Fifty years in Wall Street

by Henry Clews

To relieve the pressure for money there, and so help to bull stocks, the large interests in Wall Street, excepting J. P. Morgan & Co., imported from Europe $40,000,000 of gold in the spring of 1906 and $45,000,000 in the autumn.

This last great importation caused the Bank of England to raise its minimum rate of discount from three to four, then to five, and then again to six per cent., the highest since the Boer War. The rate, it was intimated, would have been advanced to seven per cent. had we taken any more of the yellow metal. The purchase of so much gold in England was made possible only through the Secretary of the Treasury, Mr. Leslie M. Shaw, practically advancing the means for importing it by lending gold to the banks, secured by collaterals, the loaned gold to be returned when the imported gold arrived.

The spring gold importations followed the great San Francisco earthquake and fire, on April 18th, involving an estimated loss of $250,000,000. Most of this, however, fell upon British, German, and other foreign fire-insurance companies, which relieved this country financially to a corresponding extent, although New York shipped more than $50,000,000 of gold to San Francisco to fortify the banks in that city.

After the stock market had been sold to a standstill and its weak timbers eliminated, by May, 1907, it was only natural, in view of its previous drastic liquidation and heavy decline, that with good crop weather following the backward spring, stocks should advance. The keel of a future bull market of large dimensions had been laid by the disastrous liquidation that had occurred, and we subsequently witnessed its development on a rapidly ascending scale. It is a law of nature that action follows reaction.

This reminds us that Wall Street easily passes from one extreme to another, and that very often the dawn is nearest when the night is darkest, in finance as well as nature. Moreover, Wall Street is always with us, just as the poor are, and the stock market is a serial story that never ends.

In July, the improvement in the stock market, and especially the Harriman stocks, was very decided, with the indications favoring a wider and more active speculation, for as yet it was almost entirely professional. In this movement the Standard Oil and Harriman party were the bull leaders, with Union Pacific the leading stock. Notwithstanding their vigorous efforts, however, the outside public remained entirely apathetic, and there was growing anxiety as to the future of the money market. This was increased by our having, unexpectedly, to ship gold to Europe, nearly all of it to the Bank of France, as well as by depressed monetary conditions there, with much disturbance, under heavy liquidations, in London and Berlin. Even British Consols declined from week to week, till they touched 81, the lowest price recorded since 1848, the year of the Smith O’Brien rebellion in Ireland, when they sold down to 80.

Then came an angry and threatening contest, and stormy litigation, between the States of North Carolina and Alabama and the Southern Railway Company, involving also other Southern States and railways. The main conflict was between the States named and the United States Courts on the 2¼ and 2½ cents a mile rate law. This went so far as to cause a revocation of the license of the Southern Railway to operate its lines in Alabama. The situation for a time was extremely critical, but a truce was at length arrived at, the Southern Railway agreeing to obey the State law, and leave the ultimate decision to the United States Supreme Court.

While this disturbing controversy was at a white heat, the $29,240,000 fine inflicted by Judge Landis, of the United States District Court, at Chicago, on the Standard Oil Company of Indiana, fell like a thunderbolt upon not only Wall Street, but investors all over the country. This was on Saturday, the 3d of August, and it looked so like confiscation, and so alarmed the large speculative capitalists, who had been supporting the stock market, that they at once withdrew their supporting orders and, for self-protection, became heavy sellers themselves of the stocks they held. They foresaw the effect of this disturbing decision, and the course of the Southern States towards the railways, upon investors, in causing liquidation. Simultaneously, a threatening report from the Bureau of Corporations added fuel to the fire of distrust.

Day after day, for twelve business days, following the opening of the stock market on Monday, the 5th, there was an almost uninterrupted and very heavy decline in prices for both railway and industrial stocks, the best and highest priced being the heaviest sufferers, and falling from ten to twenty-five per cent. The scare among holders of stocks increased as prices declined, and demoralization in the market carried these generally below the lowest in the panic of March. It was very largely another rich man’s panic, due to fears as to what might come next to disturb confidence in the value and future dividends of both railway and industrial stocks. The worst of it was, the innocent were, as usual, made to suffer with the guilty. But after a storm there cometh a calm, and so it was in this case, and perhaps all’s well that ends well. But the ordeal was a very severe one, particularly for the large holders of stocks, and made the year 1907 still more memorable than before.

Rumors of impending Wall Street and industrial corporation failures, as usual in times of disturbance, filled the air, but only one important industrial failure and one unimportant Wall Street suspension occurred in August, and the gradual return of confidence caused a gradual improvement on the Stock Exchange, although the semi-annual dividend on Southern Railway preferred stock was reduced from 2½ to 1½ per cent., and the dividends on Erie’s first and second preferred stocks were declared payable in four per cent. scrip warrants instead of cash. Toward the end of the month the Secretary of the Treasury announced that weekly deposits would be made in the national banks till October 15th, and this at once began to ease the money market and further strengthen confidence.