All mundane things have an end, even bull markets and bear markets. The
bull market saw Hayward & Co. doing a good business, as did everybody
else in Wall Street. It ended, and the firm’s customers, after a few bad
“slumps” in prices, were admonished to turn bears in order to recoup
their losses. Bears believe prices are too high and should go lower;
bulls, optimists, believe the opposite. The public can’t sell stocks
“short” any more than the average man is left-handed. These customers
were no exception, so they did nothing.
Hayward had “overstayed” the bull market, though not disastrously; that
is, he was in error regarding the extent and duration of the upward
movement of prices. He proceeded to fall into a similar error on the
bear, or downward, side. The market had been extremely dull following
what the financial writers called a “severe decline,” but which meant
the loss of millions of dollars by speculators. A panic had been
narrowly averted by a timely combination of “powerful interests,” after
which the market became professional. In the absence of complaisant
lambs, the financial cannibals known as “room traders” and “pikers”
tried to “scalp eighths” out of each other for weeks—to take advantage
of fractional fluctuations instead of waiting for big movements.
Hayward’s customers, like everybody else’s customers, were not
speculating. So he used their money to protect his own speculations.
Office expenses were numerous and heavy, and commissions few and light.
Hayward was very bearish. He had sold stocks, sharing the belief of the
majority of his fellows, that the lowest prices had not been reached. As
a result he was heavily “short,” and he could not “cover” at a profit,
because prices had advanced very slowly, but very steadily.
One day a big gambler in Chicago, bolder or keener than his Eastern
brethren, thought the time was ripe for a “bull” or upward movement in
general, and particularly in Consolidated Steel Rod Company’s stock. He
was the chairman of the board of directors. Mr. William G. Dorr decided
upon a plan whereby the stock would be made attractive to that class of
speculative investors, so to speak, who liked to buy stocks making
generous disbursements of profits to their holders. Mr. Dorr’s plan was
kept a secret. The first step consisted of sending in large buying
orders, handled by prominent brokers, and synchronously the publication,
in the daily press, of various items, all reciting the wonderful
prosperity of the Consolidated Steel Rod Company and its phenomenal
earnings; also the unutterable cheapness of the stock at the prevailing
price. Mr. Dorr and associates, of course, had previously taken
advantage of the big “slump” or fall in values to buy back at 35 the
same stock they had sold to the public some weeks before at 70. Having
acquired this cheap stock, they “manipulated”—by means of further
purchase—the price so that they could sell out at a profit.
It so happened, however, that once before dividend rumors about “Con.
Steel Rod” had been disseminated, with the connivance of Dorr, and they
had not come true, to the great detriment of credulous buyers and the
greater profit of the insiders, who were “short” of the stock “up to
their necks”—a typical bit of stock-jobbing whereat other and more
artistic stock-jobbers had expressed the greatest indignation. Instead
of putting the stock on a dividend-paying basis, the directors had
decided—at the last hour—that it would not be conservative to do so,
whereupon the stock had “broken” seventeen points. The lambs lost
hundreds of thousands of dollars; the insiders gained as much. It was a
“nice turn.”
Hayward remembered this, and when the stock, after several days of
conspicuous activity and steady advances, rose to 52, he promptly sold
“short” 5,000 shares—believing that the barefaced manipulation would not
raise the stock much above that figure, and that before long it must
decline. Only a month previously it had sold at 35 and nobody wanted any
of it. He was all the more decided in his opinion that the “top” had
been reached by prices, because Mr. Dorr, in a Chicago paper, had stated
that the stockholders would probably receive an entire year’s dividend
at one fell swoop by reason of the unexampled prosperity in the steel
rod trade. Such an action was unprecedented. It had been talked about at
various times in connection with other stocks, but it had never come
true. Why should it come true in this instance?
Hayward, familiar with Dorr’s record, promptly “coppered” his “tip” to
buy, banking on Dorr’s consistent mendacity. But Mr. William G. Dorr,
shrewdest and boldest of all Western stock gamblers, fooled everybody—he
actually told the truth. That week the directors did exactly as he had
predicted. When a speculator of his calibre lies he fools only one
half—the foolish half—of the Street. When he tells the truth he deceives
everybody. Before Wall Street could recover from the shock the price of
the stock was up 5 points, which meant that Hayward was out $25,000 on
that deal alone. But, in addition, the general list was carried upward
sympathetically. The semi-paralyzed bulls regained confidence as they
saw the successful outcome of the Chicago gambler’s manœuvres in
Consolidated Steel Rod. Money rates and bear hopes fell; stock values
and bull courage rose! Hayward began “covering” Steel Rod. He “bought
in” 5,000 shares, and after he finished he had lost $26,750 by the deal.
He was still “short” about 12,000 shares of other stocks, on which his
“paper” losses, at the last quoted prices, were over $35,000; but if he
tried to buy back such a large amount of stock in a market so sensitive
to any kind of bull impetus, he would send prices upward in a jiffy,
increasing his own losses very materially.
He went to his office that morning in a tremor. He consulted the
cashier, and found he had only $52,000 at the bank, of which two thirds
belonged to his customers. He was already, morally speaking, an
embezzler. He was ruined if he didn’t cover, and he was ruined if he
did. His “seat” on the Stock Exchange was worth possibly $40,000, not a
cent more; and as he personally owed his out-of-town correspondents
nearly $38,000, he could not avoid being hopelessly ruined. Moreover,
his bankruptcy would not be an “honest” failure, for, as he told himself
bitterly, after the harm was done, “I had no business to speculate on my
own hook with other people’s money.”
He had felt it rather than had seen it coming, for, gambler-like, he had
closed his eyes and had buried his head in the sand of hope, trusting in
luck to protect him from punishment. But now he was face to face with
the question that every gambler dreads: “If I stood to lose all, how
desperate a risk would I take in order to get it back?” The answer is
usually so appallingly thief-like that the numerous Haywards of the
Stock Exchange and the Board of Trade forthwith stop thinking with a
suddenness that does credit to the remnants of their honesty. But it
haunts them, does the ominous question and the commenced but unfinished
answer.
As he left his office to go to the “Board Room” he put to himself the
fateful query. But he would not let himself answer it until he had
stopped at “Fred’s,” the official barroom of the Stock Exchange, and had
taken a stiff drink of raw whiskey. Then the answer came.
He was ruined anyhow. If he failed without further ado, that is, without
increasing his liabilities, he would be cursed by twenty-five of his
customers and by fifteen of his fellow-brokers who were “lending” stocks
to him. But if he made one last desperate effort, he might pull out of
the hole; or, at the worst, why, the number of cursing customers would
remain the same, but the fellow-brokers would rise to twenty or thirty.
He took another stiff drink. The market had become undoubtedly a bull
market. The bears had been fighting the advance, and there still
remained a stubborn short interest in certain stocks, as, for example,
in American Sugar Company stock. Now if that short interest could be
stampeded it might mean an eight or ten-point advance. If he bought
10,000 or 15,000 shares and sold them at an average profit of four or
five points, he would put off the disaster, and if he made ten points he
would be a great operator. He had, to be sure, no business to buy even
1,000 shares of Sugar; but then he had no business to be on the verge of
bankruptcy.
The liquor was potent. Sally said to himself, aggrievedly: “I might as
well be hung for a flock as for one measly old mutton.”
He walked a trifle unsteadily from “Fred’s” across the narrow asphalted
New Street to the Stock Exchange. He paused at the entrance. There was
no escape. Unless he could make a lucky strike, he would fail
ignominiously.
“Pike’s Peak or bust!” he muttered to himself, and walked into the big
room.
“Good-morning, Mr. Hayward,” said the doorkeeper. Hayward nodded
absently, caught himself repeating, “Pike’s Peak or bust!” and walked
straight toward the Sugar post.
He began to bid for stock. One thousand shares at 116; he got it.
Another thousand; it was forthcoming at 116⅛. A third thousand; somebody
was glad to sell it at 116½. So far, so bad. Then he bid 117 for 2,500
shares, and it was promptly sold. But when he bid “117 for any part of
5,000!” the crowd hesitated; the brokers were not altogether sure
Hayward was “good for it”; his ability to pay for the stock was not
undoubted. So Sally, taking advantage of the hesitation, bid 117¼ and
117½ for 5,000 Sugar, at which price “Billy” Thatcher, a two-dollar
broker, sold it to him. It made 10,500 shares Hayward had bought, and
the stock had risen only 1½ points. The shorts were not frightened a wee
bit. But Sally was. He rushed out of the crowd to his telephone and made
a pretence of “reporting” the transactions to his office, as he would
have done had they been _bona fide_ purchases. He was followed by a
hundred sharply curious—and curiously sharp—eyes. They saw him hold the
telephone receiver to his ear with an expression of great interest, as
if he were listening to an important message. But the only message he
heard was that of his heart-beats, that seemed to say, almost
articulately: “You have played and you have lost; you have played and
you have lost. Therefore, you are that much worse off than before. You
must play again—_and not lose_!”
He left his telephone and rushed back to the Sugar crowd. He was less
excited, less like a drunken man; his face was no longer flushed, but
pale. And anon there flashed upon him, as if in candent letters, the
words _Pike’s Peak or bust_! But _Pike’s Peak_ glowed dully, feebly,
while the alternative was of a lurid splendor. And he blinked his eyes
and made a curious impatient motion with his hand, as one waves away an
annoying insect.
He gave an order for 5,000 Sugar to his friend, Newton Hartley.
“Is this for yourself, Sally?” asked Hartley.
“No. It’s for one of the biggest men in the Street, Newt. It’s all
right. Absolutely O. K.”
And thus reassured, Hartley bought the stock. The price was 118. The
seller would hold Hartley responsible for the purchase money if Hayward
“laid down”—refused to pay.
Sally wiped his forehead twice, quite unnecessarily. The shorts were not
stampeding. Any attempt to sell out the 15,000 shares he had bought
would result only in depressing the price, five points at least. It was
worse than bad, the outlook for him.
He gave another order to buy 5,000 shares to “Billy” Lansing, an old and
reliable two-dollar broker, but Lansing declined it. He tried another,
but the order was not accepted. They mistrusted him; but he could not
even bluster, for they excused themselves on the ground of having
important orders elsewhere. So he had recourse to another personal
friend—J. G. Thompson.
“Joe, buy 5,000 Sugar.”
“Are you sober?” said Thompson, seriously.
“See for yourself,” answered Sally, laughingly. He had nerve. “Old man,
I’ve got a very big order from one of the biggest men in the Street.
Some important developments are going on.”
“Sally, are you sure you’ve got an order from some one else?” asked the
unconvinced broker. His incredulity was obviously in the nature of an
insult, but it was pardonable, for there was too much at stake.
“Joe, come over to the office and I’ll show you.—Really, I can’t tell
you. But I can advise you, as a friend, to buy Sugar for all you are
worth.” And as he uttered the lie he looked straight into Thompson’s
eyes.
“Hayward, are you sure? Are you sure you’re not making a mistake?” He
wanted the commission of $100, but he did not feel certain of his
friend.
“Oh, hell, no. I’ve got a lot more to buy. It’s all right. Go ahead,
Joe.”
And Joe went ahead. He bought the 5,000 shares. The stock rose to 119½,
and Hayward, warned by his experience with Hartley and Thompson, did not
ask either friend or foe to buy another 5,000 shares for him. What he
did was to distribute buying orders for 10,000 shares in lots of 500.
Brokers now accepted his orders, for they were not so large as to be
dangerous. And the stock rose to 122¾. A few shorts were frightened. He
might win out after all; he might make Pike’s Peak. He began to bid up
the stock. He even bought “cash” stock, that is, stock for which he paid
cash, had to pay cash outright, receiving the certificates forthwith,
presumably to hand over to some investor of millions. Everybody on the
“floor” was talking about Hayward. The entire market had risen in
sympathy with Sugar.
But at 124 it seemed as if the entire capital stock was for sale. He
ceased buying. He had accumulated 38,000 shares. To pay for the stock
necessitated about six and one-half millions! But if he could unload on
an average of only 122 he might “come out even” in his other troubles.
He gave an order to sell 10,000 shares to a broker to whom he had always
been a good friend. It was a fatal mistake. The broker, Louis W.
Wechsler, had previously sold 1,000 shares to Hayward for “cash” at 122.
He suspected what was coming, and declining the order, he himself went
to Hayward’s office and asked for a check. The cashier sought to put him
off with excuses, and Wechsler now being certain of the true state of
affairs, returned to the Board and began to sell Sugar short for his own
account. If a crash came he would make instead of losing it. Hayward was
sure to be ruined, and Wechsler told himself sophistically that he was
only profiting by the inevitable. In the meantime Sally had sold the
10,000 shares through another broker, and the price had declined to
121¾. But Wechsler’s 5,000 shares put it down to 120½. And somebody else
sold more, and the shorts recovered from their fright, and the fatal
hour was approaching when Hayward would have to settle. Pike’s Peak or
bust! He did, indeed, need a veritable Pike’s Peak of dollars to pay for
the 28,000 Sugar he had on hand. So he busted.
He threw up his hands. He acknowledged defeat to himself. The tension
was over. He was no longer excited, but cool, almost cynical. On one of
the little slips of paper on which brokers jot down memoranda of their
transactions he scribbled a message in lead pencil. It was his last
official lie, and would cost Hartley and Thompson and other friends, as
well as his customers, many thousands of dollars. It was as follows:
“Owing to the refusal of their bank to extend the usual facilities to
them, Hayward & Co. are compelled to announce their suspension.”
“Boy!” he yelled. And he gave the bit of paper to one of the Exchange
messenger boys in gray. “Take this to the Chairman.”
And he walked slowly, almost swaggeringly, out of the New York Stock
Exchange—for the last time—as the Chairman pounded with his gavel until
the usual crowd gathered about the rostrum, and listened to the
announcement of the failure of “Sally” Hayward, who began as a nice
little telephone-boy and ended as a stock-gambler.