Shoot-the-Chutes

One night last week there was a rosy sunset in Manhattan. Speculators went to bed happy. In spite of bank troubles in Philadelphia. Cleveland and Detroit (see p. 50), bank clearings had reached $5,564,000,000--33.5% better than a year ago. The Department of Labor had reported its commodity price index at 65% (of 1926). showing its fifth successive monthly increase. Electric power output was 16.4% above 1932, would but for the Pacific Coast's showing have been the highest for all time. Renewed, extra or increased dividends had been declared by General Foods. Owens-Illinois, Nash; sterling had touched $4.86 (par). And just before bedtime the speculators had been perusing the first of a new flock of corporation reports showing bigger earnings for the second quarter of the year.*

But not this alone made John Speculator happy. His brokers had that morning upped margin requirements on "wet" stocks/- to as high as 50 and 60% and the wet issues had consequently had a sinking spell. But undeterred the market had rolled up and over them recording new highs, on a turnover of 6,586,000 shares on the New York Stock Exchange. The Standard Brands specialist on the Exchange had been so swamped with orders that he could not fill them for half an hour. The commodities markets had been quite as boisterously gay. Seats on Manhattan's new Commodities Exchange (priced at $900 in May) jumped in the course of one day from $7,000 to $7,800. September wheat had touched $1.20 1/8 a bushel. Corn had touched 81 3/8 and there were rumors that katydids had been heard in the fields, prophets-of early frost.** In Chicago the price of barley (raw material for malt) had jumped 15-c- in a few minutes prompting the Board of Trade to rule that thereafter barley prices would not be allowed to swing more than 5-c- a day.

But 5-c- a day is enough for a speculator. He told his children a beautiful bedtime story and went to bed himself. When he came down to breakfast in the morning, his newspaper told him that Alabama and Arkansas had voted for Repeal--his faith in "wet" stocks was justified. He felt that morning as he felt the previous evening--as he felt in 1929.

And that morning, as it must to all booms, violent and sudden downfall came to prices.

The wet stocks caved in first. The good news was out: the South was voting for Repeal and it was time to take profits. So nobody was buying wet stocks. Those who had not yet thought of selling began to sell when prices fell. Stop-loss orders began to go off like firecrackers as prices swept down on them. In Chicago the grains began to slip. The stockmarket as a whole began to follow the wet stocks. The confusion in the grain and stock exchanges exceeded that of the previous day. September wheat fell to $1.05 1/2. Barley in Chicago fell the permitted 5-c- and then trading stopped, but in Minneapolis it tumbled to 20-c-. The Dow Jones stock average for industrialists fell 5.09 points. The New York turnover in stocks was over 7,000,000 shares.

That evening Exchange officials looked at some curious telegrams. They came from John William Elmer Thomas, the Senator from Oklahoma who looks like Senator Borah and the late Senator Walsh combined. "Senator Thomas sometimes wears overalls for the press cameras, loves oil, bonuses for veterans, and above all loves inflation. He demanded that the exchanges put a stop to precipitate declines. Like King Canute he demanded that they sweep back the tide of selling, denying that what goes too far up must come down. Said he : "The country is not prepared to withstand effects of repetition of what happened today."

Puzzled Exchange officials scratched their heads, all too aware that Federal interference might develop. Well they knew that violent price rises produce violent reactions and they wondered whether the Government, having stimulated rising prices by continual applications of the inflation needle, would hold them responsible for not preventing the inevitable consequences.

Next morning John Speculator looked at his newspaper with misgiving, was pleased to see that "stocks yesterday passed through the long awaited reaction.'' He was glad it was over, but he had several margin calls from his brokers and he had no more margin to put up. When the market opened some of his holdings were sold. Prices that had dropped the day before now took a headlong tumble. Trading was frantic. Wheat dropped 18-c-. September rye, which the week before had climbed spectacularly, which had touched $1.05 3/4, fell to 67-c-. The quantities sold were huge: 141,000,000 bu. of wheat (close to the maximum day's sale of the 1929 crash). In Manhattan sugar broke all records, sales exceeded 126,000 tons. Crude rubber did likewise, with 22,830 tons. Sales on the New York Stock Exchange exceeded the previous day, totalled over 8,000,000 shares, brought the year's total to 431,000,000--6,000,000 more than in all 1932. The stock average dropped 7.32 points more.

That night the governors of the Chicago grain pits assembled for serious council, decided to take Senator Thomas' advice. They made a rule that until further notice wheat and rye prices might not fluctuate more than 8-c--- a day, corn and barley not more than 5-c-. oats not more than 4-c-. Then they conferred further, looked at the damage done in two days and were appalled:

Before After Wheat (September) $1.17 5/8 $ .91 Rye (September) 1.05 .67 Corn (September) .69 3/4 .53

On second thought they decided to take a more drastic step: they would shut down all futures trading in grain for the rest of the week.

The New York Stock Exchange took no such action. Like the U. S. Senate which prides itself on open debate, the Exchange prides itself on being a free & open market. By the third morning newspapers were beginning to call attention to less optimistic facts about the New Deal : General Johnson had said the U. S. would have a setback within two months unless wages were promptly raised: brokers' loans had nearly tripled in three months (reached $967,000,000), showing how much speculation was afoot. Moreover the dollar had risen: the pound sterling had fallen to $4.64, result of Britain having offered (see p. 14 ) to replace her dollar bonds with new pound-bonds at the rate of -L-260 per $1,000 ($3.85 to the pound). Steel output, after a continuous three-month rise, had ceased mounting.

With these ill omens the market opened and promptly fell further and faster than before. The series of 6,000,000, 7,000,000 and 8,000-000-share days was followed by a 9,000,000-share day. Specialists were so swamped that sometimes much-traded stocks did not appear on the ticker for half an hour at a time, then appeared as much as ten points lower. Confusion on the floor was at its worst. The ticker fell so far behind (it closed 50 minutes after the market) that some traders, not knowing how deep a fall might be in progress, dumped stocks as a safety measure. Stop-loss orders and impaired margins dumped still bigger quantifies of shares into the maelstrom. Not since 1929 had the market had such a day or such a three-days. Rumor ran wild: the Exchange was going to close; speculators were jumping out of windows; President Roosevelt had had an apoplectic stroke the night before; he had died at noon and was being laid out in the White House! Then a little hope came back, prices rallied, but the net fall of the Dow Jones average for industrials was 7.55 for the day. In three days the average had lost 19.96 points of its 59 gained since March.

Ignoring for the time being the stock-market collapse, the Administration lost no time in taking the grain markets in hand. Secretary Wallace learned that one plunger had been caught long of 13,000,000 bu. of corn and some 27,000,000 bu. of other grains, that his brokers would be forced to sell him out as soon as trading was resumed. "An astounding illustration of the result of individual unrestrained speculation as it affects commodity prices," moralized Secretary Wallace. To prevent dumping of these huge holdings on an already demoralized market minimum prices (fixed at Thursday's closings) were clamped on all grains except barley.

When the Board of Trade opened, barley dropped the full 5-c- allowed but other grains rose slowly. More interesting than prices to Board of Trade brokers was the suspension of E. A. Crawford & Co. for inability to meet commitments.

They were convinced that Edward A. ("Doc") Crawford, a diminutive, secretive little man, 15 years ago a doctor in New Orleans, parsimonious master of a little stock brokerage office in downtown Manhattan, was the big speculator Secretary Wallace had shamed. Twice since Crawford came up from the South after the War, he made big fortunes and lost them, on occasion had to wear sneakers for economy. Famed for his reckless operations in cotton, stocks, grains, he was known to be behind the big rye push (TIME. June 39 ), was said to own so much wheat that every time it rose one cent a bushel he made half a million dollars. If so, during the two days when wheat dropped 26-c- he lost $13,000,000. Also suspended was Broker Leon Strauss of Des Moines. la.

Only concession made by the New York Stock Exchange to its wild days was a decision to start trading two hours later than usual, give overworked brokers a chance to catch up. In the first short session, stocks rebounded sharply. The steepest part of the shoot-the-chutes appeared to be past.

* Per share earnings:

2nd 1st Year Quarter Quarter Ago Corn Products $1.05 $ .66 $ .63 Mathieson Alkali .46 .21 .20 William Wrigley 1.07 .92 .95 Loose-Wiles .64 .58 .55 Penick & Ford 1.10 .64 .31 General Electric .09 .08 .11 Underwood Elliott Fisher .18 .13 .36 d d--deficit

/- A term which had come to include not only such stocks as National Distillers (whiskey). Commercial Solvents (alcohol). Crown Cork & Seal (bottle caps), Owens-Illinois (bottles), but also bars and other Libby-Owens (mirrors purposes). and plate Emerson's glass--for Bromo-Seltzer (for mornings-after).

** Proverb: "When the katydid sings, the frost stings."

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