May 1970 – the Month the 1960s Boom Finally Ended

From Gary Alexander at Navellier MarketMail:

On April 30, 1970, President Nixon came on national television to explain why he was expanding the Vietnam War into Cambodia. That set off a firestorm of protest, including the closure or partial shutdown of classes in over 450 college campuses, climaxed by the death of four students at Kent State on May 4.

The Dow collapsed on the Kent State killings – the greatest one-day drop in seven years, falling 2.6% to 714. In addition, May 4, 1970 was the day on which regular trading hours resumed on NYSE after a two-year experiment with shorter hours. From June to December 1968, the market closed each Wednesday. Then the market had limited hours (closing at 2:00 pm) in the first half of 1969 – all as part of an attempt to keep up with the huge volume of backroom work during the peak Go-Go years of the late 1960s.

The next day, Tuesday, May 5, Arthur Burns’ Federal Reserve leaped into the breach by reducing credit requirements on stock purchases from 80% down to 65%, even while some of the most glamorous stocks were collapsing. (On Friday, May 8 in Geneva, Bernie Cornfeld was forced out of Investors Overseas Service (IOS), which fell to a penny a share by 1972. On May 17 in Dallas, James Ling quietly resigned as CEO of trendy conglomerate Ling-Temco-Vought, whose stock price had fallen from $170 to $16.)

On Friday, May 22, a day on which the Dow hit a seven-year low, New York Stock Exchange President Bernard (“Bunny”) Lasker asked for and got an immediate audience with President Nixon, telling the President that the country was “five minutes till midnight of another 1929.” With no Memorial Day to stop the bleeding, the Dow dropped 20.81 points on Monday, May 25, the biggest one-day drop since the Kennedy assassination in 1963. With the Dow at 640, the reigning Dr. Doom, Elliot “Calamity” Janeway began talking about a Dow at 500 while John Kenneth Galbraith compared the current “insanity” to 1929.

The next day, May 26, the Dow hit its absolute bottom of the bear market at 631, and President Nixon called a meeting of 60 or more leading financial and business leaders to the White House on May 27.

That Wednesday meeting was “a cocktail hour of staggering economic importance,” according to John Brooks, since their appearance of action fueled a rally of historical proportions, a +5% 32-point Dow rally on May 27. For the three DAYS ending May 29, 1970, the Dow rose by an astounding 11%, even though the previous week, ending May 22, marked the fourth largest post-war weekly Dow drop to that date.

The bear market was over – 1929 was avoided – but there was a massive amount of cleaning up to do in the second half of 1970. Ross Perot was called in to save F.I. du Pont & Co, the nation’s third-largest brokerage firm (behind Merrill Lynch and Bache). By December 1, 1970, according to John Brooks:

“Wall Street hung by its fingertips. Roughly one hundred Stock Exchange firms had vanished over the past two years through merger or liquidation. Forty thousand customer accounts were involved in the 13 cases of liquidation, and most of them were still tied up, the customers, unable to get their cash or securities.”

—The Go-Go Years, by John Brooks, page 342

Posted by on May 28th, 2014 at 2:36 pm

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