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Quote of the Day

“On the very long run, it is the economics of investing – enterprise – that has been virtually entirely responsible for the total return on stocks. The evanescent emotions of investing – speculation – so important over the short run, have ultimately proven to be virtually meaningless.”

-Jack Bogle, in a speech given before the American Philosophical Society, 2012

September 26th – This Day in Stock Market History

September 26th, 1955 – The Dow Jones Industrial Average drops 6.54%, or 31.89 points on news of President Eisenhower’s heart attack over the weekend.

At the time, it was the 2nd largest single day point drop in history.

Source: Wall Street and the Stock Markets: A Chronology

nyt_eisenhower_heart_attack
New York Times September 27th, 1955 edition

September 26th, 2008 – Washington Mutual is seized by the FDIC, it is the largest bank failure in US history.

At the time it was the 6th largest bank in the US and had over $330 billion in assets.

wamu fails - stock chart

The seizure by the FDIC was announced on Thursday night. Regulators were planning on waiting until Friday night to make the announcement, but the bank’s financial condition was deteriorating quickly and news of the seizure was leaked early.

The bank was rapidly failing. Over the previous 9 days, depositors had pulled out $16 billion, or nearly 10% of the bank’s deposits. At the same time the banks once’s stellar mortgage operations were now responsible for billions in losses. Over the last 3 months, the bank had lost $6.6 billion for shareholders:

Source: SEC

The news rippled through the markets, which were already on edge since Lehman Brother’s bankruptcy 11 days earlier. Wachovia Bank shares were the hardest hit, falling 27% on the day as investors feared the bank would share a similar fate.

Traders were right, a run was occurring on Wachovia Bank as well. On this day alone, Wachovia customers would pull out more than $5 billion in deposits. Wachovia would effectively fail over the weekend, but the FDIC brokered a deal with Citigroup for funding to keep the company alive, which would be announced September 28th.

Washington Mutual’s assets, including $188 billion in customer deposits, would be purchased by JP Morgan for just $1.9 billion.

Sources: Office of Thrift Supervision, FDIC Press Release

Best September 26th in Dow Jones Industrial Average History

2002 – Up 6.89%, 515.30 points.

Worst September 26th in Dow Jones Industrial Average History

1955 – Down 6.54%, 31.89 points.

Read of the Day

great_bond_massacre_opener

Fortune Magazine Article from 1994: The Great Bond Massacre

“In January 1994, the 34th month of economic expansion, bond yields were historically low and inflation seemed negligible: Wages were going nowhere, and companies dared not raise prices. But within seven short months of that promising start, something fairly unusual happened: 1994 became the year of the worst bond market loss in history.”

What can we learn from 1994’s debacle?