In fact, the evidence strongly suggests that
stocks were undervalued, even at their 1929 peak."
According to their detailed paper, stocks were trading at 19 times
after-tax corporate earning at the peak in 1929, a fraction of
today's valuations even after the recent correction. A March 1999
"Economic Letter" published by the Federal Reserve Bank of San-
Francisco wholeheartedly concurs. It notes that at the peak, prices
stood at 30.5 times the dividend yield, only slightly above the long
term average.
Contrast this with an article published in June 1990 issue of the
"Journal of Economic History" by Robert Barsky and Bradford De Long
and titled "Bull and Bear Markets in the Twentieth Century":
"Major bull and bear markets were driven by shifts in assessments of
fundamentals: investors had little knowledge of crucial factors, in
particular the long run dividend growth rate, and their changing
expectations of average dividend growth plausibly lie behind the
major swings of this century."
Jude Waninski attributes the crash to the disintegration of the pro-
free-trade coalition in the Senate which later led to the notorious
Smoot-Hawley Tariff Act of 1930. He traces all the important moves
in the market between March 1929 and June 1930 to the intricate
protectionist danse macabre in Congress.
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