Continued from...The Stock Market and Farming
There are two Wall Streets. One of them is the
Wall Street of fact, slowly arriving at definition out of a chaos of misconception.
The other is the Wall Street of fiction; the Wall Street of sensational
newspapers, of popularity-hunting politicians; the Wall Street of false
dramatic interpretation, whose characters are no more real than the types
of the old-fashioned melodrama of fifty years ago - those caricatures which
have had an astonishing and uninitelligent revival on the moving-picture
screen. It was felt that our second chapter might well be devoted
to that popular misconception, Wall
Street of the movies.
Major Movements Are UnmanipulatedOne of the greatest of misconceptions, that which has militated most against the usefulness of the stock market barometer, is the belief that manipulation can falsify stock market movements otherwise authoritative and instructive. The writer claims no more authority than may come from twenty-six years of stark intimacy with Wall Street, preceded by practical acquaintance with the London Stock Exchange, the Paris Bourse and even that wildly speculative market in gold shares, "Between the Chains," in Johannesburg in 1895. But in all that experience, for what it may be worth, it is impossible to recall a single instance of a major market movement which depended for its, impetus, or even for its genesis, upon manipulation. These discussions have been made in vain if they have failed to show that all the primary bull markets and every primary bear market have been vindicated, in the course of their development and before their close, by the facts of general business, however much over-speculatian or over-liquidatition may have tended to excess, as they always do, in the last stage of the primary swing.
A Financial ImpossibilityThis is a sweeping statement, but I am convinced of its fundamental truth. When James R. Keene took up the task of marketing two hundred and twenty thousand shares of Amalgamated Copper, for the people who had brought about that amalgamation but had not been able to float the stock, it is estimated that in the course of distribution he must have traded in at least seven hundred thousand shares of that stock. He carried the price to above par to realize a net of ninety to ninety-six for his employers. This was a relatively small stock capitalization; but let us assume that some syndicate, larger than any that the stock, market has ever seen, necessarily involving the cooperation of all the great banking institutions, undertook to manufacture the general bull market without which Keene's efforts would have been worse than wasted. Let us concede that this super-syndicate could afford to ignore the large number of active securities outside of the forty active stocks taken in our railroad and industrial averages and defy all trained public opinion. Let us assume that they had accumulated for the rise, against all their previous practice and conviction, without, by some miracle, arousing suspicion, not two hundred and twenty thousand shares of stack, but a hundred times that number.
Anybody who learned in the little red school house
that two and two make four must see that we are here leading ourselves
into an arithmetical impossibility. This syndicate would presumably not
be content with less than a forty-point net profit, and its actual trades,
before it had established a broad general market even equivalent to that
Keene established for Amalgamated Copper; alone would therefore amount
to something like one hundred and twenty million shares, which, taking
them at par, would involve financing to the amount of many billions of
dollars - so much financing, in fact, that the great banks concerned would
presumably relinquish all their other business and confine themselves to
the syndicate operations alone. Such a syndicate could not have done this,
or a tithe of this, at any time during the existence of our national banking
system. Does anybody think it would be possible to undertake such a panic-breeding
operation with the assistance of the Federal Reserve system?
Where Manipulation was PossibleTo state the terms of a corresponding bear operation, where every wealthy member of the syndicate is necessarily already a large holder in stocks, bonds, real estate and industrial production, would reduce the whole thing to the wildest absurdity. My mind refuses even to grasp it. Keene, in a broad bull market, to distribute a number of shares amounting to one-twenty-fifth of the common stock alone of the United States Steel Corporation, had behind him all the wealth and influence of the powerful Standard Oil group. When he distributed United States Steel common and preferred he had behind him not only the great Morgan banking influences but those of every group that came into that steel combination, with the general approval of a public which correctly recognized a wonderful and even unprecedented expansion in production and trade. But even with that backing could he have multiplied his efforts a hundredfold? The merchant, the banker, the manufacturer who studies the stock market barometer with reference to the major swings, can dismiss from his mind altogether the idea that they are falsified by manipulation.
From The Stock Market Barometer by William P. Hamilton, published in 1922
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