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Achtung!! September Blues
1 October 2002 * Richard Lancaster


“September 2002 was the worst September for the DOW Jones Industrial Average since the September of 1937,” according to Maria Bartiromo today as I was watching “Closing Bell” - the daily wrap-up of financial news on CNBC. Apparently we haven’t seen a September this bad since the recession of ’37 – which was all part of the First Great Depression!


No surprises there for us at Depression2 - because we’ve been seeing this coming for quite some time now! But anyway, listening to Maria I had the sudden urge to go look up what on earth was going on, on earth – back in 1937 – and to see how it compared to 2002.


Lets take a look at the September Blues of the blue chips shall we.


The economic turmoil of 1937 is different in many ways to today, after all that was 8 years from the Crash of 1929 – an economic downturn that lasted over a decade - and we are only 2 years from the Crash of 2000. Clearly we have some ways to go yet before we reach the market bottom; institutional degeneracy, social depravity and desperation that existed around the world in 1937. After so many years of a terrible bear market, horrific unemployment, hunger and fear there must have been few American’s still in the stock market at that point – whereas today we still have about 60% of US households bullishly investing their hard earned US dollars.


However, even with all of the obvious differences, the fact that these two years suffered the worst Septembers ever on the DOW makes them very close cousins. In the annals of history I think the comparisons will be made by academics and some very interesting data brought to light.

One of the first striking things about comparing 1937 with 2002 is the obvious scariness of both time periods. Back then Europe had Hitler and the rapid rise of National Socialism (or Fascism). Italy was under the charm and influence of Mussolini and Spain was taken over by Franco (a little more on this in a moment). Of course today we have the Orwellian specter of Homeland Security, the Patriot Act and other symbols of fear and diminishing civil liberties (all sacrifices to the 50 year War On Terrorism). For me these are clear similarities of the times.


Back in ’37 there were huge strikes occurring – in fact there were more labor strikes that year than in any previous year. Coincidentally today the Dock Workers went on strike here on the west coast, reportedly losing approximately a billion dollars a day for the US economy. Ironically, local teachers in my community here in Washington State were on strike until just last week, thankfully they are now back at school with the kids. There is a clear increase in labor unrest in this country and around the world. Tensions are rising rapidly between labor and management in industry – this trend will continue and I’m sure will accelerate in the years ahead.


Unemployment rose to 20% in the US in ’37 – and thank the Lord it is only around 6% here right now, although in Washington State it was reported last week that we have the highest unemployment in the US today. Clearly government spending is keeping the numbers from looking that much worse, there is also a whiff of suspicion that the numbers really do not represent reality (but hey, when did numbers ever have to add up to reality…….right!?)


Hitler abrogated the Treaty of Versailles back in ’37 - a precursor to World War II – back in the future: We have canceled participation in so many treaties so far this year it’s hard to keep track! From nuclear testing to Kyoto and beyond. We seem hell-bent on alienating most of the rest of the world and pushing us all to the brink of a global conflagration.


Here’s a good one, in ’37 German scientists developed the first working laser – this year we started testing its little brother as a missile defense system! Apparently we fear rogue states with missile delivery systems capable of taking out America – like that capability hasn’t existed for the past fifty years - Dr. Evil where are you?  Do we really need the help of Austin Powers at this point?


Speaking of Hollywood, in 1937 Disney released their first full-length animated feature movie – Snow White and the Seven Dwarfs, this movie is an absolute classic and has survived the test of time admirably – back to the future, in 2002 Disney’s stock fell almost in half, but with the P/E ratio still maintaining an outrageous 27.5. Rumors of an acquisition abound, or a merging with AOL/Time Warner (who have fallen almost 75% so far this year) – clearly all is not so rosy in Never, Never Land anymore.


In 1937 the very first Social Security payments were made – whereas in 2002 we haven’t quite completely bankrupted the social security system (at least as far as you and I know) but we do know that the system is close to collapse as the politicians have been “borrowing” (or is it stealing?) from the social security account to surreptitiously pay for stuff we wouldn’t let them have any other way! Of course the above is nothing like the entire picture, we have an aging population that also lives longer – which puts excessive stress on the already weakened economics of the program.

DJIA 1937

DJIA 2002

Allied Chemical


Allied Can


American Smelting

American Express

American Tobacco


Bethlehem Steel




Corn Products Refining

Coca Cola

Du Pont

Du Pont

Eastman Kodak

Eastman Kodak

General Electric

General Electric

General Foods

Hewlett Packard

General Motors

General Motors





International Harvester

International Paper

International Nickel

Intel Corporation


Johnson & Johnson


McDonald's Corporation

Nash Kelvinator 

Allied Signal

National Distillers

Home Depot

National Steel

Merck & Company

Proctor and Gamble

Proctor and Gamble

Sears Roebuck

Minnesota Mining

Standard Oil of California

Exxon Mobil

Standard Oil (N.J.)

J. P. Morgan Chase and Co

Texas Corporation

Microsoft Corporation

Union Carbide

Philip Morris Companies

U.S. Steel

SBC Communications

Westinghouse Electric

United Technologies


Wal Mart Stores

Now lets take a look at the DOW itself. The DOW index was first calculated in 1884 when Charles Dow published his initial market average in the “Customer’s Afternoon Letter” on July 3rd of that year. The Dow is composed of the top thirty industrial stocks within the US markets. Below is a comparison between 1937 and today. As you can see some of the companies are the same, some are merged entities that are really fundamentally still the same company with a different name – and some, like Microsoft and Intel, are entirely new.

It would be fascinating to get a picture of the DOW from 2067 to see which companies are still in existence after the Second Great Depression!

Anyway, the DOW opened September 1937 at a lowly 173 points, and as the recession of ’37 rolled along the index dipped to 154 at the close of the month - a loss of 19 points, or a drop almost 11% in a single month. Compare that to September 2002. The DOW opened at 8,659 and closed at 7, 591 – a loss of 1,068 points, or a drop of just over 12%. Surveying DOW data for the years following the misery of ’37 I was surprised to learn that the index dipped and rose for years to come, but did not consistently beat the low market of those September Blues until April 1945 – right at the end of WW II! If there is a lesson from history here it could be that the bear market we are in may last a very long time?!

A couple of other observations before we wrap up on the DOW here. Yesterday Wal Mart reported worse than expected retail sales, this was a surprise to some of us as we expected the worlds largest discount retailer to be succeeding in this period of bargain hunting and penny pinching. This does not bode well for the consumer led “recovery” (which looks just like a continuation of the initial recession to me). Other issues pending: J.P Morgan Chase has been pounded, and so has Citigroup. These banks are sitting on a Derivative Mountain, as well as loans going bad all over the world and numerous financial scandals involving everything from accounting “discrepancies” to insurance claims going bad, to accusations of rigging the gold market. Probably the single biggest threat to security in the world today resides within the hallowed corridors and boardrooms of these massive banks.

The Derivative Mountain they live under could easily go unstable in these very uncertain times. Between them they have over $33,307,944,000,000 in notional value of derivative contracts (yes folks that’s over $33 TRILLION! The total US bank Derivative Mountain is just over $50 TRILLION – so these two banks have the vast majority of the liability), most of them are interest rate contracts, with a goodly slab of gold swaps and certificates too. Simply put these unregulated financial vehicles are now an absolutely gigantic liability for the entire global financial system, a threat to world peace and an errant act on the part of western governments and bankers. This needs to be stopped, and before it tanks. If/when this blows it is simply too big to fix, it will bring down the entire global economy and will require the creation of an entirely new financial order and system. Personally I’m not looking forward to that prospect, but how this can all be unwound peaceably is the $50 Trillion question (apparently, globally, there maybe in excess of $150 Trillion in these unregulated financial contortions!)

OK, enough already on the dismal science of economics and the DOW! Let me wrap things up with some extra little tidbits on 1937, stuff that you can compare to 2002 yourselves, for instance:

  • In 1937 The Duke of Windsor, and former King of England, visits Germany at the invitation of Adolph Hitler. Windsor meets privately with Rudolf Hess, who later mysteriously flies to Britain to negotiate a peace and is incarcerated for the next several decades.
  • Joseph Kennedy, Sr., is named U.S. ambassador to Great Britain. His sons, Joe Jr. and John, both work as international reporters for their father.
  • On May 6 the Hindenburg airship explodes at Lakehurst, N.J., killing 36 people.
  • Inspired by the bombing of a Basque town during the Spanish Civil War (by the Luftwaffe, at the request of Franco) Picasso Paints “Guernica” (see below).

Guernica painting

As we can see, parallels between September ’37 and September ’02 abound – and perhaps one of the most incredible is the recent comment by the German Justice Minister, in the run-up to the German general election, that our President was using tactics and rhetoric similar to Adolph Hitler in the 1930’s! What a remarkably ironic statement! Now we have the German Justice Minister claiming the American President is sounding and looking like their former worst nightmare, and this helps them get re-elected!! 65 years may have passed but there are uncanny similarities between the times, and the deeper you dig the more the things seem the same!

Email the author:richard.lancaster@attbi.com
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