THE FATE OF THE WALL STREET BEARS.
When the gong rang in the New York Stock Exchange at ten o’clock one
morning just before the 1894 Christmas holidays, the attendance of
brokers upon the floor was smaller than usual. The signal for beginning
business was not followed by the loud roar of voices which marks the
days of “good business” in Wall Street. “The public” was not there and
hadn’t been there for a long time. The lambs had learned discretion
months ago. Not even “the tails they left behind them” remained to
wrangle over. The practice of financial cannibalism had gone on for so
long in a “traders’ market” that brokers looked forward to the New
Year’s balance sheets with the gloomiest forebodings.
The outlook was so bad that a strong clique apparently had begun
operations a few weeks before for the purpose of hastening and profiting
by the crash which many believed to be inevitable. The bears seemed in a
fair way to accomplish their purpose. Prices, already low, had yielded
easily. The rallies had been few and insignificant. The market was
already blue and even panicky at times. Nobody seemed to think, however,
that the crisis was at hand. For two or three days, the best of the
active stocks, New York Central, Lake Shore, Northwest, Western Union,
and C. B. & Q., had been steadily hammered. They had yielded an average
of two points each and were still weak. The largest groups of brokers
this morning were around the poles where these stocks were dealt in.
Western Union was the most active at the outset. It had closed the night
before at 77¾. It was offered freely just after trading began at 77½ and
then at 77⅜. There was little support, and when one of the sellers
offered 1,000 shares at 77¼, there was some surprise that a little man
who had hurried over from another part of the room should accept the lot
and promptly bid the same price for more. He got 2,500 shares before
offers ceased and then he bid an eighth and a quarter higher still, for
1,000 share lots. He had to offer 78 before he gained 5,000 shares and
then no more were forthcoming.
There were signs of animation around the Western Union pole by this
time, and the nervous young broker bolted over to the Lake Shore and New
York Central crowd. He bid up the price of each of these stocks a full
point, accumulating nearly 8,000 shares by the operation.
Before eleven o’clock the sudden strength of these leading securities
had given a better tone to the whole market. There was heavy buying of
Northwest and C. B. & Q., also, and although the bears renewed the
attack an hour later their stock was taken without any yielding of
prices.
By the time trading closed for the day, the losses of the past week had
been fully recovered, and the bear operators found they had put out
nearly 30,000 shares of stock on a rising market. It was a severe check
to them, and the more so because they were unable to account for the
sudden strength of the lines they were assailing. They did not regard
the situation with the least alarm. Things had been going their way too
long for that. They were “short” more than 100,000 shares. They had
sold, for instance, 30,000 shares of Western Union at from 84 to 79 and
had borrowed the stock to deliver to the purchasers. They could afford
to buy it back at several points higher than the present quotation and
still make a handsome profit. So they determined to put the screws on a
little tighter the next day and break, if possible, the new support
which the market was receiving.
They tried it. They threw out again about 30,000 shares. The result was
that Western Union advanced to 79½ and the other stocks which they
attacked gained from one and a half to two points each. The bear
syndicate was much disturbed. What was this new influence in the market?
What was its motive, when the tendency of the time was toward worse
instead of lesser financial difficulties? How strong was it, and who was
directing it? What alarmed them most was that they found some difficulty
in borrowing the necessary stock which they had sold for delivery. The
buyers, whoever they might be, were taking their purchases out of the
market. This indicated investment rather than speculative buying, or at
all events it gave assurance of heavy capital at command of the bulls.
And then there had been mysterious additions within two or three days to
the New York gold supplies.
There had been almost a gold famine for weeks, the drain from abroad had
been so great, and this fact had more than anything else encouraged the
bear movement which had been undertaken. Within a week, however, nearly
fifteen millions of bullion had been added to the stock in the hands of
New York holders. General attention had not yet been attracted to the
activity at the Assay Office, but the big operators in the market on
both sides knew about it and it puzzled them exceedingly. Within three
or four days after the sudden check came to the bear campaign, the
managers of the syndicate were using their utmost endeavors to discover
the source and extent of this unexpected influx of gold. They had good
reason to be alarmed as well as bewildered. They had not undertaken the
campaign without the most exhaustive study of the whole monetary
situation. They knew almost to a dollar the free gold resources of the
country. They had estimated shrewdly the timidity or distrust which
characterized the general financial public opinion. They possessed
sufficient capital and skill to make their scheme an almost certain
success, if the situation was really what their inquiries indicated it
to be. Whence, then, this unexpected obstacle? They made use of every
source of information which ingenuity could suggest, and then on the
last day of the year they met in the Broad Street Office of the chief
member of the bear pool to decide on their future policy.
It had been another disastrous day for them in the market. Prices had
recovered almost to the point where they had begun operations and yet
they were “short” many thousand shares. Their position was critical and
they knew it. So it was not a sanguine group which gathered about a
large table in the private office of the big operator. They got down to
business at once. First they listened to a statement of the business
done by the syndicate to date. By this it appeared that if all contracts
should be closed at that day’s closing quotations, the net result would
be a loss of just $2,135,225. This was serious, but it was not all. The
pool was still “short,” that is, it had contracted to deliver 195,200
shares of stock. To attempt to buy in this immense block of stock in the
existing state of the market would send prices kiting higher than ever.
It might more than double the losses already incurred. This meant little
less than ruin for more than one of the half-dozen men around the
green-baize table. But they were men of nerve, every one. They were
accustomed to face emergencies boldly, and they proceeded to discuss the
situation with calmness and cool logic.
The grizzle-headed, keen-eyed, energetic man at the head of the table, a
millionaire ten times over, and holding nearly fifty per cent interest
in the pool, first expressed himself in the terse, jerky sentences
characteristic of him:
“It looks bad, gentlemen, very bad indeed, on the face of things. I hope
some of you know who is fighting us. I don’t. General conditions haven’t
changed since we began operations. Everything is going our way. There
hasn’t been any professional buying in the rally of the last week.
Everybody in the market thinks we have made the boom by taking profits.
So nobody suspects that we have been hurt. That’s our safeguard. I
believe we can make another raid without immediate danger of suspicion,
if the chances warrant risking renewed attack. If we can break the
market now there will be nothing to prevent our covering at our own
figures. But can we break it? I can’t get even a decent hint of the
source of the support the market is receiving. We can be sure it is
confined to one source. I don’t believe it is any individual or private
pool. There are none of the marks of any of the big operators. There is
no man in the market able to raise the money, who is fool enough to
fight the current at almost certain loss. I tell you, gentlemen, it has
taken at least fifteen millions in cash to give prices the turn they
have taken in the last ten days.
“Where has it come from? Are the banks supporting the market in order to
stave off a panic? I should know it if they were, but they can’t afford
to do it, and I get nothing but denials from them. Is it a big Treasury
scheme? I don’t believe it. The government wouldn’t dare interfere even
indirectly, and I am sure the Assay Office disbursements are not
Treasury gold. Is there a London pool at work against us? It’s out of
the question. I’ve had the closest inquiries made on the other side, and
my correspondent cables this afternoon that it is impossible.
‘Americans’ were never so unpopular in the English market, and you
couldn’t get the boldest London operator to touch them. I can think of
nothing else. I am completely in the dark, but our salvation depends on
the solution of the mystery. What do you hear, Forbes?” and he turned to
the broker at his left.
“Nothing satisfactory. I agree that it is the new bullion from the Assay
Office that is being used against us, but I am quite unable to trace the
connection. One of our confidential men learned from an Assay Office
clerk to-day that Strong & Co. have been the heaviest dealers in bullion
there recently.
“I can hardly believe it, and if it is true, it doesn’t help us much.
It’s a small house, you know, and very conservative. I haven’t the
slightest idea who would operate through them. I am as much in the dark
as the rest of you about our opponents, but you may depend upon it they
are much stronger than we credit them with being. Their apparent
foolhardiness in risking almost certain ruin is proof of their great
resources. They have spent, we’ll say, fifteen millions in supporting an
almost panic-stricken market in the face of the most discouraging
circumstances. If they are able to do that they have the power to carry
out the rest of the game, whatever it may be. My advice, gentlemen, is
to go slow. It is time to act on the defensive and save what we can.”
“I don’t agree with you,” broke in a sharp-featured, nervous little man
whose agility on the floor of the Exchange was a by-word in Wall Street.
“I tell you it is a desperate game that is being played against us and
we have only to sit tight a little longer to win. Some of the Clearing
House crowd are in it and so are two or three moss-backed old houses
that you would never suspect, but which couldn’t stand up for a day in a
storm. They are loaded up and I predict that they’ll begin to unload
within three days. The minute they do, things will go our way without
our lifting a finger. There’s nobody to buy stocks. Let’s give them a
little more rope. I’ll stand my proportion of 50,000 shares to break the
market day after to-morrow. Once turn the scale and the battle is won.
It would be suicide for us to try to cover now. The least sign of
weakness from us will only encourage them to keep up the fight.”
“Do you see any sign of their ammunition giving out?” asked the
chairman.
“I think there were signs of it in the last half-hour to-day,” replied
the nervous broker. “There was no buying to speak of after two o’clock,
and the market became so heavy that if we had had the courage to throw
in a few thousand-share lots I believe the collapse would have begun
then and there. We should start a selling movement in London before the
New York market opens Wednesday morning and follow it with a sharp raid
all along the line the moment business begins here.”
The discussion became general and animated. Nobody had any real light to
throw upon the nature of the forces opposed to them. All agreed that it
was almost incredible that any secret combination of capital could be
made strong enough to stem successfully the natural flow of the
financial tide which was manifestly toward the sea of liquidation. Only
two courses were open to them. One was to await the discomforture of the
enemy under the overpowering influence of natural laws; the other was to
hasten his downfall by increasing the load which he was trying to carry.
To surrender to an enemy who was probably himself on the point of
retreat was out of the question. One more bold stroke upon which
everything should be staked was the policy finally decided upon. The
details were carefully arranged and the conference came to an end.
The onslaught was made the morning after the New Year’s holiday. It was
a battle royal, quite unlike any of the earlier field days of the Stock
Exchange. A sharp selling movement began the moment the market opened.
Stocks were offered right and left in large blocks. Prices went off at
once, but not seriously. Within a few minutes, when it seemed that the
market must give way under the crash of 1,000 and 5,000 share lots
thrown out like a bombardment by the forces of the syndicate, there was
a determined rally. The decline was checked, and although the buying
party showed no disposition to do more than support the market against
the sudden attack, the danger of a break seemed to be over. But there
was a feverish apprehension in the air. The situation was in the hands
of two great opposing cliques. Outsiders dared not follow the lead of
either party. The issue was too much obscured. The outlook was critical
in the estimation of operators on both sides, and the tendency was to
close short and long contracts alike.
The business of the Exchange amounted to more than 100,000 shares in the
first hour and then there was a brief lull. The bears soon broke it by
opening a fresh attack. It met at first the same stubborn resistance.
Then it became apparent that the Broad Street syndicate was playing a
more desperate game than it had planned. Its members had decided in
hasty conference to stake their fortunes on a final blow. Stocks were
pitched into the market in a reckless and wholesale fashion that almost
matched the scenes of Blue Monday. Prices held up bravely for a few
minutes and then they began to yield. Suddenly the market’s support
disappeared. Western Union dropped half a dozen points in as many
minutes. The wildest excitement seized the Exchange. The smaller
brokers and room traders thought they saw the end of the battle and
rushed in to take advantage of the bear panic. The crash had come. It
was a mad scramble to sell stocks. Fractions did not count in the
frantic rush to unload or sell short. The same stocks sold at two or
three different prices the same moment, so great was the confusion. The
roar of voices, the rushing to and fro, the struggles to get inside the
groups of shouting brokers, made one of those scenes which sometimes
suggest to spectators in the gallery that the New York Stock Exchange is
a madhouse turned loose. Half a dozen standard stocks fell twenty points
within an hour. Specialties and speculative securities were nowhere. The
bottom had dropped out and there was no end in sight.
The creators of the panic had no need to help it on after the break had
fairly begun. The greater part of the decline took place upon a very
small volume of business. One hundred and two hundred share lots carried
prices down more easily than blocks of 5,000 shares had done earlier in
the day. The crisis was desperate, appalling. A few of the governors of
the Exchange consulted hurriedly with the chairman. It was suggested
that business should be suspended for an hour to give an opportunity for
reason to reassert itself. Announcements of failures began to be made,
but none of them were important.
Just as the necessity for extraordinary measures to check the rushing
avalanche became imperative, the situation changed a little. There were
purchasers for securities of considerable amount at lowest prices. The
Broad Street syndicate had begun to take profits, to balance its
account. They were compelled to do this. The market had been fearfully
oversold. They must buy in some of the stock they had contracted to
deliver, for it would be impossible to borrow it. Their purchases
checked the panic more effectually than they hoped would happen. Soon
they were accepting all stocks that were offered, but the amounts were
small. Then they found it necessary to bid fractional advances, but this
did not bring out shares in any considerable quantities. The small
speculators were quick to take the cue and they began “to realize” also,
and they joined in the bidding. A natural reaction set in.
Suddenly an astonishing rumor flew through the Exchange. The Assay
Office had just received a fresh deposit of ten millions in gold. The
Broad Street syndicate was among the first to hear of it. They were
dumfounded. Their brokers used extraordinary efforts to accumulate
stocks without starting a boom. They met with indifferent success.
It was nearly one o’clock and excitement was still high in the
Exchange. The real crisis had come. The brokers who had supported the
market for two weeks past had taken no part in the wild scene of the
last two hours. Most of them had disappeared. Those who were still on
the floor had been talking and listening anxiously at telephones or had
been writing hurried notes and receiving replies from flying messengers.
They did not appear to be men for whom a crash in prices meant ruin, but
nobody paid any attention to them amid the mad whirl of events. Now,
they suddenly became actors again in the drama. They plunged into the
thick of the fight and began bidding up the very stocks in which the
bears were trying to cover. It was no longer a defensive campaign on the
bull side. It was the most terrifically aggressive one that Wall Street
had ever seen. There was no waiting for offers. Bids for shares in any
amount were made at recklessly rapid advances in price. There was a wild
half-hour which marked an epoch in the history of the New York Stock
Exchange. For a few minutes stocks went up point by point, almost as
rapidly as they had fallen two hours before. Everybody was amazed. This
was no taking of profits after a bear raid. It was a forced advance in
which the manipulators of the market squandered fortunes by offering and
paying much higher prices than sellers were willing to accept.
For a time the bear brokers endeavored to keep pace with the movement
and to buy as much stock as possible for delivery at the settling hour,
which was fast approaching. The rush quickly became overwhelming, and
they stopped for a moment in sheer panic and amazement. It was wrong,
perhaps, to accuse them of losing their heads even for an instant,
because no matter how insane a broker’s actions on the floor of the
Exchange may appear to be, he will never admit losing control of
himself. The sudden silence of the bear representatives must be ascribed
therefore to the necessity for seeking fresh instructions from their
principals. Such an emergency as that which had suddenly arisen had not
been provided for. So they rushed to their telephones. The slight delay
was fatal. Within scarcely five minutes, the scramble for stocks sent
prices up ten, twenty, even twenty-five points. The excitement and
confusion were maddening. Men fought with each other to get near the
bargain centers. Hats were smashed, coats torn off, and blows exchanged
in the wild struggle. A broker in one of the largest crowds fell
insensible to the floor. So money-mad were his companions that nobody
gave him a thought beyond thrusting his body unceremoniously out of the
rush, for the attendants to care for.
No accurate record was ever made of the events of the next few minutes.
Some transactions were taken down, many were not. There were sales of
Western Union, for instance, at 70, 80, and 82, at the same moment and
within ten feet of the pole. An hour before this stock had touched 60.
When the brokers of the bear syndicate rushed back into the turmoil,
they were too late to execute any of their new orders. Stocks were
beyond their reach and still bounding higher. Within another twenty
minutes, Western Union was at par and other securities in which the bear
syndicate had been operating were proportionately high. Meantime, the
wildest excitement had been transferred to “the loan crowd.”[A] The
demand for stocks from the now panic-stricken “short interest” soon
became frantic. It was plain that the market had been badly oversold.
Exorbitant rates were soon demanded for the loan of shares. The
suspicion quickly arose that certain stocks had been genuinely
cornered. The furious buying throughout the market continued and it was
plain that every share purchased would be taken out of the Street.
Lenders were prompt to take advantage of the situation. They demanded
first a point a day, then two points, and finally as high as five points
($5 per share per day) for the use of certain stocks. This was an
impossible rate. It meant what soon proved to be the case, that there
was no more of certain stocks available in the loan market. The
consequence to all who were still short of the cornered securities was
disastrous. They must purchase the necessary stocks for fulfilling their
contracts in the open market at no matter what exorbitant price, or take
refuge in insolvency.
The threatened calamity added to the excitement throughout the Exchange
until a mad panic raged. Failures were announced in rapid succession.
Big operators and important houses were among those suddenly swept upon
the rocks of bankruptcy. The scene grew worse until chaos reigned. Human
nature could not endure such a strain. It was again apparent, as it had
been in the morning, that extraordinary emergencies demanded
extraordinary measures. The suspension of business called for to check a
bear panic two hours earlier was resorted to now in order to check a
bull panic. The chairman of the Exchange ordered a half-hour’s recess.
The storm gradually subsided. The tension relaxed. Men who had grown
haggard and prematurely old within the hour began to reason again. They
were like soldiers after a desperate charge and hand-to-hand battle.
They wiped their brows, dazed at first and unrealizing. Then they began
to take account of their financial wounds and still threatening dangers.
No one knew what it all meant or what the outcome would be. The
situation was unprecedented and mysterious. The bears were completely
routed. That much was clear. But would the bulls make terms with their
victims or would they despoil them of all they possessed?
The brief respite had but half expired when the market received a fresh
surprise and one which nobody was able to account for. It was announced
that the principal buyers who were now in control of the market had
agreed to compromise with such sellers as were unable to meet their
contracts on a basis of about twenty per cent advance above the
morning’s opening prices. These terms were severe but they were
amazingly generous in view of the fact that it was within the power of
the bulls to put the prices of cornered stocks at any figure they saw
fit. There was little done in the way of fresh trading during the few
minutes that remained of the session when the recess had expired. No one
dared oppose or knew how to follow the mysterious controlling power of
the market. It was recognized, of course, that the corner in stocks
could be but temporary and that it was only its startling suddenness
that made it successful. The next day it would be broken by the opening
of strong boxes which were beyond reach in time to avail of the
unexpected situation. The bear syndicate and those who had been rash
enough to follow it were the only victims of the most remarkable day’s
operations Wall Street had ever seen.
The opening of the Exchange the next morning was awaited with the
keenest anxiety. Most bankers and financial men, the newspapers as well,
were of the opinion that the previous day’s operations had been a
wonderfully skilful _coup de main_ by a bold and strong combination
which nobody pretended to identify. It was a great fluke or flurry which
was quite passed and a sharp fall in prices would be the natural sequel.
It was evident the moment the session opened that there was plenty of
long or investment stock which was yesterday out of reach, now in hand
ready to take advantage of all that was left of the boom. The morning
news from London was that Americans were almost utterly neglected in
that market. London had not been included in the deal and was waiting
for New York to set the pace. Offers of stocks at prices quoted during
the greatest excitement the previous afternoon brought no response.
There was a rapid decline until the level of the compromise made by the
victors of yesterday was reached. Everybody became fearful of another
crash. No sooner, however, did a panicky feeling begin to manifest
itself than the same stalwart support came into the market. Its brokers
were compelled to take large blocks of shares, but there was no
hesitation or yielding, and the rush was soon over. Before the day’s
business was finished quotations averaged almost exactly in line with
the terms of the already famous settlement, and the great crisis was
ended.
The new year was only a few days old when a complete transformation
seemed to have taken place in the financial world. But the cause was too
much a mystery for anybody to have great faith in the permanence of the
new order of things. The newspapers said that the disbursement of
January dividends had maintained the boom. Careful observers of the
market saw no evidence of the small and widely distributed buying which
comes from such a source. The investing public had been too badly scared
these many months to be tempted back so easily. Besides, everybody knows
that careful, thrifty, conservative savers of money invest their
hoardings in only the very best securities, and at times when a booming
market demands inflated prices. Such is the value of that intangible but
very real commodity, “public confidence.” Englishmen maintain the
broadest margin to be found anywhere between investment and speculation.
It has come to be almost literally true that there is scarcely any
market in London for securities yielding between four and seven per cent
income on the market price. A six per cent stock or bond is far too
risky for prudent investors, while the temptation is not sufficiently
attractive to the speculator. Possible great rewards must be offered to
induce John Bull to venture his capital in anything less sound than his
consols; but when he does gamble he is as reckless as the rest. The same
tendency is growing stronger in America. The zone is broadening between
investment and gambling in the stock market. When the public speculates
it is always for a rise. Usually the “professional trader” and the “big
operator” who have foreseen all the conditions which were likely to
stimulate the tender courage of the gentle public, are ready to gratify
its sudden desire to pay 100 cents for what had been offered it in vain
at 50 cents a few weeks before.
But this common phenomenon was not taking place in January, 1895.
Gullible as the poor lambs usually are, it is necessary to allow their
fickle memories to forget before seeking to victimize them by a
repetition of a stale trick. A steady, persistent advance in prices went
on during the early days of the new year without any of the usual
accompanying conditions of “improved trade,” “better commercial
prospects,” “signs of a great business revival,” “sound state of the
banks and national Treasury.” The usual crop of sanguine interviews with
“leading business men” which appears in the newspapers every New Year’s
Day had been dubiously small and weak. In fact, Wall Street had none of
the common bait with which it allures old and new victims. Whence, then,
came the sudden strength which had supplanted the almost unerring
symptoms of pending collapse?