REPRINT FROM MOODY'S MAGAZINE 
 
 BANK CLEAHINCIS AND SFXURITV PRICES 
 
 Bv Fred Tt. Macahlay, M. A. 
 
 I. 
 
 WERE I asked to name the half- 
 dozen most important eco- 
 nomic I'actors for an in- 
 vestor or speculator in American se- 
 curities to carefully watch, I should 
 include among them bank clearings. 
 Considering that both the speculator 
 and the wise investor are more inter- 
 ested in the future than the present, 
 such advice would undoubtedly be 
 held by most financial writers to be 
 slightly unsound. The Commercial 
 and Financial Chronicle of New York, 
 for example, has remarked a number 
 of times that, though clearings are 
 of great interest as showing, better 
 perhaps than any other single class 
 of statistics, the pro^ent condition of 
 business, they are almost valueless 
 as a means of forecasting the future. 
 A Boston market letter writer who 
 has come into print quite often re- 
 cently and who, partly because he is 
 almost entirely eclectic, well repre- 
 sents his class, thus speaks of clear- 
 ing statistics: — 
 
 "Some people make the mistake of 
 assuming that by studying clearing 
 house statistics one can easily fore- 
 cast business conditions. A study of 
 these statistics is an aid in forecast- 
 ing business conditions and therefore 
 is one of the factors used in making 
 such a forecast, but taken by them- 
 selves they are of little value, as 
 they refer only to present-day condi- 
 tions." ^ 
 
 The above writer never discusses 
 New York clearings separately (i.e., 
 other than as contained in the totals 
 for the United States), let alone ana- 
 
 lyzing the excess of New York over 
 the rest of the country. When ana- 
 lyzed as practically all financial writ- 
 ers analyze them, clearings are al- 
 most valueless as a guide to the fu- 
 ture, but, when correctly analyzed, I 
 believe them to be of paramount im- 
 portance and that they should be 
 watched by the careful speculator 
 only less closely than such factors as 
 the condition of the New York Asso- 
 ciated Banks and the reports of the 
 Comptroller of the Currency. 
 
 In this article I shall first point out 
 the methods of treatment of clearing 
 house statistics at present used by 
 financial writers, and then place be- 
 fore the reader a new" method of 
 treatment which is, at least, not un- 
 meaning and impotent in the face of 
 the facts. 
 
 In examining the methods oi' treat- 
 ment at present in use, let us con- 
 sider : 
 
 1. What figures are selected for 
 discussion. 
 
 2. With what are such figures 
 compared ? 
 
 What Fig-ures Are Selected for Discussion ? 
 The Commercial a n d Financial 
 Chronicle, which makes quite a spe- 
 cialty of clearing statistics, makes 
 weekly reports of the week's clear- 
 ings for the whole of the United 
 States, for the country outside of 
 New York, for New York, and for 
 each other important city in the 
 United States individually. Once a 
 year this magazine publishes an edi- 
 torial entitled "Clearings and Specu- 
 lation in the Preceding Year." Here 
 we find quotations as follows: — 
 
 * R. W. Babson — "Business Barometers for Forecasting Conditjions" — page 210. 
 
 346067 
 
V' 
 
 A- 
 
 2 /A .* :-•*: ;.'.• '..'. '-. :,,' :\ -MOODY'S MAGAZINE 
 
 Yearly — New York; outside New 
 York ; total United States ; a number 
 of leading cities. 
 
 Quarterly — New York ; total 
 "Other Middle"; total New England; 
 total Middle Western; total Pacific; 
 total "Other Western"; total South- 
 ern ; total all ; outside New York. 
 
 Monthly— Total United States; 
 outside New York. 
 
 The first point I wish to draw at- 
 tention to is that, in discussing such 
 a rapidly fluctuating factor as bank 
 clearings, statements of yearly totals 
 are valueless and statements of quar- 
 terly totals of but little significance; 
 we must get down to the month or 
 week to attain anything like an ideal 
 unit.- This is not done in this analy- 
 tical article, and any references, in 
 the week to week notices, are hardly 
 ever more than a mere verbal resume 
 of the figures themselves. 
 
 Secondly, quotations are not given 
 for New York minus the rest of the 
 country in this or any other financial 
 paper that I have ever seen. As I 
 shall attempt to show later, the quo- 
 tation for "New York minu>i tJie rest 
 of the count)]],'" though it be but a 
 mathematical abstraction, is the one 
 important feature to notice. Without 
 it, the whole subject is but an inex- 
 plicable hodge-podge of figures. A 
 glance at the chart annexed to this 
 article will show the regularity with 
 which the clearings for the country 
 outside of New York (E) increase'- 
 from year to year, and the wild ec- 
 centricity of New York's clearings 
 (D). This eccentricity is apparent 
 to the most casual observer, and calls 
 for some explanation. In a correct 
 
 explanation lies the solution of the 
 whole problem. The Commercial ayid 
 Financial Chronicle (and I refer to it 
 as an example of the best financial 
 journalism of the country) has all 
 along assumed that the eccentricities 
 of New Yoi'k's clearings were caused 
 by some uoti -significant factor which 
 should be carefully eliminated if the 
 figures were to mean anything. Some 
 years ago it formulated the theory 
 that these vagaries of New York's 
 clearings were caused by stock ex- 
 change transactions and that if we 
 were to subtract tivice the "actual" 
 value of the shares traded in on the 
 New York Stock Exchange (B) from 
 the New York clearings total (D), 
 we would get the "normal business" 
 clearings for New York and a result 
 worth while examining. This factor 
 of 2 was used in 1885^, 1886"', and 
 1887'=; in 1888" the factor was 
 changed to 21/2 and remained so until 
 1892 (inception of the New York 
 Stock Exchange Clearing House) 
 when the whole system was aban- 
 doned.^ 
 
 During all this period the out- 
 spoken attitude of the Chronicle was 
 that the fluctuating factor equalled 
 twice (later 2Y> times)'' the actual 
 value of the shares traded in on the 
 New York Stock Exchange and was 
 of almost no significance, merely fog- 
 ging the result'" — that the non-fluc- 
 tuating factor which remained after 
 the fluctuating one had been sub- 
 tracted from the New York total, 
 though of no particular significance, 
 was rather interesting as showing 
 New York's "normal business" clear- 
 ings. 
 
 ^ Could Moody's MAfiAziNK imlilish 
 3 C. & F. Chron. \'ol. XC. p. so. 
 * C. & F. Chron. \'.>1. XT.. ,,. 7(i. 
 ■'■ C. & F. Chron. \ol. Xl.ll. ].. .T 
 « C. & F. Chron. \ol. WA\\ p. : 
 ■ r. & F. Chron. \'<<\. XI,\I. p. ; 
 " C. \- F. Chron. \ nl. I.\|, p. (;. 
 ^ " Why this cliansjr 1 .In ih,i kimw 
 
 tiuns ruling prinr tn I sn:.' Iriicls nir l 
 ■" C. & F. Chron. \ul. I.X. p. (in 
 
 3 908.) 
 
 Hich a larg chart. 
 
 (.Ian. S. 191(1.) 
 
 I Jan. 17, ISS.').) 
 
 ■ >. (.Ian. 9, 1SS(). ) 
 
 i4. (.Ian. s. ISST.) 
 
 1. (.Ian. 7. isss.) 
 
 (.Ian. 7. 1n9:;.) 
 
 .\ i-arrful r^tiniat 
 " I'laiT 1 (;.')-! (10 as 
 (Jan. 12, 189.-).) 
 
 ■)nlrl preft-r to usi.- thi 
 
 lok as a unit. 
 
 more. 
 C. & 
 
 lu arlv 
 F. C 
 
 ..r tin- 
 
 tile iru 
 
 hnui. \' 
 
 ',iiur sniiii 
 th than rit 
 ol. I. XXX 
 
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 l^ ii>nili- 
 (Jan. 1 1 
 
BANK CLEARINGS AND SECURITY PRICES 
 
 Having to relinquish (after the be- 
 ginning of the New York Stock Ex- 
 change Clearing House) the "2V-> 
 method," the Cltroiiicle still clung to 
 the "stock sales' theory, though real- 
 izing that its practical application 
 was gone". An examination of the 
 two curves (stock sales — B — and 
 New York's Clearings — D — ) soon 
 reveals the fact that, though there 
 are many surface similarities, the 
 contours are essentially different. '- 
 This is entirely aside from a consid- 
 eration of the true significance of the 
 peculiar irregularities of New York's 
 curve. 
 
 We thus see that the figures studied 
 are Total United Statei^ (which is an 
 hermaphroditic sort of a combination 
 of New York and the rest of the 
 country), The Rest (which is of an 
 extremely steady and unfluctuating 
 character and moves, when it does 
 move, after nearly all other factors), 
 and Neic Yoik — when they can elim- 
 inate the fluctuating factor ! As my 
 object in writing this article is to at- 
 tempt to show that in this fluctuat- 
 ing factor we find the solution of the 
 whole problem, the above methods of 
 treatment naturally do not greatly 
 appeal to me. Let us now examine : 
 "With What Are Such Figures Compared? 
 
 There are four comparisons that 
 have been used by diff'erent writers. 
 They are : — 
 
 1. With the immediately preceding- 
 month. 
 
 A mere glance at the chart shows 
 this comparison to be almost mean- 
 ingless. It takes no account of nor- 
 mal growth or of the great "waves" 
 on w^hich the monthly variations are 
 often but as ripples and foam. 
 Through the influences of seasonal or 
 
 " In AiJiil. IIMII, fur L-xaniplc. 2 >j linus tin- acUial v; 
 total of Ntw York's clearings. This woiilil give New \ 
 The stock clearing house iloes not now ])ul)lish statistics. 
 
 '- In only !) months (Sept., 1903, to June, 1004) the ratio of the ".Vetual \alue" to tile .\e\v York 
 clearings dropiK-d from about 10 per cent to about « per cent: the ratio of the actual to the Xcw York 
 excess dropped from about 7T per cent to about -.^3 per cent. While the one was increasing tlie other 
 was decreasing. (.See chart.) 
 
 other temporary factors, the monthly 
 variation may run absolutely counter 
 to the great movement in progress. 
 None but the most ignorant journal- 
 ists now rely upon such a method. 
 
 2. With the same calendar month 
 in the preceding year. 
 
 This is the common comparison in 
 use by nearly all financial writel's. It 
 is better than number one, but is 
 open to many objections. It does not 
 show at what stage in a movement 
 we pre, because there is no possible 
 comparison with what would be nor- 
 mal figures but only with last year's 
 figures, which are probably normal 
 neither for last year nor this year. 
 The method is an incomplete attempt 
 to eliminate seasonal variations in 
 the use of number one, and this 
 brings us to 
 
 3. With a ten or twenty year aver- 
 age for the same calendar month. 
 
 This is an atternpt to eliminate 
 seasonal variations and in so far it is 
 rather good. However, a mere glance 
 at the chart and at the Te7i Year Au- 
 erages will convince anyone that sea- 
 sonal variations in clearings, though 
 facts, are negligible when compared 
 with the variations which occur in 
 great waves covering from two to 
 five or six years. Moreover, the 
 growth element is, in this method, 
 again entirely unconsidered. In TJie 
 Rest this growth element is the great 
 and ever persistent factor, to neglect 
 which, is to be absolutely at sea in an 
 attempt to interpret results. 
 
 4. With the immediately preceding 
 month, attempting to eliminate sea- 
 sonal variations by quoting both 
 months in percentages of a ten-year 
 average for corresponding months. 
 
 This method has all the merits of, 
 
 ue of the stock sail 
 rk a "'normal busine 
 
 iiuallrd more than the 
 of less than nothingl 
 
MOODY'S MAGAZINE 
 
 and but few defects not inherent in, 
 either "two" or "three." However, it 
 absolutely neglects the element of 
 growth, and, like the other methods, 
 often fails to watch the great two and 
 three-year movements. I consider 
 these movements so overwhelmingly 
 important that all the consideration 
 I give seasonal variations is to keep 
 a ten-year average chart at hand by 
 which to roughly check up whether 
 the year's clearings are running in a 
 normal or an abnormal fashion from 
 the standpoint of seasonal vari .tions. 
 Moreover, when we remember that 
 both the supply of, and the rates on, 
 money, also run through a seasonal 
 variation, we begin to see why it is 
 perhaps even better to have the clear- 
 ings figure in their bare and un- 
 doctored shape than in percentages 
 of a ten-year average. The ten-year 
 average is a good servant but a bad 
 master. 
 
 II. 
 Without further discussion of the 
 methods of treatment of others, I 
 shall now attempt to explain and 
 demonstrate a new theory of my own. 
 First of all, a few words as to the 
 chart accompanying this article. All 
 quotations are monthly, the vertical 
 black lines representing January. 
 The Ten-Year Averages for New 
 York and The Rest are charted from 
 the lower base. The Teii-Yeai- Aver- 
 uijei^ for New York minus The Rest 
 are charted from the upper base. 
 The Ihie^^ x, 2.r, 3.ra, ?>xh, and 6.r are 
 such that their ordinates are in the 
 ratio of their numerical coefficients. 
 The line 3xb is, as can be plainly 
 seen, an excellent "fit" — the actual 
 curve as checked up by least squares 
 and areas is so close to this straight 
 line that I considered it better to keep 
 to the straight line than make the 
 chart too difficult for readers to con- 
 tinue — the curve E crosses this 
 straight line 58 times, there are 90 
 
 points above and 117 points below — 
 the true curve runs a very little 
 ; bove at each end and below in the 
 middle of the straight line. The dot 
 inside a circle placed on the line 2x in 
 1896 represents a point such that 
 from that point to the present month 
 the areas of the curve A above the 
 line 2x exactly equal the areas below. 
 Asterisks above the curve A corre- 
 spond to asterisks on the curve C. 
 All points on the Twenty Rail curve 
 C are true maxima and minima — that 
 is, between any two consecutive 
 points no quotation higher than the 
 one or lower than the other occurs. 
 I begin the chart with 1894 to be be- 
 yond both 1892, when stock clearing 
 began and 189.3, the year of the panic. 
 My method is to study: (a) the fig- 
 ures in their relation to "growth 
 9xes"' — (the strright lines), (b) The 
 figures in their relation to each other 
 — (New York to The Rest) . (c) The 
 artificial figures for "New York 
 minus The Rest" in their relation to 
 a range between zero (the upper 
 base) and the growth axis for The 
 Rest. (3xa.) 
 
 In the first place I base all growth 
 axes on the line 3xb. I have already 
 remarked on the peculiar manner in 
 which the clearings outside New 
 York increase steadily from year to 
 year with comparatively slight fluc- 
 tuations and these generally of a 
 clearly seasonal nature. When, there- 
 fore. New York (D) passes the line 
 6x or the Excess (A) passes the line 
 3xa, New York is clearing roughly 
 more than twice what the-rest of the 
 country is clearing. I have already 
 pointed out that the line 2x is about 
 the normal for the Excess of New 
 York over The Rest, or in other 
 words. New York normally clears 
 nearly one and two-thirds times as 
 much as The Rest. One great advan- 
 tage of thus studying New York mi- 
 nus The Rest (A) is that we have a 
 
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BANK CLEARINGS AND SECURITY PRICES 
 
 base below which tlie figures tlo not 
 go, hill irliicli tlii'ii sometimes ap- 
 proach, whereas in studying New 
 York, without The Rest as such a 
 base we cannot judge of the depth of 
 a decline with any degree of ac- 
 curacy. 
 
 New York's clearings may be ex- 
 haustively divided into three parts : 
 
 1. Clearings originating in trans- 
 actions outside New York. 
 
 2. Clearings originating in com- 
 mercial transactions within New- 
 York. 
 
 3. Clearings originating in non- 
 commercial (or "financial") transac- 
 tions within New York. 
 
 The fact that, in periods when New 
 York's financial or non-commercial 
 transactions are know^n to be almost 
 at a standstill, the city clears, a little 
 more than the whole of the rest of 
 the country, gives a valuable hint as 
 to the average sum total of the clear- 
 ings originating in transactions out- 
 side New York plus the clearings 
 originating in commercial transac- 
 tions within New York — namely, the 
 total amount of the clearings outside 
 of New York for the corresponding 
 month. In other words, the commer- 
 cial transactions originating in New^ 
 York in general about make up for 
 the transactions outside New^ York 
 which do not influence New York. 
 The slight Excess of New York over 
 the rest of the country, which con- 
 tinues even in the deepest depression, 
 probably roughly corresponds to the 
 amount of financial clearings occur- 
 ing even then. We thus arrive at the 
 conclusion that the Excess of New 
 York over The Rest about equals the 
 non-commercial or "financial" trans- 
 actions in New^ York. (This is curve 
 A.) 
 
 Again, New^ York being the finan- 
 cial center of the United States in a 
 very real and overshadowing sense, 
 we see that this curve is a very good 
 
 index to the i)rogress of financial 
 transactions in the United States. In 
 New York's financial transactions I 
 include all transactions both on the 
 Stock and Consolidated Exchanges, 
 and also the va^t mass of unrecorded 
 t ransactioyis consisting of the sales 
 and promotions, purchases and nn- 
 derivritings, of the bond houses and 
 (/reat private banks, etc. In a w^ord, 
 the figures plotted on this curve indi- 
 cate the selling to the public of se- 
 curities, and later the return of some 
 of the same (at generally lower 
 prices), and thus are an index to the 
 Fixation of Capital and, later, the 
 Progress of Liquidation. This is the 
 reason why the curve is so valuable 
 to consider and why its relations to 
 the maxima and minima of the stock 
 market are so noticeable as to be be- 
 yond the realms of coincidence. Fix- 
 ation of capital naturally brings 
 about a dearth of loanable funds and 
 a fall in the price of securities. Li- 
 quidation produces loanable funds 
 and recovery is in the immediate fu- 
 ture. 
 
 Both these phenomena are very ap- 
 parent on the curve A. When the ex- 
 cess of New York over the rest of the 
 country approaches anyw^here near 
 zero, as it has done in 1900, 1903, 
 1907, and 1910, liquidation has been 
 in progress for some time and is then 
 probably reasonably complete. When 
 the Excess passes the straight line 
 3xa or, in other w^ords, when New^ 
 York is clearing more than twice the 
 normal for the rest of the country, 
 there is revealed a progress of fixa- 
 tion and a condition of tension that 
 cannot long be continued. The Ex- 
 cess curve passed this line 3xa in 
 1899 and w^e had the "Rich Man's 
 Panic" of 1900. It passed this line 
 again tow^ard the end of 1900, went 
 to unheard-of heights beyond it in 
 1901 and remained so through 1902, 
 and w^e have the extreme slump of 
 
BANK CLEARINGS AND SECURITY PRICES 
 
 base below whieli the figures do not 
 go, but It'll ich tlicji sometimes ap- 
 proach, whereas in studying New 
 York, without The Rest as such a 
 base we cannot judge of the depth of 
 a decline with any degree of ac- 
 curacy. 
 
 New York's clearings may be ex- 
 haustively divided into three parts: 
 
 1. Clearings originating in trans- 
 actions outside New York. 
 
 2. Clearings originating in com- 
 mercial transactions within New 
 York. 
 
 3. Clearings originating in )ion- 
 commo'cial (or "financial") transac- 
 tions within New^ York. 
 
 The fact that, in periods when New 
 York's financial or non-commercial 
 transactions are known to be almost 
 at a standstill, the city clears, a little 
 more than the whole of the rest of 
 the country, gives a valuable hint as 
 to the average sum total of the clear- 
 ings originating in transactions out- 
 side New York plus the clearings 
 originating in commercial transac- 
 tions within New York — namely, the 
 total amount of the clearings outside 
 of New York for the corresponding 
 month. In other w^ords, the commer- 
 cial transactions originating in New 
 York in general about make up for 
 the transactions outside New York 
 which do not influence New York. 
 The slight Excess of New York over 
 the rest of the country, which con- 
 tinues even in the deepest depression, 
 probably roughly corresponds to the 
 amount of financial clearings occur- 
 ing even then. We thus arrive at the 
 conclusion that the Excess of New 
 York over The Rest about equals the 
 non-commercial or "financial" trans- 
 actions in New York. (This is curve 
 A.) 
 
 Again, New York being the finan- 
 cial center of the United States in a 
 very real and overshadowing sense, 
 w'e see that this curve is a very good 
 
 index to the progress of financial 
 transactions in the United States. In 
 New York's financial transactions I 
 include all transactions both on the 
 Stock and Consolidated Exchanges, 
 and also tJie vast mass of unrecorded 
 t ransactio7is consisting of the sales 
 and promotions, purchases aiid un- 
 deriuritings, of the bond houses and 
 ( treat private banks, etc. In a word, 
 the figures plotted on this curve indi- 
 cate the selling to the public of se- 
 curities, and later the return of some 
 of the same (at generally low^er 
 prices), and thus are an index to the 
 Fixation of Capital and, later, the 
 Progress of Liquidation. This is the 
 reason why the curve is so valuable 
 to consider and why its relations to 
 the maxima and minima of the stock 
 market are so noticeable as to be be- 
 yond the realms of coincidence. Fix- 
 ation of capital naturally brings 
 about a dearth of loanable funds and 
 a fall in the price of securities. Li- 
 quidation produces loanable funds 
 and recovery is in the immediate fu- 
 ture. 
 
 Both these phenomena are very ap- 
 parent on the curve A. When the ex- 
 cess of New York over the rest of the 
 country approaches anywhere near 
 zero, as it has done in 1900, 1903, 
 1907, and 1910, liquidation has been 
 in progress for some time and is then 
 probably reasonably complete. When 
 the Excess passes the straight line 
 3xa or, in other words, when New 
 York is clearing more than twice the 
 normal for the rest of the country, 
 there is revealed a progress of fixa- 
 tion and a condition of tension that 
 cannot long be continued. The Ex- 
 cess curve passed this line 3xa in 
 1899 and w^e had the "Rich Man's 
 Panic" of 1900. It passed this line 
 again toward the end of 1900, went 
 to unheard-of heights beyond it in 
 1901 and remained so through 1902, 
 and w^e have the extreme slump of 
 
MOODY'S MAGAZINE 
 
 1908. 1903 was worse than 1900 be- 
 cause the fixation had continued for v, 
 longer time. The same results were 
 seen in 1907 and in 1910. A study of 
 the area figures and the percentages 
 will illustrate the wonderful correla- 
 tion between the amount of fixation 
 and the severity of periods of panic 
 or depression. 
 
 Conversely, a long period of low- 
 ness in the curve, which means inac- 
 tivity in the financial world and sav- 
 ing in the country at large, is the 
 sure precursor of a period of activity 
 in finance snd a rise in the price of 
 securities. The continued low level 
 of this curve during 1894, 1895, and 
 1896 was followed by "The Ameri- 
 can Invasion of Europe" and the 
 great bull market of 1897 and 1898. 
 The low level of this curve A in 1900 
 was followed by the phenomenal rise 
 in securities during 1901 and 1902, 
 and this even though the drop in se- 
 curities during 1900 was so small as 
 to make it appear questionable 
 whether liquidation was complete or 
 not. The prolonged low level of 1903 
 and 1904 was followed by the ram- 
 pant bull market of 1904, 1905, and 
 1906. So with 1907 and 1908. 
 
 The extreme ranges of the market 
 (asterisks) follow the curve A very 
 closely. Whenever this curve crosses, 
 (m the (lownirard movement, the line 
 X, a turn for the better is probably 
 about to occur. The^^e /v/rw.s /;/ the 
 m.arket seem to ocr/tr as soon as the 
 curve so crosses the line x ivithoiif 
 ivaiting for ann recovery in the curve 
 A itself. Vice versa, whenever the 
 curve crosses, on the upward move- 
 ment, the line 3xa, overexpansion and 
 fixation is indicated and a turn for 
 the worse likely to occur, though 
 when it is not so definite as upon the 
 lower crossings. 
 
 I do not claim that this curve A is 
 a touchstone by which, without the 
 aid of other statistics, turns of the 
 
 market may be predicted, but I do 
 believe that any speculator who 
 would neglect it is acting in a very 
 foolish minner. When used in con- 
 nection with, say the reports of the 
 New York Associated Banks, for in- 
 stance, its significance is apparent. 
 One of the surest signs of the ap- 
 proach of liquidation is the loans 
 passifig the deposits. There is no 
 single sign telling when to sell so in- 
 fallible as this. But all single signs 
 mislead and, again, when shall we re- 
 purchase? 
 
 Toward the close of 1902 loans 
 began to run in excess of deposits, 
 and then a few weeks later deposits 
 were again in excess of loans — shall 
 our speculator sell out or is the hori- 
 zon clear? He examines the Excess 
 figures (A) and finds them running 
 up to 3xa or New York clearing 
 twice what The Rest is clearing. Of 
 course he must sell. He waits and in 
 September, 1903, the A curve crosses 
 the X line (i. e., N. Y. equals 1 1-3 
 The Rest) and he buys at the hottoyn. 
 By the time the deposits have again 
 passed the loans he has a profit of 
 over ten points on the Wall St)-eet 
 JouryiaVs 20 Rails! 
 
 This is not fakery. The market 
 does not turn because some imagi- 
 nary line in the head of some theorist 
 crosses another imaginary line. The 
 reasons for the turn are, however, 
 apparent on the lines. While New 
 York is liquidating, financial clear- 
 ings are continuing. When New 
 York (or the country through New- 
 York) is through with licjuidation 
 the financial clearings arc rlmost nil 
 and the line representing the excess 
 of New York over The Rest ap- 
 proaches zero. To sell, watch pri- 
 marily the loans passing the depos- 
 its; to buy, watch primarily the Ex- 
 cess of New York passing the line x 
 (New York clearing less than one 
 and one-third times The Rest). 
 
BANK CLEARINGS AND SECURITY' •PR'lCES*'' 
 
 In the fall of 1905 the loans i)ass 
 the deposits. Shall we sell? New 
 York Excess is at an extreme heijrht. 
 By all means sell. We ^et about the 
 top of the market aiul 1907 only two 
 years ahead! In June, 1907, the ex- 
 cess toiirlics the line x but not till 
 November does it decisively cross the 
 line. We then buy at about the bot- 
 tom — and we dare do this thoug-h 
 loans are still sixty million in excess 
 of deposits and there is a huge deficit 
 in the reserves. Liquidation is com- 
 plete, however, and a turn for the 
 better is due. On November 6, 1909, 
 the loans pt'ss the deposits and the 
 New York surplus is down to five 
 million. The New York Excess has 
 not yet passed the 3xa line, but is 
 fairly high. We can sell here at al- 
 most the top or wait till the Excess 
 does pass the line 3xa early in Janu- 
 ary, wiien we do not get as high a fig- 
 ure but still have the range running 
 clear down toward July 26 for profit 
 taking. In August, 1910, the Excess 
 goes well below the line x and if we 
 buy the 20 Rails at the beginning of 
 September, we purchase them at less 
 than 111, with an opportunity in 
 February to realize over 119 mid 
 yiever a daij on ivhich the price 
 }anged below the purchase price. 
 
 Finally, what is the present out- 
 look? In the first place, in writing 
 an article like this, I am attempting 
 to explain one market factor. We 
 must not forget, however, that other 
 factors should be considered. We are 
 already (April 25) eight months 
 ahead of where New York's Excess 
 clearings point to a comparative 
 completion of liquidation ; w^e are 
 fourteen weeks ahead of where the 
 
 dei)osits passed the loans and the sur- 
 l)lus reserves began to increase; both 
 surplus deposits and surplus reserves 
 are now in an extremely easy condi- 
 tion ; moiu'y is almost a drug on the 
 New Y()i"k market ; from an ex- 
 tremely unfavorable balance of trade, 
 we have passed to a condition of the 
 very opposite nature; (ind ijet i^tocks 
 do not stand half irai/ up from the 
 loir Icrcl of 1910 lo the hif/h of the 
 sdine ijear! Of course the universal 
 reason given for s\ich hesitancy is 
 the Supreme Court decisions.* But 
 1 believe we overestimate their sig- 
 nificance. In the long run "money 
 talks" and the monetary factors are 
 at present decidedly bullish. 
 
 The present situation is not alto- 
 gether without precedent. In Au- 
 gust, 1903, the New York Excess 
 crossed the line x. Loans had passed 
 deposits late in 1902 and from that 
 date through 1903 and up into 1904 
 the ratio of loans to deposits and the 
 condition of the reserves were month 
 by month astonishingly similar to the 
 conditions in the same factors during 
 the fall of 1909, through 1910, and 
 into 1911. The market turned in Au- 
 gust, 1903, but became more and 
 more sluggish until June, 1904, when 
 stock sales touched a minimum — ex- 
 actly similar to our own experience 
 so far. In the meantime the market 
 had recovered but little (see chart). 
 It was aw^aiting the decision of the 
 Supreme Court on the Northern Se- 
 curities case. The long-looked-for 
 decision came on March 14, 1904. It 
 iras adrerse, upholding neaiiii all the 
 goveryiment's contentions, and was 
 followed h]i the gigantic hidl move- 
 ment ivhich terminated in 1906! 
 
 Mr. Macaulav' 
 (litnr. 
 
 articK- was urittin thrc 
 
 bcfdie tile Staiiilanl Oil ihcision v 
 
 innounccd. 
 
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