A World-Wide Stock Market Debacle

At 2:00 p.m. Hong Kong time on Tuesday, October 28, 1997, the 
Hong Kong Index plunged 1,621.80 points, or 15.45 percent.

Panic selling pushed Hong Kong's blue-chip index down to close 
its morning session at 8,876.40.

The fall came on the heels of a 5.8 percent dive on Monday, when
the blue-chip index skidded 646.14 points, or 5.80 percent, to 
close at 10,498.20, and sparked a rout in worldwide stock
markets. When this happened, the Hong Kong Market had already 
fallen from a high of 15,243.

Tuesday's Hong Kong panic was triggered after the Dow Jones 
industrial average suffered its worst single-day point drop in 
history. It plummeted more than 550 points before trading was 
automatically shut down for the rest of the day.

The Dow industrials plunged 554.26 points, or 7.18 percent, to 
close at 7,161.15.

In Tokyo, the Nikkei-225 plunged 3.65 percent at Tuesday's lunch 
close.

Singapore shares closed the morning down 7.8 percent. The key 
Straits Times Industrials index fell 127.13 points to 1,492.77.

Shanghai's B shares were 6.8 percent lower. The B-share index 
fell 4.64 points to 63.15 points. The A-share index of 
locally-traded shares fell 36.03 points, or 2.8 percent, to close
at 1,261.56 points.

Australia's benchmark All Ordinaries index fell 7.2 percent to 
end the day at 2,299.2 points. Earlier, resource stocks, such as 
Broken Hill Proprietary, paced the index's worst drop in ten years.
Stocks in New Zealand collapsed 12.5 percent and the key 
NZSE-40 index ended down 307.74 points at 2,162.01.

Taiwan's benchmark stock index posted its biggest one-day dive 
since January 1996. Shares crashed 5.9 percent. The Taiwan Stock 
Exchange weighted prices index dived 452.52 points to close at 
7,210.01.

In Manila, the Philippine Stock Exchange composite index lost 
117.16 points to close at 1,740.18 - a 6.3 percent fall.

Jakarta shares dropped 4.6 percent. The Jakarta Stock Exchange 
composite index was down 22.755 points at 467.365 in morning 
trade.

In Kuala Lumpur, at noon the Malaysian bourse had fallen 6.1 
percent. The Kuala Lumpur Stock Exchange's 100-share weighted 
composite index tumbled 42.09 points to 651.30.

Thai stocks dropped on opening, and at 1230 p.m. were 5.42 
percent lower.

India's National stock Exchange followed the world, dropping 7 
percent by mid-morning trade.

Earlier, Seoul shares tumbled 5.1 percent in morning trade. The 
Korea Stock Exchange's composite index dipped 26.81 points at 
503.66.

Brazil's two main exchanges posted their steepest slides in 
seven years. Pulled down by the Southeast Asian currency crisis, 
the Sao Paulo stock exchange fell 14.97 percent and the Bovespa
index of 51 leading stocks closed at 9,816 points.

The Rio de Janeiro stock exchange, Brazil's second largest, 
closed Monday 13.9 percent down.

The German stock exchange dropped 4.24 per cent; however, the 
American dollar, the Hong Kong dollar and the Japanese yen fell 
against the German mark.

RCA (1925-1929)-and MICROSOFT (1993-1997)

Radio Corporation of America (RCA) was Wall Street's darling 
high-flyer tech-stock of the 1920s, as Microsoft is for the 1990s. 
RCA in the 1920s made many investors and speculators millionaires.

The RCA stock-market symbol was known alike by bankers and barbers 
from New York to San Francisco. It had a virtual lock monopoly 
on "wireless" communications for the masses. There was no serious
competition in sight.

In essence, RCA was on the cutting edge of technology in its day.
Undoubtedly it enjoyed the same dominance in its field that 
Microsoft commands today in computer operating systems and 
related peripheral software.

In the five years prior to the Great Crash of 1929, RCA stock 
soared from about $11 to its September 1929 high of $114 
(adjusted for the 5-for-1 stock split in February of that fatal 
year).

That's an appreciation of 936% in only five years-equal to an 
annual compound return of a monumental 60%. Equally incredible 
was the fact it never paid a cash dividend! Investors didn't 
care, since the stock value increased almost daily. At its 1929 
peak, RCA boasted an astronomical price/earning ratio of 72:1.

During the past five years one would be hard-pressed to find a 
stock with more market appreciation and dominance in its field 
than Microsoft. Many struggling competitors have litigation 
pending against the software company's near-monopolistic hold 
on its area of endeavor. Even the federal government is 
challenging Microsoft's alleged unfair dominance.

All this has inflamed investors' interest in its stock. During 
the last five years Microsoft has soared nearly 700% - equivalent
to approximately a compound yearly stock-price rise of 50%.

Phenomenal! Just like RCA during its early history and meteoric 
stock price increase, Microsoft has never paid a cash dividend 
since going public. Like RCA in the 1920s, investors in Microsoft
could not care less.

However, President Clinton's appointment of Anne K. Bingaman as 
his administration's chief anti-trust enforcer, while little 
noted at the time, could have far-reaching economic impact in 
the future. She basically halted the business-friendly policies 
of the Reagan and Bush administrations to return to populist 
rhetoric and anti-big-business, anti-trust policies.

A major target in her sights has been Bill Gates and Microsoft. 
Her "anti-trust" actions often violate basic rights to 
intellectual property.

Her major concern revolves around whether or not other companies
could develop Microsoft-compatible software. The Antitrust 
Division concluded: "the ability of rival operating systems to 
compete was impaired, innovation was slowed, and consumer choice 
was limited."

It was a very weak case and depended on whether the Antitrust 
Division could prove that Microsoft's market position was the 
result of so-called "unfair" exclusionary licensing practices. 
Or, as Microsoft claimed, was it the result of market dynamics 
in which one product establishes itself as an industry standard, 
but could be dethroned by a superior product in the next round 
of technological
competition?

The evidence indicated that MS-DOS and Windows established 
themselves as standards not because alternatives were excluded 
from the market, but because consumers preferred those products 
over the alternatives. Further, to prove a case against Microsoft, 
the Antitrust Division would have to prove that Microsoft's 
restrictions did not have sound, pro-competitive business 
justifications, despite readily available evidence to the 
contrary.

Realizing it had a very weak case, the Anti-trust Division, to 
avoid the embarrassment of defeat, resolved its investigation in 
1994 through a consent decree. It avoided years or perhaps decades 
of costly litigation.

However, U.S. District Judge Stanley Sporkin, who presided over 
the so-called Tunney Act proceedings required to certify a 
consent decree, rejected the decree. He claimed that the 
settlement was not in the public interest because it did not 
provide an "effective antitrust remedy" against Microsoft's 
alleged dominance.

Note that Sporkin's problem was not illegality, but the fact 
that Microsoft, because of individual choices of users in a free 
market economy, had achieved "dominance" in the marketplace.

Many analysts have already shown that the traditional measures 
of market valuations are today more over-extended than in 1929 
and 1973, just prior to each market crash. In each of the 
previous bear markets, high-tech stocks were decimated.

Contrary to popular belief, the 1920s were a time of rapid 
government regulation and vigorous anti-trust activity. In 1913,
just prior to World War I, federal government expenditures were 
2.5 percent of the gross national product (GNP) and by 1990 they
had risen to 22.5 percent of GNP.

The policies promoted by Harding and Coolidge (and President 
Hoover, at the end of the decade) show that they were 
considerably more sympathetic toward growth in government 
programs and expenditures than general opinion suggests. 
The era of big government, which most believe began
with Franklin Roosevelt, actually began in the 1920s and were 
an outgrowth of socialist political views coming from the 
Progressive party.  

Also, during the period of relatively weak presidents after 
World War II, the political agenda was increasingly controlled 
more by Congress than by the executive branch. During the 1920s,
this caused a government oriented increasingly towards special 
interest groups. This is also beginning to happen today, with 
an increasingly weak president in the White House.

Part of the phenomena of the 1920s political scene was an 
enormous increase in anti-trust activities, which targeted what 
was then the "high tech" industries of the day. From RCA's 1929 
high of $114 the stock price dropped for the next three years, 
reaching it nadir of less than $3 per share in 1932.

This represented a loss from its 1929 peak of 97%. While RCA was
the predominant technology leader of its day, nevertheless it 
lost 97% of its value in the 1929 Stock Market crash.

While there maybe many reasons why in the ensuing decades RCA 
lost its dominance, it isinteresting to note that the company 
no longer exists as an independent business entity (it is now a
subsidiary of Thomson, a French business conglomerate). Perhaps 
ore important, most all consumer electronics products such as 
radios, TVs and VCR are made in places other than America.

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