Financial market

“ In large cities the brokers naturally unite for convenience of business in the so-called stock exchange, in which the market price of all current forms of indebtedness or deferred payments is fixed from day to day, or from hour to hour, by the higgling of the market, just as the price of produce is fixed in the produce exchange. Naturally, as in the case of produce, a fictitious business, purely speculative, grows up around the legitimate dealing [pg 163] in stocks and bonds. ”

“ We build railways, put millions into steel plants, "boom" land sites, and form combinations of all kinds, employing the credit facilities granted by the banks, or throwing the securities on the stock market. We "water" the stock or, if that be forbidden by law, we drive the market quotations to a high point, because we think that this is warranted by prospective earnings. ”

“ We recognize a short-loan market, a stock exchange, a number of "markets" where lenders and borrowers are brought together by the aid of various intermediaries, such as banks, bill brokers, and stock jobbers, who correspond to dealers in commodities. ”

“ The many thousands of brokerage offices throughout the country were jammed to the doors by eager onlookers and participants who devoted themselves exclusively to the market from the opening to the close. Office boys, elevator men, manicures, hotel waiters, hairdressers, cab drivers, and even rural farmers initiated themselves into the game and discussed mergers, split-ups, stock dividends, and all such subjects in high finance with more profuseness and profundity than was ever displayed at a bankers’ convention. ”

“ Perhaps, however, the Stock Exchange can best be defined and described as a market. Just as Smithfield is the market for meat and Covent Garden the market for flowers, fruit, and vegetables, so is the Stock Exchange the market for stocks and shares. ”

“ The most common case of the "bearer of options" function arises when men hold money, liquid securities of low yield and stable value, short loans, call loans, or bank-deposits, waiting for special opportunities in the market. ”

“ The business of the Stock Exchange may be described as the business of businesses. The institution may be defined as the nerve-centre of the politics and finances of nations, because in this mere market all that makes history is focussed and finds instantaneous expression. It is worthy of being defined as the barometer of their prosperity and adversity, for a glance at the tone of this mere market, whose wares are more mercurial than these of any other mart, suffices to indicate their condition. ”

“ But every branch of trade in which the merchant can sell his goods for a price which replaces to him, with the ordinary profits of stock, the whole capital employed in preparing and sending them to market, can be carried on without a bounty. ”

“ In this splendid work of conquering a continent the Stock Exchange has kept pace with the march of industry. It has supplied the one great central market for the expression of the country’s progress as measured by the country’s securities, and it will continue to do so as long as an evergreen faith in America exists among its people. ”

“ The method, therefore, in common use, and the only one which has been found effective by financiers, is to create a demand for the security, encourage speculation, establish an active market, and dispose of stock on the market as necessity demands whenever financing is required. ”

“ As a matter of Stock Exchange experience such a condition seldom arises, because the Stock Exchange discounts the future, foresees those economic conditions that spell prosperity for the country, and advances the prices of securities on a money market that has not yet felt the demands of improved conditions. ”

“ Contrary to the prevailing notion that there is no public utility in anything which does not produce something, or that does not transform and improve products by the processes of manufacture, or interchange them by the operations of commerce, the Stock Exchange is an institution of the highest utility and of vital necessity in an age and country of progress, of commercial and financial activity and of material development. ”

“ Capital [might] be so expended, whilst the profits of stock gave any return, not ten per cent. but one per cent. or a half per cent.
No doubt money varies more slowly than other commodities for the reason you mention; nevertheless its value, like every other foreign commodity, depends on the labour and expense of bringing it to market. ”

“ The public funds, shares in joint-stock companies, and all descriptions of securities, are at a high price in proportion as the rate of interest is low. They are sold at the price which will give the market rate of interest on the purchase money, with allowance for all differences in the risk incurred, or in any circumstance of convenience. Exchequer bills, for example, usually sell at a higher price than consols, proportionally to the interest which they yield ”

“ He must study every factor which does, in fact, bring about changes in the value system. We do not find the market-letter of a brokerage house, or the calculations of a captain of industry, or trust promoter, troubling themselves about marginal utilities or labor-pains! Notions of supply and demand, and the relations of the prevailing interest rate to the capital values of securities, they do employ. Notions of money-costs of production they make use of. ”

“ For private investment the case is somewhat different. A man of good business judgment, who desires to obtain a high yield for which he is prepared to sacrifice something in the way of convertibility and prospect of appreciation in value, may buy the underlying issues of strong companies with every confidence in the safety of his principal. Again, the investor who wants a high yield and quick convertibility, who is prepared to take a business man's [75] risk and to sacrifice stability of market price, may make a large profit by buying second-grade industrial bonds. ”

“ In margin-trading on the New York Stock Exchange, New York Curb, Boston Stock Exchange, Boston Curb, Chicago Board of Trade, Chicago Stock Exchange, New York Cotton Exchange and kindred institutions, experience among stock-brokers proves that if you stick to the game you have only one chance—YOU CAN LOSE.
In railroad, industrial and mining-stock speculation, where you buy the shares outright and hold them for stock market profits, you have two chances; if you are of the average and your operations are for a period continuous—YOU CAN BREAK EVEN IF YOU ARE VERY LUCKY, OR LOSE IF YOU ARE NOT ”

“ The earning power of trust companies has equalled and even exceeded that of the banks, and the stock of those companies which are well established and doing a flourishing business sells at such a premium that investment in it at its market value gives a very low return. ”

“ Loans of stock and sales of stock appear alike in the transactions of the Clearing House. Moreover, apart from the necessities of the bears for stocks to deliver, we have the necessities of the [Pg 372] bulls for money to carry their stocks. If a broker who has borrowed largely from the banks finds his customers turning to the bear side of the market, he has an excess of funds. ”

“ When banks lend on collateral security of corporation stocks to the buyers of those stocks, they are, in effect, financing the corporation itself. [483] Industries differ widely in the extent to which they depend on the money market for their finances. The difference depends often less on the nature of the industry than on the type of the industrial organization. An individual farmer cannot get the bulk of his credit that way! ”

“ While the Stock Exchange is in theory a private institution, it fulfills in fact a public function of great national importance.
That function is to afford a free and fair, broad and genuine market for securities and particularly for the tokens of the industrial wealth and enterprise of the country, i.e., stocks and bonds of corporations. ”

“ The Government Funds, stocks and shares in all companies, bonds, foreign and otherwise, Corporation Stocks, &c., are all termed "securities." A convertible se- curity is one which may be sold in the open market, there being no restriction upon the persons who may hold it.
We will now endeavour to put before the reader some account of the various "securities" in which the public invest their money accord- ing to individual choice, and which (with the exception of mortgage on real property-land or houses) may be bought and sold in the stock- market through the agency of a banker or broker. ”

“ And whenever capital was required, the rate of interest would be such as to be inviting. In other words, the rates of interest would rise, correspondingly with our needs, and the entire commercial world would be our possible market for the commercial paper representing the economic title to the five or six billions of finished goods that are always passing from the producer to the consumers in this country, and to the consumers abroad. ”

“ Whether a bank lent one million, ten millions, or a hundred millions, they would not permanently alter the market rate of interest; they would alter only the value of the money which they thus issued. ”

“ Every day we hear of combinations, Farmers’ Alliances, rural co-operative movements, etc., each designed to regulate the market for eggs, butter, potatoes, and such things, and each having for its purpose the very functions which govern a Stock Exchange in its own field—namely, the establishment of a fair price under the nearest possible approach to ideal conditions. ”

“ I shall put you in a position to make more money and secure more real power than you could possibly obtain in a like time under any other conditions. You know corporations and the stock-market, and you can readily see what the combination of our money and prestige and your knowledge of the market and investors will mean. ”

“ In a period of depression, the banks accumulate money, and there always is an abundance of money at the beginning of a bull market. During a period of prosperity the banks' reserves decrease and their loans increase. ”

“ In this way has the Stock Market been established and forced from its original situation by a set of jobbers and brokers, who are all, it will be seen, interested in keeping their transactions from the eye of the public. These men being always ready either to buy or sell, renders it easy for the brokers to get their business done, having no trouble but merely stepping into the Stock Exchange. ”

“ When some favorite railroad stocks are to be forced upon the market, these brokers, who can do so at pleasure, supply the money market, and sell the stocks at a large profit; and when the object is to reduce the value of stocks, they withdraw from circulation a sufficient amount of the currency to cause a stringency in the market, until their end is accomplished. ”

“ If an increased capitalization has been obtained without an increase in charges, owing to the lowering of the rates of bond interest and to the liberal use of stocks or income bonds, what has been the effect on the market value of the securities concerned? Is the aggregate value of the new securities less or greater than the aggregate value of the securities which they have replaced? ”

“ The financial organization is the medium by which the various parts of the industrial and commercial organism are held in harmony. It is by the financial organization that capital is collected and distributed, that the friction of exchanges is reduced to a minimum, and that time is economized, through credit, between production and consumption. The financial system furnishes three indicators—prices, the rate of discount, and the foreign exchanges—through which we may read the operation of economic forces now that their magnitude makes it impossible to inspect them directly. ”

“ Capital then takes hold cheerfully; there is a market for the new securities and a proper basis for fresh commercial development, because investors and speculators have learned from the published daily quotations of these Stock Exchange securities that there is good warrant for the flow of capital into such channels, and that a reasonably safe return will follow an investment in them. ”

“ I concede, sir, that, in the ordinary mutations of business and commerce in all seasons, and daily, stock markets rise and fall; but behold this country as it stands as to honest material of just speculation on exchange! ”

“ Bankers are close to mercantile life; they are always ready to lend on good mercantile securities; they wish to lend on such securities a large part of the money entrusted to them. When, therefore, the money so entrusted is unusually large, and when it long continues so, the general trade of the country is, in the course of time, changed. Bankers are daily more and more ready to lend money to mercantile men; more is lent to such men; more bargains are made in consequence; commodities are more sought after; and, in consequence, prices rise more and more. ”

“ Bargain-making strategy, the "higgling of the market," may yield an imperfect result, and the lender of real or commodity capital may or may not get the exact real earnings of marginal capital of the same kind. In translating the earnings of real capital for the earlier or test year into terms of money, the appreciation of the coins has unerringly entered as an element. ”

“ Market prices of products and of securities are hourly known in every commercial market, and the investments of people extend beyond their own national boundaries into the remotest parts of the earth. ”

“ To-day, and generally, securities with a wide market, capable of being turned quickly into cash, without loss, or capable of serving as the basis of collateral loans, up to a high percentage of their value, have a much higher value, for a given yield, than have other securities, equally safe, but less well-known and less easily saleable. ”

“ One man, or two, or a hundred cannot make a market, because the immense volume and variety of these securities make it impossible for any unorganized handful of brokers and dealers to determine a fair market price.41 What is required, and what the man whose capital is wanted insists upon, is an organized body of brokers, speculators, and investors competing keenly, seeking to buy cheap and sell dear, gathering and disseminating all the news, and so sharpening the judgment and stimulating the higgling of buyers and sellers as to bring prices to their legitimate level and give them stability. ”