The Panic Of '99 - 1899, That Is; Giddy Speculation, Dizzying Run-UPS - And Yes, A Disastrous Fall

NEW YORK - As the end of the century approaches, the U.S. is an economic juggernaut, the envy of the world. Investors, riding a wave of euphoria, flock to the financial markets in an unprecedented speculative flurry.

A century ago it wasn't so different.

The 1899 parallels with today's booming economy are remarkable. Then as now, the Dow Jones Industrial Average rallied in the final three years of the century - about 70 percent through the end of November in both cases. Commentators saw similar reasons for the gains: globalization, technological improvements, medical discoveries, the move to a market economy.

The Dow industrials shot to records as road, metal and communications companies merged and investments poured into new enterprises. Million-share days became common on the exchange, just as, 100 years later, billion-share days have become routine.

Even the one or two stray clouds on the horizon seem similar. In 1899, much trepidation arose over a rise in the Bank of England's discount rate to more than 6 percent, to curb excessive strength in the economy. This year, the 30-year bond yield's move above 6 percent has caused similar distress.

In 1899, the bulls were stampeded by an unfavorable Supreme Court decision on a merger involving Addison Pipe. Today, antitrust regulators are going after Microsoft, periodically scaring the daylights out of the market.

From 1899 to 1999, the Dow average rose from 66 to 11,000. Adding in dividends of about 3 percent, that works out to a compounded return of 8.25 percent. An investment of $100 in the Dow average in 1899 would be worth $280,000 today.

The 19th century did end with a "buying panic" that sent the Dow up 13 percent in the last 10 trading days of 1899. One little problem: Before the buying panic, there was another kind of panic. The Wall Street Journal referred to it in December 1899 as "the most disastrous stock decline in the history of the New York Stock Exchange," and there had been some doozies. The Dow industrials dropped 23 percent from the end of November through Dec. 18, 1899. To capture the flavor of disaster that engulfed the December 1899 market, it is sobering to read the contemporaneous coverage of the leading financial publications of the time.

The Wall Street Journal, recounting the days leading up to the rout, reported the collapse of a bubble in copper stocks, bank bailouts in Boston and a disastrous British setback against the Boers in South Africa.

"Complete demoralization then ensued, with money rates up to 186 percent, and with stocks being sacrificed regardless of price."

In its own assessment of the carnage, the Commercial & Financial Chronicle of 1899 sounds as gloomy as Barron's does today:

"It was a natural sequence of our overdone good times in marketing securities during the first months of 1899," the Chronicle's editors wrote. "As the penalty of a reckless speculation can never be escaped, it may truthfully be affirmed that we are better off today than we were 12 months ago. Then we had our troubles ahead of us. Now we have them behind us.