Stock raising

“ It may be noticed, too, that sales of "rights," of puts and calls and straddles, and other contract rights, are regular factors in the organized exchanges. Wherever profits are to be made by leveling values as between different places or different times, speculation arises, and, with dynamic change, this means everywhere, in every business, and all the time! The shifting of labor and capital from industry to industry, leveling returns to capital and labor, involves an enormous amount of trading that would not occur in a "normal equilibrium." Much of this the Stock Exchange does. ”

“ In other words, when prosperity is beginning to revive after a prolonged stagnation, and the prices of stocks are very low, the bull speculator’s great chance occurs. When the great industries of a nation seem to rise as from the grave, and where lifelessness and inactivity ruled before the blows of the hammer resound and the blast furnace roars, a new life springs through the arteries of the commercial system, and the result is a rise in public securities. The solid rise in the price of stocks is that caused by the hard money-buying by a public that is well to do. ”

“ Even the gray-haired wizards of Wall Street who had preached caution for two or three years, finally fell into line with the new order of things, and not only did they plunge into the market long after it had passed the point of safety, but they organized more investment trusts running into billions of dollars, and advertised far and wide for the public to buy their stock and join them in amassing fortunes. They would manage everything, and all the people had to do was to furnish the money. ”

“ The long period of stagnation and depression was broken by the great rubber share boom of the spring of 1910, when business reached proportions never before witnessed in the history of the Stock Exchange. ”

“ They harp persistently on the fact that stocks are cheap,—not because of their dividend return, but because they are selling much below the boom prices. Their calculations are drawn mostly from figures at the big end of the measuring tape. Improved business—which exists more in the imagination than in fact—is employed as a smoke screen to hide the fact that the great majority of the active stocks are still [22] selling far above a reasonable investment basis. ”

“ In fine, the ultimate purpose in this regard of all the promotion machinery of Wall Street—the machinery that has been putting out billions of dollars' worth of securities to investors—is to place stock where it will "stay put," that is, not come out on the open market again to embarrass the interests that are behind the enterprise, and who for a long period are compelled to support the market. ”

“ The stock market is up as the giant companies pocket trillions in taxpayer money stolen from middle class families. The market is up as CEOs shut down plants and factories here in the United States and move them overseas. ”

“ There is no occasion to let the banker see the move.
In London and the great cities a large proportion of the deposits at interest, especially during periods of depression, would represent capital temporarily withdrawn from trade, and awaiting either more profitable investment or an increased demand and rising prices. It is this accumulation of idle capital that tempts the company-promoter from his lair, and sometimes results in a Stock Exchange boom, whilst it always produces an increased demand for the so-called gilt-edged variety of securities and a consequent rise in their price. ”

“ Many of these so-called investment trusts accumulated thousands upon thousands of highly speculative common shares that paid less than 2% income on their market value. Indeed one day in September, 1929, a statistician figured that the twelve most active stocks on the New York Stock Exchange averaged a return of only one and three-fifths per cent. ”

“ But will it not be a Second Injustice to the Annuitants, after so great a Diminution of their Estates, to have Two Thirds of it ingrafted on a precarious Bottom? All Stocks having been suffer'd to divide above the Value of the Nett Produce of their Capital; a sure Way to distress Trade: Especially when Corporations are suffer'd to issue out Bonds, without Trading with the Money, but purely to advance their Stock. ”

“ Thus, concretely, if the price of wheat rises, we may expect the prices of land to rise, if the rate of interest remains the same. If the price of steel rises, we may expect the stocks of the U. S. Steel corporation to rise, also. If the prices of smokeless powder, and other war munitions soar, we may expect the prices of the stocks of the corporations involved to do precisely what they have done in the recent course of the stock market. All this, on the assumption that the rate of interest does not change, and that the risk factor remains constant. ”

“ The profits of stock in different employments, having been shewn to bear a proportion to each other, and to have a tendency to vary all in the same degree and in the same direction, it remains for us to consider what is the cause of the permanent variations in the rate of profit, and the consequent permanent alterations in the rate of interest. ”

“ The market rose to such heights that the selling price of securities listed on the New York Stock Exchange—to say nothing of the untold billions listed on other exchanges—reached a figure far in excess of all the money in the world. Though it was reiterated time and time again that customers’ accounts with brokers were amply protected, they were of course margined with other securities, and thus the pyramid grew until it staggered the imagination even of those who built it. ”

“ The long upward trend of fundamental progress, however, gave rise to over-optimism as to profits, which translated itself into a wave of uncontrolled speculation in securities, resulting in the diversion of capital from business to the stock market and the inevitable crash. ”

“ 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. ”

“ Meanwhile, the treasures of the Great West offered irresistible attractions to new enterprise and settlement. The demand for more railroads was insistent; then came the devices of stock-watering and overcapitalization as inducements to new capital. Roads were often built entirely on bonds; and stock, having little or no value except for voting, was given away as a bonus with the bonds, or used for various purposes, often in speculation, and such stock frequently found its way back to the original promoters at bargain if not waste-paper prices. ”

“ 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. ”

“ The stocks accumulated in them come in time to be so great, that it can no longer be employed with the ancient profit in that species of industry which in peculiar to them. That industry has its limits like every other; and the increase of stock, by increasing the competition, necessarily reduces the profit. The lowering of profit in the town forces out stock to the country, where, by creating a new demand for country labour, it necessarily raises its wages. ”

“ When stocks have attained a reasonably high level of value as a result of the recovery [105] of a country’s industry, the chances for the speculator to profit by a continuous rise are of course gone, and he seeks in other directions to turn his capital to account; but the example we have given illustrates perhaps the most legitimate of all forms of speculation in Stocks, provided always the operator knows his business, and allows a sufficient margin for contingencies. ”

“ Every sort of industry was incorporated and over-capitalized, and notwithstanding the hundreds of millions of new shares lately issued it was currently reported that stocks were very scarce; that they had nearly all gone into “strong hands;” ”

“ These people are, perhaps, even more influenced in their readiness to spend by rises and falls in the value of their investments than by the state of their incomes. With a 'stock-minded' public as in the United States to-day, a rising stock-market may be an almost essential condition of a satisfactory propensity to consume; and this circumstance, generally overlooked until lately, obviously serves to aggravate still further the depressing effect of a decline in the marginal efficiency of capital. ”

“ One result which will probably occur will both surprise and anger the public. This is a further great increase of earnings of industrial companies and a great increase in the value of their common stocks. For, if prices are to stay double what they were before the war, gross earnings will tend to double and, after deducting the "fixed" interest, rent, and dividends on preferred stock, the net earnings accruing to common stock will tend to more than double. ”

“ In years of rising prices, the 'base stock' method causes an understatement of income; for it disregards the gains actually realized through liquidation of low price stock on a high price market. In times of falling prices, it causes an overstatement of income; for it ignores the losses which result from the consumption of high price stock. This method may, like many reserves which business men set up on their books for their own purposes, serve to equalize the results of operations during a series of years. ”

“ A sharper Demand carries up the market-rate, and a higher market-rate commonly [56] acts upon Supply to enlarge it, and an increased Supply too checks the rise of market-rate. Per contra, a slacker Demand lowers market-rates, and lowered rates often lessen the Supply by the action of holders and speculators,—holders withdrawing their stock for a better market, and speculators buying now when the article is cheap to store away until it shall be dearer. ”

“ Prices were high and still advancing, and profits large, particularly those of industrial corporations. At the same time a mammoth bull movement was running its course on the Stock Exchange, and the grain crop turned out larger than ever before in our history, while enormous issues of new securities were announced by both railway and industrial corporations. These new issues severely taxed the resources of the money market, already being too heavily drawn upon by the “big men” of the Street to promote their wild bull campaign in stocks, and spasms of stringency were frequent. ”

“ It will at once be seen that although the Stock Exchange may be defined as a mere market, the wares that are displayed and dealt in are of such importance as to entitle it to the more ambitious definitions with which it has been exalted. It is worthy of being defined as the mart of the world, because these wares represent property in every part of the world, and because the orders which are executed in this mere market emanate from all over the world. The business of the Stock Exchange is more varied and cosmopolitan than that of any other mart, except, perhaps, the Money Market. ”

“ 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. ”

“ The speculating public gets action, likes it, and invests money that might have been used in margin-trading on the New York Stock Exchange or for "investment" in the constantly fluctuating low-priced industrials or higher-priced mining stocks that are sponsored by big interests with New York Stock Exchange affiliations. ”

“ Of course it becomes the interest of these stock-holders, or pre-emption right companies, to use all possible means of accomplishing the end they have in view; and from the almost incalculable increase of the value of the stock, they can well afford to be at any expense, that may be necessary. ”

“ There is no reason why bonds and shares should not be publicly dealt in—and in large quantities—as well as dry goods, corn or cotton; but, unfortunately, few stock exchanges confine their transactions wholly to legitimate business. You will look in vain in the quotations for the stock of dozens of corporations whose securities are among the choicest investments. It is upon fluctuations that stock speculations prosper, and it is often true that the largest profits are made on the poorest stocks. ”

“ It is the Stock Exchange gambler rather than the investor, or the speculator who moves legitimately within his means, who may rejoice in the boom with its roaring business and rising prices, but who forms the real element of danger in a slump with its sudden depreciation, and who frequently turns the slump into a crisis, and eventually into a panic. ”

“ Were a railroad to double in money value, the result would be, since the money value of the bonds could not increase appreciably, that the money value of the stock would more than double. Stocks are shares in physical wealth the value of which, in money, can fluctuate. Since the money price of bonds is relatively inflexible, that of stocks will fluctuate more than the price of the physical wealth as a whole. ”