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William Peter Hamilton.

The stock market barometer; a study of its forecast value based on Charles H. Dow's theory of the price movement. With an analysis of the market and its history since 1897 online

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its first expression is generally wrong, or right for the
wrong reason. But the second thought of the great
American people, as history shows, is usually right.

Recalling Lincoln

Annually we repeat to each other the great words
of the Gettysburg Address. Lincoln declared that
what was said there and be it remembered that he
was not at the time considered the principal orator of
that great occasion would bear little place in men's
memories compared with what was done there. He
underrated, with characteristic modesty, the imperish-
able quality of a great thought greatly expressed.
Lincoln's words in 1863 at Gettysburg will be remem-
bered by millions who will hardly know the conditions
of that battle or which side won it, except to assume
that the imperishable Union was there sustained. But



2 1 8 THE STOCK MARKET BAROMETER

if, at that time, there had been in operation a federal
law to "recall" officers federally elected, it is well
within the bounds of probability that Lincoln might
have been recalled and not re-elected. It was not until
the following year that his re-election to the presi-
dency was a certainty, and there are readers of these
discussions old enough to remember the moral depres-
sion of 1863 and its effect upon the public mind.

Paying for Government Meddling

It can be seen, from this instance of many, that the
second thought of the American mind was right, where
its first impression may well have been wrong. Look
at the enthusiasm recently created in the Middle West
by the Non-Partisan League, with its half grain of
truth and its bushel of quackery or fraud. Dare we
assume that we have extruded that poison from our
system? Hardly a week passes that a bill for the
creation of billions of fiat money, under one pretext
or another, is not introduced into the Congress of the
United States.

If there is one lesson which should have been burned
in upon the public mind in the past decade, it is that
when government interferes with private enterprise,
even where that enterprise is directed to the develop-
ment of a public utility, it can do incalculable harm
and very little good. The people who develop the
railroads and the natural resources of the country are
only ourselves. Railroad ownership is, in a way, more
representative than ever Congress can be. It includei






REGULATION AND RAILROADS 219

every depositor in the saving banks, every holder of an
insurance policy, and, indirectly, every holder of a
United States bond, so long as the interest on that
bond is dependent on taxation largely derived from
railroad enterprise.

Legislating Everybody Poor

It must be admitted that this chapter is less about
the averages as a barometer than as a record. But
our discussions would be incomplete if the most im-
portant lesson of that record were overlooked for the
easily understood psychological reason that it is writ-
ten in such large letters across the sky. Look at the
course of the railroad averages on the twenty-five-year
chart. More than sixteen years ago the twenty active
railroad stocks made the highest point on record, at
138.36, on January 22, 1906. They never saw that
figure again, but came within less than four points of
it in August, 1909, at 134.46. The next high point
was in October, 1912, at 124.35 more than fourteen
points below the record. On the next advance the net
recession was still further, while the railroad average
reached only 109.43 on January 31, 1914, the top of
a half-hearted rally. Even the next recovery, in the
first bull market of the war, only carried the railroad
stocks to 112.28, on October 4, 1916. They did not
share the bull market of 1919, as we know, for we
have devoted an earlier chapter to the study of the
reason.

To-day the price is fifty points below the record, and



220 THE STOCK MARKET BAROMETER

less than fourteen points above the low figure of July
25, 1898 more than twenty-three years ago. Analyze
this steady decline over a period of sixteen years, suffi-
cient to include the simple cycle of the Harvard Uni-
versity Committee on Economic Research at least
twice over more than long enough to exceed the
period between two of our greatest panics those of
1857 an d 1873 covering a time 60 per cent longer
than the Jevons ten-year cycle. See how the steadily
declining line of values mocks and belittles the assumed
medial line of growing national wealth postulated in
some of the better-known business charts. Can the
richest nation in the world afford to allow its politicians
to run its greatest investment and its greatest industry
into the ground as steadily and stupidly as this? Are
we throwing away the thing our fathers built, or allow-
ing politicians to squander it, from some idea that the
ruin of the railroad stockholders will make other
people richer and happier? We know, or ought to
know, that we cannot legislate everybody rich. But
here is one more example added to that of Russia, of
how it is possible to legislate everybody poor.



Chapter XIX

A STUDY IN MANIPULATION IQOO-I

IT has been shown in previous discussions how rela-
tively unimportant stock market manipulation is.
But history presents some striking instances of manip-
ulation, and much was possible in the Wall Street of
two decades back which would not be feasible or toler-
ated to-day. It would not, for instance, be within the
bounds of possibility to manipulate either the Steel
stocks or Amalgamated Copper for distribution to-day
as they were undoubtedly manipulated by James R.
Keene twenty-one years ago. These two stocks are
merely offered for example, and it is not to be assumed
that I am placing them on a parity. There was an
arrogant impudence about the distribution of Amalga-
mated Copper which makes me hot all over, even now.
I remember that I criticized it, with all the freedom the
law (and Charles H. Dow) allowed, at the time it
was in progress.

Conceived in Sin

The Amalgamated Copper Company was conceived
in sin and born under similar auspices. It was offered
for subscription with a capital of $75,000,000 early
in 1899, and the subscription books closed on May 4th
of that year. A number of "newspapers," of a kind

221



222 THE STOCK MARKET BAROMETER

now happily defunct, reported that the stock had been
"five times oversubscribed!" It did not sound prob-
able, with the stock selling at a heavy discount in less
than a month. The general stock market was on the
down grade then. It did not turn until the summer of
the following year. Of all the contemporary com-
ments on that disreputable exploit those of the Boston
News Bureau, which flatly refused to be humbugged,
were about the most vitriolic. Here is one of them,
published less than a month after the fivefold "over-
subscription." On June i, 1899, the Boston News
Bureau said:

"The drop in Amalgamated Copper stock which was the
feature of the trading in outside securities yesterday, was par-
ticularly appropriate at this time when the general railway
list is on the down grade. Many shrewd observers in Wall
Street contend that the formation of the Amalgamated Copper
Company was the red flag which warned conservative investors
and speculators away from the security market; that a blind
pool calling for a capital of $75,000,000 should be oversub-
scribed five times was an indication to the better element of
speculators that the public lost its head and the crash would
not be far distant.

"One of the worst features of the whole case is that the
National City Bank, which is the largest institution of its kind
in this country, should have stood sponsor for such a transac-
tion," etc., etc.

Amalgamated Copper

It will be seen that, in spite of all the flubdub circu-
lated about "oversubscription," the flotation had been
a failure. The Boston News Bureau continued to com-
ment upon '"The Amalgamated Fiasco," "Promises



MANIPULATION 1 900- 1 223

and Predictions Against Realities," u The Humor and
Pathos of Copper Promises," in an acridly humorous
vein. In the same month of June there were rumors
that control of the Anaconda company had been pur-
chased by the organizers of Amalgamated Copper,
for something like $45 a share, though it was quoted
at $70 a share by the time Amalgamated was floated,
and was said to be going into the new Amalgamated
company at $100 a share. The same Boston article
points out that the $75,000,000 capital of Amalga-
mated Copper should have been sufficient to pay for
the entire capital of the constituent companies,
although only a control, presumably 51 per cent, was
declared to have been acquired. The whole transac-
tion was so raw that in the better Wall Street of to-day
it seems almost unbelievable.

Keene's Part in Distribution

In the latter part of 1904, three years after the
manipulated distribution of the stock by James R.
Keene had taken place, that eminent operator wrote
a letter, which became public, in which he admitted
that he distributed, u for the account of Henry H.
Rogers and associates," $22,000,000 of Amalgamated
Copper (two hundred and twenty thousand shares) at
prices ranging from ninety to ninety-six. In that letter
he indicated the period of distribution with sufficient
clearness. In the following January I published, in
The Wall Street Journal, an analysis of what he had
done, as shown by the recorded sales, under the title



224 THE STOCK MARKET BAROMETER

of "A Study in Manipulation." That analysis did not
deal with the ethical question. You cannot say much
about the ethics of people who seem to have none. By
taking the sales of Amalgamated Copper stock, as
recorded on the ticker, together with the names of the
brokers executing orders as reported from the Stock
Exchange, and by comparing periods of activity it
seemed possible to dot Mr. Keene's u i's" and cross
his "t's."

It had the result of making me some enemies in
Wall Street, although, to do James R. Keene justice,
I do not think he was one of them. I have said before
that we were never intimate. But he made oppor-
tunities to see me at various times after that analysis
was published, and nothing I could say seemed to con-
vince him that I had not had some illicit access to his
books. As he put it, "Somebody must have leaked."
The Wall Street of that time, and the nature of his
own business, made Keene habitually suspicious. His
mentality was incomplete in the respect that he found
it hard to believe a simple truth where it depended
upon the unsupported word of anybody. Really great
men, and some children, know when to believe and
whom. Keene was not a great man.



A Difference Between Steel and Copper



Leaving all questions of ethics apart, there wa
probably nothing more ably done in its day than the
distribution of Amalgamated Copper in the stock
market. Keene's handling of United States Steel com-



:



MANIPULATION 1900-1 225

mon and preferred will remain an example of con-
summate generalship. But in that instance he had the
enormous advantage of a public which wanted the
stock he had to sell. It is not true that there was much
real "water" in the capitalization of Steel. What was
called watered capital was only intelligently antici-
pated growth. United States Steel was floated in
1901, and three years afterwards was showing a well-
established surplus of 4.9 per cent on the common
stock sold to the public at fifty, which surplus had been
more than doubled by 1905. In an earlier article I
have pointed out the genuine book value of the
stock now.

But Amalgamated Copper was an utterly different
proposition. As a work of art the distribution, com-
pared with that of Steel, bears about the relation of
a Meissonier to one of the heroic battle pictures of De
Neuville. Keene, in his subsequent statement, said
that he was reluctant to take the matter in hand. It
was not that he had to create a market, as in the case
of United States Steel common and preferred; he had
to begin his distribution in a market which others had
done their stupid best to spoil.

Earlier Manipulation

On analysis of the sales, the first significant period
seems to be that between December 3, 1900, and about
the middle of January, 1901. Taking advantage of
the general bull movement which set in shortly before
the second election of McKinley, such members of the



226 THE STOCK MARKET BAROMETER

public as had really subscribed for Amalgamated Cop-
per originally were unloading on the promoters of the
enterprise. Certain "court circulars" of the time were
talking boldly of "inside buying." They were right for
once. Insiders were buying because they could not help
themselves. They were "accumulating," much against
their will, to judge from the downward movement of
the stock. With a knowledge of the backs of the cards
as. well as the faces, the "Standard Oil crowd" which
hatched the company could not conceal their crude and
clumsy methods. We may here recapitulate the move-
ments and total sales during this period:
The opening price December 3, 1900, was 96

Sales from December 3d to December

I3th were 160,000

The fluctuation in that period was from 96 to 90%
Sales from December 14, 1900, to Jan-
uary u, 1901, were 295,000

The fluctuation in that period was from 89^4 to 9^
With all this stimulation the closing price on Jan-
uary n, 1901, was only 91^.

Keene's First Appearance

Keene's first appearance seems to have been made
then, and he was much too clever not to see that it
would be necessary to break the market for the stock
before he put it to a level which would attract the
speculative public. The next record is :
Opening price January 12, 1901. ... 91

Sales from January I2th to January

70,000



MANIPULATION 1900-1 227



Fluctuation in that period from ..... 9 2 J4 to

Closing price January iQth ......... 90^2

Sales from January 2Oth to January

26th ......................... 88,000

Fluctuation in that period from ..... 92 to 83^

Closing price January 26th ......... 89

This closing price of January 26th is a tribute to
Keene's ability. It was a much more real price than
the ninety-six momentarily established by the fatuous
"insiders" in the previous December. The beginning
of Keene's operations is characteristic. There were
transactions averaging from twenty thousand to thirty
thousand shares daily in the third week of January,
1901, when, on the 2Oth of the month, the price was
hammered to eighty-six, fluctuated between 83^ an d
89 on the following day, and tended to settle down
stolidly at 88}4 n the day after. The gossip obtain-
able at the time was beneath contempt from a news
point of view, but was well calculated to stimulate the
avarice of the public. Everything tended to show
that, if Keene was in the market at all, he was raiding
the stock for a turn on the bear side. It is not ven-
turing too far to say that he had previously taken no
trouble to cover up his tracks, in order to create exactly
that impression.

What a Major Bull Swing Made Possible

But the McKinley boom in the broadening market
was well under way. Stocks were in that great swing,
so violently interrupted, but not terminated, by the



228 THE STOCK MARKET BAROMETER

Northern Pacific corner and panic of the following
May. Nothing could have suited Keene better than
to have it believed that he was short of a "Standard
Oil stock." He admits to having sold all the stock
of the Rogers pool, at prices from ninety to ninety-
six, shortly before the advance to one hundred and
twenty-eight. That advance did not take place until
the middle of the following April, but early in March
the stock was already selling well above par. I
assumed, when writing in 1905, that Keene meant that
the $22,000,000 of stock was not credited to Rogers
and his friends at one average price, but perhaps in
a series of large blocks of stock averaging from ninety
to ninety-six, after allowing for the cost of manipula-
tion. Some of it was, of course, sold much higher,
but we have already seen that some of it was sold
below eighty-four.

Keene's Second Stage

Keene was not the man to press the market when
it was going his way, and there followed a period
where the stock was judiciously allowed to take care
of itself, with occasional stimulus to cultivate bullish
sentiment. Transactions were in relatively light vol-
ume. In the next period the extreme fluctuation was
less than five points, but it is noteworthy that the
higher figure was the prevailing price when we see
Keene's hand again:

Sales January 26th to February 23d. . 110,000

Fluctuation in that period 92^ to 87^



MANIPULATION 1 900- 1 229

In this quiet period of a month he may have sold
some real stock but certainly never forced it on the
market. It is difficult to say how many shares he actu-
ally dealt in that he might distribute so large a quan-
tity. It was possibly ultimately three times the stock
he had to sell. In the early stages he was employing
brokers on both sides of the market, even if they did
not know that they were executing matched orders.
That was, and is, against the Stock Exchange rules,
and we can afford, at this distance of time, to give them
the benefit of the doubt. As the market improved,
manipulation of that kind probably grew less, and of
course as the public took hold it disappeared
altogether.

Keene's Final Distribution

What may be called the third movement shows the
final distribution of the stock:

Opening price February 28th 92^

Sales February 28th to April 3d 780,000

Fluctuation in that period from 92 to 103 J4

Closing price April 3d 100^

It is in this period that Keene probably distributed
the bulk of his two hundred and twenty thousand
shares. He admitted that much to me, and was never
satisfied with my answer to his question as to how I
knew.

It is one of the discreditable facts of that period
that throughout this trading Amalgamated Copper
was practically on an 8 per cent basis. It was declar-



230 THE STOCK MARKET BAROMETER

ing i y-2. per cent quarterly, with a half per cent extra ;
and its directors, with that extraordinary fatuity for
which the public ultimately paid, were convinced that
they could hold up the world price of the metal in-
definitely. One of the items of gossip in the early
part of the Keene movement was to the effect that the
decline of the metal in London, then and now the
world's free market for copper, had at last been
checked effectually. It was not so. But it was as near
the truth as any of the rumors of that curious time.
It was some years before the competing copper mag-
nate, Augustus Heinze, reached a settlement with the
Amalgamated Copper people, but such a settlement
was among the rumors then exploited, and one of the
principal bull arguments.

The Public's Own Boom

As a net result of the manipulation here detailed
Keene had, in the first fortnight of April, 1901, created
a market for the stock which may well have surprised
himself. It was at least twice as broad as it had been
in February or March, with daily transactions amount-
ing to two hundred and fourteen thousand shares in
one case, and to almost as much on several other days
during that month. It should be compared with the
record, during Keene's activities, of seventy-seven
thousand shares on March 6th, with an extreme fluc-
tuation of nearly three points.

It may be taken that the subsequent trading showed
all obstacles removed from the stock's pathway to
the top:



MANIPULATION 1 9 oo- 1 23 1

Sales from April 4th to April i6th. . 1,275,000

Advance in price from ioij^ to 128%

The stock of the Rogers pool had been marketed
and, indeed, greedily eaten up in the enthusiasm of a
general bull market.

Their Own Gold Brick

It is a humiliating exhibit in the indictment of
human nature that the "insiders" who had called in
Keene seem actually to have begun to believe in their
own gold brick. It is of record that Henry H. Rogers,
quite in the manner of the man who has "heard some-
thing from a friend of his who knows an insider,"
informed Keene that "the stock was going to advance;
that he had received letters from parties who were
going to buy, and that he suggested Mr. Keene should
join in the movement." It is needless to say that the
net was vainly spread in the sight of that wary old
bird. But the stock certainly advanced some twenty
points beyond the price at which it was selling when
Keene had finished his distribution.

It is also significant, in the study of an incident
which is not at all likely to recur, that, in the later
trading, houses which felt flattered in those days to
be called "Keene brokers" were much more conspic-
uous than in the earlier time when the real Keene
trading was in progress. Mr. Keene's name, to judge
by the gossip current at the time, was only mentioned
when he had safely completed his selling. What hap-
pened subsequently would be interesting to know, but
there is not the same evidence to go upon.



232 THE STOCK MARKET BAROMETER

Petroleum and Swelled Head

There is no "Standard Oil crowd" now. The mil-
lionaires who comprised that group were new to the
possession of great wealth. They believed themselves
invincible, up to the time of the issue of Amalgamated
Copper. They made many mistakes, then and after,
but as time went on they learned sense and got out of
the stock market. They were so overwhelmingly
right about petroleum, and particularly Standard Oil,
that they could afford to risk enormous losses in other
directions. Some day some one will unkindly tell the
story of young Mr. John D. Rockefeller, and his ven-
ture in "Little Leather." Only a young man with a
really well-to-do father could afford to spend so much
on his education. There is good reason to suppose
that his expensive post-graduate course in the school
of experience had permanent and even admirable effect.

I have told, in earlier discussions, how heartily
wrong Henry H. Rogers could be, and how his pride
of opinion laid all the blame upon the ignorant stock
market, which, in the last showdown, is always right.
When he died in 1908 he was worth $50,000,000, and
it is possible that his estate would have shown twice
that amount had he lived another two years. Some
of his work was good, and calculated to endure. The
Virginian Railroad was the best built road, in its
original construction, ever undertaken and completed
in the United States. It almost broke the heart of
its godfather that, with his financial backing and per-
sonal wealth, he was compelled to borrow money in



MANIPULATION 1 900- 1 233

1907 for his pet railroad, on terms equal to 7 per cent
with his personal guaranty. Even there he miscal-
culated the meaning of the stock market. It was
saying, in the most explicit way, that H. H. Rogers
was lucky to get money on any terms whatever.
Money of that kind during the panic year may be said
to have commanded anything the lender chose to ask.

Lessons from the Incident

In this detailed examination of a notorious essay in
manipulation there are some important lessons on the
nature and quality of our barometer. Remember that
Amalgamated Copper was in the Unlisted Depart-
ment of the Stock Exchange, which is now abolished.
It was, as the Boston News Bureau said at the time,
a blind pool, in every sense of the term. Nothing like
it could occur under the present listing requirements.
I do not believe that anything of the kind would be
possible in the Curb Market's new Exchange. Mod-
ern methods of publicity are so much better than those
of twenty years ago that a movement of such a nature
would not last for a week before it met the active and
effective opposition of the banks. No financial clique,
like that which constituted the Standard Oil group,
is likely to acquire in' the future the unwholesome
power which was exercised at the time we have had
under review. But the best of all protections is the
greatly enlightened public opinion. Information on
financial matters is now incalculably better than it ever
was before. The cure for corruption is publicity.
There is no such sanitary agent as full daylight. Peo-



234 THE STOCK MARKET BAROMETER

pie are no longer deceived by the mystery talk which
was peddled as news two decades ago. The infalli-
bility of the "insider" has been utterly exploded. The
stock market barometer, based upon Dow's theory of
the triple simultaneous movement of the market, has
increased in dependability as the years have gone by.
Certainly it is in no real danger from manipulation,
and on that topic I have something further to add.

A Shift of Bad Reporting


1 2 3 4 5 6 7 8 9 10 11 12 14 16 17 18 19 20

Online LibraryWilliam Peter HamiltonThe stock market barometer; a study of its forecast value based on Charles H. Dow's theory of the price movement. With an analysis of the market and its history since 1897 → online text (page 14 of 20)