Did Anyone Make Dow 30,000 Hats?

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History Repeats but It Often Rhymes

Yesterday, when the Dow Jones Industrial Average (INDU) crossed the 30,000 level, my wife reminded me of the frenzy when the Dow neared the 10,000 level. Hats were printed in anticipation of that milestone, and the financial media was poised on the bustling floor of the NYSE to report on the event. A celebratory mood was in the air.

That was the scene in March 1999. Investor enthusiasm was soaring. Tech stocks were all the rage, with the public fixated on the newly adopted world-wide-web. They anticipated that the internet would change the economy in profound ways and were more than willing to invest in its prospects. And it was never easier for individual investors to do just that. Web-based brokers joined the scene, allowing ordinary people to trade stocks without calling a stockbroker. Disintermediation led to great access to markets and lower transaction fees. Although Federal Reserve Chairman Alan Greenspan had warned about irrational exuberance, the Fed had an accommodative stance. There were serious concerns about “Y2K” – how the changing of the millennium could affect legacy computer code – and the Fed was committed to doing their part to facilitate liquidity throughout the economy.

(The reason for my wife’s recollection about Dow 10k was similar. She was responsible for brokerage systems at Prudential Securities, and like many computer professionals, her team was petrified about whether their systems were robust enough to handle the extra digit in the most widely followed market indicator. They were)

Of course, we now look back on that period as the internet bubble. While investors were correct in their assessment that the internet would have profound benefits to the economy, in hindsight they grossly overpaid for that assessment. Many of the high-flying market leaders of that era proved to be ephemeral (Pets.com, The Globe.com, AOL are just a sampling).Y2K turned out to be a false alarm. The concerns were justifiable, but most systems were properly debugged or reprogrammed in advance of the new year. The Fed began to drain some of their prophylactic liquidity, which led to the ultimate demise of the internet bubble a few months into 2000. 

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Disclosure: The analysis in this material is provided for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the ...

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