On the security market, bonds remain steady at a good price, indicating a demand from the far-sighted investors. As bank reserves accumulate they also go into bonds, since they are liberated from active use in business. Stocks which have been high have made a descent to minimum figures, closing from 25 to 40 points below maximum.
11. Period of the storm has passed, a calm of exhaustion and intense conser vatism settles down upon the business world. All large schemes have been reduced at last to sensible dimensions. "Old-fashioned" banking for a time comes into vogue again. Likewise, old-fashioned economy and direct, simple forms of wealth produc tion prevail. The losses of speculation are repaired. Resources again accumulate and the means for a later business revival are gathered together, little by little. Such a period occurred in the first nine months of 1904, the first half of 1908 and the year 1911.
The period is often marked by considerable revival of building industry, induced by low prices for ma terials and labor. Pig-iron production is small and the prices of the metal are low and going lower. The United States Steel Corporation has few unfilled or ders, but the business that is obtained is handled so judiciously as to cause some recovery in earnings from the minimum point. Commodity prices are at minimum levels. Railroad traffic is either poor or barely fair. Clearings are very low. Failures are well above the average in number. In general, busi ness is steady at low levels, with a slight improvement toward the end.
The financial market shows bank deposits at a maximum. Bank loans are low in relation to de posits and show a disposition to go lower as the prevailing economy builds up deposits. Correspond ingly, reserves reach a climax in relation to loans, run ning for New York City banks up to 29, 31, even 33 per cent. Interest rates fall to the lowest level. We may conclude, therefore, that banking resources grow rapidly, until they pass normal and attain a high standard of strength.
On the security market, bonds have made a rapid recovery and close at high figures. Stocks, which have been very low, turn upward toward the close, sometimes with little and sometimes with considerable buoyancy.
12. investor is involved in these changes of values whether he desires to be or not. Since he must take part, it seems reasonable that he should not merely drift thru, but should study the meaning of the underlying drift and take advan tage of it by converting his holdings at the top and bottom of the long swings, much as a sailor changes his tack but progresses on his general course.
It is common to attribute any particular long swing of stocks to the action of powerful banking or specu lative interest, or to place the praise or blame upon the political party which happens to be in power. The regularity with which similar phases of the mar ket recur shows, however, that there is a persistent cause inherent in the nature of the industrial organ ization.
It has been estimated that in the period from 1871 to 1909, there were thirteen upward movements of se curities averaging 22.69 months in length and twelve downward movements averaging 16.33 months in length. The completed cycle will occupy from three to four years. These major movements hinge upon readjustments of security prices to the conditions of business and of the financial markets. Some cycles, such as those of and are clear and symMetrical, and conform closely to theory in the development of their successive stages. Oth ers, like the period are complicated, and appear to involve the super-imposition of one inter rupted cycle upon another. Any phase is liable to be compressed and neutralized, or lengthened and in tensified by the interference of such outside influ ences as variations in the crops, in political conditions and in the state of industry in foreign countries.
Mechanical schemes of trading are to be avoided entirely by investors. The use of graphic aids to make clear the movement of various interests is of the greatest assistance however. The investor should not follow any one or two signs too closely. The thing to be judged is a complex organism of inter ests, not a mechanism which reveals a strict sequence of movements. The mind should be kept open to a great variety of inforination. This does not include tips and the scraps of market gossip published from day to day, nor the interviews which high officials give out with disguised aim. The art, like any other, rests upon aptitude, developed and made serviceable by a study sufficiently prolonged and discriminating to enable causes to be reasoned correctly from ob servable effects, and to give a trained sense of the relative weight to be attached to different symptoms and combinations or conflicts of symptoms.