Shadow of Panic

In 1880 Prince & Whitely, Manhattan brokers, opened a branch office in the old Hotel Willard, Washington, D. C., engaged the first private wire from the Capitol to Manhattan. On July 2, 1881, this wire was used to flash word of President James A. Garfield's assassination, giving Prince & Whitely clients an advantageous time margin in the market shock which followed. At that time the firm was three years old. Since then it has survived many a severe depression including at least six actual stockmarket panics. Last week it failed. Almost coincidentally a "New Economic Theory" seemed to sweep the emotions of volatile stock-traders. Though few Wall streeters have ever read Oswald Spengler's Der Untergang des Abendlandcs, it was easy for them to imagine a world in the grip of conditions more awful and appalling than ever before. Prices will never go up again; the world will seethe in war and revolt; all mankind is doomed to a steadily decreasing standard of living until poverty, per-haps starvation, is the rule of life--such talk made spice for bear-food last week.

Since early September stockmarket prices had declined steadily. When the week opened, commentators were already comparing prices with the panic lows of Nov. 13, 1929. Steel drew near to $150 (its 1929 high was $261 3/4). On Thursday, Stock Exchange President Richard I. Whitney, who on Oct. 24, 1929 had temporarily reversed the market by bidding $205 for Steel when it was at $190, this time was willing to bid the market-price $150. At this figure 25,000 shares were sold in a single $3,000,000 transaction, but even indirect evidence that J. P. Morgan & Co. was buying failed to halt the decline. When Mr. Whitney was obliged to announce the Prince & Whitely failure from the floor of the exchange, many a blue-chip sank below its 1929 bottom. Traders noted these prices:

Low Nov. 13, 1929 Low Oct. 10, 1930

Allied Chemical & Dye 197 200

American Can 86 112 1/4

American & Foreign Power... 51 37 5/8

American Tel. & Tel 197 1/4 192 3/4

Anaconda 70 34 3/4

Baltimore & Ohio 105* 84 1/2

Consolidated Gas 80 1/4 94

E. I. du Pont 90 97 5/8

General Electric 168 1/8 52 3/4

General Motors 36 1/8 35 1/2

Gillette Safety Razor 80 35 5/8

International Tel. & Tel 53 25 1/8

Kennecott 49 3/8 27

Montgomery Ward 49 1/4 21 5/8

New York Central 160 139

Pennsylvania 74 64 7/8

Radio 28 21 1/2

Standard Oil of N. J 50 55 1/8

Texas Corp 50 42 1/8

Union Carbide & Carbon 59 61

U. S. Steel 150 144 1/2

Westinghouse Electric 102 5/8109 3/4

Woolworth 52 1/4 59 3/8

Much of the selling was of course directly attributable to the failure of Prince & Whitely. Liquidation was especially violent in stocks in which Prince & Whitely were supposed to have an interest: Atlas Stores, Brockway Motor Truck, Hahn Department Stores, Kelvinator Corp., National Dairy Products. On the curb, Prince & Whitely Trading Corp. dropped from $7.50 to $.50 before rallying. Brokers pointed to the fact that J. A. Sisto & Co. which failed fortnight ago (TIME. Oct. 13) had had an investment trust, that both Sisto financial and Prince & Whitely trading had been formed near the peak of last year's bull market.

But while the failure was a shock, it was not entirely unexpected. The actual news merely substantiated one of many persistent rumors which flooded W:all Street. Where originated all these wild tales, no man could tell. But no man could stop them. Cool brokers fought to quell them, only to catch the disease themselves. Denial seemed to lend authority. Some firms sent memorandums to all employes, warning them that to discuss another firm's financial position, even among themselves, was a breach that could not be tolerated. But as stocks kept falling, the stories flew faster. Weakness in certain issues, notably Fox, corresponded with rumors concerning houses sponsoring them. Cause and Effect became confused.

Not only the U. S. markets felt the repercussions of the failure of this 52-year-old firm with membership on the Exchange, Curb, Chicago Exchange and Curb, and the Cleveland Exchange, with seven branch offices, with about 9,000 customers and collateral loans estimated at $35,000,000. News of the failure shocked London, where Prince & Whitely did a large arbitrage business, was said to be interested in International Nickel and Brazilian Traction. This, added to the failure of two small London houses, sent prices reeling in that market. It was likewise a blow to Paris. Said La Liberte: "This firm is one of those which recently have been installed in France and have contributed to drain our national savings for the profit of American speculators."

While no other houses in Manhattan closed, two withdrew from the Stock Exchange. Buell & Co. announced it was selling its seat in order to concentrate on the investment banking business. William Schall & Co. likewise sold their membership, and sold their Boston office of E. A. Pierce & Co., credited with being the largest wirehouse.

A sensational closing rally saved Friday, Oct. 10, from being remembered as one of the gloomiest, most unnerving, that the Street has experienced for years. (In that one day Fox went from 38 to 29 to 38.) The shadow of real financial Panic had been over lower Manhattan, cold, terrifying. For weakness among the rich & powerful is disconcerting, and, recalled oldsters, sometimes contagious.

That the decline should follow on the heels of the Stock Exchange's announcement that bear-raiders would be prosecuted was regarded as only coincidental. Bear-selling could not have played more than a small part, a fact admitted by President Richard I. Whitney when he spoke last week to the Illinois Chamber of Commerce, defended true short selling, said: "It is impossible for any individual or group of individuals to buy or sell securities in sufficient volume to affect the whole list." Brokers saw that the Exchange's attitude was against the bear who uses unethical means (such as rumormongering) to depress prices, was perhaps essentially a move to forestall investigation by Congress. Agitation of this sort was commencing last week. Congressman William I. Sirovich of New York notified the Exchange that if conditions were not remedied he would ask President Hoover to act. Quite to the contrary, shrewd observers noted as a happy sign that many a "little fellow" was now selling short.

Prospective. There is, obviously, no Smithsonian Institute yardstick for the value of stocks. But by yardsticks usually employed, most U. S. Industry was selling last week on the theory that two, three or more years would elapse before Prosperity could be said to have returned. The actual facts were in no way alarming. Compared with other depression-years, the wonder was not that two houses had failed within the month but that many more firms had not failed months ago. Even such an arch-conservative as the New "York Times' Alexander Dana Noyes berated Wall Street for a pessimism as ex-treme as its fantastic optimism of last year. And, in many a newspaper and business paper, financial leaders were berated for an absence of leadership as notable in days of gloom as in bygone days of merrymaking. Consensus of opinion was, in short, that Wall Street had ceased to be either guide or barometer to U. S. Industry: it was wrong in 1929's summer, wrong in 1930's spring, it was therefore more likely to be wrong than right in 1930's autumn.

Meanwhile, "broker's loans" were the lowest since Jan. 7, 1927, inventories were everywhere reported low, commodity prices rose slightly, a definite rise was reported in homebuilding, money continued cheapest since 1925 and total reported dividends paid by U. S. corporations were actually greater this year than last.

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