October — the month Pensions & Investments' was launched 35 years ago — belongs to the bears, forever associated with the stock market crash of 1929 and the “Black Monday” of Oct. 19, 1987, when the Dow Jones industrial average dropped a record 22.6% in one day.
In fact, nine of the Dow's 15 biggest percentage losses took place in October. This year is no exception — Oct. 6-10 marked the blue-chip index's worst week since the Great Depression and the Standard & Poor's 500's worst week ever. The two equity indexes sadly celebrated the first anniversary of their Oct. 9, 2007, all-time highs down about 40%.
October 1973 was a particularly tumultuous month as well. P&I's first lead story was on Israel trying to sell 5.5% 20-year bonds to finance the Yom Kippur war, named after the Egyptian-Syrian surprise attack during the Jewish holiday. Philadelphia councilmen voted to buy $1 million of the bonds for the city's pension fund. But in Chicago, where then-Mayor Richard J. Daley was pushing pension officials to buy $3 million of Israeli bonds, Alliance Capital Management Corp. advised it was “simply not an attractive investment.” U.S. Treasury 10-year notes at the time yielded a richer 7.09%.
While the coalition that attacked Israel on Oct. 6, 1973, was defeated within three weeks, the fallout of the war would be far-reaching.
The Organization of Arab Petroleum Exporting Countries, a subset of the oil cartel created in 1960, called for a strict oil embargo against the U.S. and the Netherlands, two countries that directly supported Israel during the war. The OAPEC had another reason to push for the embargo: a month earlier, the parent group had failed to negotiate higher oil prices with the “seven sisters,” the major oil companies now merged into four giants, Exxon Mobil Corp., Chevron Corp., Royal Dutch Shell PLC and BP PLC.
The oil embargo was implemented on Oct. 20, coinciding with the “Saturday night massacre,” when Attorney General Elliott Richardson and his deputy William Ruckelshaus resigned for refusing to fire Watergate prosecutor Archibald Cox as requested by President Richard Nixon.
Although the embargo lasted only 153 days, it delivered a real shock to the economic system: in 1972, crude oil had averaged $2.48 a barrel but by January 1974 it had surged to $11.65. This led to stagflation, an unfriendly environment for the Dow, which dropped about 40% in 1974.
By October of that year, President Gerald R. Ford unveiled several proposals to tackle the country's economic ills, in particular inflation. But the proposals drew little enthusiasm in the investment community as “Fund officials pan economic cures,” according to P&I's lead story in the Oct. 21, 1974, issue.
“The basic problem of inflation is the manufacturing of money in Washington,” Chicago economist Walter Fackler told P&I.