The Dow Pauses on the Precipice

On this day in economic and financial history...

Wall Street had a rare quiet moment on Oct. 25, 1929. The Dow Jones Industrial Average (INDEX: ^DJI  ) rose by half a percentage point after a few frenetic days of trading lopped off billions in market value. Reports of a pool of $1 billion in banking resources, gathered under the auspices of JPMorgan (NYSE: JPM  ) chairman Thomas W. Lamont, helped calm the nerves of traders, who bought and sold less than half the record-breaking number of shares that had exchanged hands the day before.

A number of leading financial, business, and political personalities issued reassuring statements, which would be proven quite wrong in short order:

  • Arthur W. Loasby, president of the Equitable Trust Company, asserted that "there will be no repetition of the break of yesterday. ... I have no fear of another comparable decline."
  • M. C. Brush, president of the American International Corporation, tempered his optimism, saying: "I believe that the very best stocks can be bought at approximate present prices. It is time, however, to exercise great caution."
  • John M. Davis, president of the Lackawanna Railroad, pointed out record-low inventories, claiming that "with that condition there is no reason to believe that this country will not have good general business throughout the winter."
  • R. B. White, president of the Central Railroad of New Jersey, dismissed all fears, saying "Business will continue in the way it has."
  • Walter C. Teagle, president of the Standard Oil Company of New Jersey -- ExxonMobil's (NYSE: XOM  ) direct premerger predecessor -- noted that "production of crude oil and gasoline above current requirements continues the outstanding factor."
  • J. L. Julian of the Fenner and Beane brokerage firm claimed that "The worst is over. ... General conditions are good. Our inquiries assure us that throughout the country business is sound."

President Herbert Hoover had a "Lehman Moment" of 1929 when he told financial reporters that "the fundamental business situation is on a sound basis." Today's market watchers will recognize the similarities to 2008 presidential candidate John McCain's claim that "the fundamentals of our economy are strong" just as Lehman Brothers filed for bankruptcy.

Even comedian Will Rogers chimed in with a light-hearted contrarian letter to the editor of The New York Times, which read: "Why, if the cows of this country failed to come up and get milked one night it would be more of a panic than if Morgan and Lamont had never held a meeting. Why, an old sow and a litter of pigs make more people a living than all the steel and general motor stock combined."

Little-noticed and buried in the back pages of the financial papers, the first reports of suicides by ruined stock speculators began to trickle into the public consciousness. The Washington Post noted the hanging death of a noted Chicago realtor whose investments had been destroyed by the chaos of the preceding week.

O Canada!
The Toronto Stock Exchange was created on Oct. 25, 1861 in the Toronto Masonic Hall. It was a puny operation in its formative days, offering trades in only 14 firms by 1871. It was formally incorporated in 1878 and has grown over the years to become one of the world's largest exchanges, with approximately $2.1 trillion in total market capitalization in the first quarter of 2012.

Gaining traction
A major foundational moment in Dow component Caterpillar's (NYSE: CAT  ) corporate life occurred on Oct. 25, 1909, when mechanical inventor and entrepreneur Benjamin Holt and his nephew Pliny Holt acquired an Illinois factory to produce Benjamin's innovative "caterpillar-track" tractors. The factory became the base of operations for the Holt Caterpillar Company. Holt Caterpillar merged with its chief competitor, the C. L. Best Gas Tractor Company, in 1925, which marked the beginnings of Caterpillar's rise to global dominance.

Caterpillar has now been at the forefront of industrial-machinery innovation for more than a century. Will its second century be as successful as its first? The Fool's industrial analysts have committed themselves to answering this question in the Fool's new premium research service, which offers in-depth analysis on the challenges and opportunities Caterpillar will face in the months and years ahead. Answering the question "Is Caterpillar a good buy today?" is as easy as signing up for this report, which comes with a full year of regular analysis and updates. Click here to get started.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights.

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