines, once a "high-flying" stock, was on the verge of bankruptcy in September 2002. Massive fraud brought down the once giant Enron. WorldCom shares declined to pennies per share on revelations of fraudulent bookkeeping. Some of the most respected brokerage firms and corporate executives in the United States were implicated and/or indicted for violations of existing securities laws. During the bull market of the 1990s and 2000s, speculative activity was rampant. Day trading was the "game" of the times. Traders who barely understood how markets functioned were attracted to the game by the promise of quick profits and easy money. There were shades of the 1920s speculative frenzy, but most investors ignored the warnings. Sadly, the new generation of traders was blinded by the promise of profits and failed to heed the lessons of history. Many paid dearly for their greed and ignorance. But from the seeds of despair, more lessons were learned and the SSF market emerged as the possible "deus ex machina." forex investments ~ forex hedging |