Margin Cut Could Boost Stocks: Might Mr. Nixon Suggest Buying and Holding?
iThe latest reduction In stock market margin requirements announced by the Federal Reserve Board on Dec. 3 car-ried me back to the summer of 1962. As the market was plunging under the</br></br>iThe latest reduction In stock market margin requirements announced by the Federal Reserve Board on Dec. 3 car-ried me back to the summer of 1962. As the market was plunging under the impact of the Kennedy-steel industry price disagreement, I was finishing a manuscript on ÛÏHow to Predict the Stock Market.Û The Federal Reserve Board came to my rescue by announcing in July 1962 a reduction in margin requirements from 70 to 50 percent. So I wrote, on the basis of margin history, that we were witnessing the bottom of the market.</br></br>What does this latest reduction in margin requirements portend? The answer as the record gives it, is in the accompanying chart.</br></br>I'^Stb^dfi?f<ifi5nthly averages of the In five of these episodes the stock market advanced substantially within the first 12 months, and you would have done well had you bought when margins were reduced. In the other two cases your patience would have been rewarded if you had held on for 18 months or longer. The first exception occurred in 1947-48. This was the period of commodity price inflation following the removal of price controls.</br></br>The other occurred in 1953. The stock market drifted off for a half year or so anticipating the business recession in the offing. In both cases it could be argued that without the reductions in margin requirements the market would have gone lower.