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Some executives remained confident that the economy was strong enough to withstand the market tumult. "The decline in the stock market in itself should have minimal impact on consumption," predicted Edward Brennan, chairman of Sears, Roebuck. Others argued that the crisis had been overblown by the press. Said June Collier, president of National Industries, an Alabama- based manufacturer of auto parts: "The stock market is nothing more than a kind of legalized gambling casino. Were it not for the perceptions being drummed into people's minds, the effect of the market crash on the economy would not amount to a hill of beans."
Hordes of companies have responded to the crash by snapping up huge blocks of their own stock, a trend that helped spark the rally on Wall Street late last week. IBM unveiled a plan to buy up to $1 billion worth of its shares, while the Kemper Corp., a group of insurance and financial-services firms, decided to spend as much as $46 million to purchase 2 million of its 61 million shares. Said Gerald Maatman, president of Kemper National Property & Casualty: "We think that there is a buying opportunity for our stock, and it's significantly undervalued." During the week following Black Monday, the Monsanto chemical company completed a ten-month buy-back of 3 million shares and promptly decided to acquire 5 million more. Among more than 100 other firms buying their own shares are Ford, USX, Du Pont, McDonnell Douglas and Motorola.
Companies pursuing this strategy have several possible motives. First, they want to prop up their share prices by demonstrating confidence in their earnings potential. Moreover, the companies can cut the number of shares outstanding and thus reduce the amount of money they have to pay out in dividends. Finally, the firms hope that buy-ups will make them less vulnerable to takeovers.
But if it was an opportune moment for companies to buy stock, it was a terrible time to try to issue shares. Nowhere did that reality hit harder than in California's Silicon Valley, home to hundreds of entrepreneurs who have become or hope to become overnight millionaires by taking their companies ! public. On Black Monday, Applied Immune Sciences, a small biotechnology firm in Menlo Park, Calif., that is developing treatments for AIDS and cancer, was in the final stages of preparation for its initial public offering of stock. But as the market collapsed, the possibility of raising a reasonable amount of cash by selling shares evaporated. Said President James Gregg: "We were in shock. Our initial reaction as we watched the market crash was 'You can't do this! We've come all this way!' I kept thinking that this was how our Olympic athletes felt when they were told they couldn't go to Moscow." In nearby Milpitas, Octel Communications, a manufacturer of telecommunications equipment, was also preparing to go public. "We dropped that idea fast," says President Robert Cohn. "It took a second to decide that this particular marketplace is absolutely crazy and that we want no part of it."