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{129} 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 77?. It was offered freely just after trading began at 77? and then at 77?. There was little support, and when one of the sellers offered 1,000 shares at 77?, 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.{130}
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 79? and the other stocks which they at{131}tacked 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{132} 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{133} 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{134} 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{135} 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,{136} 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{137} 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{138} 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.{139} 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{140} 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{141} 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.{142}
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{143} 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{144} 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{145} 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{146} 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{147} 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.{148}” 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{149} 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?