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A Big Day for the Dow and a Bigger Peak Oil Myth

Saturday - 1/19/2013, 4:00pm  ET

On this day in economic and financial history ...

Jan. 19 has been a day of great corporate triumphs -- and one staggering failure -- for four different present and former components of the Dow Jones Industrial Average . Let's run through them one by one.

Telegraph dominance
On Jan. 19, 1881, Western Union consolidated its market share as the world's largest telegraph operator by acquiring both the American Union and Atlantic & Pacific telegraph companies for a combined price of $19.1 million in stock. This added about 46,000 miles of telegraph wiring and 329 offices to Western Union's rapidly expanding operations. This same day, members of Congress began to probe Western Union to determine whether its prices were fair, in light of the fact that the company was clearly growing into a monopolistic power over the country's young telegraph industry. Three years later, as inquiries deepened in the Senate, it was revealed that Western Union controlled a total of 432,000 miles of telegraph wiring, whether owned or leased. Western Union became part of Charles Dow's earliest index in 1884 and joined the Dow proper in 1916. It was removed in 1927.

Lighting the world, one town at a time
Thomas Edison successfully lit Roselle, N.J., with the world's first overhead-wiring electrical system on Jan. 19, 1883. Wires from a central generating station connected a general store, a railway depot, about 40 houses, and 150 streetlights to the power of sweet direct current, Edison's preferred method of electricity transmission. This gave Edison's Electric Light Company a big PR boost and helped him persuade other towns to light up. By 1892, Edison's innovations had helped to create General Electric , which quickly became the country's leading purveyor of both electricity and the gadgets and gizmos that required it. GE has been part of the Dow since 1907.

Keeping up with the Fords
The postwar years were good to General Motors, which announced a massive $1 billion expansion program on Jan. 19, 1956. That was in addition to $2 billion already poured into capital expenditures between 1946 and 1953. During this period, the number of automobiles the American public owned had grown from 28 million to 46 million, and then to 54 million by the end of 1956. Later that year, President Eisenhower would sign the Interstate Highway Act into law, validating GM's big bet on the popularity of the automobile. General Motors held a place on the Dow from 1925 until its bankruptcy during the 2008 financial crisis.

A dinosaur in the PC age
IBM
had one of the worst days in corporate history on Jan. 19, 1993, and it couldn't even blame its misfortune on a recession or other macroeconomic woes. That day, the computing giant reported a $5 billion annual loss for the 1992 fiscal year, which was at the time the worst such loss in American corporate history. The loss was not unexpected in light of the floundering company's brutal layoffs and well-known financial woes, which had both come to light in 1992 following reports of IBM's first-ever annual loss in 1991. The PC price wars had devastated IBM's bottom line, as a 50% increase in unit sales during the holiday quarter had actually resulted in a revenue decline. This terrible performance, though, wasn't a total loss for IBM, which hired Louis Gerstner as CEO later in 1993. Gerstner is widely credited with transforming IBM into the successful services-focused company it is today. Gerstner's guidance was a boon to the Dow after 1993 -- IBM has been part of the index since 1979 but trailed it during the early '90s.

The peak oil myth begins
Peak oil has a longer history than you think. Although the models that define the American peak oil hypothesis were first advanced in the 1950s, predictions of the imminent depletion of American oil reserves can be found much earlier. In fact, one of the earliest known warnings that the United States would run out of oil was released on Jan. 19, 1922, when the U.S. Geological Survey warned the public that only two decades of oil remained in the ground, if present consumption patterns held steady.

That day, the survey reported that there remained 9.2 billion barrels of oil in the ground but warned that not all of it could be discovered, let alone extracted. The survey's director somberly announced:

"Unlike our reserves of coal, iron, and copper, which are so large that apprehension of their early exhaustion is not justified, the oil reserves of the country ... [appear] adequate to supply the demand for only a limited number of years. The annual production of the country is now almost 500 million barrels, but the annual consumption, already well beyond the half-billion mark, is still growing."

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