The Financial Report
By Janet Tavakoli
The Great Gold Conspiracy of 1869
- Posted April 13, 2016
- By Janet Tavakoli
William Worthington Fowler’s Twenty Years of Inside Life in Wall Street or Reflections of the Personal Experience of a Speculator is a joy to read. (I second that opinion).
Fowler’s ripping yarn covers the New York traded markets from 1860-1880, a period that spanned the Civil War, the post war bubble, worthless paper money, the Black Friday Gold Panic of 1869, the Great Panic of 1873, and the consequent first and worst seven year Great Depression. Fowler witnessed how U.S. government paper money replaced specie leading to bubbles, panics, and crashes. It is time to revisit Fowler’s classic. Our current crisis is much more similar to the crash of 1873 and the first Great Depression than the 1929 crash and Depression. History repeats itself, especially in finance.
Conspiracies “R” U.S.
Fowler met the most influential financiers of the day including Jay Gould, James “Diamond Jim” Fisk, Jr., Cornelius Vanderbilt, Jacob Little, Daniel Drew, Leonard Jerome, Addison Jerome, David Groesbeck, and Henry Keep. Their fortunes rose and fell on margin, carry, and derivatives including puts, calls, and futures. They risked everything speculating in equities and a wide range of commodities including gold, silver, cotton, and more. Fowler’s tale entertains as he exposes the great corners, trading rings, conspiracies, bear twists, manipulations, and frauds.
Main stream media sometimes suggests that conspiracies are only for anonymous people who lurk on the internet, or people who send you poorly written emails from yahoo accounts. But conspiracies are as American as apple pie. One of my favorite conspiracies is The Great Gold Conspiracy of 1869. Fowler provides details of the New York financiers who cooked that one up.
“Here, sitting at their ease, surrounded by luxury, in a magnificent apartment, with shrewd lawyers at their elbow, two confederates plotted The Great Gold Conspiracy of 1869, and coolly organized the ruin of thousands.”
“From April, 1865, to September, 1869, a period of more than four years, the movements of gold had been brought about by artificial means, in conjunction with commercial causes, or rather pretexts. The price of Government Bonds abroad, wars or rumors of wars in Europe, disturbances of trade, the shipments of the precious metal in payment of our imports, sales of gold by our government; these and a thousand other strings were harped upon by the gold gamblers to produce those singular upward and downward oscillations in the price, which enriched the members of the Gold Board, while they disturbed the peace of commerce and beggared a host of infatuated outside dealers.”
“Wall Street, like history, repeats itself. Every summer, since 1865, there had been a rise in gold. In March, 1869, gold fell to 131. The astute intellect of Jay Gould now foresaw another opportunity to push up the price of gold, and having purchased $7,000,000 of it, by playing on the strings of the Cuban insurrection, the Alabama difficulties, the prospect of a war between France and Prussia, etc., terrified the bears and rushed up the price to 145. Emboldened by the success of this move, he formed a new and daring scheme.”
An intelligent strategy for some of us:
The Great NCAV Experiment Portfolio: Inception
by Stewart Nielson
Studies have shown NCAV investing to produce high returns on average.
It is a largely mechanical strategy and can help remove the emotion from investing.
NCAV investing is one area where the small investor actually has an advantage over larger investors.
I have long been fascinated by Benjamin Graham’s mechanical investment in NCAV (Net Current Asset Value) stocks. Especially, with many studies showing that high returns are very possible.
Having read Graham’s “Security Analysis” in the past, and recently having read “The Net Current Asset Value Approach to Stock Investing” by Wendl, I’m feeling pumped to personally try some net-net investing. I thought it might be fun to publicly create a portfolio, lay out some ground rules, and report back monthly.
Why monthly? I want readers to get a feel for the volatility that accompanies this strategy. It will likely be a gut-wrenching ride.
Let me get this out of the way upfront: I am not suggesting this strategy (or portfolio) for others. While studies suggest very pleasant returns (20+%) averaged over long periods, there is the aforementioned high volatility coupled with low liquidity. Also, some years this strategy will underperform the market, perhaps even sharply underperform. The trick will be to stick with it during such times.
What is an NCAV stock?
An NCAV stock is a stock which is trading below its Net Current Asset Value per share.
Net Current Asset Value per share is defined as (Total Current Assets – Total Liabilities – Preferred Stock) divided by Total Shares Outstanding.
Basically, the NCAV per share should tell us the company’s liquid assets per share in excess of all other obligations. Believe it or not, some stocks trade below this amount, meaning they have a higher NCAV then stock price.
Why does this happen? The short answer: fear, and often with good reason. These are companies that investors perceive as circling the toilet, many have limped along for several years. Earnings are usually terrible, products outdated, revenue slipping, large customers leaving, etc.
These are not the best companies in the world, they are in fact amongst the worst. However, we are buying them for the value of their more liquid assets rather than their actual business. This of course with the assumption that the market will eventually recognize them at a minimum of at least the full NCAV price.
Read the full article here.