Did you know? You can go to any day’s “This Day in History” page by simply entering the month and date after www.begintoinvest.com/
For example: www.begintoinvest.com/May-9
Or follow Begin To Invest on Twitter or Facebook for daily posts!
Prefer video? These are posted daily on our YouTube Channel (and embedded below)
Quote of the Day
“The number one problem in today’s generation and economy is the lack of financial literacy.”
– Alan Greenspan, who on this day in 1987 was sworn in as the Chairman of the Federal Reserve.
August 11th – This Day in Stock Market History
August 11, 1982 – Bell System Antitrust Breakup Approved
On this day in 1982, a landmark antitrust action reshaped the U.S. telecommunications industry. Federal Judge Harold Greene issued a 178-page opinion approving the settlement to break up the Bell System monopoly (AT&T).
This divestiture split AT&T into seven “Baby Bell” regional carriers on January 1st, 1984 and left AT&T as a long-distance provider.
The immediate market impact was significant – investors had to assess the values of the new regional telecom stocks and AT&T’s refocused business.
The breakup also created a significant arbitrage opportunity that lead to, at the time, the largest single trade in history placed at the NYSE. In 1983, Ed Thorp bought $330 million worth of the old AT&T stock while simultaneously shorting $332.5 million of the “when-issued” shares (a bundle that represented ten shares of the new AT&T plus one share in each of the seven Baby Bells). The difference between the two positions was a razor-thin 0.76%, but that sliver of arbitrage translated into $2.5 million in profits for Thorp’s hedge fund.
In the long run, the breakup ushered in greater competition and innovation: consumers soon benefited from a proliferation of new telephone equipment and competitive long-distance options as rivals like MCI and Sprint gained ground.
The remaining AT&T company stock averaged a 9.4% annual return for the next 42 years:
The ruling also nearly exactly coincided with the bottom of the 1966-1982 bear market. Despite the headwinds of losing a monopoly, the remainder of AT&T flourished and performed very well for investors that held.
August 11, 1987 – Alan Greenspan Takes Office as Fed Chair
Alan Greenspan was sworn in as Chairman of the Federal Reserve on this day in 1987.
U.S. stocks would hit record highs within weeks of Greenspan taking the helm. But the fun would not last long for Greenspan. Just 69 days later, the infamous Black Monday crash on October 19, 1987 would occur, providing Greenspan with his first test as Fed chair. The new Fed Chair’s response – pledging liquidity and cutting interest rates – was credited with calming the panic. Markets recovered to finish 1987 slightly up for the year.
Greenspan would also become infamous due to his actions during the tech bubble in the late 1990s and early 2000s. While obviously not the sole cause, Greenspan has faced criticism for being too lax with monetary policy as asset prices inflated during the tech bubble.
Greenspan’s tendency to lower interest rates when the market faltered led to the perception that the Fed would always step in to support asset prices, creating a “Greenspan put”. This encouraged investors to take on more risk, believing the Fed would protect them from losses.
Reads of the Day
Deal of the Century: The Breakup of AT&T by Steve Coll
Steve Coll tells the story of the largest corporate breakup in U.S. history. From courtroom battles to boardroom maneuvers, this book explains how the once-mighty Bell System was dismantled into the “Baby Bells.” A great read for anyone interested in how government regulation reshaped an industry and opened the door to modern telecom competition. As anti-trust pressure heats up in the tech sector today, lessons and examples of AT&T’s past can certainly provide investors historical context for what to expect in the future.
Maestro: Greenspan’s Fed and the American Boom by Bob Woodward
Bob Woodward’s portrait of Alan Greenspan shows how the new Fed chairman handled his first crisis—the 1987 crash—and went on to guide the economy through two decades of growth. Accessible and story-driven, it provides a window into how one man came to define modern central banking. A fascinating look at leadership under pressure and how the Federal Reserve assumed the roll of the stock market’s guardian.
<— Go to Previous Day: August 10th (2011 – US Stocks crater after credit rating downgrade)
Go to Next Day: August 12th: 1920 – Charles Ponzi Arrested —>