Boom Days In Wall Street

by Edwin Lefèvre, April 1901

What has been is what will be
and what has been done is what will be done
and there is nothing new under the sun

Ecclesiastes 1:9

Lefèvre is best known for writing Reminiscences of a Stock Operator, the fictionalized biography of “perhaps the most famous financial speculator of all time,” Jesse Livermore.

A GRAPHIC DESCRIPTION OF THE STOCK MARKET AT ITS TIME OF MOST INTENSE ACTIVITY. HOW THE LATEST AND GREATEST BOOM OF ALL WAS STARTED, THE MEN WHO MANIPULATED IT, AND THE FAR REACHING RESULTS THAT FOLLOWED IT.

Munsey’s Magazine, Volume 25, Issue 1

OBEYING economic laws, which are more or less clearly understood, there come periodic recurrences of commercial and industrial—and—consequently—also financial—depression, known as “hard times.” These often culminate in “ panics ”’—really outbreaks of acute commercial cowardice. One man fails, for good and sufficient reasons; his neighbor, exhausted by the prolonged, unprofitable inactivity, grows apprehensive of yet worse things to come, and he, too, gives up the struggle for no good reason. And then his neighbors, one after another, throw up their hands before the highwayman Panic, and fail—for no reason at all. To be sure, specific causes, like the failure of a crop or of a big bank, a Homestead strike¹ or a Venezuelan message, may precipitate a panic: but they are not of themselves responsible for the prolonged periods of depression that make panics possible.

Obeying the same economic laws, there comes the reaction. The commercial pendulum swings in the other direction—towards prosperity. Industry and commercial activity, increasing daily, result in such wide spread well being that the principal beneficiaries grow to believe it will last forever. In lieu of an epidemic of commercial cowardice, there is a carnival of financial fearlessness.

Intoxicated by success, forgetting the lesson of the lean years, men lose their normal business prudence. They increase the output of their factories or of their mines without duly considering the demand for their goods; they buy much and produce more. They have seen their friends acquire wealth in a few lucky prosperous months; they would do likewise, whether it is in dry goods or pig iron or raw hides or stocks. Greed, a species of moral malaria, fills their system, poisons their blood, and colors their thoughts with the jaundice hue of gold.

As the fever rises, they cease to think calmly. They abandon logical processes, they scorn dispassionate analyses of conditions and probabilities. All about them they behold the faces of gold stricken fellow madmen. They know that a final crash is inevitable, because such periods always lead to disastrous overproduction : but they think the end is so far away, and coming so slowly, that they can prepare for it in time. It is the egotistical delusion of men whom the dazzle of gold has blinded—men who fancy that they are not gambling, but merely making aureate hay while the sun of prosperity is shining. It means “boom days “—an era of exaggerated values, of over stimulated business, of excessive output, which lasts months, possibly even years.

And then?

The economic pendulum swings back and downward.

It has happened before. It will happen again. That is the law.

Professional Wall Street invariably “discounts” events. It lives by foreseeing what is going to happen. It must take time by a long forelock. If it waited until the event actually occurred, everybody would prosper equally: and that would not be conducive to Wall Street wealth. Therefore, booms in stocks “discount” booms in trade.

To be sure, Wall Street takes great risks. For example, the “talent” was hard hit by the Venezuelan panic², which had not been “discounted.” Mr. James R. Keene and Mr. Stephen V. White, two of the boldest and ablest operators that ever lived, went into bankruptcy because at one time in their Wall Street careers they mistakenly trusted some of their fellow beings against whom they should have guarded. Their sagacity was unquestioned, their market position was justified by conditions, they should have made fortunes; but they failed to discount the possibility of friends proving false. The lesson cost them millions. It took them years to recover their fortunes. Most of us pay a few hundreds and never learn the lesson well.

Similarly, the greatest aggregation of individual wealth that ever united for a common purpose practically wagered a billion of dollars on Mr. McKinley’s re-election. Plans involving fully that sum were at stake. The men concerned were extraordinarily intelligent—whence the billion—calm, cool headed, unsentimental, and very well informed. They were so sure that Mr. McKinley would win that they quietly went on about their business and made plans which would in all probability have gone to smash had Mr. Bryan been elected. They did not parade their convictions, because it would not be well to encourage a general feeling of over confidence. They were justified by the event. But they took enormous chances, none the less. For who could guarantee that some dismal day in September they might not see in huge type, on the front page of the newspapers: “THE PRESIDENT ASSASSINATED!” or read that he was dying of disease or an accident? Had such a catastrophe caused the inevitable stock market crash, the philosophers of the Street would have told you that the financiers had failed to discount the frailty of human life.

HOW A BOOM BEGINS

It is not a difficult matter to start a stock market boom when conditions are favorable. In the beginning, stocks are “manipulated.” There are wiles and arts to be practiced—there must be enticing “displays” on the financial bargain counters. Women. will turn up their adorable noses at silks and satins, and later rush to buy the same goods if the store advertises a “special sale.” The public will pay high prices for securities which are properly labeled and advertised. It might have purchased them cheaper, had it been wise. Little by little, the vendors of securities and insecurities of all kinds coax and cajole outsiders to come into the market. It sometimes may prove slow work; the best efforts may end in utter failure ; and the “rich men” suffer. But usually the attempts succeed. And then, if the public flocks to Wall Street in great numbers, a “boom” follows.

Wall Street in boom days is an aggregation of mad-men. The Stock Exchange becomes Bedlam well dressed. Its thousand members shriek shrilly from ten to three o’clock—five hours of pandemonium. About the various “posts” surge and eddy billows of maniacal humanity, shouting, gesticulating, pale of face or flushed, according to temperament, but all wild eyed and eager—buying or selling stocks for their customers in offices near by, in branches up town, or in Boston, Philadelphia, Cincinnati, Washington, or Chicago, by special direct wire. ‘Thousands of eyes throughout the country, in legitimate brokers’ offices or in bucket shops, are gazing hungrily on the quotation boards that record what these same brokers are doing.

In the daytime, all the streets of New York’s financial district are thronged with a rushing, jostling crowd of millionaires and messenger boys, financiers and frankfurter peddlers, brokers and broken down gamblers. At night, instead of the quiet that reigns in normal times, after the daily exodus, you see the huge office buildings ablaze till midnight—rows upon rows of glimmering golden squares, many of them with a green tinge caused by the shades over the electric bulbs that light the desks of the brokers’ clerks.

Men of all ages and complexions, of all nationalities and temperaments, of every religion and of no religion at all, very rich men and men not so very rich, very poor men and men even poorer, come to Wall Street at such times. It seems as if, they thought that government bonds dangled from the crosspieces of the telegraph poles, as from so many Christmas trees. Apparently, in these boom days, all the world has become suddenly afflicted with the gambling fever. The contagion of multitudinous example devastates the community. Merchants and lawyers, manufacturers and physicians, contractors and clergymen, talk of nothing else. At clubs and at dinner tables the conversation drifts to the all absorbing topic. The small shopkeepers and their clients discuss the same subject. In the wicked cities, as in the peaceful hamlets, men meet, exchange hasty salutations, and plunge forthwith into stocks. going over their “deals,” exaggerating their winnings, magnifying their courage, minimizing their losses, posing as old stock gamblers, repeating as their own, with a blasé air, opinions vouchsafed by their hardened brokers.

THE GREAT GAME OF SPECULATION

In the beginning of a stock market boom it is ever the “dear public,” the fleecy lambs, the most guileless victims, who make the most money. They really do not know when to stop winning, and so in the end they lose profit and principal. But in the mean time the financial pages of the newspapers are filled with advertisements of “tipsters,” and “discretionary pools,” and men who, "as per adv.” have mastered all the secrets of successful speculation, but who in private fight shy of the police and do not live palatially. How to become a millionaire in a minute? To learn, you have but to write to these, the quacks of the Street. They appeal to the ignorant, to the purchasers of gold bricks and the investors in green goods. In the Stock Exchange offices, in the sumptuous customers’ rooms of the millionaire firms, well dressed men, who would not dream of buying a gold brick, sit from ten to three o'clock, their eves fixed on the tape or on the quotation board before them, every whit as eager as the poor clerk who has risked a week's wages to buy ten shares in a bucket shop, or the farmer who has sent twenty five dollars to some “skindicate.” Like their humbler brethren, the well dressed non investors in green goods, successful merchants or physicians, sit in comfortable chairs, their hearts wound around with ticker tape, hoping, despairing, hoping again, laughing the same semi hysterical laughs of winning gamblers still new at the game. Or perhaps they stay in their offices or stores or residences, telephoning every half hour of the day to find out whether the market is behaving nicely—chuckling merrily when the news is good, affecting a ghastly indifference when it is not.

The members of the New York Stock Exchange, of course, do not advertise that clients may become lightning quick millionaires in their offices; but the clients believe it as firmly as the credulous victims of the Franklin and Dean syndicates. Else they would not be there, wasting time and money. Greed is a bandage which a higher power sometimes binds across the eyes of reason. To grow rich without working; to win, as the result of a few score clicks of the ticker, a sum that a year of work, anxiety, and nerve wear would not yield in legitimate business, is surely pleasant. And then there is the pleasure of gambling itself, the only passion, except love, that is universal.

Stevenson, you remember, had a coward in his “Suicide Club” who threw dice with Death to enjoy the delights of fear, because when he escaped he tasted the intense joys of living. But he played once too often, did old Mr. Malthus. It is the same in stock gambling—the delightful uncertainty; the grim “now you see it and now you don't” of luck: the little chills of pleasure and the leaden sinking of disappointment; the magnified joys of anticipation; the exquisite expectancy—all this fires the blood of the young, as does love, and of the old, as love no longer can. The stock market “lambs” are like Mr. Malthus—when prices fluctuate they keenly enjoy the delight of riches, because they have just jumped from the sorrow of non possession. But they, too, play once too often!

It may be accepted as axiomatically true that a man must possess a high degree of intelligence to be successful in commercial or professional pursuits. So must a Wall Street man, to win a fortune in the stock market and to keep it. But for an “outside ” business man to make a fortune in his vocation, and then to make another in the stock market, and keep both, requires positively the most extraordinary ability.

Always, on the wave of a general boom, outsiders come to Wall Street—and fail to display ordinary ability. They are ignorant of the basic principles of stock speculation. They are too late in going in and they overstay. They take unduly great risks.

In the stock market, the stupendous power of “the public” is like that of a huge engine—it needs an engineer to direct it. At the start, the “powerful interests” of the Street must begin the buying, that the public may follow. But once the outside investors and speculators come into the market, not all the wonderful manipulation of the adroitest financiers can duplicate the dizzy upward whirl of security values. In the end, the public, left to itself, goaded here, bludgeoned there, stampedes to sell, and the speculative structure crumbles as by magic—black magic! Fear enters every heart, and reason leaves every head. No financial power can check the decline. It must run its course, for Everybody is stronger than Anybody in Wall Street.

Then a few dozens of men knowing that an upward reaction must take place, buy and put away the securities sacrificed by the frightened public. Later, the public buys these same securities again; and the men who put them away during the flurry are not losers.

Fortunes are made and lost by thousands of men in the stock market; they are made and kept by a few dozen. It is not the brokers fault. The more money a man’s customers make, the more Commissions it means, and that is what he is after. They have a saying in Wall Street: ‘“Copper your customer and grow rich.” It does not mean that the broker is to despoil his clients of their last cent, but, in plain English, that the customers are invariably wrong in the end; wherefore, by doing exactly the opposite, the broker will prosper. As a rule, however, he is content with his commissions of twelve and a half dollars for buying or selling a hundred shares of stock. The partnership papers of most firms contain clauses forbidding the members from speculating on their own account.

WALL STREET’S HIGH WATER MARK

One day last summer, when political uncertainty was at its height and business was paralyzed—on August 22, to be exact—the total transactions on the New York Stock Exchange amounted to but 85,807 shares of stock and $735,000 (par value) of bonds. Much of this business was done by the ‘room traders”—the professional gamblers of the Exchange, who do no outside commission business—so that the public’s share in the day’s transactions was probably less than one half the total. On the other hand, on January 7, a boom day, the total business, according to the official records, amounted to 2,127,503 shares of stock and in bonds (par value) to $3,803,500. Moreover, the ticker reporters missed many transactions, and the real total was probably in excess of two and a half million shares. The face value of the stocks dealt in that day was two hundred million dollars. The average price was considerably less than par, but it is no exaggeration to say that the aggregate market value of the stocks which changed hands on January 7 was fully a hundred and seventy five millions. Not a bad day’s work, that!

The machinery of the Stock Exchange proved inadequate for the business literally thrown at it by the huge mob of frantic speculators. Imagine the roulette tables of Monte Carlo placed before a newspaper bulletin board in Park Row on the night of a Presidential election!

There have been several “boomlets” and a few “booms” in Wall Street, but none like the latest³. In its most recent parallel—that of 1879-’81—the resumption of specie payments and some great crops led to an appreciation in security values which degenerated into an era of wild speculation. Stocks sold beyond all reasonable figures. The “boom” ran its course, like the South Sea Bubble in England and John Law’s Mississippi Scheme in France, until it came to an end with Garfield’s assassination.

At that time conditions favored a rise, and a rise took place; but the national prosperity of twenty years ago is not for a moment to be compared with the present. With occasional reactions, the “bull market” has now lasted for three years. During that time, in addition to our domestic prosperity, it is to be noted that the excess of our exports over our imports has amounted to more than one and three quarters billions of dollars. To settle this vast difference in our favor, the entire gold production of the world for seven years would have to be paid us by our debtors abroad. And most of the huge profits that our foreign commerce has brought us have been invested in American securities held in Europe. Hence it is not surprising to find that in three years the value of the securities traded in on the Stock Exchange and on the “curb” has increased by a sum fully equal to our three years’ credit balance of trade.

WALL STREET AND THE ELECTION

What may be called the “election boom ” began last summer. Stocks declined for a variety of reasons, but chiefly because of the general apprehension over political possibilities, and the widespread business stagnation of a “Presidential year.” The lowest point was reached on June 24. Even then stocks were by no means low compared to what they had been a few months before; nor, indeed, to what they would be a few months later, if the result of the election shocked the business world.

The public thought prices ought to go down further. Everybody looked for a “Bryan scare” which was to send stocks tumbling like pricked balloons. But, as usual in Wall Street, the universally expected did not happen. The financial magnates thought of the inevitable result of McKinley’s reelection, and quietly acquired stocks. By the end of September the country shared their belief regarding the political prospect, and outsiders also began to buy, hesitatingly. Then came aggressive heavy purchases by a clique of daring professional speculators to discount a Republican victory, and prices rose sharply. The aggregate value of the capital stocks of all the companies whose securities were daily dealt in on the New York Stock Exchange rose about two hundred million dollars at a bound.

But what had required three months of quiet buying and one month of wild discounting to accomplish was exceeded in one week. Had an unutterably rich syndicate bought all these stocks on Saturday, November 3, and sold them exactly one week later, on Saturday, November10, when all that had happened was the expected reelection of William McKinley to the Presidency of the United States, the syndicate would have pocketed a profit of a quarter of a billion dollars. This does not include the rise in bonds, nor in “outside securities.” For example, the Standard Oil securities alone rose exactly one hundred million dollars in that wonderful week.

In writing a description of the “election boom,” apart from the general features, which were those of other booms, one must have a word to say of the men to whose operations the tremendous movement in the stock market was chiefly due. The leading bankers and financiers of the country naturally went ahead with gigantic plans the moment they felt absolutely safe. But there was in Wall Street a general disposition to take advantage of the big “over Tuesday” rise, to take profits on lines purchased days or weeks previous as a sort of wager on the election. Professional Wall Street, all the big gamblers and the little gamblers, made up their minds that the lambs would be the only buyers on the wonderful Wednesday morning opening.

THE MAKERS OF THE BOOM.

It was a mistake that cost professional Wall Street a goodly share of the profits of the rise. There was large buying of stocks by the public, and even greater purchases by the greatest professional of them all, Mr. James R. Keene. One after another, the manipulators ceased work. Mr. Keene went ahead. He was betting on the surest thing he ever backed—the prosperity of the United States of America. He electrified a hesitating public into unprecedented buying of the securities in which he operated. A record breaking succession of boom days followed, with Mr. Keene, erstwhile bear leader, as the greatest bull.

But even Mr. Keene at first failed to appreciate the magnitude of the boom. Mr. Morgan, who did not, realized that the time had come to carry into effect stupendous plans he had been considering for years. He revolutionized the anthracite coal trade by removing all the disturbing factors, buying and selling coal mines and railroads as if they had been so many bits of furniture. He associated himself with Mr. James J. Hill, and soon placed the Northwestern railroad situation on a stable basis. Acting for certain railroads, banking syndicates bought huge blocks of securities of other roads, in the pursuit of the “community of interest ” idea. Messrs. Harriman and Kuhn, Loeb & Company thus bought a controlling interest in the Southern Pacific system.

Under the enormous purchases rendered necessary by these operations, the stock market fairly boiled. For weeks at a time, the corporate wealth of the country increased at the rate of millions of dollars an hour. The mighty plans of the great syndicates were such that no opposing element could be allowed to interfere with them. Mr. Carnegie threatened to disturb the iron trade by underselling the other so called trusts. Under an avalanche of millions his opposition was smothered, and Mr. Morgan formed what came to be known as the “ Billion Dollar Trust.”

All these deals made the greatest boom in the history of Wall Street. The old timers perforce stopped bragging about the boom of ’79 and *80. What could they offer in their experience of fifty years to compare with a bull market in which there were weeks when ten million shares of stock changed hands? During the week ending January 12 the total value of the stocks traded in on the New York Stock Exchange amounted to more than five hundred millions of dollars. During the week ending February 9 the sales of bonds (par value) amounted to $45,014,000. These almost incredible figures will give an idea of what the New York Stock Exchange does in boom times.

It took money to do this; but the money was forthcoming. On February 16 the banks of New York reported net deposits of $1,011,329,000, of which they were lending to their customers $914,623.000. Tidy sums, these!

1. “a violent labor dispute in 1892 between the Carnegie Steel Company and its workers at the Homestead steel mill in Pennsylvania.“

2. This likely refers to the Venezuelan Crisis of 1895

3. The Panic of 1901: “First National City Bank (Citibank), led by James Stillman and William Rockefeller, with Standard Oil money, buys $115 million of Northern Pacific Railroad’s stock and triggers a stock market panic. Thousands of small investors are wiped out.” Both Stillman and Rockefeller were in the Jekyl Island Club, and would later be intimately involved in creating what became the Federal Reserve.