Wall Streets Poise

IT is just possible that some of the readers of the Atlantic Monthly may be patrons of the prize ring. If they have studied the professional fighter, as distinguished from the often more attractive amateur boxer, they will have noticed one or two things about him highly valuable for purposes of illustration. He hits much harder than the amateur, because he can thereby end I he light, and he understands how to ’cover up’ — to avoid getting seriously hurt himself. But if he is in the first class he has something equally valuable in his perfect poise. He is so balanced on his feet that he can move instantaneously in any direction. Experts attach as much importance to what he does with his feet as to what he does with his hands. Manifestly he directs each set of limbs with his head. It is in this matter of poise that Wall Street holds such consistent supremacy over the other business of the country. It is so balanced in its movements that it can shift quickly in any direction with a minimum waste of time and effort. This is indeed part of the machinery of the stock market, a part without which it would not serve its invaluable purpose.

It is to be observed that reports of business all over the country are decidedly mixed, with actual depression in places, a diminishing of profits elsewhere, and a tendency to slow up which is now even beginning to appear in the carloadings of the railroads. This is an important indicator, because these loadings have been running well over a million cars a week, and it is clear that if what is produced is moving there is an absence of congestion in inventories and a broad consumptive demand, affording an excellent guarantee for general business. There are other factors, such as flood damage, a marked curtailment in building permits, a discouraging crop outlook, and some evidence of increasing unemployment, all of which may be said to have a cumulative effect. The popular mind calls for something specific to account for a change in the general direction of business. A single cause, suitable for exploitation on the front page of newspapers, may be credited with many times its real value when the stock market gives one of its warning declines. Taken by itself, that cause may be no more significant than the last straw which is said to break the camel’s back.

But the stock market is perfectly poised, shifting its position rapidly to be able to meet any pressure brought upon it from any direction. When it is advancing, as it has been advancing for nearly four years, the gains are anything but equal. Some groups are much stronger than others and there is even depression, relatively at least, in rubber, copper, oil, or woolen shares. Groups are taken up in turn as they look attractive, but a strong major movement can well afford variation of this kind. When a serious recession sets in, however, stocks are much more apt to move together. This is not at all because there is not the same variation in values, or because specific reasons are lacking for special weakness or special resistance. Indeed it might almost be said that the better the stock, particularly in the sense of wide distribution and a broad market for it, the more severely it is apt to suffer. A moment’s reflection will give the reason. When the overextended pool in a stock where no real foundation of public interest has been laid has to sell in a sharply declining market, it finds few buyers. It must therefore sell what it can at some price in order to protect what it cannot sell at any price.

There is no intention here to predict, much less indicate, the actual turn of the present stock market, but it is important to show how exactly the same thing happens in the relation between the stock market and the general business of the country where that business has become overexpanded. Invariably the stock market liquidates first. Pressed for cash and credit, the business concern will sell the securities out of its box for what they will fetch. It cannot very well sell the factory, and much less the goodwill created by advertising. The stock market, therefore, feels the pressure first, and vindicates its long-recognized barometrical value. It shifts its feet quickly, like the prize fighter, and does not lose its poise, except in the rarest instances where it is taken unaware — as, for example, in the case of the Northern Pacific corner, the San Francisco earthquake, and, perhaps, the outbreak of the war.

For the present, money is cheap and plentiful, and the investment demand for securities is surprisingly good. The last is a condition of public confidence which might change overnight. It is difficult to see anything at the moment, or for at least some months ahead, which would tighten the money market . Even the demand for moving the crops, which makes itself felt in the fall, is nothing like so important as it was in days gone by. The Federal Reserve system has done wonders in distributing the load of those requirements, just as greater efficiency in railroading has made the once customary shortage of cars in October a thing of the past. There are some signs, in spite of the high level of prices, that Wall Street is keeping its hands clear for possible eventualities. Whatever single incident might precipitate liquidation, through the cumulative effect of unfavorable influences, the perfect poise of the financial centre is not to be denied. This is matter of reassurance, and it often happens in financial experience that a danger foreseen is a danger averted.

While it is true that the investment demand for seasoned securities, including high-priced stocks, is remarkably good when the extent of the long advance is considered, there is another condition which is much less satisfactory. There are signs of decided overissue; of new securities, some of them, at least, for foreign account. New financing for the older and bestestablished oil companies has not found a ready market and there is a good deal of this stuff still in first hands. Although the condition is not in other ways parallel, there is something not unlike a financial position which was ascribed by (he late J. Pierpont Morgan in 1907 to ‘undigested securities.’ The business of our bond houses is nothing like so well coördinated as it is in London, and the practice of each house acting more or less independently, without consulting the others on the general consumptive demand, is in a fair way to bring about a position temporarily embarrassing, if not likely to be dangerous, in view of the ample supply of cheap money.

This is no place for moralizing about speculation, and the occasionally vague line which divides it from gambling. Phat the existence of a speculative market is in a way a policy of insurance is self-evident. In modern conditions of credit such a safety valve is indispensable. Many instructive charts are published, representing supposed barometers of business, for the most part merely records. Not one of them has ever achieved the usefulness of the stock market itself, because the movements there are the reflection of what everybody knows about everything. The showings of these tabulations of bank clearings, pig-iron statistics, brokers’ loans, industrial production, and the like are discounted before they are made.