Thursday, September 13, 2001

Capitulation - Worden Brothers Perspective

interesting comparison.........

The Worden Report

The staff of Worden Brothers, Inc. laments the violence we witnessed this week and extends its condolences to all who lost loved ones or family members.

It is a sad way for it to happen, but the calamity we have experienced this week may well provide the psychological capitulation so many investors were waiting for. It has not been unusual for calamitous events to occur into declining markets. When they have happened, they have generally marked the bottom or the low occurs very soon after. The Cuban Missile Crisis and the assassination of John Kennedy are good examples. In both cases, the national psyche was held in thrall, as it is now.
(A zoom-three daily chart running from late April of '62 to early March of '63 shows the entire bottoming of the 1962 crash.)
The 1962 crash hit its first capitulation-type bottom in June. The subsequent rally peaked in late August. The market then began to sink toward a possible test of the June low (not dissimilar to the decline that began in May of this year). On October first, an intermediate rally within the intermediate downtrend began. Simultaneously, the U.S. became suspicious that medium range ballistic missiles were being deployed in Cuba.
On October 14, a Strategic Air Command mission obtained photographs that were the first hard evidence of MRBM sites in Cuba. On October 16, the minor stock market rally hit its peak.
On October 15, more evidence in was analyzed. Key Washington officials were briefed about the discovery. Troop and equipment deployments were aimed at increasing military readiness for a strike on Cuba.
On October 16, President Kennedy is informed of the MRBM sites early in the morning. He immediately named 14 advisers he wanted present at a meeting later in the morning. The group became known as the “ExComm.” This is the beginning of the Missile Crisis. The next five market days will be down and accelerating. Options discussed were 1) a surgical air strike; 2) an attack a various Cuban facilities; 3) an invasion of Cuba 4) a blockade of Cuba. In the second “ExComm” meeting that day, it was reported that the missiles could be fully operational within two weeks.
On October 17, intermediate Range Ballistic Missiles with 2200-mile ranges were discovered in Cuba, which would become operational in December or later.
On October 18, hours and hours of discussions and intense debate on whether a surgical strike or a blockade was appropriate. President Kennedy met with Andrei Gromyko, who argued that the Soviet Union was only interested in helping Cuba with its defensive capabilities.
October 20, the Washington Bureau Chief of the NY Times phones and asked key officials why there is such a flurry of activity in Washington. He was told but asked to withhold the story in the interests of national security.
October 21, leaks to the press were surfacing. Kennedy managed to suppress most of the stories.
October 22, SAC initiated a massive alert of the B-52 nuclear bomber force. B-52s were kept in the air continually, with a bomber taking off each time one landed. President Kennedy addressed the nation warning of a strict quarantine of offensive military equipment and warning the Soviet Union that any missile launched by Cuba against any nation would be regarded as an attack by the USSR on the United States, requiring a full retaliatory response.
October 23, Fidel Castro announced a combat alarm. Cuban forces were placed on high alert. It is generally believed that Soviet ships will defy the blockade. Moscow placed armed forces of Warsaw pact countries on high alert. The stock market declined over 10 points (equal to approximately 200 points today).
October 24, Soviet ships en route to Cuba capable of carrying military Cargos reversed their courses and returned to the Soviet Union. The stock market advanced 18.70. Thereafter, it advanced continually for three years.
President John Kennedy was assassinated on Friday, November 22, 1963. The market was shut down early, but not before it had declined 21.20 to 711.50 (equivalent to about 300 points today.) Unless you lived through it as an adult, it is difficult to appreciate the feeling of depression that descended upon the country. Much like what is being experienced in the current disaster.
At the time of the assassination, the market had been going down for about a month. On that fateful Friday it seemed to collapse. It was a weekend of national mourning and a funeral that was highly personal to American citizens, with little John-John wrenching hearts with his immortal salute as the casket passed by. The market stayed closed on Monday. It opened Tuesday and advanced 32 points. It continued to advance for over two years.

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