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Quote of the Day

“In fairness, we should acknowledge that some acquisition records have been dazzling. Two major categories stand out.

The first involves companies that, through design or accident, have purchased only businesses that are particularly well adapted to an inflationary environment. Such favored business must have two characteristics: (1) an ability to increase prices rather easily (even when product demand is flat and capacity is not fully utilized) without fear of significant loss of either market share or unit volume, and (2) an ability to accommodate large dollar volume increases in business (often produced more by inflation than by real growth) with only minor additional investment of capital. Managers of ordinary ability, focusing solely on acquisition possibilities meeting these tests, have achieved excellent results in recent decades. However, very few enterprises possess both characteristics, and competition to buy those that do has now become fierce to the point of being self-defeating.”

-Warren Buffett in his 1981 letter to shareholders. This day in history marks the peak of the era of high interest rates in the late 70s and early 80s. On this day in 1981 the 10 year treasury bill topped out at a yield of 15.84% (see below for more)

September 30th – This Day in Stock Market History

September 30th, 1873 – The NYSE opens for the first day since the September 20th panic forced the exchange to close.

The panic is known today as the ‘Panic of 1873’.

To everyone’s surprise, share prices opened higher than their September 20th close. However, the calm would not last.

The next day banks would begin failing and the downtrend would continue. Over the next month shares would fall another 10% with many shares reaching a post civil war low. By the end of October 1873 markets would calm, but the nation would remain in depression for 6 years. In fact, the number of annual bank failures would not reach their peak until 1878!

The shutdown remains to this day the longest closure of the NYSE outside of the stock market shutdown for World War One.

Source: Panic on Wall Street: A History of America’s Financial Disasters

September 30th, 1981 – 10 Year U.S. Treasury hits all time high yield of 15.84%.

Also at that time – The Federal Funds Rate sat at 17%, CPI inflation was around 11%, and surprisingly the yield curve was pretty flat with 6 month bills yielding only 0.5% less than 30 year bonds!

interest_rates_NYT

Just look at some of these imagines from the October 1st 1981 new York Times!:

6mo_interest_rates

Money market funds yielded over 17%: 

NYT_ad_17percent_CD

Something else I found interesting; banks were calling in mortgages they made at lower interest rates in prior years:

mortgage_call_in

From this day on, yields would begin their near 40-year downtrend:

Chart from Macrotrends

Best September 30th in Dow Jones Industrial Average History

2008 – Up 4.68%, 485.21 points.

Worst September 30th in Dow Jones Industrial Average History

1931 – Down 3.20%, 3.19 points.

Read of the Day

If you remember what a bear market in bonds is like, you are one of the few left on Wall Street today. For everyone else, here’s a good read:

What a Bond Bear Market Really Looks Like – by Mark Hulbert

“Anyone whose investment careers began after 1981 has therefore never experienced a bond bear market. Assuming the typical investor doesn’t seriously start thinking about investing until he is 25 or 30 years old, especially about investing in bonds, that means that anyone today not in, or very close to, retirement has only known a bond bull market.

That’s an amazing historical and psychological fact, the significance of which cannot be overstated. It means that very few investors today have the long-term perspective with which to properly assess whether bonds are likely to suffer major declines in coming years.”

<– Go To Previous Day: September 29th, 2008 – U.S. House rejects bailout plan, the Dow plunges 7%

Go To Next Day: October 1st, 2008 – Warren Buffett announces his $3 billion investment in General Electric –>