2 Innovative Breakthroughs and a Wild Month for the Dow

On this day in economic and financial history...

After more than a decade of research and $3 billion in expenses, the Human Genome Project finally presented its early success to the public on Feb. 15, 2001. A special issue of Nature magazine published that day contained multiple feature articles on the human genome's potential for humanity, which all built to a big reveal: the first working draft of a fully sequenced genome.

Originally conceived as a way to use newly developed gene-sequencing technologies of the 1970s and early 1980s to identify and combat the effects of radiation, the Human Genome Project grew to become a search to understand the structure and purpose of the genome itself. Thanks to the contribution of passionate researchers around the globe -- and a sudden influx of competing genomic-focused commercial ventures in the late '90s -- the working draft arrived two years earlier than expected. Under pressure from Applied Biosystems, which both manufactured early sequencing machines used in the project and sought to sequence the genome on its own (via subsidiary Celera), the Human Genome Project raced to finish its working draft in order to head off possible patent claims on the sequenced genome itself. President Bill Clinton declared the genome unpatentable in early 2000, and the working draft was announced to the public (though not published) in June of the same year.

Clinton's declaration nearly destroyed Applied Biosystems, but the power of its machines was undeniable. Its revolutionary ABI 3700 sequencing machine, released in 1998, was said to decode in a single day the amount of information that had previously taken labs a year to produce. This machine proved instrumental in the Human Genome Project's late-game sprint to the finish line, and although Applied Biosystems' stock would crash with its peers in the great tech bubble-bursting of 2000, it remains a force in genomics technology to this day. You know it today as Life Technologies (UNKNOWN: LIFE.DL  ) , which it became in 2008 after merging with Invitrogen.

A wild month for the Dow
On Feb. 15, 1932, the Dow Jones Industrial Average (DJINDICES: ^DJI  ) posted an impressive gain of 4.6%, less than a week removed from two massive pops in excess of 9%. This occurred in the midst of an incredibly volatile month: February of 1932 saw an average daily move of 2.8%, although the net result was only an average daily gain of 0.4%. An editorial published in The Washington Post that day said everything about the attitudes of investors in early 1932, starting with its title: "Eager for Prosperity."

The stock market last week made as sudden and sensational a start upward from rock bottom as its precipitate drop from the clouds in 1929. For weeks it has been evident that standard stocks and bonds were selling at prices that were not justifiable except upon the theory that the country would never recover from the depression. Never before has the Nation, at the end of more than two years, been in a condition where only one element was lacking for recovery -- confidence.

It was but 28 months ago that dividends, earnings, book values were all swept aside and the price of stocks inflated threefold beyond the normal level of "ten times earnings." Stocks were boosted ten points a day that were already on a dividend basis [yield] of less than 2%. Buying on future values was the order of the day. It was as futile, during that orgy of speculative enthusiasm, to preach caution and overinflation as it has been during recent months to point out unjustifiably low prices of securities.

In nominal terms, the marketwide P/E ratio was then about 14.3, but as calculated by Robert Shiller in cyclically adjusted real terms (the CAPE), the market had fallen from a P/E of 32.6 at the height of the bubble to 9.3 in February 1932. Compared to the past, market prices were cheap -- but they would get far cheaper still. Cyclically adjusted valuations didn't bottom out until that June, with the Dow another 50% lower and the CAPE at just 5.6. Investors might have been eager for prosperity, but they weren't ready for it quite yet.

A bull market in bears
The teddy bear first went on sale on Feb. 15, 1903 in the Brooklyn shop of Morris Mitchom. The toy was originally inspired by President (and all-around manly man) Theodore Roosevelt, who had scored points in the press several months earlier after displaying compassion for a bear presented to him as an "easy kill" during a hunting trip. Mitchom asked the President's permission to advertise his stuffed bears as Teddy bears, and after gaining Roosevelt's blessing, the toys went in the shop window on Feb. 15 to attract curious passerby.

The bears quickly caught on, and Mitchom created the Ideal Toy Company four years later to expand on his initial success. By that point, toymakers in both the U.S. and in Germany (where they had caught on independently) were cranking out bears to fulfill a huge upwelling of demand among the women and children of the country. The popularity of teddy bears soon inspired the creation of Winnie the Pooh, which is now one of Disney's (NYSE: DIS  ) most valuable intellectual properties, generating more than $1 billion in estimated annual merchandise revenue.

Ideal grew to become the largest doll-maker in the U.S. during the early years of the Baby Boom and later went on to control lucrative toy properties like the magic eight-ball and the Rubik's cube. After a number of mergers and acquisitions, Ideal is now part of Mattel (NASDAQ: MAT  ) . Mitchom's legacy is now carried out primarily by Build-A-Bear Workshop, the mall specialty store with approximately 400 retail outlets dedicated to customizing teddy bears.

Is an artificial diamond forever, too?
On Feb. 15, 1955, General Electric (NYSE: GE  ) became the first company to successfully produce an artificial diamond. Although the project was completed a day too late for boyfriends and husbands hunting for cut-rate Valentine's Day jewelry, it nevertheless marked an impressive step forward in the merger of manufacturing and science. A New York Times feature on the achievement described the simulation of pressures "existing at a depth 240 miles below the surface of the earth," which created industrial diamonds "now priced at $7,000 a pound [equal to $60,000 today]. ... The achievement was hailed here today as 'one of the landmarks in man's search for knowledge about his world.'"

Man had been attempting to create artificial diamonds with no success for more than a century. With GE now standing alone in this new field of industrial production, it was largely free to dominate an industry that had previously been run almost exclusively by the De Beers diamond cartel. Over the subsequent decades, GE and De Beers staked out the leading positions in industrial diamonds. The two grew to control 80% of a $500 million annual enterprise, and their mastery of the industry all but forced the federal government to file antitrust charges against them in 1994. Accused of price-fixing collusion, GE quickly slipped out of the federal noose, and the case was thrown out after a five-week trial. De Beers, on the other hand, resisted prosecution for another decade before agreeing to plead guilty to price-fixing charges in 2004 in exchange for being allowed to enter the country once again.

The recent financial crisis dealt GE a blow, but management took advantage of the market's dip to make strategic bets in energy. If you're a GE investor, you need to understand how these bets could drive this company to become the world's infrastructure leader. You also need to be aware of the threats to GE's portfolio. To help, we're offering comprehensive coverage for investors in a premium report on General Electric, in which our industrials analyst breaks down GE's multiple businesses. You'll find reasons to buy or sell GE, and you'll receive continuing updates as major events unfold during the year. To get started, click here now.


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