Here's some history.
Dow Jones Ind average hit 381.17 in late 1929 (the nasdaq of the day). In mid 1932 (roughly 32 months) it closed at 41.22 a decline of 89% and level which was previously hit in 1897.
DJ average of 40 corp bonds closed at a low of 91.76 when the industrials peaked and initially rose hitting 97.7 in late 1930, which then began weakening in 1930 dropping rapidly in late 31 and 1932 closing at 65.68 in mid 1932.
Here's what's happening to real people. The Wilshire has gone from 14,400 to 8,716 today, loosing almost 40% in 28 months.
This is and will hurt many people in many ways.
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Stocks' Relentless Slide Begins
To Touch Many Investors' Lives
By E.S. BROWNING, RUTH SIMON, ROBIN SIDEL and CALMETTA COLEMAN
Staff Reporters of THE WALL STREET JOURNAL
The stock market's decline is suddenly seeming a lot more painful than it did even a few weeks ago.
For a long time since stocks started to turn down, investors have been able to reassure themselves. Sure, things are bad, but they were so good for so long that a slowdown was inevitable. For many who made out bigtime in the boom, the drop in the market pinched paper profits but didn't affect their lifestyle.
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That's changing. While Wall Street so far has avoided the huge, headline-grabbing swoon of other serious slumps, the pain from this decline has begun to bite in a very real way. The Nasdaq Composite Index recently slipped below the level where it stood when tech stocks began their remarkable climb five years ago. So not only are the profits of the boom evaporated, some of the seed money is, too.
The damage isn't limited to tech stocks. Diversified mutual funds, long seen as relatively safe havens, are also shriveling. Investors who put $10,000 into a U.S. mutual fund in early 2000, near the market peak, would today be an average of $2,200 poorer, according to industry tracker Morningstar Inc.
The seemingly endless string of accounting scandals has shaken investors' confidence so much that some now doubt the market's ability to rebound in a lasting way. Of course, given the perverse way markets have of surprising people, all this negativity could mean things are setting up for a rally. But the mood showed no sign of lifting Wednesday, as the major indicators plunged again. The Dow Jones Industrial Average fell 282.59 points, or 3.1%, to 8813.50. The Nasdaq dropped 2.5% to 1346.01, and the S&P 500 was off 3.4% to 920.47, its lowest level in four years.
For anyone tied to this market, the effects of souring stocks are broad and deep, and they can help shape spending and the economy. Among those reeling are an early retiree whose savings are dwindling; a man who quit work to trade stocks and now is looking for work again; a once-courted, now-fired junior investment banker; a struggling broker; and the head of a family company that suddenly found credit hard to come by.
The Retiree
Leonard Bentley was 25 when he first started dreaming about his retirement. He would quit work in his mid-50s, traveling for long stretches while still young enough to enjoy it.
Those dreams came true two years ago, when Mr. Bentley, then 56, gave up his job as a supervisor for a California gas company. "All of this was in the works for many years and it actually worked," says Mr. Bentley, of Santa Clarita, Calif.
The stock market has taken the shine off these plans, leaving Mr. Bentley shaken and forcing him to cut back. A trip to Alaska is on hold, as are other travels once seen as a mainstay of his retirement. "It's very scary," he says. "It has cost me sleep."
When he retired in 2000, Mr. Bentley had $725,000 from a lump-sum pension payout and an employee stock-purchase plan. He invested it in a mix of stock funds and bond funds, figuring it would earn 5% to 6% a year and last until he and his wife were 78 or 80. But falling stocks and his withdrawals have whittled the account to about $570,000. Now, he worries he may run out of money.
Unlike many Americans, the Bentleys aren't saddled with debt. They made the last payment on their 1,850-square-foot tract home around the time Mr. Bentley retired. Their cars are paid off, as well.
But with their nest egg dwindling, holding down spending has become a priority. Mr. Bentley had been modifying a 1972 Buick for drag-racing, but doesn't know when he'll finish because the hobby is so costly. He and his wife had bought a camper, expecting to travel for weeks at a time. Now it's just for short trips. "We're kind of on a permanent vacation, but we're not going anyplace," he says.
After a 30-year career with Southern California Gas Co., Mr. Bentley isn't planning to go back to work. But he is rethinking his interest in the stock market. Last week, he reduced his stock exposure to just 40% from 66%. "I wish I would have done it two weeks ago," he says. Waiting cost him another $30,000.
Could he be bailing out at just the wrong time? It's a possibility, he says, but he doesn't think so. "We are in a bear market now, with everything that's going on with accounting and some large corporations," he says.
Wednesday's market plunge didn't surprise Mr. Bentley. "When you watch the news programs and they talk about corporate executives, it seems like there is a lot of trust that has been eliminated," he says. "I continue to lose money, but it's not to the extent that I was losing it a week ago."
He may increase his stockholdings sometime in the future. But after what he's been through, it's going to take "a continued rise in the market," he says.
The Trader
Steve Archer figures that his stock-market accounts briefly soared above $1 million on paper at the market peak in early 2000, but the prosperity was short-lived. Despite his repeated efforts to turn things around, he has had to watch his accounts lose 80% of their value.
The drop took away most of his savings -- as well as his optimism about the future of stocks.
"There have been days when the level of depression was just truly bad," says Mr. Archer, 45. "Can't sleep at night, can't focus on the other things in life."
Mr. Archer was the classic tech-stock trader of the late 1990s, someone who thought nothing of buying or selling $30,000 in options in a single day. Working from home near the beach in Santa Barbara, Calif., he got so good at trading that he quit his day job to trade and research stocks full time, putting in 12-hour days. "Watching CNBC and reading The Wall Street Journal, I thought I could make a living doing this," he says.
He returned from a vacation in March 2000 to learn that tech stocks were tanking. Trying to protect himself, he sold some that had fallen 10% or 15%, only to find that the new ones he was buying were quickly falling, too. Over 10 weeks, he says, his savings were hammered by "the sequential nature of 10% losses, one after the other after the other."
As his disillusionment with stocks grew, Mr. Archer tried to get back into his old profession, as a consultant on airplane refurbishing. Last summer, he lined up a contract involving some planes for America West, he says, and he was scheduled to start last fall.
Then came Sept. 11. The attack "was really a double whammy for me: It wiped out my portfolios and wiped out my job prospects," he says.
He kept investing sporadically until a few weeks ago, when, with most of his gains gone, he reached a breaking point and converted his remaining savings to cash. "I realized there was no way I had enough capital to properly hedge myself and sustain myself," he says.
At first, it wasn't so bad. He surfed, golfed and puttered around the house. But Mr. Archer knows he can't live on his remaining savings, so he continues to spend a couple of hours a day looking for work. "Sooner or later, they have to put those planes in the desert back to work," he says. But if there is any industry that seems as shaky as the stock market, it is the airlines.
"I'm definitely at kind of a cash crunch," he says, noting, though, that he still has a house and an $85,000 car, a Porsche. "If I finally run out of cash, they would go." When he bought the Porsche, he recalls, "I told myself I was buying it as an asset. And sure enough, that is exactly what has happened."
Occasionally, Mr. Archer's mind still drifts back to thoughts of trading. "Ultimately," he says, "I haven't lost anything but big huge wads of cash."
The Junior Banker
The stock market finally caught up with Robert Yang on April Fool's Day.
The 23-year-old entry-level investment banker at Credit Suisse First Boston in Los Angeles had dodged other layoffs at the firm. But when the phone rang this time, he knew from caller ID that he'd been ditched after eight months on the job. He stayed on the payroll until June and got an extra $10,000, but it was just a quarter of the bonus he had hoped for in 2002. There was no severance.
Things changed fast for Wall Street's deal machine. Investment banks that were booming when surging stocks and initial public offerings fed their coffers now are retrenching. According to the Securities Industry Association, the industry has lost more than 40,000 jobs in 18 months. CSFB has cut about 9% of its work force, 2,800 jobs since last September.
Mr. Yang had a $55,000 salary and expected a bonus that would have brought his pay close to $100,000. When the end came for him, he had no family in the U.S. to turn to and scant savings.
He had left his parents and sister in Taiwan and moved to America in the late 1990s, intent on getting a good education and a big career. In 2001, he graduated from the University of Michigan with a business degree and discovered he was a hot commodity. Prospective employers flew him to New York, San Francisco and Tokyo for interviews. "I never felt so important in my life," he said last week over lunch in New York, after interviewing for a new job, at a hedge fund.
After his layoff, he at first avoided friends and felt sorry for himself. Gone were the $100-plus nights on the town with friends and plans for a diving trip in the Cayman Islands. He spent mornings at the gym and afternoons watching TV or reading at Barnes & Noble. He would mark his place so he could return to his reading the next day without having to buy the book.
A friend told him recently about a job in real-estate lending at a major insurance company, and he has decided to take it, even though the pay is much less than he earned at the investment bank.
Mr. Yang wonders about the future -- whether he wants to go for an M.B.A., whether one day he'll be able to afford to pay for his parents to come visit him. Most of all, he wonders about his job security. "I worry about losing my job again," he says, lowering his head. "Very much so."
The Executive
Larry Graening, who runs his family's manufacturing company in Waverly, Iowa, is a world away from Wall Street. But that hasn't kept the slide in stocks from hurting him.
While his family's GMT Corp. is private, 95% of its customers aren't. When stocks began to sag, GMT's clients -- which hire it to build machines for making such things as tractors and washing machines -- began cutting back on their inventories. That was partly just the weak economy crimping demand, but it was also because manufacturers, with their stocks falling, felt pressure from Wall Street to limit the buildup of inventories.
"Orders just dropped off significantly," says the 60-year-old Mr. Graening, whose wife, Jill, is GMT's executive vice president.
Just when orders were falling, GMT's $6 million line of credit for operating expenses expired, and its bank decided not to renew the loan. Hat in hand, the Graenings went looking for a lender, the first time in the company's 29-year history they'd had to hunt for financing. Not helping their cause was the fact that some publicly held competitors, such as DT Industries Inc. and Newcor Inc., were seeing their stocks tumble. Potential lenders took note.
Scrutiny from the banks led the Graenings to search for cost cuts. They decided to remove a layer of management in one division and let go some longtime workers, ultimately cutting the payroll to 300 from 360.
A merchant banker hired by the company urged the couple to consider selling a stake to an outside investor. But with two adult children working in the business, the Graenings were reluctant. "The cost of that money just didn't make sense," Mr. Graening says.
About a month ago, GMT finally closed on a new three-year line of credit, from a commercial finance company specializing in high-risk loans. Meanwhile, business has started to pick up in GMT's fabrication division, which makes parts for Lockheed Martin, though the Graenings expect it will be a few months before they see a real turnaround.
GMT has the capacity to do $62 million in annual revenue but is on track to do just $50 million this year. "The whole company is underutilized," Mr. Graening says.
The Stockbroker
When Richard Breining became a broker five years ago, strangers would call, pleading to be cut in on the latest IPO. "People were intoxicated by the returns of the market," he says.
Today, his problem is clients who don't want to hear about stocks at all.
"We have had two years of decline and people already think it is the Depression," says Mr. Breining, who works for Morgan Stanley in Ridgewood, N.J. "We have to tell them that the world isn't going to come to an end."
His own pay, however, has been shrinking. Much of it comes from managing people's retirement accounts. He gets a percentage of the account value, so when stocks push down the accounts' values, they do the same to his earnings. "My income has gone down significantly," says Mr. Breining, whose father and grandfather were also in the business.
It's a problem thousands of brokers face. People flooded into the profession in the 1990s. Now many are leaving. Morgan Stanley, which had about 14,250 brokers a year ago, has 550 fewer today.
Mr. Breining is cutting back on spending. Summer camp for his three children has been curtailed, replaced by time at the library. "It's free, and it's also good for them," he says.
During the boom years, he leased new cars for himself and his wife, Jenny. This time, instead of replacing them when the leases expired, he bought the cars and kept driving them. He and his wife own a summer house, but have been visiting it less and renting it out more.
By nature a rabid optimist, Mr. Breining confesses that even he has his dark moments. He keeps telling himself and his clients that things will improve.
There is little to keep Mr. Breining in the office much after 4 p.m. But unlike some brokers, who simply go home then, Mr. Breining often uses the time phoning or visiting clients, trying to keep their spirits up. He also prospects for new clients. With the mood today, even getting them to talk about stocks is tough.
"There is a sense of embarrassment if their portfolios are down 40% or 60% or 80% because they feel they aren't smart. It isn't that they aren't smart, it is that they need a different strategy," Mr. Breining tells them.
Clients who phone are sometimes calling to yell at him. Some have dumped him. He takes it personally, even though he says the hours of recruiting have helped him line up new clients to replace those who left.
"There are days when it is extremely tough to face the market," Mr. Breining says. "I have a friend who is an oncologist and he will often say to me, 'What is wrong with this market?'
"I tell him that it is comparable to you as an oncologist having a medical protocol and it isn't working and your patients aren't getting better. It isn't working for any of the other doctors either, but that doesn't make you feel any better."
Write to E.S. Browning at jim.browning@wsj.com, Ruth Simon at ruth.simon@wsj.com, Robin Sidel at robin.sidel@wsj.com and Calmetta Coleman at calmetta.coleman@wsj.com
Updated July 11, 2002
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