The Goodyear Tire & Rubber Company (GT): The Longest Bear Market Begins

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On this day in economic and business history…

The Dow Jones Industrial Average (Dow Jones Indices:.DJI) began its existence in the swelling optimism of a post-panic bull market. That growth continued for five years, with a brief interruption at the turn of the century, before peaking on June 17, 1901. That day marked the start of the longest secular bear market in Dow history.

Trading that day was light, and reports offered little indication of the long-term weakness to come. The export of $4 million worth of gold — approximately 6.6 tons’ worth at prevailing exchange rates — to cover various debts was the only unpleasant news to be found, as lower gold stores could become a problem in the event of widespread withdrawals. A railroad price war in the American Northwest drew to a close. The damage wrought on the railroad industry by the Panic of 1893 finally seemed to be a thing of the past, and newly instituted railroad dividends and higher earnings appeared everywhere.

The Goodyear Tire & Rubber Company (NASDAQ:GT)

However, the optimism wouldn’t last. Labor unrest in the steel industry and a national corn shortage contributed to the early market slide into the first of several standard bear markets that wracked the Dow Jones Industrial Average (Dow Jones Indices:.DJI) during its secular bearish period. President William McKinley’s assassination in September of 1901 exacerbated the problem, as Wall Street began to freak out once it no longer had a steadfastly pro-business president on its side. The Dow Jones Industrial Average (Dow Jones Indices:.DJI) would spend 20 years trying and failing to climb out of this extended secular bear. Inflation hammered Wall Street hard during this period: The real losses came to 63% from 1901 to 1921, compared to the 22% in nominal losses one can calculate from the Dow’s closing prices on the first and last days of the secular bear.

Want to learn more about secular bear markets? Click here for an in-depth explanation.

A funny name for an awful piece of legislation
On June 17, 1930, exactly 29 years after the Dow began the longest secular bear market in its history, President Herbert Hoover signed into law the Smoot-Hawley Tariff, ensuring (at least in part) that the Dow’s second-longest secular bear market would be no picnic either. The Smoot-Hawley Tariff instituted record-high protectionist tariffs against thousands of imported goods. At no time in the history of an industrialized United States have tariffs ever been higher — although 19th-century tariffs were higher in fact, in practice most imported goods were never taxed.

Although it was designed to protect American jobs and goods from foreign competition during the early days of a historic economic downturn, the severity of the Smoot-Hawley Tariff caused a retaliatory wave of tariffs to rise against American goods elsewhere in the world, while many of America’s key trading partners simply avoided U.S. trade altogether when they could. Global trade plunged throughout the remainder of the Hoover administration, bottoming at a level roughly two-thirds lower than its 1929 peak by 1934.

Where the rubber meets the road
Charles Goodyear received his first patent on June 17, 1837, for a process of treating rubber to make it more durable. The rubber pioneer had been inspired to improve on natural rubber, or “gum elastic,” which was a product of trees harvested in South America. Goodyear attempted to commercialize this first discovery, but the economic crash that hit later in 1837 destroyed his ambitions. However, Goodyear kept working on rubber, particularly in hopes of making the product less sticky. Goodyear’s greatest breakthrough occurred two years later, when he discovered the Vulcanization process, which heats rubber to the point of charring. Unfortunately, as Pfizer Inc. (NYSE:PFE) Associate Director Brian Nunnally writes on the company’s science blog:

As with many revolutionary products, his patent was largely ignored, forcing him to spend lots of money on expensive litigation. When Goodyear died, on July 1, 1860, he was $200,000 in debt. In 1898, The Goodyear Tire & Rubber Company (NASDAQ:GT) was founded, with Frank Seiberling naming it after Goodyear. …

The Goodyear Tire & Rubber Company (NASDAQ:GT)’s story is a sad one in that he would not realize the fruits of his ingenuity. But we should not weep for him, for he did not weep for himself. He supposedly said, in this regard, “Life should not be estimated exclusively by the standard of dollars and cents. I am not disposed to complain that I have planted and others have gathered the fruits. A man has cause for regret only when he sows and no one reaps.”

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