Ali Kabiri

Keynes and Wall Street

This article examines in detail how John Maynard Keynes approached investing in the U.S. stock market on behalf of his Cambridge College after the 1929 Wall Street Crash. We exploit the considerable archival material documenting his portfolio holdings, his correspondence with investment advisors, and his two visits to the United States in the 1930s. While he displayed an enthusiasm for investing in common stocks, he was equally attracted to preferred stocks. His U.S. stock picks reflected his detailed analysis of company fundamentals and a pronounced value approach. Already in this period, therefore, it is possible to see the origins of some of the investment techniques adopted by professional investors in the latter half of the twentieth century.

Bank distress and firms’ investment during the Great Recession - evidence from Ireland

ABSTRACT This article investigates the impact of bank distress on firms’ performance using unique data during the Great Recession for Ireland. The results show that bank distress, measured as banks’ credit default swap spreads (CDS), has negatively and statistically significantly affected firms’ investment expenditures. Interestingly, firms with access to alternative sources of external finance are not impacted by bank distress. The results are robust to accounting for external finance dependence, demand and trade sensitivities, which affect firm performance and the demand for credit.

The Returns to US Common Stocks from 1871 to 2010

We have already examined whether the monetary expansion in the US economy from 1914 to 1929 was neutral from the perspective of stock market valuation ratios and real dividend growth in Chapter 3. The second part of the boom, from 1927 to 1929, whilst controlling for the effect of the increase in earnings and dividends due to the monetary changes which were occurring during this period, is a topic that is much harder to resolve. We are able to test whether a potential deviation from rational valuations occurred from 1927–9, in three ways: 1. At the aggregate level using a DDM. 2. In the cross-section of the stock market. 3. At the industry level based on industrial growth models for a new technology industry — aviation.

Literature Review and Methodology

The valuation of stock markets, and specifically, instances of financial euphoria when these seem to deviate from fundamental expectations have been of perennial interest to economic and financial academia since the 1929 Crash and the Great Depression. Academic research into the boom and bust of the 1920s and 1930s was conducted in the years following, such as Cowles (1938) and Williams (1938) but has only really developed with a specific focus on the 1920s since the 1970s. This is due to advances in financial valuation theory and as the field of finance generally became more developed. The advent of computer technology has allowed the collation of data such as the CRSP database, and testing of these data has become more accurate due to the statistical power of the econometric tests we can use. The following sections discuss the modern analyses of the period and the types of tests used and inferences drawn.

The Great Contraction of 1929–1932 and the Value of Stocks

The Great Depression, and what caused it, was famously dubbed ‘the holy grail of macroeconomics’ by Ben S. Bernanke, the former Chairman of the Federal Reserve Board (Bernanke, 1995). This period is of great interest to economic historians and financial economists due to the scale of the crises which occurred at that time, the global dimensions, and the complexity of understanding how the Depression developed.

The US Economy and the Financial System

Perhaps one of the most famous economic time series graphs of all time is the US stock market boom and crash of the 1920s and 1930s. What can be seen is a large run-up in prices and then a large reversal. The temptation many have succumbed to is to see the boom and bust as prima facie evidence of an overvaluation. Although such an interpretation would be correct to a certain extent, it does not offer explanation as to how changes in the economy and investors’ ideas may have driven the changes, which can be verified scientifically.

The October Crash of 1929 and the NYSE Credit System

In this chapter we look at the crash in October 1929 — where stock prices fell by 45 per cent over the last weeks of October — the credit system that developed around the NYSE, and the policy of the Federal Reserve Board towards the boom. What we will see is that an unusual credit system developed to circumvent the Federal Reserve Board’s policy to stop the boom, following the fears of credit growth that they had expressed in 1927 and earlier.

The Essential P/E: Understanding the Stock Market through the price-earnings ratio

corporate archives were consulted. Software is often characterised as a mass-market consumer good. In fact, the vast majority of software that corporations purchase remains custom-made, a circumstance that underscores the contrast between computer programming and mass production, and its affinities with management consulting. Over time, computer hardware has become progressively cheaper and faster, a fact that is well known; less well known, but no less consequential, is the fact that over time consumer software has become more expensive and less reliable. This anomaly furnishes Ensmenger with much of his most intriguing material and one of his recurrent themes. Time and time again, harried business mangers discovered, paradoxically, and to their continuing frustration, that, if they increased the number of computer programmers to whom they had assigned the task of solving a particularly vexing software-related problem, this decision was likely to slow, rather than to speed, its resolution. Three million people today work in computer programming in the United States, a total that exceeds that of all fields of engineering and architecture combined. In reconstructing the history of this occupational group, Ensmenger displays a special sensitivity to its cultural and political dimensions. ‘Nowhere’ – Ensmenger declares, in summarising his main theme – ‘are the social dimensions of technological development more apparent than in the history of computing’ (p. 26). Even so, Ensmenger’s decision to organise his monograph around occupational crises such as Y2K raises questions for business historians. Business historians may be startled to learn that, from the perspective of computer programming, IBM’s rollout of its innovative System 360 was a disaster. However challenging this rollout may have proved to be for IBM’s technicians, business historians widely, and correctly, regard this innovation as the salvation of the firm. Computer Boys is full of intriguing insights into the ‘heterogeneity’ of software and its ‘inherent messiness’ (p. 10) that make a genuine contribution to the history of technology, science, and the professions. Yet in the end, at least for the readership of this journal, the whole is not greater than the sum of the parts. Ensmenger tells the history of a neglected, vitally important occupation group. In so doing, he provides a solid foundation on which others can build to analyse how computer programming has, and has not, transformed US business, and how business managers have, and have not, met the recurrent technical demands that computer programming poses not only for everyday operations, but also for business strategy, corporate governance, and the innovative process.